N-CSRS

N-CSRS 1 d363556dncsrs.htm N-CSRS N-CSRS

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 its charter)

1200 17TH STREET, SUITE 850

DENVER, COLORADO 80202-5808

(Address of principal executive offices) (Zip code)

FRED R. KELLY, JR.

1200 17TH STREET, SUITE 850

DENVER, COLORADO 80202-5808

(Name and address of agent for service)

Registrant’s telephone number, including area code: 303-572-6990

Date of fiscal year end: 09/30

Date of reporting period: 03/31/2012

ITEM 1. REPORT 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. INVESTMENTS

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

ITEM 11. CONTROLS AND PROCEDURES

ITEM 12. EXHIBITS

(a)(2)(i)

(99.302) Interim President’s (Principal Executive Officer) Section 302 Certification

(a)(2)(ii)

(99.302) Interim Treasurer’s (Principal Financial Officer) Section 302 Certification

(b)

(99.906) Combined Interim President & Treasurer (Principal Executive Officer and Principal Financial Officer) Section 906 Certification

ITEM 1. REPORT TO STOCKHOLDERS.

LOGO

May 24, 2012

Dear Shareholders:

Allow me to make a case for municipal bonds in general and our portfolio, specifically. According to Bloomberg Investor Services, investors have in the last 53 out of 57 weeks, added to their municipal holdings in tax-exempt mutual funds. Thanks to our valued shareholders, the size of Colorado BondShares, too, has resumed its upward trajectory. Is investing in bonds the height of stupidity when interest rates are hitting fifty year lows? Maybe not. One need only look at competing products to find part of the answer. Yields on U.S. Treasuries dropped to 1% on the 5-year, 1.75% on the 10-year and 2.75% on the 30-year. The highest rate I saw this week on bank CDs was 1.15%. Taxable corporate bonds paid from 1% to 4%, depending on maturity. As reflected in the attached semi-annual report, Colorado BondShares paid dividend distributions over the last six months of $0.21 per share representing a 4.51% return on an annualized basis. In addition, there was appreciation on fund shares of $0.04 per share over the same time period, which would raise the total return, for six months, to 2.79%, a non-annualized return based on net asset value. With each passing day, our existing portfolio, progressively, gets closer to the stated maturity or expected call date of our bonds, causing them to price closer to par. With 24% of our bonds priced at a premium and 30% priced at a discount, it appears that there could be a slight future upward bias to the price of our shares. Remarkably, this can occur even if rates rise somewhat because as maturity draws near, time is a more important factor in determining price than is the rate, all other factors remaining equal. A simplified, inexact, illustrative example: the price of a bond with one year remaining to maturity would only be affected for a short time by approximately 1% by a 1% rise in rates. A bond with 20 years to go would be adversely affected by approximately 20% by a similar 1% rise in rates and the change could be longer standing.

The average effective maturity of our portfolio is 8.07 years; one of the lowest in the industry. When adjusted by expected calls, the average drops even lower to 4.54 years. Using the logic of the above example, this naturally insulates our portfolio from some of the interest rate risk. Recently, the Federal Reserve Bank, in a break with tradition, has said that rates will not change substantially in the next two years. So, if that is true and shareholders earn above comparable returns over the next two years, then they could use any cushion created to buffer principal losses that might theoretically occur due to higher rates, or other causes, after that time. Ideally, shareholders should come out ahead of the game in the end. This is not to say that there could not be unforeseen circumstances that might bring about different results than this scenario and past experience is not always predictive of future performance. However all things considered, the argument seems at worst, provocative and at best, compelling. Moreover, the cash flow on the fund shares should improve as management finds opportunities to invest short-term funds, comprising just over 33% of total net assets and earnings with an average of .36% into intermediate maturities with higher yields. No, the fund doesn’t intend to invest in the 4%, 40-year type bond currently available for this would almost certainly expose shareholders to unacceptable interest rate risk at some time in the future. But, we are aggressively looking for new projects to fund as markets appear to be stabilizing and fear seems to be abating. Generally, it was a good six-month period for the fund and we are thankful for our fine customers.

Sincerely,

LOGO

Fred R. Kelly, Jr.

Portfolio Manager

Colorado BondShares

Officers and Trustees

George N. Donnelly, Chairman of the Board of Trustees, Interim President, Secretary, Treasurer and Trustee

Bruce G. Ely, Trustee

James R. Madden, 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

UMB Bank, N.A.

Independent Registered Public Accounting Firm

PricewaterhouseCoopers LLP

Legal Counsel

Kutak Rock LLP

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, are not insured by the FDIC or any other agency, and involve investment risks, including possible loss of the principal amount invested.

FUND EXPENSES (unaudited)

The following examples are intended to help you understand the ongoing costs (in dollars) of investing in the Fund and compare these costs with those of other mutual funds. The examples (actual and hypothetical 5% return) are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.

As a shareholder of Colorado BondShares — A Tax-Exempt Fund (the “Fund’) you can incur two types of costs:

•

Sales charges (front loads) on fund purchases and

•

Ongoing fund costs, including management fees, administrative services, and other fund expenses. All mutual funds have operating expenses. Operating expenses, which are deducted from the Fund’s gross income, directly reduce the investment return of the Fund.

Actual Fund Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing cost of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in shareholder reports of other funds.

Six Months Ended March 31, 2012


Colorado BondShares — A Tax-Exempt Fund	Beginning Account Value 10/01/11		Ending Account Value 03/31/12		Expenses Paid During Period(1)
Based on Actual Fund Return	$	1,000.00	$	1,025.35	$	2.99
Based on Hypothetical 5% Annual Return Before Expenses	$	1,000.00	$	1,022.05	$	2.98

(1)	The expenses shown in this table are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 183/366 to reflect the one-half year period.

Please note that expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees or exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if transactional costs were included, your costs would have been higher. You can find more information about the Fund’s expenses in the Financial Statements section of this report. For additional information on operating costs please see the Fund’s prospectus.

