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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 811-05009
-----------------------------------------
COLORADO BONDSHARES - A TAX-EXEMPT FUND
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
1200 17TH STREET, SUITE 1000, DENVER, COLORADO 80202-5835
- ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
FRED R. KELLY, JR. 1200 17TH STREET, SUITE 1000, DENVER, COLORADO 80202-5835
- ----------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 303-572-6990
----------------------
Date of fiscal year end: 09/30/2003
-----------------
Date of reporting period: 09/30/2003
----------------
ITEM 1. REPORTS TO STOCKHOLDERS
(COLORADO BONDSHARES LOGO)
Dear Shareholder: November 21, 2003
Enclosed is the annual report containing the operating results for the
fiscal year ended 09/30/03. While our performance in the fourth quarter 2002 was
sub par, the three quarters of 2003, ending September 30th, were good enough to
allow us to resume our performance leadership in our industry as we did prior to
2002. Our 6% return was quite competitive for that time period and we currently
rank #1 in our category, according to Morningstar.
A 1% upward interest rate adjustment affected the bond market in the third
quarter. While some of the resulting price slide has since been recouped,
several of our competitors experienced a $0.20 to $0.60 slide in the prices of
their shares; ours was $0.06. We think this is yet another real world example of
our resilience in down markets. Shareholders can use this as an approximate
benchmark for what share prices may do in the future with similar interest rate
increases.
Shareholders will be receiving information from us in January. It will show
some income subject to the alternative minimum tax, some out-of-state income,
and a slight amount of taxable income and capital gain distribution. The first
two items will be similar in size to last year, though, slightly more in dollar
amount. The second two items approximate $5 and $8, respectively, for a
shareholder having $100,000 with us. Using this standard, you can estimate the
approximate effect on your investment.
Thank you very much for your continued support. At a time when shareholders
have lost confidence in many other publicly traded investments, we want you to
know how much we sincerely value your loyalty. We work hard every day to place
your interests first and to be worthy of that trust.
Sincerely,
/s/ Fred R. Kelly, Jr.
Fred R. Kelly, Jr.
Portfolio Manager
OFFICERS AND TRUSTEES
GEORGE N. DONNELLY, CHAIRMAN OF THE BOARD
OF TRUSTEES
BRUCE G. ELY, TRUSTEE
ANDREW B. SHAFFER, PRESIDENT, SECRETARY, TREASURER AND TRUSTEE
FRED R. KELLY, JR., PORTFOLIO MANAGER
INVESTMENT ADVISER
FREEDOM FUNDS MANAGEMENT COMPANY
TRANSFER, SHAREHOLDER SERVICING, AND DIVIDEND DISBURSING AGENT
FREEDOM FUNDS MANAGEMENT COMPANY
DISTRIBUTOR
SMITH HAYES FINANCIAL SERVICES CORPORATION
CUSTODIAN OF PORTFOLIO SECURITIES
WELLS FARGO INVESTMENTS AND TRUST,
WELLS FARGO BANK WEST, N.A.
INDEPENDENT AUDITORS
FORTNER, BAYENS, LEVKULICH & CO., P.C.
LEGAL COUNSEL
KUTAK ROCK
THIS REPORT IS SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF
COLORADO BONDSHARES -- A TAX-EXEMPT FUND. THIS REPORT MUST BE PRECEDED OR
ACCOMPANIED BY A PROSPECTUS OF THE FUND. THE PROSPECTUS CONTAINS INFORMATION
CONCERNING THE INVESTMENT POLICIES AND EXPENSES OF THE PORTFOLIO IN ADDITION TO
OTHER PERTINENT INFORMATION. SHARES OF COLORADO BONDSHARES -- A TAX-EXEMPT FUND
ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT GUARANTEED BY ANY BANK, AND
ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY, AND INVOLVE INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
FEDERAL INCOME TAX INFORMATION
(UNAUDITED)
In early 2004, shareholders will receive information regarding all dividends
and distributions paid to them by the Fund during calendar year 2003.
Regulations of the U. S. Treasury Department require the Fund to report this
information to the Internal Revenue Service.
(FORTNER, BAYENS, LEVKULICH LOGO)
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees
Colorado BondShares - A Tax-Exempt Fund
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Colorado BondShares, A Tax-Exempt
Fund, as of September 30, 2003, the related statement of operations for the year
then ended, and the statements of changes in net assets for each of the years in
the two-year period then ended, and the financial highlights for each of the
years in the five-year 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.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements and financial highlights. Our
procedures included confirmation of securities owned as of September 30, 2003,
by correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. 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
Colorado BondShares - A Tax-Exempt Fund as of September 30, 2003, the results of
its operations for the year then ended, the changes in its net assets for each
of the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended in conformity with
accounting principles generally accepted in the United States of America.
FORTNER, BAYENS, LEVKULICH AND CO., P.C.
