N-CSR 1 d15757nvcsr.htm SEMI-ANNUAL REPORT DATED MARCH 31, 2004 nvcsr
 

Item 1. Reports to Stockholders
Item 2. Code of Ethics
Item 3. Audit Committee Financial Expert
Item 4. Principal Accountant Fees and Services
Item 5. Audit Committee of Listed Registrants
Item 6. Schedule of Investments included in Item 1
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-end Management Investment Companies
Item 8. [Reserved]
Item 9. Submission of Matters to a Vote of Security Holders
Item 10. Controls and Procedures
Item 11. Exhibits
Signatures
Certifications Pursuant to Section 302
Certifications Pursuant to Section 906
 
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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:     09/30/2004
 
   
Date of reporting period:     03/31/2004
 

Item 1. Reports to Stockholders

 

(COLORADO BONDSHARES LOGO)
 
Dear Shareholder, May 24, 2004

     As the semi-annual period ended on March 31, 2004, our price reached the highest point in nearly three years and dividends remained relatively high. Included is a list of investments and a summary of our operating performance which provides greater detail. Subsequent to that date, the bond market has declined as interest rates responded to indications of possible future inflation and rate adjustments by Alan Greenspan of the Federal Reserve Board. We have, since, fielded a number of calls from shareholders regarding the slight decline in their account’s market value and this seems to be much more interesting to you than what happened in the previous six months. Therefore, I would like to take this opportunity to respond to that particular question as well as a couple of others, hopefully bringing clarity to some potentially confusing issues.

     Bond prices have declined, slightly, due to some upward adjustments in interest rates. As many of you know, when interest rates rise, bond prices fall because of the inverse relationship between bond prices and yield. For example, if the market yield on a security with a 1% coupon and one year to maturity increased from 1% to 2%, the price of that security would go down from 100 cents on the dollar to approximately 99 cents on the dollar. It follows that the longer the maturities, the greater the price adjustment. Yields go up, prices go down — everyone follows the logic. In our case, however, share price went down by $0.09, since 03/31/04 and yields went down by 1%. How can this happen?

     We intentionally positioned the portfolio with a bias toward short maturities presently paying, only, around 1%. What this means, simply, is that the amount of monthly (dividend) income you receive is down. This, however, should be a temporary situation because we are beginning to place those proceeds back into new investments with higher yields. By buying shorter maturities, we averted, what would have been, a larger decline in the share price. Looking forward, we believe it will be much easier to make up lost income than principal.

     During this type of interest rate environment there is also confusion about price variances between the price that shareholders have paid and the account market values which are quoted at Net Asset Value. Remember that the Fund offers volume discounts on new money purchases, depending on the total amount being invested. Many of you have availed yourself of these price points in the past. So, when you are attempting to determine how much true price fluctuation you have experienced you should remember to compare the original price paid (at the appropriate discount category) to the market price at the time of purchase. The difference between the price paid (Ask) and the Net Asset Value (Bid) at that time, is the amount of the sales charge that you paid not the result of market action.

     As always, we thank you for your support and we are available to answer any questions.

  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, 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.

 

 

Colorado BondShares

A Tax-Exempt Fund

Statement of Investments

March 31, 2004 (unaudited)