CREDIT QUALITY (unaudited)

Colorado BondShares — A Tax-Exempt Fund

Based on a Percentage of Total Net Assets as of March 31, 2012

LOGO

SECTOR BREAKDOWN (unaudited)

Colorado BondShares — A Tax-Exempt Fund

Based on a Percentage of Total Net Assets as of March 31, 2012

LOGO

* Cash & cash equivalents include cash, receivables less liabilities.

** Short-term investments include securities with a maturity date or redemption feature of one year or less, as identified in the Schedule of Investments.

*** This category includes 7.7% pre-refunded bonds which are securities that are collateralized by an amount sufficient to pay both principal and interest. Total pre-refunded bonds as a percentage of total net assets were 12.3%, as of March 31, 2012.

Colorado BondShares

A Tax-Exempt Fund

Schedule of Investments

March 31, 2012 (unaudited)


Face Amount			Value
	Colorado Municipal Bonds — 50.6%
	1,600,000	Aberdeen Metropolitan District No. 1 G.O. (LTD Tax Convertible to Unlimited Tax) Series 2005, 7.50% to yield 8.00% due 12/1/2035	$	1,525,120
	780,000	Adonea Metropolitan District No. 2 LTD Tax (Convertible to Unlimited Tax) G.O. Series 2005A, 6.125% to yield 6.25% due 12/1/2025		700,229
	2,138,000	Antelope Heights Metropolitan District G.O. (LTD Tax Convertible to Unlimited Tax) Series 2003, 8.00% due 12/1/2023(b)		2,422,995
	2,000,000	Arista Metropolitan District Special Revenue Series 2005, 6.75% due 12/1/2035		1,571,560
	6,000,000	Arista Metropolitan District Subordinate (Convertible to Parity) Special Revenue Series 2008, 9.25% to yield 8.125% – 11.73% due 12/1/2037		4,515,720
	1,492,000	BNC Metropolitan District No.1 G.O. (LTD Tax Convertible to Unlimited Tax) Series 2004, 8.00% due 6/1/2028		1,519,587
	1,000,000	Beacon Pointe Metropolitan District LTD Tax (Convertible to Unlimited Tax) G.O. Series 2005A, 6.125% to yield 6.25% due 12/1/2025		1,000,380
	700,000	Beebe Draw Farms Metropolitan District G.O. Series 1998, 7.00% due 10/1/2018		700,084
	4,315,000	Boulder County Development Revenue (Boulder College of Massage Therapy Project) Series 2006A, 6.35% due 10/15/2031		3,855,453
	2,162,000	Bradburn Metropolitan District No. 2 G.O. (LTD Tax Convertible to Unlimited Tax) Series 2004, 8.00% due 12/15/2034		2,163,557
	2,025,000	Bradburn Metropolitan District No. 3 G.O. LTD Tax Series 2010, 7.50% due 12/1/2039		2,072,709
	600,000	Buffalo Run Mesa Metropolitan District LTD Tax G.O. Series 2004, 5.00% to yield 5.793% due 12/1/2034(j)		540,000
	500,000	Castle Oaks Metropolitan District G.O. LTD Tax Series 2005, 6.00% due 12/1/2025		443,525
	6,465,662	Colorado Centre Metropolitan District LTD Tax and Special Revenue Series 1992B, 0.00% due 1/1/2032(a)(g)(i)(j)		3,394,473
	2,009,520	Colorado Centre Metropolitan District LTD Tax and Special Revenue Series 1992A, principal only, due 1/1/2027(e)(i)(j)		2,009,520
	2,008,335	Colorado Centre Metropolitan District LTD Tax and Special Revenue Series 1992A, interest only, 9.00% due 1/1/2027(f)(i)(j)		1,606,668
	1,665,000	Colorado Educational and Cultural Facilities Authority Charter School Revenue (Brighton Charter School Project) Series 2006, 6.00% due 11/1/2036		1,197,418
	5,410,000	Colorado Educational and Cultural Facilities Authority Student Housing Revenue (Inn at Auraria LLC Project) Series 2005A, 5.875% due 7/1/2023(a)		3,642,066
	785,000	Colorado Educational and Cultural Facilities Authority Charter School Revenue Refunding and Improvement (Elbert County Charter School Project) Series 2004, 7.375% to yield 7.45% due 3/1/2035		762,416

Colorado BondShares

A Tax-Exempt Fund

Schedule of Investments (unaudited) — (Continued)


