<PAGE> 1
November 13, 1997
Dear Shareholders:
I am pleased to present our annual report summarizing the financial results of
Colorado BondShares for the fiscal year ended September 30, 1997. Our
performance during this past year produced positive investment results similar
to those which we have experienced in the recent past. The composition of those
returns changed somewhat during this period because a larger portion of the
total return figure came from appreciation than in the past. We were up $0.21
per share this year alone. This is a less desirable way of producing results
because there is income tax eventually due on capital gains when shares are
sold. Congress made capital gains taxes a little less onerous in the most
recent tax bill. In the past we have concentrated on maximizing the current
payment of tax exempt income to shareholders rather than emphasizing growth.
It's not that we changed our philosophy, the results merely reflect the
realities of the current market environment which offers lower interest rates
on reinvestments than in past years. Also apparent in the statistics is the
fact that as bonds appreciate and generate the same amount of income, current
yield decreases. This trend is likely to continue.
For the last several years investors have favored stocks over bonds because of
the lucrative returns experienced in the equity markets. In my opinion,
however, bonds and bond funds are about to be in vogue again because the types
of gains associated with equity investments are unsustainable over long
periods. In many ways the investment opportunities provided by the securities
markets today are analogous to the children's fable about the tortoise and the
hare. Equities can run fast (in either direction) then they rest. Bonds are
typically less volatile in their performance but move slowly and steadily
toward stated maturity dates when they reach par. The tortoise's philosophy is
attractive, particularly to investors seeking a predictable annual income and
more stable principal values. After hearing about the tortoise and hare for the
first time, my five-year-old son was asked if he understood the moral of the
story. "Yes," he said, "Never take a nap." This may well be the most sage
investment advice I've heard and it is particularly relevant in today's
volatile markets. We will continue to be vigilant on your behalf, not lulled to
sleep by past successes but looking for opportunities to enhance the income
stream. A few capital gains along the way may not be the worst news I could
deliver.
As always, it has been a pleasure to serve you during this past year, and if
there is a way that we can better meet your investment needs, please do not
hesitate to call us.
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 ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY, AND INVOLVE INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
THE TRUSTEES AND SHAREHOLDERS OF
COLORADO BONDSHARES -
A TAX-EXEMPT FUND:
We have audited the accompanying statements of investments and assets and
liabilities of Colorado BondShares - A Tax-Exempt Fund as of September 30,
1997, 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
ten-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, 1997, 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, 1997, 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 ten-year period then ended, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Denver, Colorado
October 24, 1997
1
<PAGE> 4
COLORADO BONDSHARES -
A TAX-EXEMPT FUND
STATEMENT OF INVESTMENTS
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT COLORADO MUNICIPAL BONDS -- 89.5% VALUE
------ --------------------------------- -----
<S> <C>
$ 235,000 Academy Water and Sanitation District G.O. Series 1995,
6.20%-7.10% due 11/15/02-05 $ 258,775
25,000 Adams & Arapahoe Counties School District No. 31J G.O. Series
1989, 7.30% due 11/15/04 (b) 26,726
75,000 Adams County Pollution Control Revenue Refunding Series
1986A, 7.375% due 11/01/09 76,657
200,000 Arapahoe County Water and Wastewater Authority Revenue
Series 1994, 6.20%-6.30% due 12/01/03-04 (b) 216,392
250,000 Arapahoe Water and Sanitation District G.O. Refunding and
Improvement Series 1986, 8.50% due 12/01/05 297,613
175,000 Arapahoe Water and Sanitation District G.O. Refunding and
Improvement Series, 1988A, 9.25% due 12/01/13 187,000
1,000,000 Arapahoe Water and Sanitation District G.O. Refunding and
Improvement Series, 1988A, 9.25% due 12/01/13 (b) 1,068,930
2,250,000 Arapahoe Water and Sanitation District G.O. Refunding Series
1995B, 8.50% due 12/01/20 (b) 2,670,502
100,000 Arrowhead Metropolitan District G.O. Improvement Series
1995A, 5.20%-6.10% due 12/01/97-03 100,521