                         
Face Amount Market Value
Colorado Municipal Bonds — 77.9%
  125,000     Academy Water and Sanitation District G.O. Series 1995, 6.50%-7.10% due 11/15/2004-05     129,489  
  500,000     Adams County Multi-Family Housing Hunters Cove Series 1985A, 1.06%, due 1/15/2014 (h)     500,000  
  2,175,000     Antelope Heights Metropolitan District (Town of Parker) G.O. Series 2003, 8.00% due 12/1/2023     2,175,000  
  10,700,000     Arapahoe County Multi-Family Housing Hunters Run 1.03% due 8/1/2031 (h)     10,700,000  
  90,000     Arapahoe Water and Sanitation District G.O. Refunding and Improvement Series 1986, 8.50% due 12/1/2005 (b)     97,355  
  950,000     Aurora Multi-Family Housing Revenue (River Falls Project) Series 1999A, 5.70% due 7/1/2029     937,394  
  306,040     Aurora Centretech Metropolitan District G.O. Refunding and Improvement Series 1994, 6.00% due 12/1/2023 (b)     493,786  
  700,000     Beebe Draw Farms Metropolitan District G.O. Series 1998, 7.00% due 10/1/2018     680,190  
  1,295,000     Bell Mountain Ranch Phase II Metropolitan District G.O. Series 1995, 8.50% due 11/15/2015 (b)     1,454,440  
  5,215,000     Belle Creek Metropolitan District No. 1 G.O. Ltd. Tax Series 2000, 8.00% due 12/1/2020     5,421,879  
  100,000     Black Hawk (City of) Device Tax Revenue Series 1996, 5.85% due 12/1/2004     101,948  
  2,250,000     Black Hawk (City of) Device Tax Revenue Series 1998, 5.625% due 12/1/2021     1,976,085  
  1,115,000     Boulder County Multi-Family Refunding and Improvement Revenue (Thistle Community Housing Project) Series 1999, 6.00%-7.375% due 6/1/2011-19     1,031,259  
  1,845,000     Bradburn Metropolitan District #3 G.O. Ltd. Tax, Series 2003, 7.50% due 12/1/2033     1,845,000  
  6,700,000     Bromley Park Metropolitan District No. 3 G.O. Ltd. Tax Exchange Series 2001A & B, 8.00% due 12/1/2019-22     6,796,102  
  6,000,000     Bromley Park Metropolitan District No. 2 G.O. Series 2002B, 8.00% due 12/1/2022     6,126,660  
  4,750,000     Bromley Park Metropolitan District No. 2 G.O. Series 2003, 8.00% due 12/01/2028     4,750,000  
  14,000,000     Broomfield Village Metropolitan District No. 2 Special Revenue Refunding Series 2003B, 1.77% due 7/1/2032 (h)     14,000,000  

2

 

Colorado BondShares
A Tax-Exempt Fund

Statement of Investments (unaudited) — (Continued)

                         
Face Amount Market Value
Colorado Municipal Bonds — (Continued)
  25,000     Castle Rock (Town of) G.O. Series 1988-2, 10.375% due 12/1/2008     29,391  
  565,000     Castle Rock (Town of) LID Series 1988-2D Special Assessment, 9.25%-10.375% due 12/1/2008 (i)     45,200  
  145,000     Central City (City of) Excise Tax Revenue Refunding Series 1996, 6.20%-6.60% due 12/1/2006-11     124,436  
  2,250,000     Central Platte Valley Metropolitan District Special Obligation Revenue Series 1998, 7.00% due 12/1/2017 (b)     2,578,478  
  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     4,407,440  
  920,000     Colorado Educational & Cultural Facilities Authority Charter School Revenue (Crown Pointe Academy) Series 2000, 7.25% due 7/15/2025     962,955  
  1,225,000     Colorado Educational & Cultural Facilities Authority Private School Revenue (Escuela Tlatelolco Project) Series 2000A, 8.50% due 6/1/2022     1,233,477  
  675,000     Colorado Educational & Cultural Facilities Authority Charter School Revenue (Elbert County) Series 2000, 8.00% due 6/1/2004-10     673,521  
  2,115,000     Colorado Educational & Cultural Facilities Authority Charter School Revenue (Belle Creek Charter School Project) Series 2002A, 7.625% due 3/15/2032     2,129,171  
  350,000     Colorado Health Facilities Authority Revenue Refunding National Benevolent Association Series A, 5.25% due 1/1/2027 (a)     253,225  
  100,000     Colorado Health Facilities Authority Revenue Refunding National Benevolent Association Series B, 5.25% due 2/1/2028 (a)     72,350  
  150,000     Colorado Health Facilities Authority Revenue National Benevolent Association Series A, 6.375% due 9/1/2029 (a)     108,525  
  4,200,000     Colorado Housing & Finance Authority Adjustable Rate Class I Series A-1, 1.03% due 10/1/2030 (h)     4,200,000  
  4,885,000     Colorado Housing & Finance Authority Multi-Family Adjustable Rate Class III Series A-1, 103% due 4/1/2030 (h)     4,885,000  
  1,605,000     Colorado Housing & Finance Authority Variable Rate Class I Series A-2, 1.03% due 4/1/2020 (h)     1,605,000  