Face Amount			Value
	Colorado Municipal Bonds — (Continued)
	5,500,000	Colorado Educational and Cultural Facilities Authority Charter School Revenue (Liberty Common Middle High School Project) A Charter School Chartered Through Poudre School District R-1 Series 2011, 5.50% due 12/15/2015	$	5,510,175
	7,160,000	Colorado Educational and Cultural Facilities Authority (Union Colony Elementary School Project) A Charter School Chartered Through Weld County School District 6 Charter School Revenue Series 2012A, 5.65% due 3/1/2016		7,147,184
	3,755,000	Colorado Housing and Finance Authority Economic Development Revenue (Micro Business Development Corporation Project) Series 2005, 6.75% due 12/1/2010(a)(j)		1,877,500
	23,270,000	Colorado Springs Urban Renewal Authority Tax Increment Revenue (University Village Project) Series 2008A Senior, 7.00% to yield 7.00% - 9.00% due 12/1/2029(j)		16,289,000
	7,435,000	Colorado Springs Urban Renewal Authority Tax Increment Revenue (University Village Project) Series 2008B Subordinate (Convertible to Senior), 7.50% due 12/15/2029(j)		5,204,500
	2,000,000	Confluence Metropolitan District (in the town of Avon) Tax Supported Revenue Series 2007, 5.25% to yield 6.929% due 12/1/2017		1,901,900
	3,455,000	Conservatory Metropolitan District G.O. (LTD Tax Convertible to Unlimited Tax) Series 2003, 7.50% to yield 1.57% – 7.50% due 12/1/2027(b)		3,922,358
	3,679,000	Conservatory Metropolitan District G.O. (LTD Tax Convertible to Unlimited Tax) Series 2005, 6.75% due 12/1/2034(b)		4,107,787
	1,030,000	Country Club Highlands Metropolitan District G.O. Limited Tax Series 2007, 7.25% due 12/1/2037(j)		515,000
	200,000	Denver Convention Center Hotel Authority Convention Center Hotel Senior Revenue Refunding Series 2006, 4.50% to yield 8.481% due 12/1/2022		196,662
	1,865,000	Denver (City and County of) Subordinate Multifamily Housing Revenue (Capitol Heights Apartments) Series 1999C, 8.00% due 5/1/2032(j)		5,299,994
	830,000	Denver (City and County of) Single Family Home Mortgage Revenue (Metro Mayors Caucus Single Family Mortgage Bond Program) Series 2001A, 6.30% to yield 5.80% due 11/1/2032		892,723
	7,115,000	East Cherry Creek Valley Water and Sanitation District Water Activity Enterprise, Inc. Step Rate Water Revenue Series 2004, 6.00% due 11/15/2023(c)		6,877,644
	31,650,000	Ebert Metropolitan District LTD Tax G.O. Refunding Series 2004A, 8.00% to yield 5.05% due 12/1/2034(b)		37,068,163
	4,500,000	Elbert and Highway 86 Commercial Metropolitan District Public Improvement Fee Revenue Series 2008A, 7.50% due 12/1/2032		2,945,475
	620,000	Fort Lupton Golf Course Revenue Anticipation Warrants Senior Series 1996A, 8.50% due 12/15/2015(a)		1,240
	3,330,000	Fronterra Village Metropolitan District No. 2 G.O. (LTD Tax Convertible to Unlimited Tax) Refunding & Improvement Series 2007, 4.375% – 5.00% to yield 4.552% – 7.135% due 12/1/2017-2034		2,981,513

Colorado BondShares

A Tax-Exempt Fund

Schedule of Investments (unaudited) — (Continued)


Face Amount			Value
	Colorado Municipal Bonds — (Continued)
	2,000,000	Granby Ranch Metropolitan District LTD Tax G.O. Series 2006, 6.75% due 12/1/2036	$	1,962,100
	1,000,000	High Plains Metropolitan District LTD Tax (Convertible to Unlimited Tax) G.O. Series 2005A, 6.125% to yield 6.25% due 12/1/2025		881,990
	1,006,000	Jeffco Business Center Metropolitan District No. 1 LTD Tax G.O. Series 2000, 8.00% to yield 20.907% due 5/1/2020(j)		1,006,000
	475,000	Lafayette City Center GID LTD Tax G.O. Series 1999, 5.75% to yield 7.60% due 12/1/2018		445,654
	2,000,000	Madre Metropolitan District No. 2 G.O. (LTD Tax Convertible to Unlimited Tax) Series 2007A, 5.375% due 12/1/2026		1,445,320
	2,500,000	Madre Metropolitan District No. 2 G.O. (LTD Tax Convertible to Unlimited Tax) Series 2007A, 5.50% to yield 6.95% – 9.654% due 12/1/2036		1,635,950
	6,245,000	Maher Ranch Metropolitan District No. 4 G.O. LTD Tax Series 2003, 7.80% due 12/1/2027(b)		7,136,599
	1,945,000	Maher Ranch Metropolitan District No. 4 G.O. LTD Tax Series 2006, 7.00% due 12/1/2036(b)		2,186,686
	17,485,000	Marin Metropolitan District LTD Tax G.O. Series 2008, 7.75% due 12/1/2028(j)		14,862,250
	11,580,000	Meadows Metropolitan District No. 1 G.O. LTD Tax Series 1989 A (reissued on 12/29/1993), 7.999% due 6/1/2029(k)		11,251,591
	11,565,000	Meadows Metropolitan District No. 2 G.O. LTD Tax Series 1989 B (reissued on 12/29/1993), 7.999% due 6/1/2029(k)		11,237,017
	11,515,000	Meadows Metropolitan District No. 7 G.O. LTD Tax Series 1989 C (reissued on 12/29/1993), 7.999% due 6/1/2029(k)		11,188,435
	260,000	Mount Carbon Metropolitan District LTD Tax and Revenue Refunding Series 2004A, 7.00% to yield 7.075% due 6/1/2043		155,506
	2,000,000	Mount Carbon Metropolitan District LTD Tax and Revenue Refunding Series 2004B, 7.00% to yield 7.075% due 6/1/2043		1,196,200
	565,000	Mount Carbon Metropolitan District LTD Tax and Revenue Refunding Series 2004C, due 6/1/2043(e)(j)		40
	1,000,000	Mountain Shadows Metropolitan District G.O. (LTD Tax Convertible to Unlimited Tax) Series 2007, 5.50% due 12/1/2027(j)		500,000
	2,540,000	Murphy Creek Metropolitan District No. 3 G.O. (LTD Tax Convertible to Unlimited Tax) Refunding and Improvement Series 2006, 6.00% to yield 7.90% due 12/1/2026		1,262,431
	1,380,000	Murphy Creek Metropolitan District No. 3 G.O. (LTD Tax Convertible to Unlimited Tax) Refunding and Improvement Series 2006, 6.125% to yield 7.90% due 12/1/2035		678,670
	1,500,000	Neu Towne Metropolitan District G.O. (LTD Tax Convertible to Unlimited Tax) Series 2004, 7.20% due 12/1/2023		451,110
	4,585,000	Northwest Metropolitan District No. 3 G.O. (LTD Tax Convertible to Unlimited Tax) Series 2005, 6.125% to yield 12.00% due 12/1/2025		4,350,844

Colorado BondShares

A Tax-Exempt Fund

Schedule of Investments (unaudited) — (Continued)