100,000 Arrowhead Metropolitan District G.O. Refunding Series 1994,
5.70% due 12/01/03 104,532
70,000 City of Arvada G.O. Street and Bridge Refunding Series 1994,
3.80% due 12/01/99 69,853
565,000 Arvada Multifamily Rental Housing Revenue Series 1993,
7.50% due 12/15/18 568,729
250,000 City of Aspen G.O. Electric Refunding Series 1991, 5.35% due
10/01/98 253,498
306,040 Aurora Centretech Metropolitan District G.O. Refunding and
Improvement Series 1994, 6.00% due 12/01/23 238,726
135,000 Bayfield School District No. 10 JT-R G.O. Refunding Series
1992, 5.50% due 09/15/98 136,999
245,000 Bear Creek LID #1 Special Assessment Refunding Series 1993,
6.50% due 3/15/98 248,619
125,000 Beaver Creek Metropolitan District G.O. Refunding Series
1994, 3.90% due 12/01/97 125,033
100,000 Beaver Creek Metropolitan District G.O. Refunding Series
1993, 4.60% due 12/01/98 100,791
1,880,000 Bell Mountain Ranch Phase II Metropolitan District G.O. Series
1995, 8.50% due 11/15/15 1,968,191
460,000 Bell Mountain Ranch Phase II Metropolitan District Improve-
ment Fee Revenue Series 1997, 7.50% due 11/15/00 459,977
415,000 Bell Mountain Ranch Phase III Metropolitan District Improve-
ment Fee Revenue Series 1996, 7.00% due 11/15/99 414,967
345,000 Bell Mountain Ranch Phase III Metropolitan District Improve-
ment Fee Revenue Series 1997, 7.50% due 11/15/00 344,983
</TABLE>
2
<PAGE> 5
COLORADO BONDSHARES -
A TAX-EXEMPT FUND
STATEMENT OF INVESTMENTS, CONTINUED
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT COLORADO MUNICIPAL BONDS -- CONTINUED VALUE
------ ------------------------------------- -----
<S> <C>
$ 680,000 Bennett School District No. 29J G.O. Refunding and Improvement Series 1991,
6.35%-6.95% due 12/01/99-04 $ 725,452
145,000 City of Black Hawk Device Tax Revenue Series 1994, 5.55%-5.70% due
12/01/00-01 150,100
200,000 City of Black Hawk Device Tax Revenue Series 1996, 5.75%-5.85% due
12/01/03-04 210,288
350,000 City of Black Hawk G.O. Water Improvement Series 1992, 6.40%-6.80% due
12/01/98-00 365,367
130,000 Boulder County Gunbarrel General Improvement District G.O. Series 1994,
4.90%-5.00% due 11/15/98-99 132,079
100,000 Boulder County Single Family Mortgage Revenue Series 1982A, 10.00% due
5/01/99 91,343
260,000 Boulder County Zero Coupon Single Family Mortgage Revenue Series 1983,
11.00% due 12/01/14 (d) 44,463
25,000 Boulder Valley School District No. RE-2 Series 1992A , 5.80% due 10/15/01
26,491
165,000 Boxelder Sanitation District Sewer Revenue Refunding and Improvement Series
1994, 5.35%-5.90% due 01/01/98-03 168,537
280,000 Town of Breckenridge G.O. Recreation Center Refunding Series 1993,
4.30%-4.45% due 12/01/99-00 282,137
120,000 Town of Breckenridge Excise Tax Revenue Series 1991, 5.70% due 12/01/97
120,384
514,414 Briargate Public Building Authority, Landowner
Assessment Lien Series 1985A and 1986A, 9.50%-10.25%
due 06/15/95-05 (a)
334,796
12,000 Castle Pines North Metropolitan District Tax Revenue Bonds Series 1994B,
8.95%, due 12/01/33 (h) 7,800
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
470,000 Town of Castle Rock G.O. Water Refunding Series 1993, 4.30%-4.65% due
12/01/98-00 473,899
300,000 Castlewood Water District G.O. Refunding Series 1993, 4.40%-5.10% due
12/01/97-01 303,348
60,389 Centennial Downs Metropolitan District Cash Payment Deficiency Bond Series
1993, 8.09% due 12/01/34 48,311
588,601 Centennial Downs Metropolitan District Limited Tax Refunding Bond Series
1993, 8.09% due 12/01/34 353,161
271,980 Centennial Downs Metropolitan Interest Certificate Series 1993, 6.00% due
12/01/34 (c) 2,720
100,000 Central Weld County Water District Water Revenue Refunding Series 1993,
3.80% due 12/01/97 100,004
105,000 Cherry Hills Farm Metropolitan District G.O. Refunding Series 1992, 6.50%
due 12/01/97 107,150
</TABLE>
3
<PAGE> 6
COLORADO BONDSHARES -
A TAX-EXEMPT FUND
STATEMENT OF INVESTMENTS, CONTINUED
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT COLORADO MUNICIPAL BONDS -- CONTINUED VALUE
------ ------------------------------------- -----
<S> <C> <C>
$ 100,000 Clear Creek School District No. Re-1 G.O. Improvement Series 1991, 5.90% due
12/01/00 $ 105,597
2,009,520 Colorado Centre Metropolitan District Limited Tax and Special Revenue Series
1992A, principal only, 0.00% due 1/01/27 (e) (a) 20,095
2,008,335 Colorado Centre Metropolitan District Limited Tax and Special Revenue Series
1992A, interest only, 9.00% due 1/01/27 (f) 1,205,001
6,465,662 Colorado Centre Metropolitan District Limited Tax and Special Revenue Series
1992B, 0.00% due 1/01/32 (g) (a) 64,657
5,000 Colorado Health Facilities Authority Hospital Refunding Revenue National
Jewish Center Series 1992, 6.15% due 2/15/98 5,033
190,000 Colorado Health Facilities Authority Refunding Revenue Porter Memorial