3

 

Colorado BondShares
A Tax-Exempt Fund

Statement of Investments (unaudited) — (Continued)

                         
Face Amount Market Value
Colorado Municipal Bonds — (Continued)
  5,240,000     Colorado Housing & Finance Authority Class I Adjustable Rate Series AA-2, 1.03% due 5/1/2031 (h)     5,240,000  
  4,115,000     Colorado Housing & Finance Authority Single Family Mortgage Class I Adjustable Rate 2002 Series A-3, 1.03% due 11/1/2021 (h)     4,115,000  
  7,320,000     Colorado Housing & Finance Authority Adjustable Rate Multi-Family Project Class I Series A-4, 1.03% due 10/1/2030 (h)     7,320,000  
  14,915,000     Colorado Housing & Finance Authority Adjustable Rate Multi-Family Housing Insured Mortgage Revenue 2002 Series AA, 1.03% due 10/1/2030 (h)     14,915,000  
  5,000,000     Colorado Housing & Finance Authority Adjustable Rate Single Family Mortgage Series B-3, 1.03% due 11/1/2021 (h)     5,000,000  
  1,380,000     Colorado Housing & Finance Authority Adjustable Rate Class I Series AA3, 1.03% due 5/1/2036 (h)     1,380,000  
  11,740,000     Colorado Housing & Finance Authority Variable Rate Multi-Family Class I Series C4, 1.03% due 10/1/2032 (h)     11,740,000  
  625,000     Colorado Postsecondary Educational Facilities Authority Revenue (National Technological University Project) Series 1993, 7.75% due 12/1/2010     632,375  
  425,000     Colorado Postsecondary Educational Facilities Authority Revenue (National Technological University Project) Series 1993, 7.375% due 12/1/2010 (b)     445,757  
  675,000     Colorado Springs Spring Creek GID G.O. Series 1995, 6.50% due 12/1/2014 (h)(i)     614,250  
  2,455,000     Conservatory Metropolitan District G.O. Series 2003, 7.50% due 12/1/2027     2,435,826  
  320,000     Cordillera Metropolitan District G.O. Series 1994A, 8.00% due 12/1/2009 (b)     337,978  
  475,000     Cordillera Metropolitan District G.O. Series 1994, 8.25% due 12/1/2013 (b)     502,441  
  1,025,000     Cotton Ranch Metropolitan District G.O. Series 1998A, 7.25% due 12/15/2017     1,038,950  
  3,500,000     Cotton Ranch Metropolitan District G.O. Ltd. Tax Refunding Series 1999A, 8.00% due 12/15/2017 (h)     3,498,495  
  2,240,000     Cottonwood Water and Sanitation District Refunding Series 1996A, 7.60% due 12/1/2012     2,371,354  
  1,865,000     Denver (City and County of) Subordinate Multi-Family Housing Revenue (Capitol Heights Apartments) Series 1999C, 8.00% due 5/1/2032     1,780,926  
  12,795,000     Denver (City and County of) Special Facilities Airport Revenue (United Airlines Project) Series 1992A, 6.875% due 10/1/2032 (a)     10,491,900  
  775,000     Denver West Metropolitan District Series 1997B, 5.70% due 12/1/2017     794,530  

4

 

Colorado BondShares
A Tax-Exempt Fund

Statement of Investments (unaudited) — (Continued)