Face Amount			Value
	Colorado Municipal Bonds — (Continued)
	16,500,000	Northwest Metropolitan District No. 3 G.O. (LTD Tax Convertible to Unlimited Tax) Series 2005, 6.25% to yield 13.00% due 12/1/2035	$	15,183,960
	2,000,000	Plaza Metropolitan District No. 1 Public Improvement Fee/Tax Increment Supported Revenue Series 2003, 7.70% to yield 7.653% due 12/1/2017(j)		2,160,000
	20,800,000	Plaza Metropolitan District No. 1 Public Improvement Fee/Tax Increment Supported Revenue Series 2003, 8.00% to yield 7.971% – 10.00% due 12/1/2025(j)		22,464,000
	4,830,000	Plaza Metropolitan District No. 1 Public Improvement Fee/Tax Increment Supported Revenue Series 2003, 7.60% to yield 7.547% due 12/1/2016(j)		5,216,400
	5,000,000	Plaza Metropolitan District No. 1 Subordinate Public Improvement Fee/Tax Increment Supported Revenue Series 2005, 8.125% to yield 9.163% due 12/1/2025(j)		5,000,000
	2,340,000	Potomac Farms Metropolitan District G.O. Refunding and Improvement (LTD Tax Convertible to Unlimited Tax) Series 2007A, 7.25% due 12/1/2037		1,851,268
	440,000	Potomac Farms Metropolitan District G.O. Refunding and Improvement (LTD Tax Convertible to Unlimited Tax) Series 2007A, 7.625% due 12/1/2023		442,174
	9,000,000	Ravenna Metropolitan District G.O. LTD Tax Series 2007, 7.00% due 12/1/2037(j)		6,750,000
	3,500,000	Reata North Metropolitan District LTD TAX G.O. Series 2007, 5.50% to yield 9.00% due 12/1/2032		2,621,990
	13,350,000	Reata South Metropolitan District LTD TAX G.O. Series 2007A, 7.25% due 6/1/2037		12,025,279
	4,640,000	Rendezvous Residential Metropolitan District G.O. LTD Tax Series 2002, 8.00% due 12/1/2021(b)		5,160,283
	945,000	Riverdale Peaks II Metropolitan District G.O. (LTD Tax Convertible to Unlimited Tax) Series 2005, 6.40% due 12/1/2025(j)(l)		472,500
	1,135,000	Riverdale Peaks II Metropolitan District G.O. (LTD Tax Convertible to Unlimited Tax) Series 2005, 6.50% due 12/1/2035(j)(l)		567,500
	856,000	Routt County LID No. 2002-1 Special Assessment Series 2004A, 6.50% to yield 6.59% due 8/1/2024		838,871
	906,622	Roxborough Village Metropolitan District Series 1993C, 9.84% due 12/31/2032(i)(j)		543,973
	97,130	Roxborough Village Metropolitan District Series 1993A, 9.00% due 12/31/2016(i)		101,156
	274,951	Roxborough Village Metropolitan District Series 1993B, principal only, 0.00% due 12/31/2021(e)(i)(j)		146,964
	287,397	Roxborough Village Metropolitan District Series 1993B, interest only, 10.41% due 12/31/2042(f)(i)(j)		44,546
	1,960,000	Serenity Ridge Metropolitan District No. 2 Series 2004, 7.375% due 12/1/2024		942,250
	500,000	Silver Peaks Metropolitan District No. 2 G.O. (LTD Tax Convertible to Unlimited Tax) Series 2006, 5.75% due 12/1/2036		351,170
	3,750,000	Solitude Metropolitan District Senior G.O. LTD Tax Series 2006, 7.00% due 12/1/2026		3,590,775
	8,000,000	Southglenn Metropolitan District Subordinate Convertible Capital Appreciation Special Revenue Series 2008, 8.125% due 12/15/2030		8,239,040

Colorado BondShares

A Tax-Exempt Fund

Schedule of Investments (unaudited) — (Continued)


Face Amount			Value
	Colorado Municipal Bonds — (Continued)
	2,000,000	Southlands Metropolitan District No. 1 G.O. (LTD Tax Convertible to Unlimited Tax) Series 2004, 7.125% to yield 7.18% due 12/1/2034(b)	$	2,346,400
	375,000	Southlands Metropolitan District No. 1 G.O. (LTD Tax Convertible to Unlimited Tax) Series 2004, 6.75% to yield 6.80% due 12/1/2016(b)		421,136
	1,000,000	Southlands Metropolitan District No. 1 G.O. (LTD Tax Convertible to Unlimited Tax) Series 2004, 7.00% to yield 7.05% due 12/1/2024(b)		1,170,180
	3,012,007	Sterling Hills West Metropolitan District G.O. LTD Tax Series 2004, 7.50% due 12/1/2021(b)		3,583,415
	9,000,000	Stone Ridge Metropolitan District No. 2 G.O. (LTD Tax Convertible to Unlimited Tax) Series 2007, 7.25% due 12/1/2031(j)		2,340,000
	500,000	Tallyn’s Reach Metropolitan District No. 2 LTD Tax G.O. Series 2004, 6.375% to yield 7.95% due 12/1/2023		500,305
	1,195,000	Traditions Metropolitan District No. 2 G.O. (LTD Tax Convertible to Unlimited Tax) Series 2006, 5.75% to yield 7.63% due 12/1/2036		1,073,325
	10,470,000	United Water & Sanitation District Revenue Refunding and Improvement Series 2004A, 6.00% due 12/1/2013(j)		9,352,013
	2,495,000	United Water & Sanitation District Revenue Series 2004B, 6.00% to yield 6.05% due 3/1/2014(j)		2,214,337
	20,400,000	United Water & Sanitation District (Lupton Lakes Water Storage Project and Water Activity Enterprise) Revenue Series 2006, 6.00% due 3/1/2021		20,408,976
	6,875,000	United Water & Sanitation District Ravenna Project Water Activity Enterprise Capital Appreciation Subordinate Series 2007, 6.125% due 12/1/2037		5,893,938
	7,500,000	Valagua Metropolitan District G.O. LTD Tax Series 2008, 7.75% due 12/1/2037		4,863,975
	2,250,000	Waterfront Metropolitan District LTD Tax (Convertible to Unlimited Tax) G.O. Refunding & Improvement Series 2007, 4.25% to yield 7.794% due 12/1/2032		1,636,785
	500,000	Wheatlands Metropolitan District No. 2 G.O. (LTD Tax Convertible to Unlimited Tax) Series 2005, 6.00% due 12/1/2025		443,525
	1,245,000	Wheatlands Metropolitan District No. 2 G.O. (LTD Tax Convertible to Unlimited Tax) Series 2008, 8.25% due 12/15/2035		1,247,092
	2,043,000	Wildgrass Metropolitan District G.O. (LTD Tax Convertible to Unlimited Tax) Refunding Series 2007, 6.20% to yield 5.25% due 12/1/2034		2,049,333