Hospital Series 1986A, 7.40% due 2/01/16 (b) 203,950
240,000 Colorado Health Facilities Authority Revenue Refunding Swedish Medical Center
Series 1987, 7.00% due 10/01/15 (b) 244,822
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) 145,402
1,610,000 Colorado Postsecondary Educational Facilities Authority Revenue National
Technological University Project Series 1993, 7.375%-7.75% due 12/01/10 1,627,700
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
920,000 Colorado Springs Spring Creek G.O. Series 1995, 3.13% due 12/01/14 (h) 414,000
325,000 Colorado Tech Center Metropolitan District G.O. Refunding Series 1989, 9.75%
due 6/01/09 (b) 345,595
1,180,000 Columbia Metropolitan District G.O. Improvement Series 1992, 7.60%-8.50% due
11/01/00-11/01/12 1,407,487
100,000 City of Commerce City Special Improvement District No. 17 Special Assessment,
6.90%-7.10% due 12/01/07 (b) 100,045
575,000 Cordillera Metropolitan District G.O. Series 1994A, 8.00% due 12/01/09 598,000
500,000 Cordillera Metropolitan District G.O. Series 1994, 8.25% due 12/01/13 520,000
2,250,000 Cottonwood Water and Sanitation District Refunding Series 1996, 7.60% 12/01/12 2,340,945
240,000 Town of Crested Butte Sales Tax Revenue Series 1994, 6.10%-6.35% due
12/01/01-03 255,833
260,000 Town of Crested Butte G.O. Water and Sewer Refunding Series 1993, 3.90%-4.25%
due 11/01/97-99 260,471
375,000 City of Delta Sales and Use Tax Revenue Refunding Series 1994, 4.35%-4.65% due
12/01/01-03 376,948
</TABLE>
4
<PAGE> 7
COLORADO BONDSHARES -
A TAX-EXEMPT FUND
STATEMENT OF INVESTMENTS, CONTINUED
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT COLORADO MUNICIPAL BONDS -- CONTINUED VALUE
------ ------------------------------------- -----
<S> <C> <C>
$ 72,000 City and County of Denver Lease Purchase Certificates Series 1993, 6.30%
due 01/01/02 $ 72,127
25,000 City and County of Denver Special Facilities Airport Revenue Series 1967,
5.375% due 01/01/99 24,692
60,000 City and County of Denver Zero Coupon Single Family Mortgage Revenue Series
1984, 11.63% due 9/01/15 (d) 8,695
75,000 Town of Dillon G.O. Series 1992, 5.70%-5.90% due 10/01/99-00 78,059
95,000 Town of Dillon Excise Tax Revenue Series 1994, 5.80%-5.90% due 06/01/02-03 98,035
320,000 Douglas County LID #3 Series 1991, 10.00% due 8/01/02 320,000
505,000 Dove Valley Metropolitan District G.O. Refunding & Improvement Series 1989,
8.25% due 12/01/08 508,813
90,000 City of Durango First Mortgage Revenue Series 1995, 6.50% due 12/15/00 91,021
25,000 Eagle County Eagle Valley Library District G.O. (Limited Tax) Library
Series March 1, 1994, 4.45% due 12/01/98 25,146
600,000 Eaglebend Affordable Housing Corporation Revenue Series 1990A-2, 10.00% due
7/01/21 599,274
500,000 Eaglebend Affordable Housing Corporation Revenue Series 1991B, 10.00% due
7/01/21 499,395
120,000 El Paso and Elbert Counties Joint School District No. 23-JT
G.O. Building Series 1994, 5.75%-5.80% due 12/15/97-01 123,142
90,000 El Paso County LID 85-2 Special Assessment Refunding Series 1988,
8.875%-9.00% due 9/01/00 9,000
1,700,000 El Paso County Multifamily Housing Briarglen Apartments Project Series
1994, 4.10% due 12/01/24 (h) 1,700,000
100,000 El Paso County Pheasant Run LID Special Assessment Bonds Series 1986-2,
9.25% due 9/01/99 (a) 26,000
100,000 El Paso County School District No. 2-Harrison G.O. Improvement Series 1994,
7.10% due 12/01/04 115,940
500,000 El Paso County School District No. 20 Zero Coupon G.O. Refunding Series
1993A, 6.10% due 6/15/08 (d) 294,340
150,000 Elbert County School District C-1 G.O. Series 1994, 4.40% due 12/01/02 148,611
155,000 City of Englewood Golf Course Revenue Series 1994, 4.35% due 12/01/00 154,692
100,000 Estes Park Urban Renewal Authority Tax Increment Revenue Refunding Series
1993, 4.30% due 05/15/98 100,241
490,000 Evergreen Metropolitan District Water Revenue Refunding Series 1992A,
6.10%-6.25% due 07/15/98-99 503,329
10,000 Fairlake Metropolitan District G.O. Series 1991, 9.625% due 12/01/98 10,606
</TABLE>
5
<PAGE> 8
COLORADO BONDSHARES -
A TAX-EXEMPT FUND
STATEMENT OF INVESTMENTS, CONTINUED
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT COLORADO MUNICIPAL BONDS -- CONTINUED VALUE
------ ------------------------------------- -----
<S> <C>
$ 1,500,000 Fairlake Metropolitan District G.O. Series 1989, 9.00% due 6/01/09 $ 1,569,270
515,000 Forest Hills Metropolitan District G.O. Refunding Series 1992B, 7.75% due
11/01/99 521,674
500,000 Fort Collins G.O. Water Series 1982, 10.00% due 12/01/99 (b) 505,140
25,000 Fort Collins Refunding Series B, 6.00%, due 12/01/02 26,973
150,000 Fraser Valley Metropolitan Recreation District G.O. Refunding Series 1992,
5.20%-5.40% due 10/01/98-99 152,810
