<PAGE> 1
A COLORADO TAX-EXEMPT
FUND
One Tabor Center
1200 17th Street, Suite 1150
[Graphic] Denver, CO 80202-5811
(303) 572-6990
(800) 572-0069 (WATTS)
(303) 572-6995 (FAX) NOVEMBER 25, 1998
Dear Shareholders:
We are pleased to present the annual report of Colorado BondShares for the
fiscal year ended September 30, 1998. The Fund's portfolio, related financial
statements and comparative historic performance data are enclosed for your
review.
Recent shareholder questions relate not to our performance--which continues to
be good--nor to our strategy in reducing exposure to future inflationary
pressures. What was of interest was our resiliency. our ability to survive and
prosper should economic times in the United States become difficult as they
have elsewhere. Concerns such as these are in response to the Asian turmoil,
low commodity prices, high domestic trade deficits and Russian bond defaults as
well as bank closures and political unrest. Sometimes, questions such as these
are best answered by relating, not what we do but what we DO NOT do.
Colorado BondShares is not a hedge fund. We do not use options or futures
contracts to offset our securities positions. We are not a leveraged fund. We
have never borrowed money with the goal of enhancing our performance. The Fund
does not purchase AMT bonds thereby exposing certain shareholders to the
alternative minimum tax. All of our bonds are U.S. dollar denominated and do
not subject shareholders to foreign currency risk. Are we unenlightened?
Perhaps, but avoiding these investing techniques has done well for us in the
most turbulent of financial times.
We also have some affirmative points to make; let us switch to those. The Fund
is ready for the year 2000 and so are our outside service providers. We invest
in Colorado which, in our view, will continue to attract an influx of future
residents. These people bring the ability to help pay for the public projects
that we finance. Most important, Colorado BondShares invests in municipal
bonds. Only U.S. Treasuries have a better record of repayment. Even in the
worst of times property taxes get paid, if not by the property owner then by
the lender who holds the mortgage. Often, the real estate ends up in stronger,
not weaker, hands. Most of our holdings are supported by the direct pledge of
property tax and do not require further growth in order for them to meet their
future debt service payments. Are we well positioned for the FUTURE? We believe
we are and better than most.
Thank you for your continued faith and confidence in our management.
Sincerely,
/s/ FRED R. KELLY, JR.
Fred R. Kelly, Jr.
Portfolio Manager
<PAGE> 2
OFFICERS AND TRUSTEES
GEORGE N. DONNELLY, PRESIDENT AND CHAIRMAN
OF THE BOARD OF TRUSTEES
ANDREW B. SHAFFER, 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 CORP.
CUSTODIAN OF PORTFOLIO SECURITIES
NORWEST INVESTMENTS AND TRUST, NORWEST BANK DENVER, N.A.
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
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 OR NOT INSURED BY THE FDIC OR ANY OTHER AGENCY, AND INVOLVE INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED
<PAGE> 3
COLORADO BONDSHARES --
A TAX-EXEMPT FUND
Financial Statements
September 30, 1998
(With Independent Auditors' Report Thereon)
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders of
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, 1998, and the related statement of operations for the year then
ended, 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 generally accepted auditing
standards. 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. 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, 1998, by correspondence with the custodian
and brokers; and where confirmations were not received from brokers, we
performed other auditing procedures. 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, 1998, 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 generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Denver, Colorado
November 3, 1998
<PAGE> 5
COLORADO BONDSHARES --
A TAX-EXEMPT FUND
Statement of Investments
September 30, 1998
<TABLE>
<CAPTION>
Face Market
Amount Colorado Municipal Bonds-- 91.2% Value
- ------------ -------------------------------- -------------
<S> <C> <C>
$ 235,000 Academy Water and Sanitation District G.O. Series 1995,
6.20%-7.10% due 11/15/02-05 $ 264,064