		Total Colorado Municipal Bonds (amortized cost $380,730,711)	$	366,475,525


	Short-Term Municipal Bonds — 41.6%
	13,330,000	Bachelor Gulch Metropolitan District G.O. Variable Rate Series 2004, 0.21% due 12/1/2023 (LOC 6)	$	13,330,000
	5,330,000	Base Village Metropolitan District No. 2 LTD Tax Variable Rate Senior Series 2008A, 0.21% due 12/1/2038 (LOC 6)		5,330,000

Colorado BondShares

A Tax-Exempt Fund

Schedule of Investments (unaudited) — (Continued)


Face Amount			Value
	Short-Term Municipal Bonds — (Continued)
	5,580,000	Brighton Crossing Metropolitan District No. 4 Variable Rate Series 2004, 1.34% 12/1/2034 (LOC 7)	$	5,580,000
	5,220,000	Bromley Park Metropolitan District No. 2 G.O. (LTD Tax Convertible to Unlimited Tax) Series 2002B, 8.00% due 12/1/2022(b)		5,611,448
	3,891,000	Bromley Park Metropolitan District No. 2 G.O. (LTD Tax Convertible to Unlimited Tax) Series 2003, 8.00% due 12/1/2028(b)		4,202,436
	11,100,000	Broomfield Urban Renewal Authority Tax Increment Revenue (Broomfield Event Center Project) Series 2005, 1.10%, due 12/1/2030 (LOC 8)		11,100,000
	485,000	Castle Pines North Metropolitan District LTD Tax G.O. Variable Rate Refunding Series 2006C, 0.22% due 12/1/2024 (LOC 6)		485,000
	7,985,000	Castle Pines North Finance Corporation Variable Rate Certificates of Participation Series 2009, 0.23% due 12/1/2033 (LOC 1)		7,985,000
	30,235,000	Castle Rock (Town of) Certificates of Participation Series 2008, 0.23% due 9/1/2037 (LOC 1)		30,235,000
	1,900,000	Colorado Educational and Cultural Facilities Authority Charter School Revenue (Belle Creek Charter School Project) Series 2002A, 7.625% to yield 7.75% due 3/15/2032(b)		2,019,776
	11,300,000	Colorado Housing and Finance Authority Multi-Family/Project Class I Adjustable Rate 2008 Series C-3, 0.18% due 10/1/2038 (LOC 3)		11,300,000
	6,290,000	Colorado Housing and Finance Authority Single Family Mortgage Class I Adjustable Rate 2006 Series A-2, 0.18% due 11/1/2034 (LOC 3)		6,290,000
	9,750,000	Colorado Housing and Finance Authority Single Family Mortgage Class I Adjustable Rate 2005 Series B-2, 0.16% due 5/1/2034 (LOC 4)		9,750,000
	7,670,000	Colorado Housing and Finance Authority Single Family Mortgage Class I Adjustable Rate 2001 Series AA-3, 0.16% due 5/1/2036 (LOC 5)		7,670,000
	6,300,000	Colorado Housing and Finance Authority Adjustable Rate Multi-Family Housing Insured Mortgage Revenue 2002 Series AA, 0.14% due 10/1/2030 (LOC 5)		6,300,000
	15,700,000	Colorado Housing and Finance Authority Single Family Mortgage Class I Adjustable Rate 2006 Series C-2, 0.16% due 11/1/2034 (LOC 3)		15,700,000
	8,300,000	Colorado Springs (City of) Variable Rate Demand Utilities System Improvement Revenue Series 2010C, 0.20% due 11/1/2040 (LOC 9)		8,300,000
	800,000	Commerce City Northern Infrastructure GID G.O. Variable Rate Refunding (LTD Tax Convertible to Unlimited Tax) Series 2002, 0.21% due 12/1/2031 (LOC 6)		800,000
	15,550,000	Commerce City Northern Infrastructure GID G.O. Variable Rate Series 2006, 0.21% due 12/1/2028 (LOC 6)		15,550,000
	1,000,000	Commerce City Northern Infrastructure GID G.O. Variable Rate Series 2008, 0.21% due 12/1/2038 (LOC 6)		1,000,000
	27,845,000	Cornerstar Metropolitan District Special Revenue Variable Rate Series 2007, 1.34% due 12/1/2037 (LOC 7)		27,845,000

Colorado BondShares

A Tax-Exempt Fund

Schedule of Investments (unaudited) — (Continued)