Denver, Colorado
October 10, 2003
Denver Place-Plaza Tower - 1099 18th Street - Suite 2900 - Denver, CO 80202-1929
303/296-6033 - FAX 303/296-8553
Certified Public Accountants - A Professional Corporation
COLORADO BONDSHARES
A TAX-EXEMPT FUND
STATEMENT OF INVESTMENTS
SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE AMOUNT MARKET VALUE
- ----------- ------------
COLORADO MUNICIPAL BONDS -- 55.6%
200,000 Academy Water and Sanitation District G.O. Series 1995, 6.50%-7.10%
due 11/15/2003-05................................................. 208,000
2,175,000 Antelope Heights Metropolitan District (Town of Parker) G.O. Series
2003, 8.00% due 12/1/2023......................................... 2,175,000
125,000 Arapahoe Water and Sanitation District G.O. Refunding and
Improvement Series 1986, 8.50% due 12/1/2005 (b).................. 135,849
100,000 Arrowhead Metropolitan District G.O. Refunding Series 1994, 5.70%
due 12/1/2003..................................................... 100,667
30,000 Arrowhead Metropolitan District G.O. Improvement Series 1995A, 6.10%
due 12/1/2003..................................................... 30,212
950,000 Aurora Multifamily Housing Revenue (River Falls Project) Series
1999A, 5.70% due 7/1/2029......................................... 939,788
306,040 Aurora Centretech Metropolitan District G.O. Refunding and
Improvement Series 1994, 6.00% due 12/1/2023 (b).................. 489,493
700,000 Beebe Draw Farms Metropolitan District G.O. Series 1998, 7.00% due
10/1/2018......................................................... 676,109
1,295,000 Bell Mountain Ranch Phase II Metropolitan District G.O. Series 1995,
8.50% due 11/15/2015 (b).......................................... 1,453,223
5,215,000 Belle Creek Metropolitan District No. 1 G.O. Ltd. Tax Series 2000,
8.00% due 12/1/2020............................................... 5,391,789
200,000 Black Hawk (City of) Device Tax Revenue Series 1996, 5.75%-5.85% due
12/1/2003-04...................................................... 203,644
2,250,000 Black Hawk (City of) Device Tax Revenue Series 1998, 5.625% due
12/1/2021......................................................... 1,957,320
1,115,000 Boulder County Multifamily Refunding and Improvement Revenue
(Thistle Community Housing Project) Series 1999, 6.00%-7.375% due
6/1/2011-19....................................................... 1,040,052
6,830,000 Bromley Park Metropolitan District No. 3 G.O. Ltd. Tax Exchange
Series 2001A & B, 8.00% due 12/1/2019-22.......................... 6,884,709
6,000,000 Bromley Park Metropolitan District No. 2 G.O. Series 2002B, 8.00%
due 12/1/2022..................................................... 6,078,060
4,750,000 Bromley Park Metropolitan District No. 2 G.O. Series 2003, 8.00% due
12/01/2028........................................................ 4,750,000
25,000 Castle Rock (Town of) G.O. Series 1988-2, 10.375% due 12/1/2008..... 29,796
</Table>
2
COLORADO BONDSHARES
A TAX-EXEMPT FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE AMOUNT MARKET VALUE
- ----------- ------------
COLORADO MUNICIPAL BONDS -- (CONTINUED)
565,000 Castle Rock (Town of) LID Series 1988-2D Special Assessment,
9.25%-10.375% due 12/1/2008 (i)................................... 40,963
165,000 Central City (City of) Excise Tax Revenue Refunding Series 1996,
6.20%-6.60% due 12/1/2006-11...................................... 119,247
2,350,000 Central Platte Valley Metropolitan District Special Obligation
Revenue Series 1998, 7.00% due 12/1/2017 (b)...................... 2,728,021
2,009,520 Colorado Centre Metropolitan District Ltd. Tax and Special Revenue
Series 1992A, principal only, 0.00% due 1/1/2027 (a)(f)(i)........ 12,560
2,008,335 Colorado Centre Metropolitan District Ltd. Tax and Special Revenue
Series 1992A, interest only, 9.00% due 1/1/2027 (f)(h)(i)......... 1,207,511
6,465,662 Colorado Centre Metropolitan District Ltd. Tax and Special Revenue
Series 1992B, 0.00% due 1/1/2032 (a)(g)(i)........................ 40,410
3,740,000 Colorado Educational & Cultural Facilities Authority Charter School
Revenue (Liberty Common) Series 1999, 6.95% due 8/15/2019......... 4,051,766
920,000 Colorado Educational & Cultural Facilities Authority Charter School
Revenue (Crown Pointe Academy) Series 2000, 7.25% due 7/15/2025... 959,542
1,225,000 Colorado Educational & Cultural Facilities Authority Private School
Revenue (Escuela Tlatelolco Project) Series 2000A, 8.50% due
6/1/2022.......................................................... 1,232,154
675,000 Colorado Educational & Cultural Facilities Authority Charter School
Revenue (Elbert County) Series 2000, 8.00% due 6/1/2004-10........ 672,854
2,115,000 Colorado Educational & Cultural Facilities Authority Charter School
Revenue (Belle Creek Charter School Project) Series 2002A, 7.625%
due 3/15/2032..................................................... 2,125,469
520,000 Colorado Health Facilities Authority Zero Coupon Retirement Housing
Revenue (Liberty Heights Project) 1990 Subordinate Series B, 6.97%
due 7/15/2020 (b)(d).............................................. 229,154
470,000 Colorado Postsecondary Educational Facilities Authority Revenue