25,000 Adams & Arapahoe Counties School District No. 31J G.O. Series
1989, 7.30% due 11/15/04 (b) 26,078
75,000 Adams County Pollution Control Revenue Refunding
Series 1986A, 7.375% due 11/01/09 75,476
200,000 Arapahoe County Water and Wastewater Authority Revenue
Series 1994, 6.20%-6.30% due 12/01/03-04 (b) 215,623
250,000 Arapahoe Water and Sanitation District G.O. Refunding and
Improvement Series 1986, 8.50% due 12/01/05 292,780
175,000 Arapahoe Water and Sanitation District G.O. Refunding and
Improvement Series, 1988A, 9.25% due 12/01/13 178,469
1,000,000 Arapahoe Water and Sanitation District G.O. Refunding and
Improvement Series, 1988A, 9.25% due 12/01/13 (b) 1,019,870
2,250,000 Arapahoe Water and Sanitation District G.O. Refunding Series
1995B, 8.50% due 12/01/20 (b) 2,642,084
65,000 Arrowhead Metropolitan District G.O. Improvement Series
1995A, 5.90%-6.10% due 12/01/01-03 68,208
100,000 Arrowhead Metropolitan District G.O. Refunding Series 1994,
5.70% due 12/01/03 105,700
70,000 City of Arvada G.O. Street and Bridge Refunding Series 1994,
3.80% due 12/01/99 70,273
550,000 Arvada Multifamily Rental Housing Revenue Series 1993,
7.50% due 12/15/18 558,025
250,000 City of Aspen G.O. Electric Refunding Series 1991, 5.35% due
10/01/98 250,015
306,040 Aurora Centretech Metropolitan District G.O. Refunding and
Improvement Series 1994, 6.00% due 12/01/23 318,340
100,000 Beaver Creek Metropolitan District G.O. Refunding Series 1993,
4.60% due 12/01/98 100,219
1,775,000 Bell Mountain Ranch Phase II Metropolitan District G.O. Series
1995, 8.50% due 11/15/15 1,960,753
420,000 Bell Mountain Ranch Phase II Metropolitan District
Improvement Fee Revenue Series 1997, 7.50% due 11/15/00 420,794
110,000 Bell Mountain Ranch Phase III Metropolitan District
Improvement Fee Revenue Series 1996, 7.00% due 11/15/99 110,227
300,000 Bell Mountain Ranch Phase III Metropolitan District
Improvement Fee Revenue Series 1997, 7.50% due 11/15/00 300,567
680,000 Bennett School District No. 29J G.O. Refunding and
Improvement Series 1991, 6.35%-6.95% due 12/01/99-04 711,158
145,000 City of Black Hawk Device Tax Revenue Series 1994,
5.55%-5.70% due 12/01/00-01 149,944
200,000 City of Black Hawk Device Tax Revenue Series 1996,
5.75%-5.85% due 12/01/03-04 212,771
350,000 City of Black Hawk G.O. Water Improvement Series 1992,
6.40%-6.80% due 12/01/98-00 363,503
</TABLE>
2
<PAGE> 6
COLORADO BONDSHARES --
A TAX-EXEMPT FUND
Statement of Investments
September 30, 1998
<TABLE>
<CAPTION>
Face Market
Amount Colorado Municipal Bonds-- 91.2% Value
- ------------ -------------------------------- -------------
<S> <C> <C>
$ 500,000 City of Boulder Open Space Aquisition Refunding, Series 1989,
7.20% due 8/15/13 $ 520,230
130,000 Boulder County Gunbarrel GID G.O. Series 1994, 4.90%-5.00%
due 11/15/98-99 131,451
100,000 Boulder County Single Family Mortgage Revenue Series 1982A,
10.00% due 5/01/99 93,819
175,000 Boulder County Zero Coupon Single Family Mortgage Revenue
Series 1983, 11.00% due 12/01/14 (d) 33,017
25,000 Boulder Valley School District No. RE-2 Series 1992A , 5.80%
due 10/15/01 26,537
135,000 Boxelder Sanitation District Sewer Revenue Refunding and
Improvement Series 1994, 5.60%-5.90% due 01/01/00-03 140,309
280,000 Town of Breckenridge G.O. Recreation Center Refunding Series
1993, 4.30%-4.45% due 12/01/99-00 284,240
451,170 Briargate Public Building Authority, Landowner Assessment Lien
Series 1985A and 1986A, 9.50%-10.25% due 12/15/95-05 (a) (i) 383,953
12,000 Castle Pines North Metropolitan District Tax Revenue Bonds
Series 1994B, 6.10%, due 12/01/33 (h) 10,200
25,000 Town of Castle Rock G.O. Series 1988-2, 10.375% due 12/01/08 25,000
530,000 Town of Castle Rock LID Series 1988-2D Special Assessment,
9.25%-10.375% due 12/01/08 (a) 185,500
670,000 Town of Castle Rock G.O. Water Refunding Series 1993,
4.30%-4.65% due 12/01/98-00 676,567
60,389 Centennial Downs Metropolitan District Cash Payment
Deficiency Bond Series 1993, 8.09% due 12/01/34 (i) 48,312
588,601 Centennial Downs Metropolitan District Limited Tax Refunding
Bond Series 1993, 8.09% due 12/01/34 (i) 353,161
271,971 Centennial Downs Metropolitan Interest Certificate Series 1993,
6.00% due 12/01/34 (c) (i) 2,720
2,500,000 Central Platte Valley Metropolitan District Special Obligation
Revenue, Series 1998, 7.00%, due 12/01/17 2,506,246
50,000 City of Central City Special Improvement District No. 1991-1