Face Amount			Value
	Short-Term Municipal Bonds — (Continued)
	14,355,000	Cornerstone Metropolitan District No. 2 Subordinate Variable Rate LTD Tax G.O. Refunding Series 2010B, 0.25% due 12/1/2046 (LOC 10)	$	14,355,000
	1,600,000	City and County of Denver Adjustable Rate Economic Development Revenue (The Western Stock Show Association Project) Series 1999, 0.25% due 7/1/2029 (LOC 6)		1,600,000
	10,765,000	EagleBend Affordable Housing Corporation Taxable Convertible Variable Rate Multifamily Housing Project Revenue Refunding Series 2006A, 0.21% due 7/1/2021 (LOC 6)		10,765,000
	7,000,000	Fossil Ridge Metropolitan District No. 1 Tax-Supported Revenue Series 2009, 8.50% due 9/1/2039(b)		7,165,060
	4,425,000	Fronterra Village Metropolitan District No. 2 G.O. (LTD Tax Convertible to Unlimited Tax) Series 2003, 8.00% due 12/1/2023(b)		4,632,798
	5,750,000	Grand Elk Ranch GID LTD Tax G.O. Series 2003, 8.00% due 12/1/2023(b)		6,160,320
	3,440,000	Meridian Ranch Metropolitan District G.O. LTD Tax Variable Rate Refunding Series 2009, 0.21% due 12/1/2038 (LOC 6)		3,440,000
	3,000,000	Meridian Ranch Metropolitan District G.O. LTD Tax Variable Rate Series 2011, 0.21% due 12/1/2040 (LOC 6)		3,000,000
	6,400,000	Town of Mountain Village Housing Authority Housing Facilities Revenue (Village Court Apartments Project) Series 2000, 0.21% due 11/1/2040 (LOC 6)		6,400,000
	3,360,000	Park 70 Metropolitan District G.O. Variable Rate (LTD Tax Convertible to Unlimited Tax) Series 2008, 0.80% due 12/1/2037 (LOC 6)		3,361,041
	900,000	Parker Automotive Metropolitan District G.O. Variable Rate (LTD Tax Convertible to Unlimited Tax) Series 2005, 0.21% due 12/1/2034 (LOC 6)		900,000
	1,275,000	Santee Sioux Nation Tribal Health Care Revenue (Indian Health Service Joint Venture Construction Program Project) Series 2009, 7.75% due 10/1/2012		1,287,202
	7,500,000	Sheridan Redevelopment Agency Variable Rate Tax Increment Refunding Revenue (South Santa Fe Drive Corridor Redevelopment Project) Series 2011A-1, 0.22% due 12/1/2029 (LOC 9)		7,500,000
	30,560,000	Solaris Metropolitan District No. 1 Property Tax Revenue Variable Rate Series 2008, 0.39% due 12/1/2038 (LOC 2)		30,560,000
	3,400,000	Southglenn Metropolitan District (In the City of Centennial) Special Revenue Variable Rate Series 2007, 1.14% due 12/1/2030 (LOC 8)		3,400,000

		Total Short-Term Municipal Bonds (amortized cost $299,266,906)	$	300,910,081


	Colorado Capital Appreciation and Zero Coupon Bonds — 5.2%
	11,175,000	Bromley Park Metropolitan District No. 2 G.O. LTD Tax Convertible Zero Coupon Series 2007B, 7.00% due 12/15/2037(d)	$	10,295,416
	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)		430,887

Colorado BondShares

A Tax-Exempt Fund

Schedule of Investments (unaudited) — (Continued)


Face Amount				Value
	Colorado Capital Appreciation and Zero Coupon Bonds — (Continued)
	7,470,000	Conifer Metropolitan District Jefferson County Supplemental Interest Coupons Series 2006, 8.00% due 12/1/2010-2031(a)(d)(j)		$	2,779,139
	14,000,000	PV Water and Sanitation Metropolitan District Capital Appreciation Revenue Series 2006, 6.00% due 12/15/2017(a)(d)(j)			5,600,000
	3,875,000	Ravenna Metropolitan District Supplemental “B” Interest Registered Coupons, 8.25% due 12/1/2012-12/1/2023(d)			2,425,017
	4,390,000	Traditions Metropolitan District No. 2 Subordinate G.O. (LTD Tax Convertible to Unlimited Tax) Convertible Capital Appreciation Series 2008, 8.50% due 12/15/2037(d)			3,778,955
	2,286,030	United Water & Sanitation District Ravenna Project Water Activity Enterprise Capital Appreciation Subordinate Series 2006B, 7.00% due 12/15/2011(d)			2,286,030
	9,045,000	United Water & Sanitation District Ravenna Project Water Activity Enterprise Capital Appreciation Revenue Refunding Series 2009, 6.50% due 12/15/2016(d)			7,389,494
	6,530,000	Wildwing Metropolitan District No. 1 Capital Appreciation Revenue Series 2008, 7.50% due 12/1/2023(d)			2,697,935

		Total Colorado Capital Appreciation and Zero Coupon Bonds (amortized cost $42,398,607)		$	37,682,873


	Other Municipal Bonds — 2.3%
	4,904,915	Freddie Mac Multifamily Variable Rate Certificates Series M001 Class B, 32.97% due 4/1/2037(g)(j)		$	4,904,915
	577,000	The Industrial Development Authority of the City of Kansas City, Missouri Multi-family Housing Revenue (Alexandria Apartments) Series 2005A, 6.75% due 1/1/2028			582,135
	962,000	The Industrial Development Authority of the City of St. Louis, Missouri Senior Housing Revenue (Grant School Apartments) Series 2005A, 6.75% due 5/1/2027			916,113
	3,915,000	Santee Sioux Nation Tribal Health Care Revenue (Indian Health Service Joint Venture Construction Program Project) Series 2009, 8.00% due 10/1/2014			4,067,802
	5,000,000	Uinta County School District Number 6 G.O. Refunding Series 2006, 7.00% to yield 4.40% due 12/1/2020			6,089,400

		Total Other Municipal Bonds (amortized cost $16,287,167)		$	16,560,365


	Colorado Taxable Certificates/Notes — 0.3%
	2,100,212	777 F High Street LLC, Tax Lien Receipt Certificates, 9.00% due 10/15/2012(j)(m)		$	2,100,212
	227,347	Note receivable from Tabernash Meadows, LLC, a Colorado limited liability company, 24.00% due 2/9/2002(a)(j)			206,520

		Total Colorado Taxable Certificates/Notes (amortized cost $2,327,559)		$	2,306,732

		Total investments, at value	89.0%	$	723,935,576
		Other assets net of liabilities	11.0%		89,109,862

		Net assets	100.0%	$	813,045,438

Colorado BondShares

A Tax-Exempt Fund

Schedule of Investments (unaudited) — (Continued)

(a)	Defaulted or non-income producing based upon the financial condition of the issuer (see footnote 2 in notes to financial statements).

(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 securities whose blended characteristics are reflective of a zero coupon bond and a step rate bond. Interest rate shown represents effective yield at acquisition.

(d)	Interest rate shown for capital appreciation and zero coupon bonds represents the effective yield at the date of acquisition.