100,000 Town of Frederick G.O. Water Refunding Series 1993, 4.50%-4.70% due
12/01/97-98 100,342
100,000 School District Fremont RE-1 G.O. Refunding Series 1990, 6.80% due 10/01/99 101,938
850,000 Gateway Village Improvement District G.O. Series 1995, 8.25%-8.75% due
12/01/05-14 862,721
200,000 City of Glenwood Springs Sales and Use Tax Revenue Series 1992A, 5.90% due
12/01/02 202,502
300,000 City of Golden Sales and Use Tax Revenue Series 1992, 4.50%-5.00% due
11/15/97-99 302,907
300,000 City of Grand Junction Downtown Development Authority Tax Increment Revenue
Series 1996, 5.55%-5.65% due 11/15/04-05 312,651
100,000 Greeley General Improvement District No. 1 G.O. Refunding Series July 15,
1994, 5.20%-5.30% due 10/01/98-99 101,885
290,000 Greenwood Metropolitan District G.O. Refunding Series 1994, 5.30%-7.00% due
12/01/97-04 309,786
520,000 Greenwood North Metropolitan District G.O. Refunding Series 1993,
4.30%-5.00% due 12/01/97-01 522,046
220,000 Greenwood South Metropolitan District G.O. Refunding Series 1994,
6.25%-6.90% due 12/01/01-04 235,163
100,000 City of Greenwood Village Sales Tax Revenue Refunding Series 1993, 4.40%
due 12/01/99 100,818
500,000 Hamilton Creek District Series 1990, 1.20% due 12/01/04 (g) 250,000
55,000 Town of Hayden G.O. Water Refunding Series 1993, 4.30% due 09/01/99 55,149
35,000 Heritage Greens Metropolitan District G.O. Refunding Series 1994, 5.35% due
12/15/97 35,101
10,000 Hyland Hills Park & Recreation District Special Revenue Improvement Series 10,864
1992, 7.10% due 12/15/00
340,000 Idledale Fire Protection District G.O. Series 1993, 5.20%-5.80% due
12/15/03-07 341,390
1,655,000 Interstate South Metropolitan District Zero Coupon G.O. Refunding &
Improvement Series 1989, 9.00% due 12/01/10-14 (d) 415,050
</TABLE>
6
<PAGE> 9
COLORADO BONDSHARES -
A TAX-EXEMPT FUND
STATEMENT OF INVESTMENTS, CONTINUED
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT COLORADO MUNICIPAL BONDS -- CONTINUED VALUE
------ ------------------------------------- -----
<S> <C>
$ 100,000 La Plata County Hospital District G.O. Series 1987, 7.50% 12/01/00 (b) $ 102,621
490,000 La Plata County Recreational Facilities Revenue Refunding Durango Ski
Corporation Project Series 1989A, 9.00% due 02/01/10 475,300
100,000 City of Lafayette Sales and Use Tax Revenue Series 1991, 5.70% due 11/15/98 102,093
100,000 City of Lakewood Combined Utility Revenue Refunding Series 1993, 4.20% due
12/01/97 100,048
65,000 City of Lakewood Zero Coupon Single Family Mortgage Series 1985, 11.10% due
5/01/15 (d) 10,060
315,000 City of Las Animas Water G.O. Series 1989, 8.60% due 12/01/09 316,222
300,000 Left Hand Water District Water Revenue Refunding Series 1993, 4.30%-4.45%
due 11/15/00-01 302,221
135,000 Lookout Mountain Water District G.O. Refunding Series 1993, 5.20% due
12/01/01 138,754
1,000,000 City of Louisville Sales Tax Revenue Series 1989, 8.60% due 11/15/13 (b) 1,062,200
70,000 City of Manitou Springs Water and Sewer Revenue Series 1992, 5.00%-5.20%
due 03/01/98-99 70,342
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) 1,391,975
200,000 Moffat School District No. 2 G.O. Series 1994, 5.40%-5.90% due 12/01/97-01 207,202
320,000 City of Montrose Sales and Use Tax Revenue Refunding Series 1993,
4.20%-4.40% due 08/15/99-00 321,738
250,000 City of Montrose Water and Sewer Revenue Refunding and Improvement Series
1993, 4.50%-4.65% due 10/01/01-02 253,474
15,000 Montrose County Airport Authority Airport Revenue Refunding & Improvement
Series 1987, 9.50% due 12/01/07 (b) 15,292
155,000 Monument Sanitation District G.O. Refunding Series 1994, 5.80%-5.90% due
12/01/01-02 161,492
255,000 Town of Mt. Crested Butte G.O. Refunding Series 1993, 4.40%-4.75% due
05/01/99-01 256,338
750,000 Mountain Village Metropolitan District G.O. Series 1992, 7.95% due 12/01/03 841,958
350,000 Town of Nederland G.O. Water Refunding Series 1989, 8.50% due 8/15/13 (b) 364,270
225,000 North Jeffco Park and Recreation District Golf Course Revenue Series 1994,
5.80%-6.10% due 12/01/01-04 237,867
</TABLE>
7
<PAGE> 10
COLORADO BONDSHARES -
A TAX-EXEMPT FUND
STATEMENT OF INVESTMENTS, CONTINUED
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT COLORADO MUNICIPAL BONDS -- CONTINUED VALUE
------ ------------------------------------- -----
<S> <C> <C>
$ 100,000 North Table Mountain Water and Sanitation District G.O. Water Improvement,
7.10% due 12/01/97 $ 100,263
120,000 Northeast Teller County Fire Protection District G.O. Series 1988,
7.50%-7.60% due 12/01/97-98 120,688
193,750 Northern Metropolitan District Limited Tax Revenue Refunding Series 1992A,
8.60%-8.875% due 12/01/22 168,562
579,900 Northern Metropolitan District Limited Tax Revenue Refunding Series 1992B,