                         
Face Amount Market Value
Colorado Municipal Bonds — (Continued)
  435,000     Eagle Riverview Affordable Housing Corporation Multi-Family Housing Project Revenue Series 1999B, 7.00% due 7/1/2029     395,445  
  1,145,000     Eaglebend Affordable Housing Multi-Family Housing Project Series B, 7.40% due 7/1/2021     1,142,596  
  90,000     El Paso County LID 85-2 Special Assessment Refunding Series 1988, 8.875%-9.00%, due 9/1/2000 (a)     9,000  
  4,605,000     El Paso County Multi-Family Housing Revenue Adjustable Rate Briarglen Apartments Project, 1.02% due 12/1/2024 (h)     4,605,000  
  100,000     El Paso County School District No. 2 — Harrison G.O. Improvement Series 1994, 7.10% due 12/1/2004     103,900  
  235,366     Equi-Mor Holdings Inc. Class A Pass-Through Certificates Series 1999A, 7.50% due 4/5/2018     235,366  
  270,000     Fort Lupton Golf Course Revenue Anticipation Warrants Series 1996A, 8.50% due 12/15/2015 (a)     99,900  
  1,900,000     Fronterra Village Metropolitan District G.O. Series 2001, 8.00% due 12/1/2021     1,922,572  
  4,550,000     Fronterra Village Metropolitan District No. 2 G.O. Series 2003, 8.00% due 12/1/2023     4,623,483  
  500,000     Galleria Metropolitan District G.O. Series 1999, 7.25% due 12/1/2019     523,815  
  1,905,000     Gateway Village GID G.O. Refunding and Improvement Series 1998, 6.00% due 12/1/2018     1,829,505  
  970,000     Gateway Village GID Subordinate Ltd. Tax G.O. Series 1999, 7.00% due 6/1/2019     972,638  
  5,750,000     Grand Elk Ranch GID Ltd. Tax G.O. Series 2003, 8.00% due 12/1/2023     5,737,695  
  300,000     Grand Junction (City of) Downtown Development Authority Tax Increment Revenue Series 1996, 5.55%-5.65% due 11/15/2004-05     301,437  
  750,000     Greatrock North Water and Sanitation District Ltd. Tax G.O. Series 1998, 8.00% due 12/1/2017     758,715  
  630,000     Hamilton Creek Metropolitan District Series 1990, 0.00% due 12/1/2004 (a)(g)(i)     603,968  
  265,000     Idledale Colorado Fire Protection District G.O. Series 1993, 5.35%-5.80% due 12/15/2004-07     266,715  
  225,000     Las Animas (City of) Water G.O. Series 1989, 8.60% due 12/1/2009     227,207  
  955,000     Littleton (The) Riverfront Authority Tax Increment Revenue Refunding Series 1999A-1, 8.00% due 12/1/2008     972,238  

5

 

Colorado BondShares
A Tax-Exempt Fund

Statement of Investments (unaudited) — (Continued)

                         
Face Amount Market Value
Colorado Municipal Bonds — (Continued)
  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, 1.23% due 7/1/2010 (h)     2,345,000  
  260,000     Mount Carbon Metropolitan District Revenue Refunding Series A, 7.00% due 6/1/2043     257,400  
  2,000,000     Mount Carbon Metropolitan District Revenue Refunding Ltd. Tax Series B, 7.00% due 6/1/2043     1,980,000  
  565,000     Mount Carbon Metropolitan District Revenue Refunding Series C, 8.00% due 6/1/2043 (e)     40  
  60,000     North Jeffco Park and Recreation District Golf Course Revenue Series 1994, 6.10% due 12/1/2004     60,814  
  1,380,000     North Pines Metropolitan District G.O. Ltd. Tax Series 2000, 9.00% due 12/1/2020     1,000,500  
  2,800,000     North Range Village Metropolitan District G.O. Ltd. Tax Series 2000, 8.00% due 12/1/2020     2,891,168  
  1,365,000     North Range Village Metropolitan District G.O. Ltd. Tax Series 2001, 4.9%-8.5% due 12/1/2021 (h)     1,373,272  
  1,685,000     Parker Jordan Metropolitan District G.O. Series 1998A, 6.25% due 12/1/2017 (b)     1,937,278  
  4,460,000     Parker Jordan Metropolitan District G.O. Series 2000, 7.25% due 12/1/2019 (b)     5,515,726  
  6,075,000     Rendezvous Residential Metropolitan District G.O. Ltd. Tax Series 2002, 8.00% due 12/1/2021     6,075,000  
  1,375,000     Routt County LID Special Improvement District Special Assessment #2-1 Series A, 6.50% due 8/1/2024     1,347,678  
  154,077     Roxborough Village Metropolitan District Series 1993A, 9.00% due 12/31/2016 (i)     132,507  
  337,187     Roxborough Village Metropolitan District Series 1993B, principal only, 0.00% due 12/31/2021 (e)(i)     23,603  
  58,916     Roxborough Village Metropolitan District Series 2003B, interest only, 9.00% due 12/31/2032 (f)(i)     1,767  
  367,251     Roxborough Village Metropolitan District Series 1993B, interest only, 10.41% due 12/31/2042 (f)(i)     7,345  