(National Technological University Project) Series 1993, 7.375%
due 12/1/2010 (b)................................................. 506,514
685,000 Colorado Postsecondary Educational Facilities Authority Revenue
(National Technological University Project) Series 1993, 7.75% due
12/1/2010......................................................... 693,994
710,000 Colorado Springs Spring Creek GID G.O. Series 1995, 6.50% due
12/1/2014 (h)(i).................................................. 402,847
2,455,000 Conservatory Metropolitan District G.O. Series 2003, 7.50% due
12/1/2027......................................................... 2,455,000
365,000 Cordillera Metropolitan District G.O. Series 1994A, 8.00% due
12/1/2009 (b)..................................................... 398,065
475,000 Cordillera Metropolitan District G.O. Series 1994, 8.25% due
12/1/2013 (b)..................................................... 519,346
</Table>
3
COLORADO BONDSHARES
A TAX-EXEMPT FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE AMOUNT MARKET VALUE
- ----------- ------------
COLORADO MUNICIPAL BONDS -- (CONTINUED)
1,025,000 Cotton Ranch Metropolitan District G.O. Series 1998A, 7.25% due
12/15/2017........................................................ 1,036,644
3,500,000 Cotton Ranch Metropolitan District G.O. Ltd. Tax Refunding Series
1999A, 8.00% due 12/15/2017 (h)................................... 3,500,140
2,250,000 Cottonwood Water and Sanitation District Refunding Series 1996A,
7.60% due 12/1/2012............................................... 2,389,545
19,098,288 Cottonwood Water and Sanitation District Capital Appreciation
Refunding Second Lien, Series 1998A, 8.00% due 12/1/2027 (d)...... 3,808,963
85,000 Crested Butte (Town of) Sales Tax Revenue Series 1994, 6.35% due
12/1/2003......................................................... 85,711
1,865,000 Denver (City and County of) Subordinate Multifamily Housing Revenue
(Capitol Heights Apartments) Series 1999C, 8.00% due 5/1/2032..... 1,803,959
12,795,000 Denver (City and County of) Special Facilities Airport Revenue
(United Airlines Project) Series 1992A, 6.875% due 10/1/2032
(a)............................................................... 5,181,975
775,000 Denver West Metropolitan District Series 1997B, 5.70% due
12/1/2017......................................................... 787,958
435,000 Eagle Riverview Affordable Housing Corporation Multifamily Housing
Project Revenue Series 1999B, 7.00% due 7/1/2029.................. 400,578
90,000 El Paso County LID 85-2 Special Assessment Refunding Series 1988,
8.875%-9.00%, due 9/1/2000 (a).................................... 9,000
100,000 El Paso County School District No. 2- Harrison G.O. Improvement
Series 1994, 7.10% due 12/1/2004.................................. 106,781
500,000 El Paso County School District No. 20 G.O. Refunding Series 1993A,
Zero Coupon, 6.10% due 6/15/2008 (d).............................. 441,200
276,112 Equi-Mor Holdings Inc. Class A Pass-Through Certificates Series
1999A, 7.50% due 4/5/2018......................................... 276,112
155,000 Fort Lupton Golf Course Revenue Anticipation Warrants Series 1996A,
8.50% due 12/15/2015 (a).......................................... 62,388
1,900,000 Fronterra Village Metropolitan District G.O. Series 2001, 8.00% due
12/1/2021......................................................... 1,902,280
4,550,000 Fronterra Village Metropolitan District No. 2 G.O. Series 2003,
8.00% due 12/1/2023............................................... 4,558,235
500,000 Galleria Metropolitan District G.O. Series 1999, 7.25% due
12/1/2019......................................................... 521,735
1,960,000 Gateway Village GID G.O. Refunding and Improvement Series 1998,
6.00% due 12/1/2018............................................... 1,869,781
985,000 Gateway Village GID Subordinate Ltd. Tax G.O. Series 1999, 7.00% due
6/1/2019.......................................................... 982,084
</Table>
4
COLORADO BONDSHARES
A TAX-EXEMPT FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE AMOUNT MARKET VALUE
- ----------- ------------
COLORADO MUNICIPAL BONDS -- (CONTINUED)
5,750,000 Grand Elk Ranch G.I.D. Ltd. Tax G.O. Series 2003, 8.00% due
12/1/2023......................................................... 5,750,000
300,000 Grand Junction (City of) Downtown Development Authority Tax
Increment Revenue Series 1996, 5.55%-5.65% due 11/15/2004-05...... 307,034
825,000 Greatrock North Water and Sanitation District Ltd. Tax G.O. Series
1998, 8.00% due 12/1/2017......................................... 830,198
625,000 Hamilton Creek Metropolitan District Series 1990, 0.00% due
12/1/2004 (a)(g)(i)............................................... 581,500
335,000 Idledale Colorado Fire Protection District G.O. Series 1993,
5.20%-5.80% due 12/15/2003-07..................................... 337,079
250,000 Las Animas (City of) Water G.O. Series 1989, 8.60% due 12/1/2009.... 252,453
1,180,000 Littleton (The) Riverfront Authority Tax Increment Revenue Refunding
Series 1999A-1, 8.00% due 12/1/2008............................... 1,199,671
6,245,000 Maher Ranch Metropolitan District No. 4 (Town of Castle Rock) G.O.