principal only, 0.00% due 12/01/22 (e) (a) 226,161
918,750 Northern Metropolitan District Limited Tax Revenue Refunding Series 1992B,
0.00% due 12/01/22 (g) (a) 358,313
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
12/01/98 201,854
100,000 Town of Palisade G.O. Water Refunding Series 1993B, 5.10% due 04/01/99 101,297
1,055,000 Panorama Metropolitan District G.O. Refunding Series 1989B, 9.00% due
12/01/09 (b) 1,172,590
280,000 Town of Parker Sales and Use Tax Refunding Revenue Series 1993, 4.20%-4.30% 281,536
due 11/01/99-00
1,000,000 Piney Creek Metropolitan District Refunding Series 1989A, 8.50% due 12/01/14 1,024,490
50,000 Pitkin County Sales Tax Revenue Series 1993, 3.45% due 12/01/97 49,972
45,000 Pitkin County Sales Tax Revenue Series 1995, 5.30% due 12/01/00 45,828
200,000 Project 7 Water Authority Water Revenue Refunding Series 1993, 4.50% due
12/01/00 201,990
205,000 Rangely Junior College District G.O. Building Series 1992, 6.15%-6.40% due
10/01/98-00 210,695
210,000 Ridgway School District No. R-2 G.O. Series 1994, 7.75% due 12/01/98-02 231,913
159,868 Roxborough Village Metropolitan District Series 1993A, 9.00% due 12/31/16 131,092
278,078 Roxborough Village Metropolitan District Series 1993B, principal only,
0.00% due 12/31/21 (e) 16,685
20,270 Roxborough Village Metropolitan District Series 1993B, interest only,
10.41% due 1/01/43 (f) 203
906,622 Roxborough Village Metropolitan District Series 1993C, 0.06% due 12/31/32
(d) 9,066
225,000 St. Charles Mesa Water District Water Revenue Refunding Series 1992, 5.55%
due 12/01/00 234,659
</TABLE>
8
<PAGE> 11
COLORADO BONDSHARES -
A TAX-EXEMPT FUND
STATEMENT OF INVESTMENTS, CONTINUED
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT COLORADO MUNICIPAL BONDS -- CONTINUED VALUE
------ ------------------------------------- -----
<S> <C> <C>
$ 240,000 Saint Vrain Sanitation District G.O. Series 1987, 9.625% due 12/01/06 $ 244,685
500,000 City of Salida Sales Tax Revenue Refunding & Improvement Series 1990, 8.20%
due 12/01/11 518,105
125,000 San Miguel County Housing Authority Multifamily Telluride Village Zero
Coupon Revenue Refunding Series 1993, 7.00% due 7/01/98 (d) 120,345
535,000 San Miguel County Housing Authority Multifamily Telluride Village Revenue
Refunding Series 1993, 6.30% due 7/01/13 541,377
1,250,000 Sand Creek Metropolitan District G.O. Limited Tax Bonds, Series 1997, 7.125% 1,250,000
due 12/1/16
185,000 San Miguel County School District No. R-1 G.O. Series 1992, 8.50% due 194,465
12/01/98 (b)
1,800,000 City of Sheridan G.O. Series 1997, 7.50% due 12/01/16 1,800,000
145,000 City of Silverthorne Joint Water and Sewer Revenue Series 1989, 7.80%-7.90%
due 01/01/98-99 146,369
1,900,000 Smith Creek Metropolitan District Revenue Series 1997, Variable Rate 3.85%
due 10/01/35 (h) 1,900,000
230,000 Town of Snowmass Village Multifamily Housing Series 1990A, 7.60%-7.70% due
12/15/98-99 244,208
210,000 Southgate Corporate Center Metropolitan District G.O. Refunding Series
1994, 5.50% due 12/01/98 210,563
1,000,000 Southpark Metropolitan District Refunding G.O. Series 1996, 6.60% due
12/01/13 980,000
305,000 Southtech Metropolitan District G.O. Refunding Series 1994, 5.10%-5.85% due
12/01/99-04 317,573
100,000 Southwest Plaza Metropolitan District G.O. Refunding Series 1993, 5.00% due
12/01/99 101,616
385,000 Squaw Creek Metropolitan District Revenue Series 1994, 5.25% due 12/01/13,
put 12/01/98 385,628
40,000 City of Steamboat Springs Accommodations Tax Revenue Series 1995, 5.25% due
03/01/00 41,085
200,000 Summit County Sewer Revenue Refunding Series 1992, 4.60% due 12/01/98 201,674
180,000 Superior Metropolitan District No. 2 G.O. Refunding Series 1994A, 5.90% due
12/01/98 180,779
90,000 Swink School District No. 33 G.O. Building Bonds Series 1994, 8.40% due
12/15/97-03 103,405
90,000 Upper Bear Creek Water and Sanitation District G.O. Refunding Bonds Series
1992, 6.40% due 03/01/98 90,966
300,000 Upper Eagle Regional Water Authority Water Refunding Series 1994,
5.50%-5.80% due 12/01/99-01 310,058
610,000 Valley Metropolitan District G.O. Revenue Series 1992, 7.00% due 12/15/06
645,502
</TABLE>
9
<PAGE> 12
COLORADO BONDSHARES -
A TAX-EXEMPT FUND
STATEMENT OF INVESTMENTS, CONTINUED
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT COLORADO MUNICIPAL BONDS -- CONTINUED VALUE
------ ------------------------------------- -----
<S> <C> <C>
$ 100,000 Walsenburg Natural Gas Revenue Series 1968, 6.25% due 6/01/98-99 $ 101,571
100,000 Weld County Reorganized School District RE-4 G.O. Series 1993, 4.65% due
12/01/00 101,436
100,000 Westglenn Metropolitan District G.O. Refunding Series 1994, 4.80% due
12/01/98 100,942
70,000 City of Westminster Sheridan Park General Improvement District G.O.