Special Assessment, Series 1992, 7.50%, due 12/01/03 50,283
100,000 Clear Creek School District No. Re-1 G.O. Improvement Series
1991, 5.90% due 12/01/00 104,843
2,009,520 Colorado Centre Metropolitan District Limited Tax and Special
Revenue Series 1992A, principal only, 0.00% due 1/01/27
(a) (e) (i) 20,095
2,008,335 Colorado Centre Metropolitan District Limited Tax and Special
Revenue Series 1992A, interest only, 9.00% due 1/01/27 (a)
(f) (i) 1,205,000
6,465,662 Colorado Centre Metropolitan District Limited Tax and Special
Revenue Series 1992B, 0.00% due 1/01/32 (a) (g) (i) 64,657
190,000 Colorado Health Facilities Authority Refunding Revenue Porter
Memorial Hospital Series 1986A, 7.40% due 2/01/16 (b) 199,392
1,000,000 Colorado Health Facilities Authority Hospital Revenue,
Steamboat Springs Health Care Association Project, Series
1997, 5.30%, due 9/15/09 1,024,710
</TABLE>
3
<PAGE> 7
COLORADO BONDSHARES --
A TAX-EXEMPT FUND
Statement of Investments
September 30, 1998
<TABLE>
<CAPTION>
Face Market
Amount Colorado Municipal Bonds-- 91.2% Value
- ------------ -------------------------------- -------------
<S> <C> <C>
$ 520,000 Colorado Health Facilities Authority Zero Coupon Retirement
Housing Revenue Liberty Heights Project 1990 Subordinate
Series B, 6.97% due 07/15/20 (d) $ 171,340
1,610,000 Colorado Postsecondary Educational Facilities Authority
Revenue National Technological University Project Series
1993, 7.375%-7.75% due 12/01/10 1,651,938
70,000 Colorado Postsecondary Educational Facilities Authority
Revenue The Naropa Institutional Project Series 1990, 7.875%
due 9/01/10 put 9/01/00 70,000
910,000 Colorado Springs Spring Creek GID G.O. Series 1995, 3.49% due
12/01/14 (h) (i) 409,500
310,000 Colorado Tech Center Metropolitan District G.O. Refunding
Series 1989, 9.75% due 6/01/09 (b) 329,009
1,180,000 Columbia Metropolitan District G.O. Improvement Series 1992,
7.60%-8.50% due 11/01/00-11/01/12 1,395,619
525,000 Cordillera Metropolitan District G.O. Series 1994A, 8.00% due
12/01/09 596,579
500,000 Cordillera Metropolitan District G.O. Series 1994, 8.25% due
12/01/13 573,505
1,025,000 Cotton Ranch Metropolitan District G.O. Series 1998A, 7.25%,
due 12/01/17 1,025,000
2,250,000 Cottonwood Water and Sanitation District Refunding Series 1996,
7.60% 12/01/12 2,441,654
240,000 Town of Crested Butte Sales Tax Revenue Series 1994,
6.10%-6.35% due 12/01/01-03 257,017
125,000 Town of Crested Butte G.O. Water and Sewer Refunding Series
1993, 4.25% due 11/01/99 126,138
375,000 City of Delta Sales and Use Tax Revenue Refunding Series 1994,
4.35%-4.65% due 12/01/01-03 384,950
2,250,000 City and County of Denver, Excise Tax Refunding Revenue
Series 1989, 6.50%, due 9/01/14 2,306,948
72,000 City and County of Denver Lease Purchase Certificates Series
1993, 6.30% due 01/01/02 72,274
10,000 City and County of Denver Special Facilities Airport Revenue
Series 1967, 5.375% due 01/01/99 9,984
15,000 City and County of Denver Zero Coupon Single Family
Mortgage Revenue Series 1984, 11.63% due 9/01/15 (d) 2,410
820,000 Denver West Metropolitan District G.O. Series 1997B,
4.80-5.70%, due 12/01/02-17 850,660
75,000 Town of Dillon G.O. Series 1992, 5.70%-5.90% due
10/01/99-00 77,502
95,000 Town of Dillon Excise Tax Revenue Series 1994, 5.80%-5.90%
due 06/01/02-03 100,043
175,000 Douglas County LID #3 Series 1991, 10.00% due 8/01/02 175,000
90,000 City of Durango First Mortgage Revenue Series 1995, 6.50% due
12/15/00 91,574
</TABLE>
4
<PAGE> 8
COLORADO BONDSHARES --
A TAX-EXEMPT FUND
Statement of Investments
September 30, 1998
<TABLE>
<CAPTION>
Face Market
Amount Colorado Municipal Bonds-- 91.2% Value
- ------------ -------------------------------- -------------
<S> <C> <C>
$ 25,000 Eagle County Eagle Valley Library District G.O. (Limited Tax)
Library Series March 1, 1994, 4.45% due 12/01/98 $ 25,043
60,000 El Paso and Elbert Counties Joint School District No. 23-JT
G.O. Building Series 1994, 5.75% due 12/15/01 62,965
90,000 El Paso County LID 85-2 Special Assessment Refunding Series
1988, 8.875%-9.00% due 9/01/00 9,000
100,000 El Paso County Pheasant Run LID Special Assessment Bonds
Series 1986-2, 9.25% due 9/01/99 (a) 25,000
100,000 El Paso County School District No. 2-Harrison G.O. Improvement
Series 1994, 7.10% due 12/01/04 117,258
500,000 El Paso County School District No. 20 Zero Coupon G.O.