Ltd. Tax Series 2003, 7.80% due 12/1/2027......................... 6,245,000
2,345,000 Moffat County Pollution Control Revenue Tri-State Generation and
Transmission Series 1984, 1.20% due 7/1/2010 (h).................. 2,345,000
120,000 North Jeffco Park and Recreation District Golf Course Revenue Series
1994, 6.00%-6.10% due 12/1/2003-04................................ 121,438
1,400,000 North Pines Metropolitan District G.O. Ltd. Tax Series 2000, 9.00%
due 12/1/2020..................................................... 1,015,000
2,800,000 North Range Village Metropolitan District G.O. Ltd. Tax Series 2000,
8.00% due 12/1/2020............................................... 2,879,212
1,365,000 North Range Village Metropolitan District G.O. Ltd. Tax Series 2001,
4.9%-8.5% due 12/1/2021 (h)....................................... 1,367,075
30,000 Otero County Swink School District No. 33 G.O. Building Series 1994,
8.40% due 12/15/2003.............................................. 30,464
1,760,000 Parker Jordan Metropolitan District G.O. Series 1998A, 6.25% due
12/1/2017 (b)..................................................... 2,051,139
4,465,000 Parker Jordan Metropolitan District G.O. Series 2000, 7.25% due
12/1/2019 (b)..................................................... 5,618,801
6,075,000 Rendezvous Residential Metropolitan District G.O. Ltd. Tax Series
2002, 8.00% due 12/1/2021......................................... 6,075,000
156,142 Roxborough Village Metropolitan District Series 1993A, 9.00% due
12/31/2016 (i).................................................... 133,502
</Table>
5
COLORADO BONDSHARES
A TAX-EXEMPT FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE AMOUNT MARKET VALUE
- ----------- ------------
COLORADO MUNICIPAL BONDS -- (CONTINUED)
339,315 Roxborough Village Metropolitan District Series 1993B, principal
only, 0.00% due 12/31/2021 (e)(i)................................. 22,056
906,622 Roxborough Village Metropolitan District Series 1993C, 9.84% due
12/31/2032 (d)(i)................................................. 9,066
58,916 Roxborough Village Metropolitan District Series 2003B, interest
only, 9.00% due 12/31/2032 (f)(i)................................. 589
367,251 Roxborough Village Metropolitan District Series 1993B, interest
only, 10.41% due 12/31/2042 (f)(i)................................ 3,673
2,195,000 Sand Creek Metropolitan District G.O. Ltd. Tax Series 1997, 7.125%
due 12/1/2016..................................................... 2,370,600
940,000 Sand Creek Metropolitan District G.O. Ltd. Tax Series 1998, 6.625%
due 12/1/2017..................................................... 958,386
1,495,000 City of Sheridan Colorado G. O. Series 1997A, 7.50% due 12/1/2016... 1,561,318
12,105,000 Silver Peaks Metropolitan District No. 1 Revenue Series 2003, 8.00%
due 12/1/2004-12 (d).............................................. 8,235,580
1,000,000 Southpark Metropolitan District G.O. Refunding Series 1996, 6.60%
due 12/1/2013..................................................... 1,054,600
25,000 Southwest Commons Improvement District G.O. Series 1987, 9.25% due
12/15/2006........................................................ 25,574
1,960,000 Sterling Hills Metropolitan District G.O. Ltd. Tax Series 1998,
7.75% due 6/1/2018................................................ 1,954,590
3,315,000 Sterling Hills West Metropolitan District G.O. Ltd. Tax Series
2001A, 8.00% due 12/1/2019........................................ 3,305,486
3,315,000 Sterling Hills West Metropolitan District G.O. Ltd. Tax Series
2001B, 8.00% due 12/1/2021........................................ 3,304,989
5,295,000 Tabernash Meadows Water and Sanitation District G.O. Series 2000,
8.40% due 6/1/2020................................................ 4,500,750
1,780,000 Todd Creek Farms Metropolitan District No. 2 Ltd. Tax G.O. Series
1997, 8.00% due 6/1/2017 (b)...................................... 2,120,176
975,000 Todd Creek Farms Metropolitan District No. 2 Ltd. Tax G.O. Series
1999, 7.50% due 12/1/2018 (b)..................................... 1,151,309
------------
Total Colorado Municipal Bonds (cost $150,128,316).................. $148,382,505
------------
</Table>
6
COLORADO BONDSHARES
A TAX-EXEMPT FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE AMOUNT MARKET VALUE
- ----------- ------------
COLORADO CERTIFICATES OF PARTICIPATION -- 0.3%
155,000 Arapahoe County Recreation District Refunding Certificates of
Participation Series 1996, 5.00%-5.20% due 12/1/2004-06........... 162,690