Refunding Series 1994, 5.25% due 12/01/97 70,166
100,000 City of Wheat Ridge Sales Tax Revenue Refunding Series 1993, 3.75% due
12/15/97 99,991
335,000 Town of Windsor, G.O. Water Refunding Series 1994, 4.40%-4.80% due
4/01/99-01 337,622
185,000 City of Woodland Park Limited Sales Tax Refunding Bonds Series 1994A,
5.00%-5.25% due 12/01/97-98 186,523
-----------
Total Colorado Municipal Bonds (cost $59,343,706) 60,221,641
-----------
</TABLE>
<TABLE>
<CAPTION>
COLORADO CERTIFICATES OF PARTICIPATION -- 1.3%
----------------------------------------------
<S> <C> <C>
155,000 Arapahoe County Recreation District Refunding Certificates of Participation
Series 1996, 5.00%-5.20% due 12/01/04-06 160,876
170,000 City of Central City Certificates of Participation City Hall Project Series
1995, 6.50%-6.80% due 12/01/99-00 168,634
100,000 El Paso County School District No. 49 (Falcon Schools) Refunding
Certificates of Participation Series 1995, 4.375% due 11/01/01 100,834
200,000 Gilpin County Certificates of Participation Detention Facility Project
Series 1994, 6.60% due 10/15/01 217,204
50,000 Las Animas County School District No. 001 Certificates of Participation
Series 1991A, 8.00% due 12/01/10 56,033
145,000 Park School District R-3 Certificates of Participation Series 1996,
5.35%-5.45% due 06/01/04-05 145,126
-----------
Total Colorado Certificates of Participation (cost $858,641) 848,707
-----------
</TABLE>
10
<PAGE> 13
COLORADO BONDSHARES -
A TAX-EXEMPT FUND
STATEMENT OF INVESTMENTS, CONTINUED
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET
AMOUNT COLORADO INDUSTRIAL DEVELOPMENT REVENUE BONDS -- 4.2% VALUE
------ ----------------------------------------------------- -----
<S> <C> <C>
$ 555,000 Adams County Robertson Association Series 1979, 9.00% due 6/15/04 $ 565,301
730,000 City of Aurora Industrial Development Revenue McKesson Corp. Series 1987,
5.00% due 12/01/11 (h) 731,285
200,000 City and County of Denver Desks Colorado Project Series 1983, 4.30% due
10/15/05 (put 10/15/97) (h) 200,006
1,305,000 City of Fort Collins The Opera House Project Series 1986, 8.75%-9.125% due
12/01/10-16 1,340,899
------------
Total Colorado Industrial Development Revenue Bonds
(cost $2,787,500) 2,837,491
------------
<CAPTION>
OTHER MUNICIPAL BONDS -- 2.0%
-----------------------------
<S> <C> <C>
100,000 City of Burnsville G.O. Tax Increment Refunding Series 1993C, 4.40% due
02/01/02 100,465
305,000 Daggett County School District, G.O. Refunding Series 1993, 4.30%-4.65% due
12/15/97-99 307,185
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 06/15/99 100,023
100,000 Santa Fe Public School District G.O. Series 1993, 5.60% due 06/15/01 102,294
100,000 Washington County School District 007 Hillsboro Series 1989, 6.70% due
06/01/08 (b) 104,575
120,000 West Wendover Recreation District G.O. Golf Course Improvement Refunding
Series 1993, 5.60% due 12/01/99 123,536
------------
Total Other Municipal Bonds (cost $1,356,551) 1,353,078
------------
Total investments, at value (cost $64,346,398) 97.0% 65,260,917
Other assets net of liabilities 3.0 1,988,073
------ ------------
Net assets 100.0% $ 67,248,990
====== ============
</TABLE>
11
<PAGE> 14
COLORADO BONDSHARES -
A TAX-EXEMPT FUND
STATEMENT OF INVESTMENTS, CONTINUED
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
(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.