Refunding Series 1993A, 6.10% due 6/15/08 (d) 330,190
150,000 Elbert County School District C-1 G.O. Series 1994, 4.40% due
12/01/02 152,796
155,000 City of Englewood Golf Course Revenue Series 1994, 4.35% due
12/01/00 156,629
3,174,183 Equi-Mor Holdings Inc, Series 98-B, Class A Pass-Through
Certificates, 7.00%, due 9/01/18 3,174,183
250,000 Evergreen Metropolitan District Water Revenue Refunding Series
1992A, 6.25% due 07/15/99 255,388
10,000 Fairlake Metropolitan District G.O. Series 1991, 9.625% due
12/1/1998 10,088
1,500,000 Fairlake Metropolitan District G.O. Series 1989, 9.00% due
6/01/09 1,561,934
355,000 Forest Hills Metropolitan District G.O. Refunding Series 1992B,
7.75% due 11/01/99 357,815
25,000 Fort Collins Refunding Series B, 6.00%, due 12/01/02 27,181
150,000 Fraser Valley Metropolitan Recreation District G.O. Refunding
Series 1992, 5.20%-5.40% due 10/01/98-99 151,036
50,000 Town of Frederick G.O. Water Refunding Series 1993,
4.70% due 12/01/98 50,098
100,000 School District Fremont RE-1 G.O. Refunding Series 1990,
6.80% due 10/01/99 101,630
2,000,000 Gateway Village GID G.O. Refunding and Improvement Series
1998, 6.00%, due 12/01/18 2,000,000
239,000 Gateway Village GID G.O. Refunding and Improvement Series
1998, Zero Coupon 5.20-5.60% due 12/01/99-12/01/01 (d) 214,310
850,000 Gateway Village GID G.O. Series 1995, 8.25%-8.75% due
12/01/05-14 (b) 994,902
200,000 City of Glenwood Springs Sales and Use Tax Revenue Series
1992A, 5.90% due 12/01/02 201,700
200,000 City of Golden Sales and Use Tax Revenue Series 1992,
4.75%-5.00% due 11/15/98-99 201,865
300,000 City of Grand Junction Downtown Development Authority Tax
Increment Revenue Series 1996, 5.55%-5.65% due 11/15/04-05 321,390
</TABLE>
5
<PAGE> 9
COLORADO BONDSHARES --
A TAX-EXEMPT FUND
Statement of Investments
September 30, 1998
<TABLE>
<CAPTION>
Face Market
Amount Colorado Municipal Bonds-- 91.2% Value
- ------------ -------------------------------- -------------
<S> <C> <C>
$ 1,275,000 Greatrock North Water and Sanitation District, Limited Tax
G.O. Series 1998, 8.00%, due 12/01/17 $ 1,275,000
100,000 Greeley GID No. 1 G.O. Refunding Series July 15, 1994,
5.20%-5.30% due 10/01/98-99 101,177
280,000 Greenwood Metropolitan District G.O. Refunding Series 1994,
5.60%-7.00% due 12/01/98-04 304,217
490,000 Greenwood North Metropolitan District G.O. Refunding Series
1993, 4.40%-5.00% due 12/01/98-01 490,712
220,000 Greenwood South Metropolitan District G.O. Refunding Series
1994, 6.25%-6.90% due 12/01/01-04 239,107
100,000 City of Greenwood Village Sales Tax Revenue Refunding Series
1993, 4.40% due 12/01/99 101,071
500,000 Hamilton Creek District Series 1990, 1.00% due 12/01/04 (g) (i) 250,000
55,000 Town of Hayden G.O. Water Refunding Series 1993, 4.30% due
09/01/99 55,361
10,000 Hyland Hills Park & Recreation District Special Revenue
Improvement Series 1992, 7.10% due 12/15/00 10,719
340,000 Idledale Fire Protection District G.O. Series 1993, 5.20%-5.80%
due 12/15/03-07 345,099
480,000 La Plata County Recreational Facilities Revenue Refunding
Durango Ski Corporation Project Series 1989A, 9.00% due
02/01/10 490,382
100,000 City of Lafayette Sales and Use Tax Revenue Series 1991,
5.70% due 11/15/98 100,299
65,000 City of Lakewood Zero Coupon Single Family Mortgage Series
1985, 11.10% due 5/01/15 (d) 11,133
315,000 City of Las Animas Water G.O. Series 1989, 8.60% due 12/01/09 316,474
300,000 Left Hand Water District Water Revenue Refunding Series 1993,
4.30%-4.45% due 11/15/00-01 305,406
135,000 Lookout Mountain Water District G.O. Refunding Series 1993,
5.20% due 12/01/01 140,463
1,000,000 City of Louisville Sales Tax Revenue Series 1989, 8.60% due
11/15/13 (b) 1,016,480
35,000 City of Manitou Springs Water and Sewer Revenue Series 1992,