600,000 Eagle-Vail Metropolitan District Golf Course Series 1999, 6.00% due
12/1/2019......................................................... 602,700
145,000 Park School District R-3 Certificates of Participation Series 1995
and 1996, 5.35%-5.45% due 6/1/2004-05............................. 145,963
------------
Total Colorado Certificates of Participation Bonds (cost
$827,330)......................................................... $ 911,353
------------
OTHER MUNICIPAL BONDS -- 32.5%
2,500,000 California Statewide Communities Development Authority Multifamily
Housing Revenue Senior (Heritage Apts. at Arcadia) Series 2003G,
6.40% due 12/1/2041............................................... 2,500,000
6,800,000 California Statewide Communities Development Authority Multifamily
Housing Revenue (The Oaks Apartments at Sunset Project) Series
1999 II, 6.00% due 6/1/2036....................................... 6,800,000
4,545,000 California Statewide Communities Development Authority Multifamily
Housing Revenue (Chesapeake Bay Apartments Project) Series 1999
HH, 6.00% due 6/1/2032............................................ 4,545,000
7,665,000 California Statewide Communities Development Authority Multifamily
Housing Revenue (San Luis Bay Village Apartments Project) Series
1999 TT, 6.25% due 9/1/2036....................................... 7,665,000
6,050,000 California Statewide Communities Development Authority Multifamily
Housing Revenue (Heritage at Glendale City Apartments Project)
Junior Subordinate Series 2002 NN-3, PP-3, 5.250% due 12/1/2006... 6,050,000
9,400,000 Canton Georgia Housing Authority Multifamily Revenue (Peaks at Bells
Ferry Apartments Project) Series 2002A & Subordinate B, 6.30% due
12/1/2035......................................................... 9,400,000
4,453,000 City of San Jose Multifamily Housing Revenue (Hacienda Villa Creek
Senior Apartments Project) Senior Series G-1, 6.40% due
12/1/2034......................................................... 4,453,000
5,540,000 County of El Paso Housing Finance Corporation Multifamily Housing
Revenue (San Jose, Ltd. Project) Series 1999A & B, 6.00%-6.10% due
8/1/2031.......................................................... 5,540,000
525,000 Lisbon (City of) North Dakota Industrial Revenue Series 2002C,
(Harvest Board LLC) 15.00% due 4/1/2005 (a)....................... 336,000
4,500,000 Lisbon (City of) North Dakota Industrial Revenue Series 2001A,
(Harvest Board LLC) 15.00% due 4/1/2011 (a)....................... 2,880,000
</Table>
7
COLORADO BONDSHARES
A TAX-EXEMPT FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
FACE AMOUNT MARKET VALUE
- ----------- ------------
OTHER MUNICIPAL BONDS -- (CONTINUED)
9,750,000 Maricopa County Arizona Multifamily Revenue (Rancho Del Sol
Apartments) Series 2002A, Subordinate Series B & Junior
Subordinate Series C, 6.40% due 12/1/2024-35...................... 9,750,000
5,000,000 Newman Capital Trust II Series 2001-1 (California) Subordinate Class
B Certificates, 9.75% due 4/1/2032................................ 5,000,000
420,000 Sandoval County New Mexico Project Revenue Tournament Soccer Complex
Series 1997, 7.50% due 8/15/2006.................................. 410,760
8,085,000 Speedway Indiana Multifamily Economic Development Revenue (Hermitage
Apartments Project) Series 1999, 6.00% due 5/1/2031............... 8,085,000
450,000 Texas State Department Housing & Community Affairs Multifamily
Revenue (Reading Road Apartments), Series A & B 2003, 6.75% due
7/1/2036.......................................................... 450,000
9,500,000 Travis County Texas Multifamily Finance Corporation Revenue (Eagles
Landing Apartments) Series 2002A & Subordinate Series 2002B, 6.25%
due 12/1/2035..................................................... 9,500,000
1,280,000 Uinta County Wyoming School District No. 6 Series 2002, 2.50%-3.00%
due 12/1/2003-04.................................................. 1,280,867
2,300,000 Utah Housing Corporation Multifamily Housing Mortgage Revenue
(Layton Pointe Apt. Project) Series 2002, 6.5% due 6/1/2035....... 2,300,000
------------
Total Other Municipal Bonds (cost $88,763,000)...................... $ 86,945,627
------------
TOTAL INVESTMENTS, AT VALUE (COST $239,718,646)*............ 88.4% 236,239,485
OTHER ASSETS NET OF LIABILITIES............................. 11.6 30,967,346
------ ------------
NET ASSETS.................................................. 100.0% $267,206,831
====== ============
</Table>
- ---------------
* Tax cost basis approximates book cost basis.