(d) Interest rate shown for zero coupon bonds represents the effective yield.
(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, 1997. Income on this security is derived from the cash
flow of the issuer.
(h) Represents current interest rate for a variable rate bond.
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.
12
<PAGE> 15
COLORADO BONDSHARES -
A TAX-EXEMPT FUND
STATEMENT OF INVESTMENTS, CONTINUED
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
- ------
Investments, at value (cost $64,346,398) - see accompanying statement $ 65,260,917
Cash 683,010
Interest receivable 1,498,988
Shares of beneficial interest sold 28,588
------------
Total assets 67,471,503
------------
LIABILITIES
- -----------
Payables and other liabilities:
Dividends 166,509
Accrued expenses and other 56,004
------------
Total liabilities 222,513
------------
Net assets $ 67,248,990
============
COMPOSITION OF NET ASSETS
- -------------------------
Paid-in capital $ 66,614,820
Undistributed net investment income 21,418
Accumulated net realized loss from investment transactions (301,767)
Net unrealized appreciation of investments (note 3) 914,519
------------
Net assets $ 67,248,990
============
Net asset value and redemption value per share (based on 7,019,571
shares of beneficial interest outstanding) $ 9.58
============
Maximum offering price per share (net asset value plus sales charge
of 4.75% of offering price) $ 10.06
============
</TABLE>
See accompanying notes to financial statements.
13
<PAGE> 16
COLORADO BONDSHARES -
A TAX-EXEMPT FUND
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment income - interest $ 4,085,259
-----------
Expenses:
Management fees (note 4) 297,728
Custodian fees (note 5) 66,367
Legal and auditing fees 39,665
Transfer agency expenses (note 4) 38,325
Shareholders' reports and proxy statements 30,720
Interest (note 6) 21,843
Fidelity bond 2,373
Registration fees 1,785
Trustees' fees 800
Other 440
-----------
Total expenses 500,046
Expenses paid indirectly (note 5) (66,367)
-----------
Net expenses 433,679
-----------
Net investment income 3,651,580
-----------
Realized and unrealized gain on investments:
Net realized gain on investments 66,006
-----------
Net unrealized appreciation (depreciation) of investments:
Beginning of year (428,401)
End of year 914,519
Net change in unrealized depreciation on investments 1,342,920
-----------
Net realized and unrealized gain on investments 1,408,926
-----------
Net increase in net assets resulting from operations $ 5,060,506
===========
</TABLE>
See accompanying notes to financial statements.
14
<PAGE> 17
COLORADO BONDSHARES -
A TAX-EXEMPT FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
From investment activities:
Net investment income $ 3,651,580 3,092,785
Net realized gain (loss) on investments 66,006 (7,594)
Net change in unrealized appreciation on investments 1,342,920 1,064,774
------------ ------------
Net increase in net assets resulting from operations 5,060,506 4,149,965
------------ ------------
Dividends to shareholders from net investment income (3,640,860) (3,082,087)
------------ ------------
From beneficial interest transactions:
Proceeds from sale of shares 16,889,528 6,719,354
Dividends reinvested 2,375,147 2,038,765
Payments for shares redeemed (4,018,181) (4,011,430)
------------ ------------
Increase in net assets derived from
beneficial interest transactions 15,246,494 4,746,689
------------ ------------
Net increase in net assets 16,666,140 5,814,567
Net assets:
Beginning of year 50,582,850 44,768,283
------------ ------------
End of year, including undistributed net investment
income of $21,418 and $10,698, respectively $ 67,248,990 50,582,850
============ ============
</TABLE>
See accompanying notes to financial statements.