5.20% due 03/01/99 35,266
220,000 Mesa County Single Family Mortgage Revenue Series 1982,
10.75% due 12/01/99 (a) 17,600
1,250,000 Mid Valley Metropolitan District G.O. Refunding & Improvement
Series 1989, 8.90% due 12/15/04 (b) 1,342,974
140,000 Moffat School District No. 2 G.O. Series 1994, 5.55%-5.90%
due 12/01/98-01 146,760
320,000 City of Montrose Sales and Use Tax Revenue Refunding Series
1993, 4.20%-4.40% due 08/15/99-00 323,640
250,000 City of Montrose Water and Sewer Revenue Refunding and
Improvement Series 1993, 4.50%-4.65% due 10/01/01-02 257,386
155,000 Monument Sanitation District G.O. Refunding Series 1994,
5.80%-5.90% due 12/01/01-02 163,208
</TABLE>
6
<PAGE> 10
COLORADO BONDSHARES --
A TAX-EXEMPT FUND
Statement of Investments
September 30, 1998
<TABLE>
<CAPTION>
Face Market
Amount Colorado Municipal Bonds-- 91.2% Value
- ------------ -------------------------------- -------------
<S> <C> <C>
$ 255,000 Town of Mt. Crested Butte G.O. Refunding Series 1993,
4.40%-4.75% due 05/01/99-01 $ 258,279
750,000 Mountain Village Metropolitan District G.O. Series 1992, 7.95%
due 12/01/03 845,438
225,000 North Jeffco Park and Recreation District Golf Course Revenue
Series 1994, 5.80%-6.10% due 12/01/01-04 241,315
20,000 Northgate Public Building Authority Landowner Assessment Lien
Series 1987A, 8.25% due 12/01/00 (a) 2,800
200,000 City of Northglenn Water and Sewer Revenue Refunding Series
1992, 4.70% due 12/01/98 200,454
100,000 Town of Palisade G.O. Water Refunding Series 1993B, 5.10%
due 04/01/99 100,751
1,055,000 Panorama Metropolitan District G.O. Refunding Series 1989B,
9.00% due 12/01/09 (b) 1,132,353
280,000 Town of Parker Sales and Use Tax Refunding Revenue Series
1993, 4.20%-4.30% due 11/01/99-00 283,302
1,900,000 Parker Jordan Metropolitan District G.O. 6.25%, due 12/01/17 1,900,000
45,000 Pitkin County Sales Tax Revenue Series 1995, 5.30% due
12/01/00 45,743
200,000 Project 7 Water Authority Water Revenue Refunding Series 1993,
4.50% due 12/01/00 203,682
30,000 Pueblo Capital Improvement Residual Revenue, 9.00%,
due 8/02/10 (d) 10,608
205,000 Rangely Junior College District G.O. Building Series 1992,
6.15%-6.40% due 10/01/98-00 208,871
210,000 Ridgway School District No. R-2 G.O. Series 1994, 7.75% due
12/01/98-02 228,135
159,868 Roxborough Village Metropolitan District Series 1993A, 9.00%
due 12/31/16 (i) 131,092
278,078 Roxborough Village Metropolitan District Series 1993B, principal
only, 0.00% due 12/31/21 (e) (i) 16,685
20,270 Roxborough Village Metropolitan District Series 1993B, interest
only, 10.41% due 1/01/43 (f) (i) 203
906,622 Roxborough Village Metropolitan District Series 1993C, 9.84%
due 12/31/32 (d) (i) 9,066
225,000 St. Charles Mesa Water District Water Revenue Refunding Series
1992, 5.55% due 12/01/00 234,171
500,000 City of Salida Sales Tax Revenue Refunding & Improvement
Series 1990, 8.20% due 12/01/11 507,280
535,000 San Miguel County Housing Authority Multifamily Telluride
Village Revenue Refunding Series 1993, 6.30% due 7/01/13 569,914
185,000 San Miguel County School District No. R-1 G.O. Series 1992,
8.50% due 12/01/98 (b) 186,606
1,250,000 Sand Creek Metropolitan District G.O. Limited Tax Bonds, Series
1997, 7.125% due 12/1/16 1,250,000
1,755,000 City of Sheridan G.O. Series 1997, 7.50% due 12/01/16 1,755,000
</TABLE>
7
<PAGE> 11
COLORADO BONDSHARES --
A TAX-EXEMPT FUND
Statement of Investments
September 30, 1998
<TABLE>
<CAPTION>
Face Market
Amount Colorado Municipal Bonds-- 91.2% Value
- ------------ -------------------------------- -------------
<S> <C> <C>
$ 230,000 Town of Snowmass Village Multifamily Housing Series 1990A,
7.60%-7.70% due 12/15/98-99 $ 237,063
210,000 Southgate Corporate Center Metropolitan District G.O.