(a) Non-income producing based upon the financial condition of the issuer (see
footnote 1).
(b) Originally issued as general obligation bonds but are now pre-refunded and
are secured by an escrow fund consisting entirely of direct U.S. Government
obligations.
(c) Represents interest certificates whose characteristics are similar to zero
coupon bonds. All interest based on the coupon rate is remitted upon
maturity. Interest rate shown for interest certificates represents
effective yield at acquisition.
8
COLORADO BONDSHARES
A TAX-EXEMPT FUND
STATEMENT OF INVESTMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(d) Interest rate shown for zero coupon bonds represents the effective yield at
the date of acquisition.
(e) Principal-only certificate represents the right to receive the principal
payments on the underlying debt security upon maturity. The price of this
security is typically more volatile than that of coupon-bearing bonds of
the same maturity.
(f) Interest-only certificate represents the right to receive semi-annual
interest payments on the underlying debt security. The principal amount of
the underlying security represents the notional amount on which current
interest is calculated. The interest rate shown represents the effective
yield at the date of acquisition.
(g) Interest rate disclosed for cash flow bond represents the effective yield
at September 30, 2003. Income on this security is derived from the cash
flow of the issuer.
(h) Represents current interest rate for a variable/step rate bond.
(i) Terms of security have been restructured since the original issuance. The
face amount of restructured securities approximates $14,211,763 and a
market value of $2,454,677 or 1.0% of net assets, respectively, as of
September 30, 2003.
The following abbreviations are used in the descriptions of securities
included in the Statement of Investments:
G.O. -- General Obligation
GID -- General Improvement District
LID -- Local Improvement District
Ltd. -- Limited
See accompanying notes to financial statements.
9
COLORADO BONDSHARES
A TAX-EXEMPT FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
<Table>
ASSETS
Investments, at value (cost $239,718,646)................... $236,239,485
-- see accompanying statement
Cash........................................................ 25,130,748
Interest receivable......................................... 5,829,579
Shares of beneficial interest sold.......................... 824,404
------------
TOTAL ASSETS................................................ 268,024,216
------------
LIABILITIES
Payables and other liabilities:
Dividends payable......................................... 625,078
Shares of beneficial interest redeemed.................... 40,074
Accrued expenses.......................................... 152,233
------------
TOTAL LIABILITIES........................................... 817,385
------------
NET ASSETS.................................................. $267,206,831
============
COMPOSITION OF NET ASSETS
Paid-in capital............................................. $270,651,693
Distributable earnings...................................... 34,299
Net unrealized depreciation of investments (note 3)......... (3,479,161)
------------
NET ASSETS.................................................. $267,206,831
============
NET ASSET VALUE AND REDEMPTION VALUE PER SHARE
(based on 28,834,061 shares of beneficial interest
outstanding).............................................. $ 9.27
============
MAXIMUM OFFERING PRICE PER SHARE
(net asset value plus sales charge of 4.75% of offering
price).................................................... $ 9.73
============
</Table>
See accompanying notes to financial statements.
10
COLORADO BONDSHARES
A TAX-EXEMPT FUND
STATEMENT OF OPERATIONS
FOR FISCAL YEAR ENDED SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME
Interest.................................................. $16,834,388
-----------
EXPENSES:
Management fees (note 4).................................. 1,191,444
Bank fees (note 5)........................................ 4,452
Custodian fees (note 5)................................... 69,818
Legal and auditing fees................................... 126,748
Portfolio pricing fees (note 5)........................... 18,719
Registration fees......................................... 7,668
Shareholders' reports..................................... 40,897
Transfer agency expenses (note 4)......................... 86,650
Trustees' fees............................................ 1,445
Other..................................................... 2,002
-----------
TOTAL EXPENSES.................................... 1,549,843
Earnings credits on cash balances (note 5).................. (92,989)
-----------
NET EXPENSES...................................... 1,456,854
-----------
NET INVESTMENT INCOME....................................... 15,377,534
-----------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
Realized net gain on investments.......................... 79,914
Change in net unrealized (depreciation) on investments.... (1,572,190)
-----------
NET REALIZED AND UNREALIZED GAIN/(LOSS)..................... (1,492,276)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $13,885,258
===========
</Table>
See accompanying notes to financial statements.
11
COLORADO BONDSHARES
A TAX-EXEMPT FUND
STATEMENTS OF CHANGES IN NET ASSETS
FISCAL YEARS ENDED SEPTEMBER 30
- --------------------------------------------------------------------------------
<Table>
<Caption>
2003 2002
------------ ------------
FROM INVESTMENT ACTIVITIES:
Net investment income..................................... $ 15,377,534 $ 10,656,026
Realized net gain on investments.......................... 79,914 120,313
Change in unrealized (depreciation) on investments........ (1,572,190) (1,150,841)
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS...................................... 13,885,258 9,625,498
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME...... (15,377,534) (10,656,026)
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Proceeds from sale of shares.............................. 84,737,048 73,956,913
Dividends reinvested...................................... 9,133,079 6,157,239
Payments for shares redeemed.............................. (26,222,421) (16,552,606)
------------ ------------
INCREASE IN NET ASSETS DERIVED FROM BENEFICIAL
INTEREST TRANSACTIONS........................... 67,647,706 63,561,546
------------ ------------
NET INCREASE IN NET ASSETS........................ 66,155,430 62,531,018
NET ASSETS
Beginning of period....................................... 201,051,401 138,520,383
------------ ------------
End of period............................................. $267,206,831 $201,051,401
============ ============
</Table>
See accompanying notes to financial statements.