(e)	Principal-only certificate represents the right to receive the principal payments on the underlying debt security upon maturity. The price of this security is typically more volatile than that of coupon-bearing bonds of the same maturity.

(f)

Interest-only certificate represents the right to receive semi-annual interest payments on the underlying debt security. The principal amount of the underlying security represents the notional amount on which current interest is calculated. The interest rate shown represents the effective yield at the date of acquisition.

(g)	Interest rate disclosed for cash flow bond represents the effective yield at March 31, 2012. Income on this security is derived from the cash flow of the issuer.

(h)	Represents current interest rate for a step rate bond.

(i)	Terms of security have been restructured since the original issuance. The total face amount of all such restructured securities approximates $12,049,617 and a value of $7,847,300 or less than 1.0% of net assets, as of March 31, 2012.

(j)	Securities valued at fair value (see footnote 2 in notes to financial statements).

(k)	See footnote 7 in notes to financial statements for further information on purchase accrued interest related to these bonds.

(l)	The Fund has entered into a forbearance agreement under which it agrees that the issuer may pay a reduced rate of interest in lieu of the contract rate for a period of time (see footnote 2 in notes to financial statements).

(m)	Tax lien receipt certificates.

See accompanying notes to financial statements.

Colorado BondShares

A Tax-Exempt Fund

Schedule of Investments (unaudited) — (Continued)

(LOC)

These securities are Variable Rate Demand Obligations (“VRDO”) with scheduled principal and interest payments that have a guaranteed liquidity provider in the form of a letter of credit. These obligations bear interest at a rate that resets daily or weekly (see footnote 2 in notes to financial statements). The numbered list below corresponds to the liquidity provider associated with the respective LOC.

1. Wells Fargo Bank, N. A.

2. Keybank, N. A.

3. FHLB Topeka

4. Barclays Bank PLC

5. Fannie Mae/Freddie Mac

6. US Bank, N. A.

7. Compass Bank

8. BNP Paribas

9. JPMorgan Chase Bank, N.A.

10. Bank of America, N.A.

The following abbreviations are used in the descriptions of securities included in the Schedule of Investments:

G.O.

—

General Obligation

GID

—

General Improvement District

LID

—

Local Improvement District

LTD

—

Limited

See accompanying notes to financial statements.

Colorado BondShares

A Tax-Exempt Fund

Statement of Assets and Liabilities

March 31, 2012 (unaudited)


ASSETS
Investments, at value (amortized cost $741,010,950)	$	723,935,576
— see accompanying schedule
Cash		15,907,798
Interest receivable		30,636,734
Purchase accrued (note 7)		44,424,458
Receivable for shares of beneficial interest sold		720,250

TOTAL ASSETS		815,624,816

LIABILITIES
Payables and other liabilities:
Dividends payable		1,511,008
Payable for shares of beneficial interest redeemed		489,233
Management fees payable		343,425
Accrued expenses payable		235,712

TOTAL LIABILITIES		2,579,378

NET ASSETS	$	813,045,438

COMPOSITION OF NET ASSETS
Paid-in capital	$	829,982,846
Accumulated net realized gain		137,966
Net unrealized depreciation of investments		(17,075,374	)

NET ASSETS	$	813,045,438

NET ASSET PRICE AND REDEMPTION PRICE PER SHARE (based on 88,455,124 shares of beneficial interest outstanding at March 31, 2012 unlimited number of no par value shares authorized)	$	9.19

MAXIMUM OFFERING PRICE PER SHARE (net asset value plus sales charge of 4.75% of offering price)	$	9.65

See accompanying notes to financial statements.

Colorado BondShares

A Tax-Exempt Fund

Statement of Operations

For the Six Months Ended March 31, 2012 (unaudited)


INVESTMENT INCOME
Interest	$	20,323,147
EXPENSES
Management fees (note 4)		1,998,410
Custodian fees (note 5)		50,653
Legal and auditing fees		120,284
Portfolio pricing fees		10,065
Registration fees		4,026
Shareholders’ reports		38,613
Transfer agency expenses (note 4)		96,311
Trustees’ fees		9,026
Other		25,986

Total expenses		2,353,374
Custody credits (note 5)		(2,164	)

Net expenses		2,351,210

NET INVESTMENT INCOME		17,971,937

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments		101,448
Net unrealized appreciation on investments		3,868,414

NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS		3,969,862

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS	$	21,941,799

See accompanying notes to financial statements.

Colorado BondShares

A Tax-Exempt Fund

Statements of Changes in Net Assets

For the Periods Indicated


	Six Months Ended March 31, 2012			Year Ended September 30, 2011
	(unaudited)
FROM OPERATIONS:
Net investment income	$	17,971,937		$	36,667,342
Net realized gain on investments		101,448			102,098
Change in unrealized appreciation (depreciation) on investments		3,868,414			(5,148,629	)

Net increase in net assets resulting from operations		21,941,799			31,620,811

FROM DISTRIBUTIONS TO SHAREHOLDERS: (note 2)
Dividends to shareholders from net investment income		(17,971,937	)		(36,667,342	)
Net realized gain to shareholders from investment transactions		(29,762	)		(24,611	)

Total distributions to shareholders		(18,001,699	)		(36,691,953	)

FROM BENEFICIAL INTEREST TRANSACTIONS:
Proceeds from sale of shares		48,706,676			66,226,744
Reinvested dividends and distributions		11,392,974			23,185,865
Redemption of shares		(35,339,494	)		(149,346,212	)

Increase (decrease) in net assets derived from beneficial interest transactions		24,760,156			(59,933,603	)

Net increase (decrease) in net assets		28,700,256			(65,004,745	)
NET ASSETS:
Beginning of period		784,345,182			849,349,927

End of period	$	813,045,438		$	784,345,182

See accompanying notes to financial statements.