6

 

Colorado BondShares
A Tax-Exempt Fund

Statement of Investments (unaudited) — (Continued)

                         
Face Amount Market Value
Colorado Municipal Bonds — (Continued)
  2,140,000     Sand Creek Metropolitan District G.O. Ltd. Tax Series 1997, 7.125% due 12/1/2016(b)     2,542,855  
  905,000     Sand Creek Metropolitan District G.O. Ltd. Tax Series 1998, 6.625% due 12/1/2017(b)     1,069,285  
  1,430,000     City of Sheridan Colorado G.O. Series 1997A, 7.50% due 12/1/2016     1,506,619  
  1,000,000     Southpark Metropolitan District G.O. Refunding Series 1996, 6.60% due 12/1/2013     1,054,140  
  10,000     Southwest Commons Improvement District G.O. Series 1987, 9.25% due 12/15/2006     10,232  
  1,935,000     Sterling Hills Metropolitan District G.O. Ltd. Tax Series 1998, 7.75% due 6/1/2018     1,941,695  
  3,310,000     Sterling Hills West Metropolitan District G.O. Ltd. Tax Series 2001A, 8.00% due 12/1/2019     3,406,586  
  3,315,000     Sterling Hills West Metropolitan District G.O. Ltd. Tax Series 2001B, 8.00% due 12/1/2021     3,429,301  
  5,290,000     Tabernash Meadows Water and Sanitation District G.O. Series 2000, 8.40% due 6/1/2020     3,967,500  
  350,000     Tabernash Meadows Water and Sanitation District G.O. Series 2003, 9.00% due 12/1/2014     262,500  
  1,715,000     Todd Creek Farms Metropolitan District No. 2 Ltd. Tax G.O. Series 1997, 8.00% due 6/1/2017 (b)     2,005,915  
  955,000     Todd Creek Farms Metropolitan District No. 2 Ltd. Tax G.O. Series 1999, 7.50% due 12/1/2018 (b)     1,105,537  
                     
 
        Total Colorado Municipal Bonds (cost $230,473,357)   $ 237,267,477  
                     
 
 
Colorado Capital Appreciation and Zero Coupon — 4.3%
  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)     236,720  
  19,019,288     Cottonwood Water and Sanitation District Capital Appreciation Refunding Second Lien, Series 1998A, 8.00% due 12/1/2027 (d)     3,793,052  
  500,000     El Paso County School District No. 20 G.O. Refunding Series 1993A, Zero Coupon, 6.10% due 6/15/2008 (d)     448,135  

7

 

Colorado BondShares
A Tax-Exempt Fund

Statement of Investments (unaudited) — (Continued)

                         
Face Amount Market Value
Colorado Capital Appreciation and Zero Coupon — (Continued)
  906,622     Roxborough Village Metropolitan District Series 1993C, 9.84% due 12/31/2032 (d)(i)     13,599  
  12,105,000     Silver Peaks Metropolitan District No. 1 Revenue Zero Coupon Series 2003, 8.00% due 12/1/2004-12 (d)     8,567,744  
                     
 
        Total Colorado Capital Appreciation and Zero Coupon Bonds (cost $15,919,227)   $ 13,059,250  
                     
 
 