Refunding Series 1994, 5.50% due 12/01/98 210,370
1,000,000 Southpark Metropolitan District Refunding G.O. Series 1996,
6.60% due 12/01/13 1,057,230
305,000 Southtech Metropolitan District G.O. Refunding Series 1994,
5.10%-5.85% due 12/01/99-04 319,724
100,000 Southwest Plaza Metropolitan District G.O. Refunding Series
1993, 5.00% due 12/01/99 101,499
40,000 City of Steamboat Springs Accommodations Tax Revenue Series
1995, 5.25% due 03/01/00 40,926
200,000 Summit County Sewer Revenue Refunding Series 1992, 4.60%
due 12/01/98 200,404
180,000 Superior Metropolitan District No. 2 G.O. Refunding Series 1994A,
5.90% due 12/01/98 180,763
75,000 Swink School District No. 33 G.O. Building Bonds Series 1994,
8.40% due 12/15/00-03 87,691
360,000 Telluride Hospital District G.O. Series 1997, 4.60-4.80%,
due 12/01/00-02 365,826
2,000,000 Todd Creek Farms Metropolitan District No. 2, Limited Tax
G.O. Series 1997, 8.00% due 6/01/17 2,000,000
300,000 Upper Eagle Regional Water Authority Water Refunding Series
1994, 5.50%-5.80% due 12/01/99-01 310,786
610,000 Valley Metropolitan District G.O. Revenue Series 1992, 7.00%
due 12/15/06 643,501
50,000 Walsenburg Natural Gas Revenue Series 1968, 6.25% due
6/01/99 50,725
100,000 Weld County Reorganized School District RE-4 G.O. Series
1993, 4.65% due 12/01/00 102,130
100,000 Westglenn Metropolitan District G.O. Refunding Series 1994,
4.80% due 12/01/98 100,229
335,000 Town of Windsor, G.O. Water Refunding Series 1994, 4.40%-4.80%
due 4/01/99-01 339,276
65,000 City of Woodland Park Limited Sales Tax Refunding Bonds Series
1994A, 5.25% due 12/01/98 65,177
-------------
Total Colorado Municipal Bonds (cost $65,379,573) 66,701,230
-------------
</TABLE>
8
<PAGE> 12
COLORADO BONDSHARES --
A TAX-EXEMPT FUND
Statement of Investments
September 30, 1998
<TABLE>
<CAPTION>
Face Market
Amount Colorado Certificates of Participation-- 1.2% Value
- ------------ --------------------------------------------- -------------
<S> <C> <C>
$ 155,000 Arapahoe County Recreation District Refunding Certificates of
Participation Series 1996, 5.00%-5.20% due 12/01/04-06 $ 165,198
170,000 City of Central City Certificates of Participation City Hall
Project Series 1995, 6.50%-6.80% due 12/01/99-01 172,212
100,000 El Paso County School District No. 49 (Falcon Schools)
Refunding Certificates of Participation Series 1995, 4.375%
due 11/01/01 102,007
200,000 Gilpin County Certificates of Participation Detention Facility
Project Series 1994, 6.60% due 10/15/01 216,356
50,000 Las Animas County School District No. 001 Certificates of
Participation Series 1991A, 8.00% due 12/01/10 54,914
145,000 Park School District R-3 Certificates of Participation Series 1996
5.35%-5.45% due 06/01/04-05 145,293
-------------
Total Colorado Certificates of Participation (cost $858,641) 855,980
-------------
Colorado Industrial Development Revenue Bonds -- 4.6%
----------------------------------------------------
555,000 Adams County Robertson Association Series 1979, 9.00% due
6/15/04 556,843
200,000 City and County of Denver Desks Colorado Project Series 1983,
4.25% due 10/15/05 (put 10/15/98) (h) 200,124
2,835,000 City of Fort Collins The Opera House Project Series 1986,
8.75%-10.00% due 12/01/10-16 2,614,055
-------------
Total Colorado Industrial Development Revenue Bonds
(cost $3,581,875) 3,371,022
-------------
Other Municipal Bonds -- 1.7%
----------------------------
100,000 City of Burnsville G.O. Tax Increment Refunding Series 1993C,
4.40% due 02/01/02 102,395
205,000 Daggett County School District, G.O. Refunding Series 1993,
4.50%-4.65% due 12/15/98-99 206,689
515,000 Sandoval County, New Mexico Project Revenue Bonds, Series
1997, 7.50% due 08/15/06 515,000
100,000 Santa Fe Public School District G.O. Series 1993, 4.00% due
06/15/99 100,056
100,000 Santa Fe Public School District G.O. Series 1994, 5.60% due
06/15/01 101,380
100,000 Washington County School District 007 Hillsboro Series 1989,
6.70% due 06/01/08 (b) 102,236
120,000 West Wendover Recreation District G.O. Golf Course
Improvement Refunding Series 1993, 5.60% due 12/01/99 122,856
-------------
Total Other Municipal Bonds (cost $1,256,731) 1,250,612
-------------
</TABLE>
9
<PAGE> 13
COLORADO BONDSHARES --
A TAX-EXEMPT FUND
Statement of Investments
September 30, 1998
<TABLE>
<CAPTION>
Market
Value
-------------
<S> <C> <C> <C>
Total investments, at value (cost $71,076,820)* 98.7% $ 72,178,844
Other assets net of liabilities 1.3% 928,754
-------------
Net assets 100.0% $ 73,107,598
</TABLE>
* Tax cost basis approximates book cost basis.