12
COLORADO BONDSHARES
A TAX-EXEMPT FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- ------- -------
PER SHARE OPERATING DATA:
Net Asset Value, beginning of period........... $ 9.33 $ 9.39 $ 9.35 $ 9.42 $ 9.64
-------- -------- -------- ------- -------
Net investment income.......................... 0.60 0.59 0.68 0.68 0.56
Net realized and unrealized gain (loss) on
investments.................................. (0.06) (0.06) 0.04 (0.07) (0.22)
-------- -------- -------- ------- -------
Increase from investment operations............ 0.54 0.53 0.72 0.61 0.34
Dividends from net investment income........... (0.60) (0.59) (0.68) (0.68) (0.56)
-------- -------- -------- ------- -------
Net increase (decrease) in net asset value..... (0.06) (0.06) 0.04 (0.07) (0.22)
-------- -------- -------- ------- -------
Net Asset Value, end of period................. $ 9.27 $ 9.33 $ 9.39 $ 9.35 $ 9.42
======== ======== ======== ======= =======
TOTAL RETURN, AT NET ASSET VALUE(1)............ 5.96% 5.90% 7.79% 6.76% 3.64%
======== ======== ======== ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net investment income........................ 6.46% 6.77% 7.14% 7.18% 5.96%
Total expenses............................... 0.65% 0.64% 0.66% 0.81% 0.73%
Net expenses................................. 0.61% 0.59% 0.60% 0.73% 0.64%
Net assets, end of period (000s)............... $267,207 $201,051 $138,520 $96,993 $84,142
======== ======== ======== ======= =======
Ratios to average net assets:
Portfolio turnover rate(2)................... 4.65% 6.03% 7.91% 18.11% 21.95%
======== ======== ======== ======= =======
</Table>
- ---------------
(1) Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends reinvested in additional
shares on the reinvestment date, and redemption at the net asset value
calculated on the last business day of the fiscal period. Sales charges are
not reflected in the total returns.
(2) The portfolio turnover rate is computed by dividing the lesser of purchases
or sales of portfolio securities for a period by the monthly average of the
market value of portfolio securities owned during the period. Sales of
securities include the proceeds of securities which have been called, or for
which payment has been made through redemption or maturity. Securities with
a maturity date of one year or less at the time of acquisition are excluded
from the calculation. Cost of purchases and proceeds from sales of
investment securities (excluding short-term securities) for the period ended
September 30, 2003 were $38,628,147 and $6,494,521, respectively.
See accompanying notes to financial statements.
13
COLORADO BONDSHARES
A TAX-EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Colorado BondShares -- A Tax-Exempt Fund (the Fund) is registered under the
Investment Company Act of 1940 as amended, as a diversified, open-end investment
company. The Fund's investment objectives are to maximize income exempt from
federal income taxes and from personal income taxes of the State of Colorado to
the extent consistent with the preservation of capital and to seek opportunities
for capital appreciation. The Fund's investment adviser is Freedom Funds
Management Company (Freedom Funds). The following is a summary of significant
accounting policies consistently followed by the Fund.
(a) INVESTMENT VALUATION
The values of most investment securities are determined at their market
price using prices quoted by a national independent pricing service approved by
the Fund's Board of Trustees. In cases where a market price is not available
from the pricing service, or where the Fund determines that the "market price"
so determined is not reflective of the true "fair value" or realizable value of
these securities, the securities are valued at "fair value" as determined in
good faith by the Fund's Board of Trustees. In either event, the Fund values the
municipal bonds and other securities taking into consideration yield, stability,
risk, quality, coupon, maturity, type of issue, trading characteristics and any
other relevant trading or market factors. The Fund records amortization of
premiums and accretion of original discounts on zero coupon bonds, using the
effective yield method, in accordance with federal income tax purposes.
Short-term debt securities having a remaining maturity of 60 days or less are
valued at amortized cost, which approximates market value.
(b) INCOME TAXES
The Fund intends to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all its net
investment income to shareholders. Therefore, no tax provision is required. At
September 30, 2003 distributable earnings of $34,299 consisted of ordinary
income $12,957 and long-term capital gains $21,342.