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     159,597  
  600,000     Eagle-Vail Metropolitan District Golf Course Series 1999, 6.00% due 12/1/2019     608,556  
  145,000     Park School District R-3 Certificates of Participation Series 1995 and 1996, 5.35%-5.45% due 6/1/2004-05     145,930  
                     
 
        Total Colorado Certificates of Participation Bonds (cost $827,330)   $ 914,083  
                     
 
Other Municipal Bonds — 9.4%
  2,500,000     California Statewide Communities Development Authority Multi-Family Housing Revenue Senior (Heritage Apartments at Arcadia) Series 2003G, 6.40% due 12/1/2041     2,500,000  
  3,740,000     Class B Revenue Bond Certificate Series Trust 2004-1 Variable Rate Senior Certificates of Beneficial Ownership, 1.37% due 7/1/2037 (h)     3,740,000  
  1,890,000     County of El Paso Housing Finance Corporation Multi-Family Housing Revenue (San Jose, Ltd. Project) Series 1999B, 6.00% due 8/1/2031     1,890,000  
  5,000,000     Freddie Mac Multi-Family Variable Rate Certificates Series M001 Class B, 9.75% due 4/1/2032 (g)     5,000,000  
  525,000     Lisbon (City of) North Dakota Industrial Revenue Series 2002C, (Harvest Board LLC) 15.00% due 4/1/2005 (a)     131,250  
  4,500,000     Lisbon (City of) North Dakota Industrial Revenue Series 2001A, (Harvest Board LLC) 15.00% due 4/1/2011 (a)     1,125,000  
  2,260,000     Maricopa County Arizona Multi-Family Revenue (Rancho Del Sol Apartments) Series 2002A, Subordinate Series C, 6.40% due 12/1/2024     2,260,000  

8

 

Colorado BondShares
A Tax-Exempt Fund

Statement of Investments (unaudited) — (Continued)

                         
Face Amount Market Value
Other Municipal Bonds — (Continued)
  420,000     Sandoval County New Mexico Project Revenue Tournament Soccer Complex Series 1997, 7.50% due 8/15/2006     413,091  
  8,030,000     Speedway Indiana Multi-Family Economic Development Revenue (Hermitage Apartments Project) Series 1999, 6.00% due 5/1/2031     8,030,000  
  450,000     Texas State Department Housing & Community Affairs Multi-Family Revenue (Reading Road Apartments), Series A & B 2003, 6.75% due 7/1/2036     450,000  
  650,000     Uinta County Wyoming School District No. 6 Series 2002, 3.00% due 12/1/2004     650,527  
  2,300,000     Utah Housing Corporation Multi-Family Housing Mortgage Revenue (Layton Pointe Apartments Project) Series 2003, 6.5% due 6/1/2035     2,300,000  
                     
 
        Total Other Municipal Bonds (cost $32,265,000)   $ 28,489,868  
                     
 
       
Total investments, at value (cost $279,484,914)*
     91.9 %     279,730,678  
       
Other assets net of liabilities
     8.1       24,707,807  
             
     
 
       
Net assets
     100.0 %   $ 304,438,485  
             
     
 

 
 * 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.
 
(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

9

 

Colorado BondShares
A Tax-Exempt Fund

Statement of Investments (unaudited) — (Continued)

 
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 March 31, 2004. 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 $14,177,570 and a market value of $2,702,720 or approximately 1.0% of net assets, respectively, as of March 31, 2004.

    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.

10

 

Colorado BondShares

A Tax-Exempt Fund

Statement of Assets and Liabilities

March 31, 2004 (unaudited)
           
ASSETS
Investments, at value (cost $279,484,914)
  $ 279,730,678  
 
— see accompanying statement
       
Cash
    35,141  
Bonds sold
    53,408,000  
Interest receivable
    6,127,737  
Shares of beneficial interest sold
    616,768  
     
 
TOTAL ASSETS
     339,918,324  
     
 
 
LIABILITIES
Payables and other liabilities:
       