10
<PAGE> 14
COLORADO BONDSHARES --
A TAX-EXEMPT FUND
Statement of Investments
September 30, 1998
(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 prerefunded 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 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 shown for cash flow bond represents the effective yield at
September 30, 1998. Income on this security is derived from the cash flow
of the issuer.
(h) Represents current interest rate for a variable rate bond.
(i) Terms of security have been restructured since original issuance. The
face amount and market value of such securities amount to $14,603,486 and
$2,894,444, or 3.96% of net assets, respectively, as of September 30,
1998.
The following abbreviations are used in the descriptions of securities included
in the Statement of Investments:
G.O. -- General Obligations
LID -- Local Improvement District
GID -- General Improvement District
See accompanying notes to financial statements.
11
<PAGE> 15
COLORADO BONDSHARES --
A TAX-EXEMPT FUND
Statement of Assets and Liabilities
September 30, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $71,076,820) - see accompanying
statement $ 72,178,844
Cash 320,673
Interest receivable 1,533,304
Shares of beneficial interest sold 62,916
----------------
Total assets 74,095,737
----------------
LIABILITIES
Payables and other liabilities:
Dividends 220,714
Investments purchased 700,000
Accrued expenses and other 67,425
----------------
Total liabilities 988,139
----------------
Net assets $ 73,107,598
================
COMPOSITION OF NET ASSETS
Paid-in capital $ 72,013,291
Accumulated net realized loss from investment transactions (7,717)
Net unrealized appreciation of investments (note 3) 1,102,024
----------------
Net assets $ 73,107,598
================
Net asset value and redemption value per share (based on 7,582,591
shares of beneficial interest outstanding) $ 9.64
================
Maximum offering price per share (net asset value plus sales charge
of 4.75% of offering price) $ 10.12
================
</TABLE>
See accompanying notes to financial statements.
12
<PAGE> 16
COLORADO BONDSHARES --
A TAX-EXEMPT FUND
Statement of Operations
For the Year Ended September 30, 1998
<TABLE>
<S> <C>
Investment income - interest $ 5,098,765
----------------
Expenses:
Management fees (note 4) 345,393
Custodian fees (note 5) 79,635
Legal and auditing fees 35,463
Transfer agency expenses (note 4) 38,325
Shareholders' reports and proxy statements 30,277
Registration fees 3,650
Trustees' fees 1,825
Other 3,385
----------------
Total expenses 537,953
Expenses paid indirectly (note 5) (79,635)
----------------
Net expenses 458,318
----------------
Net investment income 4,640,447
----------------
Realized and unrealized gain on investments:
Net realized gain on investments 294,050
----------------
Net unrealized appreciation of investments:
Beginning of year 914,519
End of year 1,102,024
----------------
Net change in unrealized appreciation on investments 187,505
----------------
Net realized and unrealized gain on investments 481,555
----------------
Net increase in net assets resulting from operations $ 5,122,002
================
</TABLE>
See accompanying notes to financial statements.
13
<PAGE> 17
COLORADO BONDSHARES --
A TAX-EXEMPT FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------
1998 1997
---------------- ---------------
<S> <C> <C>
From investment activities:
Net investment income $ 4,640,447 3,651,580
Net realized gain on investments 294,050 66,006
Net change in unrealized appreciation on investments 187,505 1,342,920
---------------- ---------------
Net increase in net assets resulting from operations 5,122,002 5,060,506
---------------- ---------------
Dividends to shareholders from net investment income (4,661,865) (3,640,860)
---------------- ---------------
From beneficial interest transactions:
Proceeds from sale of shares 12,613,472 16,889,528
Dividends reinvested 2,860,000 2,375,147
Payments for shares redeemed (10,075,001) (4,018,181)
---------------- ---------------
Increase in net assets derived from beneficial interest
transactions 5,398,471 15,246,494
---------------- ---------------
Net increase in net assets 5,858,608 16,666,140
Net assets:
Beginning of year 67,248,990 50,582,850
---------------- ---------------
End of year (including undistributed net investment
income of $0 and $21,418, respectively) $ 73,107,598 67,248,990
================ ===============
</TABLE>
See accompanying notes to financial statements.