(c) OTHER/SECURITY CREDIT RISK
Investment transactions are accounted for on the date the investments are
purchased or sold (trade date). Dividends to shareholders are declared each
business day and paid monthly. Distributions to shareholders are recorded on the
ex-dividend date. Realized gains and losses from investment transactions are
calculated using the identified-cost basis, which is the same basis the
14
COLORADO BONDSHARES
A TAX-EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
Fund uses for federal income tax purposes. The Fund concentrates its investments
in Colorado and, therefore, may have more credit risks related to the economic
conditions of Colorado than a portfolio with a broader geographical
diversification. The Fund invests in non rated securities, which may be subject
to a greater degree of credit risk, and risk of loss of income and principal,
and may be more sensitive to economic conditions than lower yielding, higher
rate fixed income securities. The Fund discontinues the accrual of interest
income on municipal bonds when the securities become delinquent as to payment of
principal or interest, or when the Fund's investment adviser determines that an
uncertainty exists as to the realization of all or a portion of the principal
balance. The face amount of bonds for which the accrual of interest income has
been discontinued, approximates $27,165,182 and a market value of $9,103,833 or
3.41% of net assets, as of September 30, 2003.
(d) USES OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
(2) SHARES OF BENEFICIAL INTEREST
The Fund has an unlimited number of no par value shares of beneficial
interest authorized. Transactions in shares of beneficial interest for fiscal
years ended September 30, were as follows:
<Table>
<Caption>
2003 2002
---------- ----------
Shares sold................................................ 9,131,780 7,913,179
Dividends reinvested....................................... 984,201 658,286
---------- ----------
10,115,981 8,571,465
Shares redeemed............................................ (2,831,508) (1,770,703)
---------- ----------
NET INCREASE IN SHARES OUTSTANDING......................... 7,284,473 6,800,762
========== ==========
</Table>
15
COLORADO BONDSHARES
A TAX-EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(3) UNREALIZED GAINS AND LOSSES
At September 30, 2003, the net unrealized depreciation on investments of
$3,479,161 was comprised of gross appreciation of $5,125,399 and gross
depreciation of $8,604,560.
(4) MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees paid to Freedom Funds were in accordance with the
investment advisory agreement with the Fund which provides for an annual fee
equivalent to 0.5% of the net assets of the Fund. Freedom Funds pays all
expenses associated with advertising, marketing, and distributing the Fund's
shares and serves as the transfer agent, dividend disbursing agent, and
registrar for the Fund. Freedom Funds provided certain transfer agency and
shareholder services as part of the management fee arrangement for the period
ended September 30, 2003. Transfer agency expenses represent direct expenses
charged to the Fund by third parties.
(5) EARNINGS CREDITS ON CASH BALANCES
Expenses paid indirectly by the Fund represent earnings credits on cash
balances maintained with the fund's custodian bank, Wells Fargo Investments and
Trust. The earnings credits resulted in offsetting custodian fees of $69,818,
Wells Fargo Bank service fees of $4,452 and pricing fees of $18,719 for services
provided by Standard and Poor's, a division of The McGraw-Hill Companies.
16
(Colorado Bondshares LOGO and Address)
ITEM 2. CODE OF ETHICS
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
(a) The registrant's board of directors has determined that the registrant does
not have an audit committee financial expert serving on its audit committee. The
audit committee of the board of directors is composed of individuals who, in the
aggregate, possess audit experience, experience evaluating audits and experience
evaluating financial statements; no single individual, however, appears to meet
all of the independence and the financial training/experience qualifications
outlined in the instructions. In addition, the nature of the fund is such that
the principal (and possibly the sole) accounting issue subject to any degree of
interpretation is the valuation of the investments held by the fund. With
respect to this issue, the fund's outside auditors (who review all relevant
information, including valuations provided by outside experts) are capable of
serving as an adequate check on the valuations used by the fund.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Not required in this filing. Registrant does not employ professional accountants
for audit purposes other than the independent auditors as disclosed in the
annual report.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not required in this filing.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not required in this filing.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES
(a) It is the conclusion of the registrant's principal executive officer and
principal financial officer that the effectiveness of the registrant's current
disclosure controls and procedures (such disclosure controls and procedures
having been evaluated within 90 days of the date of this filing) provide
reasonable assurance that the information required to be disclosed by the
registrant has been recorded, processed, summarized and reported within the time
period specified in the Commission's rules and forms and that the information
required to be disclosed by the registrant has been accumulated and communicated
to the registrant's principal executive officer and principal financial officer
in order to allow timely decisions regarding required disclosure.
(b) There have been no significant changes in the registrant's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
ITEM 10. EXHIBITS
(a) The Code of Ethics that is the subject of the disclosure required by Item 2
is attached as an exhibit hereto.
(b) The certifications required by Rule 30a-2 of the Investment Company Act of
1940, as amended, and Sections 302 and 906 of the Sarbanes-Oxley Act of
2002 are attached as exhibits hereto.
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) Colorado BondShares A Tax-Exempt Fund
--------------------------------------------------------------------
By (Signature and Title)* /s/ Andrew B. Shaffer
-------------------------------------------------------
Andrew B. Shaffer
President and Secretary
Date: December 9, 2003
---------------------------------------------------------------------------