 
Dividends payable
    685,163  
 
Bonds purchased
    34,502,439  
 
Shares of beneficial interest redeemed
    66,828  
 
Accrued expenses
    225,409  
     
 
TOTAL LIABILITIES
     35,479,839  
     
 
NET ASSETS
   $ 304,438,485  
     
 
COMPOSITION OF NET ASSETS
        
Paid-in capital
  $ 304,177,549  
Accumulated net realized gains
    15,172  
Net unrealized appreciation of investments (note 3)
    245,764  
     
 
NET ASSETS
   $ 304,438,485  
     
 
NET ASSET VALUE AND REDEMPTION VALUE PER SHARE
(based on 32,427,732 shares of beneficial interest outstanding)
  $ 9.39  
     
 
MAXIMUM OFFERING PRICE PER SHARE
(net asset value plus sales charge of 4.75% of offering price)
  $ 9.86  
     
 

See accompanying notes to financial statements.

11

 

Colorado BondShares

A Tax-Exempt Fund

Statement of Operations

For The Six Months Ended March 31, 2004 (unaudited)
             
INVESTMENT INCOME
        
 
Interest
  $ 8,699,503  
     
 
EXPENSES
        
 
Management fees (note 4)
    718,293  
 
Custodian fees (note 5)
    41,596  
 
Legal and auditing fees
    64,965  
 
Portfolio pricing fees (note 5)
    8,795  
 
Registration fees
    4,575  
 
Shareholders’ reports
    24,705  
 
Transfer agency expenses (note 4)
    45,750  
 
Trustees’ fees
    1,501  
 
Other
    3,331  
     
 
   
Total expenses
     913,511  
Earnings credits on cash balances (note 5)
    (50,391 )
     
 
   
Net expenses
     863,120  
     
 
NET INVESTMENT INCOME
     7,836,383  
     
 
REALIZED AND UNREALIZED GAINS/(LOSSES) ON INVESTMENTS
        
 
Realized net (loss) on investments
    (19,127 )
 
Change in net unrealized appreciation on investments
    3,725,925  
     
 
NET REALIZED AND UNREALIZED GAIN/(LOSS)
     3,706,798  
     
 
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
   $ 11,543,181  
     
 

See accompanying notes to financial statements.

12

 

Colorado BondShares

A Tax-Exempt Fund

Statements of Changes in Net Assets

For The Six Months Ended March 31, 2004 (unaudited)
and The Year Ended September 30, 2003
                     
Six Months Year Ended
Ended September 30,
March 31, 2004 2003
FROM INVESTMENT ACTIVITIES
                
 
Net investment income
  $ 7,836,383     $ 15,377,534  
 
Realized net gain/(loss) on investments
    (19,127 )     79,914  
 
Change in unrealized appreciation/(depreciation) on investments
    3,725,925       (1,572,190 )
     
     
 
   
Net increase in net assets resulting from operations
     11,543,181       13,885,258  
     
     
 
 
Dividends to shareholders from net investment income
     (7,837,653 )     (15,377,534 )
     
     
 
FROM BENEFICIAL INTEREST TRANSACTIONS
                
 
Proceeds from sale of shares
    39,700,199       84,737,048  
 
Dividends reinvested
    4,730,052       9,133,079  
 
Payments for shares redeemed
    (10,904,125 )     (26,222,421 )
     
     
 
   
Increase in net assets derived from beneficial interest transactions
     33,526,126       67,647,706  
     
     
 
   
Net increase in net assets
     37,231,654       66,155,430  
NET ASSETS
                
 
Beginning of period
    267,206,831       201,051,401  
     
     
 
 
End of period
  $ 304,438,485     $ 267,206,831  
     
     
 

See accompanying notes to financial statements.