14
<PAGE> 18
COLORADO BONDSHARES --
A TAX-EXEMPT FUND
Financial Highlights
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ------- ------- --------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $ 9.58 $ 9.37 $ 9.16 $ 9.07 $ 9.13
---------- ------- ------- --------- --------
Net investment income 0.62 0.58 0.61 0.60 0.63
Net realized and unrealized gain (loss) on investments 0.06 0.21 0.20 0.09 (0.06)
---------- ------- ------- --------- --------
Increase from investment operations 0.68 0.79 0.81 0.69 0.57
Dividends from net investment income (0.62) (0.58) (0.60) (0.60) (0.63)
---------- ------- ------- --------- --------
Net increase (decrease) in net asset value 0.06 0.21 0.21 0.09 (0.06)
---------- ------- ------- --------- --------
Net asset value, end of period $ 9.64 $ 9.58 $ 9.37 $ 9.16 $ 9.07
========== ======= ======= ========= ========
Total Return, at Net Asset Value (1) 7.62% 8.66% 9.15% 8.05% 6.50%
========== ======= ======= ========= ========
Ratios/Supplemental Data:
Net assets, end of period (000)s $ 73,108 67,249 50,583 44,768 41,790
========== ======= ======= ========= ========
Ratios to average net assets:
Net investment income 6.66% 6.13% 6.50% 6.81% 6.96%
Expenses, inclusive of expenses paid indirectly by the Fund 0.77% 0.84% 0.77% 0.84% 0.74%
Expenses, net of expenses paid indirectly by the Fund 0.66% 0.73% 0.70% 0.77% 0.74%
Portfolio turnover rate (2) 28.63% 27.66% 24.53% 27.48% 22.04%
========== ======= ======= ========= ========
</TABLE>
15
<PAGE> 19
COLORADO BONDSHARES --
A TAX-EXEMPT FUND
Financial Highlights
(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 year ended September 30, 1998
were $26,758,411 and $18,782,105, respectively.
See accompanying notes to financial statements.
16
<PAGE> 20
COLORADO BONDSHARES --
A TAX-EXEMPT FUND
Notes to Financial Statements
September 30, 1998
(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 (FFMC). The following is a summary of significant accounting
policies consistently followed by the Fund.
(A) INVESTMENT VALUATION
The value of investments are determined using prices quoted by a
national independent pricing service approved by the Fund's Board
of Trustees. The pricing service values the municipal bonds
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 issued
discounts on zero coupon bonds, using the effective yield method,
in accordance with federal income tax requirements. 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, 1998,
the Fund had available for federal income tax purposes an unused
capital loss carryover of approximately $8,000, expiring in 2003.
(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 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 nonrated securities which may be subject to a
greater degree of credit risk, risk of loss of income and
principal, and may be more sensitive to economic conditions than
lower yielding, higher rated 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 and market
17
(Continued)
<PAGE> 21
value of bonds, for which the accrual of interest income has been
discontinued, approximated $9,796,352 and $699,605 (0.1% of net
assets), respectively, as of September 30, 1998.
(D) USE 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 years ended September 30, 1998 and 1997 were as follows:
1998 1997
------------------- -------------------
Sold 1,313,197 1,794,889
Dividends reinvested 297,289 251,774
------------------- -------------------
1,610,486 2,046,663
Redeemed (1,047,465) (426,982)
------------------- -------------------
Net increase 563,021 1,619,681
=================== ===================
(3) UNREALIZED GAINS AND LOSSES
At September 30, 1998, the net unrealized appreciation on investments
for tax purposes was of $1,102,024, which was comprised of gross
appreciation of $2,809,805 and gross depreciation of $1,707,781.
(4) MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees paid to FFMC 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. FFMC 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. FFMC provided certain transfer agency and
shareholder services as part of the management fee arrangement for the
fiscal year ended September 30, 1998. Transfer agency expenses represent
direct expenses charged to the Fund by third parties.
18
(Continued)
<PAGE> 22
(5) EXPENSES PAID INDIRECTLY BY THE FUND
Expenses paid indirectly by the Fund represent earnings credits on cash
balances maintained with the custodian by the Fund which result in
offsetting custodian fees incurred for the safeguarding of Fund assets.
19
<PAGE> 23
FEDERAL INCOME TAX INFORMATION
(unaudited)
In early 1999, shareholders will receive
information regarding all dividends and
distributions paid to them by the Fund during
calendar year 1998. Regulations of the U.S.
Treasury Department require the Fund to report
this information to the Internal Revenue Service.
During fiscal year ended September 30, 1998,
100 percent of the dividends paid by Colorado
BondShares A Tax-Exempt Fund from net
investment income should be treated as tax-
exempt dividends.