15
<PAGE> 18
COLORADO BONDSHARES -
A TAX-EXEMPT FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended September 30
------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning
of period $ 9.37 $ 9.16 $ 9.07 $ 9.13 $ 9.07
---------- ---------- ---------- ---------- ----------
Net investment income .58 .61 .60 .63 .66
Net realized and unrealized
gain (loss) on investments .21 .20 .09 (.06) .07
---------- ---------- ---------- ---------- ----------
Increase from investment
operations .79 .81 .69 .57 .73
Dividends from net invest-
ment income (.58) (.60) (.60) (.63) (.67)
---------- ---------- ---------- ---------- ----------
Net increase (decrease)
in net asset value .21 .21 .09 (.06) .06
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 9.58 $ 9.37 $ 9.16 $ 9.07 $ 9.13
========== ========== ========== ========== ==========
TOTAL RETURN, AT NET ASSET
VALUE (1) 8.66% 9.15% 8.05% 6.50% 8.53%
========== ========== ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)s $ 67,249 $ 50,583 $ 44,768 $ 41,790 $ 34,773
========== ========== ========== ========== ==========
Ratios to average net assets:
Net investment income 6.13% 6.50% 6.81% 6.96% 7.27%
Expenses, inclusive of .84% .77% .84% .74% .81%
expenses paid indirectly
by the Fund
Expenses, net of .73% .70% .77% .74% .81%
expenses paid indirectly
by the Fund
Portfolio turnover rate (3) 27.66% 24.53% 27.48% 22.04% 7.87%
========== ========== ========== ========== ==========
<CAPTION>
Year ended September 30
----------------------------------------------------------------------------------
1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning
of period $ 8.96 $ 8.93 $ 9.61 $ 9.59 $ 9.43
---------- ---------- ---------- ---------- ----------
Net investment income .68 .71 .74 .74 .77
Net realized and unrealized
gain (loss) on investments .10 .03 (.68) .03 .16
---------- ---------- ---------- ---------- ----------
Increase from investment
operations .78 .74 .06 .77 .93
Dividends from net invest-
ment income (.67) (.71) (.74) (.75) (.77)
---------- ---------- ---------- ---------- ----------
Net increase (decrease)
in net asset value .11 .03 (.68) .02 .16
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 9.07 $ 8.96 $ 8.93 $ 9.61 $ 9.59
========== ========== ========== ========== ==========
TOTAL RETURN, AT NET ASSET
VALUE (1) 9.09% 8.49% 0.61% 8.49% 9.57%
========== ========== ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)s $ 27,585 $ 25,177 $ 34,397 $ 37,551 $ 15,319
========== ========== ========== ========== ==========
Ratios to average net assets:
Net investment income 7.61% 8.04% 7.85% 8.80% 7.38%
Expenses, inclusive of .94% 1.06% .82% .79%(2) .43%(2)
expenses paid indirectly
by the Fund
Expenses, net of .94% 1.06% .82% .79%(2) .43%(2)
expenses paid indirectly
by the Fund
Portfolio turnover rate (3) 5.00% 9.35% 34.54% 11.58% 11.12%
========== ========== ========== ========== ==========
</TABLE>
16
<PAGE> 19
COLORADO BONDSHARES -
A TAX-EXEMPT FUND
FINANCIAL HIGHLIGHTS, CONTINUED
- --------------------------------------------------------------------------------
(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) Absent voluntary expense reimbursement by the Fund's investment adviser,
the expense ratio for the years ended September 30, 1989 and 1988 would
have been 0.86% and 1.27%, respectively. There have been no voluntary
reimbursements subsequent to fiscal 1989.
(3) 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.
Purchases and sales of investment securities (excluding short-term
securities) for the year ended September 30, 1997 were $28,011,321 and
$15,813,508, respectively.
See accompanying notes to financial statements.
17
<PAGE> 20
COLORADO BONDSHARES -
A TAX-EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
- --------------------------------------------------------------------------------
(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.
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 does not record amortization of premiums or accretion of discounts
for financial statement purposes, except for original issued discounts on
zero coupon bonds which are amortized to maturity using the effective
yield method. Short-term debt securities having a remaining maturity of
60 days or less are valued at amortized cost which approximates market
value.
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, 1997, the Fund had available for federal
income tax purposes an unused capital loss carryover of approximately
$302,000, expiring in 2001, 2002, and 2003.
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 value of bonds, for
which the accrual of interest income has been discontinued, approximated
$10,758,346 and $648,649 (1.0% of net assets), respectively, as of
September 30, 1997.
18
<PAGE> 21
COLORADO BONDSHARES -
A TAX-EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
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
At September 30, 1997, there was an unlimited number of no par value
shares of beneficial interest authorized. Transactions in shares of
beneficial interest for the years ended September 30, 1997 and 1996 were
as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Sold 1,794,889 724,744
Dividends reinvested 251,774 219,736
---------- ----------
2,046,663 944,480
Redeemed (426,982) (431,911)
---------- ----------
Net increase 1,619,681 512,569
========== ==========
</TABLE>
(3) UNREALIZED GAINS AND LOSSES
At September 30, 1997, the net unrealized appreciation on investments of
$914,519 was comprised of gross appreciation of $2,785,538 and gross
depreciation of $1,871,019.
(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 fiscal year ended September 30, 1997. Transfer agency
expenses represent direct expenses charged to the Fund by third parties.
(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> 22
COLORADO BONDSHARES -
A TAX-EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
(6) LINE OF CREDIT
The Fund may borrow money from banks for temporary purposes only, and in
an amount not to exceed 10 percent of the value of its total assets.
During the year ended September 30, 1997, the Fund had available a
$2,500,000 line of credit with a bank bearing interest at the prime rate.
The line was used for a limited purpose and is no longer available to the
Fund. A commitment fee was paid but no compensating balances were
required under the line. The Fund has no borrowings outstanding at
September 30, 1997.
20
<PAGE> 23
FEDERAL INCOME TAX INFORMATION
(unaudited)
In early 1998, shareholders will receive information regarding all dividends
and distributions paid to them by the Fund during calendar year 1997.
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, 1997, 100 percent of the dividends paid
by Colorado BondShares A Tax-Exempt Fund from net investment income should be
treated as tax- exempt dividends.
<PAGE> 24
COLORADO BONDSHARES
A TAX-EXEMPT FUND
ANNUAL REPORT
SEPTEMBER 30, 1997
COLORADO BONDSHARES - A TAX-EXEMPT FUND [METER]
1200 17TH STREET, SUITE 1150
DENVER, CO 80202,5811