13

 

Colorado BondShares

A Tax-Exempt Fund

Financial Highlights

                                           
Year Ended September 30,
Six Months Ended
March 31, 2004 2003 2002 2001 2000
(unaudited)
Per Share Operating Data:
                                        
Net Asset Value, beginning of period
  $ 9.27     $ 9.33     $ 9.39     $ 9.35     $ 9.42  
     
     
     
     
     
 
Net investment income
    0.25       0.60       0.59       0.68       0.68  
Net realized and unrealized gain (loss) on investments
    0.11       (0.06 )     (0.06 )     0.04       (0.07 )
     
     
     
     
     
 
Increase from investment operations
    0.36       0.54       0.53       0.72       0.61  
Dividends from net investment income
    (0.25 )     (0.60 )     (0.59 )     (0.68 )     (0.68 )
     
     
     
     
     
 
Net increase (decrease) in net asset value
    0.11       (0.06 )     (0.06 )     0.04       (0.07 )
     
     
     
     
     
 
Net Asset Value, end of period
  $ 9.38     $ 9.27     $ 9.33     $ 9.39     $ 9.35  
     
     
     
     
     
 
Total Return, at Net Asset Value(1)
     4.12 %+     5.96 %     5.90 %     7.79 %     6.76 %
     
     
     
     
     
 
Ratios/ Supplemental Data:
                                        
 
Net investment income
    5.48 %*     6.46 %     6.77 %     7.14 %     7.18 %
 
Total expenses
    0.64 %*     0.65 %     0.64 %     0.66 %     0.81 %
 
Net expenses
    0.60 %*     0.61 %     0.59 %     0.60 %     0.73 %
Net assets, end of period (000’s)
  $ 304,438     $ 267,207     $ 201,051     $ 138,520     $ 96,993  
     
     
     
     
     
 
Ratios to average net assets:
                                       
 
Portfolio turnover rate(2)
    3.20 %*     4.65 %     6.03 %     7.91 %     18.11 %
     
     
     
     
     
 

 
(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 March 31, 2004 were $8,201,152 and $2,594,765, respectively.
 
 * Annualized
 
 + Not Annualized

See accompany notes to financial statements.

14

 

Colorado BondShares

A Tax-Exempt Fund

Notes to Financial Statements (unaudited)

 
(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 management 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.

 
(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 Fund uses for federal income tax purposes. The Fund concentrates its investments in Colorado and,

15

 

Colorado BondShares
A Tax-Exempt Fund

Notes to Financial Statements (unaudited) — (Continued)

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 $27,885,182 and a market value of $12,948,088 or 4.25% of net assets, as of March 31, 2004.

 
(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 the six month period ended March 31, 2004 and the year ended September 30, 2003 were as follows:

                 
Six Months Year Ended
March 31, September 30,
2004 2003
Shares sold
    4,254,775       9,131,780  
Dividends reinvested
    506,852       984,201  
     
     
 
      4,761,627       10,115,981  
Shares redeemed
    (1,167,956 )     (2,831,508 )
     
     
 
Net increase in shares outstanding
     3,593,671       7,284,473  
     
     
 

16

 

Colorado BondShares
A Tax-Exempt Fund

Notes to Financial Statements (unaudited) — (Continued)

 
(3) Unrealized Gains and Losses

      At March 31, 2004, the net unrealized appreciation on investments of $245,764 was comprised of gross appreciation of $9,679,298 and gross depreciation of $9,433,534.

 
(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 March 31, 2004. 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 $41,596 and pricing fees of $8,795 for services provided by Standard and Poor’s, a division of The McGraw-Hill Companies.

17

 

(Colorado Bondshares LOGO and Address)

 

Item 2. Code of Ethics

Not required in this filing.

Item 3. Audit Committee Financial Expert

Not required in this filing.

Item 4. Principal Accountant Fees and Services

Not required in this filing.

Item 5. Audit Committee of Listed Registrants

Not required in this filing.

Item 6. Schedule of Investments included in Item 1

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. Submission of Matters to a Vote of Security Holders

Not required in this filing.

Item 10. 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 disclosure controls and procedures, as defined in Rule 30a-3(c) under the Act (17 CFR 270.30a-3(c)) (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 has been no change in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d)) that occurred during the registrant’s most recent fiscal half-year (the period covered by this report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 11. Exhibits

                 
(a)
    (2 )     President & Treasurer’s Section 302 certification.
               
(b)
              Combined Section 906 certification.

 

 

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:
  June 4, 2004