Colorado BondShares

A Tax-Exempt Fund

Financial Highlights


	Six Months Ended 3/31/2012			For Fiscal Years Ended September 30
	Six Months Ended 3/31/2012			2011			2010			2009			2008			2007
For a share outstanding throughout the period	(unaudited)
Net Asset Value, beginning of period	$	9.15		$	9.19		$	9.15		$	9.24		$	9.51		$	9.45

*Income From Investment Operations*
Net investment income(1)		0.21			0.41			0.40			0.43			0.49			0.55
Net gain or (loss) on investments (both realized and unrealized)		0.04			(0.04	)		0.04			(0.07	)		(0.26	)		0.05

Increase from investment operations		0.25			0.37			0.44			0.36			0.23			0.60
*Less Distributions*
Dividends to shareholders from net investment income		(0.21	)		(0.41	)		(0.40	)		(0.44	)		(0.48	)		(0.54	)
Distributions from realized capital gains		—			—			—			(0.01	)		(0.02	)		—

Total Distributions		(0.21	)		(0.41	)		(0.40	)		(0.45	)		(0.50	)		(0.54	)

Net increase (decrease) in net asset value		0.04			(0.04	)		0.04			(0.09	)		(0.27	)		0.06

Net Asset Value, end of period	$	9.19		$	9.15		$	9.19		$	9.15		$	9.24		$	9.51

Total Return, at Net Asset Value(2)		2.79	%+		4.17	%		4.95	%		4.02	%		2.53	%		6.59	%*

Ratios/Supplemental Data:
Ratios to average net assets:
Net investment income		4.51	%**		4.56	%		4.37	%		4.80	%		5.23	%		5.78	%
Total expenses		0.59	%**		0.58	%		0.57	%		0.55	%		0.57	%		0.61	%
Net expenses		0.59	%**		0.58	%		0.57	%		0.55	%		0.55	%		0.56	%
Net assets, end of period (000s)	$	813,045		$	784,345		$	849,349		$	794,629		$	755,102		$	577,654

Portfolio turnover rate(3)		3.08	%+		4.67	%		2.73	%		7.39	%		7.04	%		13.75	%

+	not annualized

**	annualized

(1)	Net investment income per share was calculated using an average shares method.

(2)

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.

(*)

The total return for fiscal year ended September 30, 2007 includes an interest payment of approximately $3.8 million representing four years of unpaid interest relating to the Fund’s holding of United Airlines/Denver International Airport bonds that is a non-recurring event outside of the control of the Fund.

(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 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 or redemption feature of one year or less at the time of acquisition are excluded from the calculation. Cost of purchases and proceeds from sales of investment securities (excluding short-term securities) for the period ended March 31, 2012 were $14,140,000 and $34,300,405, respectively.

See accompanying notes to financial statements.

Colorado BondShares

A Tax-Exempt Fund

Notes to Financial Statements (unaudited)

(1)

Organization

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.

(2)

Summary of Significant Accounting Policies

The preparation of financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. This 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. These financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the reporting period. The following summarizes the significant accounting policies of the Fund:

(a)

Investment Valuation and Risk

Securities for which there is no last sales price are valued by an independent pricing service based on evaluated prices which considers such factors as transactions in bonds, quotations from bond dealers, market transactions in comparable securities and various relationships between securities, or are fair valued by management.

Securities for which market quotations are not readily available (or management considers otherwise are no longer valid or reliable) are valued at fair value determined in accordance with procedures approved by the Board of Trustees. This can occur in the event of, among other things, natural disasters, acts of terrorism, market disruptions, intra-day trading halts, and extreme market volatility. The determination of fair value involves subjective judgments. As a result, using fair value to price a security may result in a price materially different from the prices used by other mutual funds to determine net asset value or the price that may be realized upon the actual sale of the security. Short-term holdings are valued at current market quotations or amortized cost whichever management believes best approximates fair value.

ASC 820 Fair Value Measurements and Disclosures establishes a fair value hierarchy that classifies securities based on valuation techniques used to measure fair value and distinguish between observable inputs (market data obtained from independent sources) and the reporting entities own assumptions which are not readily observable to market participants. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

Colorado BondShares

A Tax-Exempt Fund

Notes to Financial Statements (unaudited) — (Continued)

Level 1 Inputs: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3 Inputs: Significant unobservable inputs for the asset or liability including management’s own assumptions. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available.

The following table summarizes the valuation of the Fund’s investments as defined by ASC 820 hierarchy levels as of March 31, 2012 :

Valuation Inputs Summary


	Colorado Municipal Bonds		Short-Term Municipal Bonds		Colorado Capital Appreciation and Zero Coupon Bonds		Other Municipal Bonds		Colorado Taxable Certificates/ Notes		Total Securities March 31, 2012
Level 1 Securities		—		—		—		—		—		—
Level 2 Securities		256,098,347		300,910,081		29,303,734		11,655,450		—		597,967,612
Level 3 Securities		110,377,178		—		8,379,139		4,904,915		2,306,732		125,967,964

Totals		366,475,525		300,910,081		37,682,873		16,560,365		2,306,732		723,935,576


	Colorado Municipal Bonds			Colorado Capital Appreciation and Zero Coupon Bonds			Other Municipal Bonds		Colorado Taxable Certificates/Notes		Totals
Level 3 Beginning Balance September 30, 2011		105,103,424			8,403,939			4,904,915		2,306,732		120,719,010
Unrealized Losses		(9,705,659	)		(24,800	)		—		—		(9,730,459	)
Unrealized Gains		3,105,771			—			—		—		3,105,771
Realized Losses		(23,241	)		—			—		—		(23,241	)
Realized Gains		2,401,504			—			—		—		2,401,504
Purchases		1,480,000			—			—		—		1,480,000
Sales		(15,992,803	)		—			—		—		(15,992,803	)
Transfers In to Level 3*		40,739,453			—			—		—		40,739,453
Transfers Out of Level 3*		(16,731,271	)		—			—		—		(16,731,271	)

Balance as of March 31, 2012		110,377,178			8,379,139			4,904,915		2,306,732		125,967,964

Colorado BondShares

A Tax-Exempt Fund

Notes to Financial Statements (unaudited) — (Continued)

* Transferred from Level 2 to Level 3 because of a lack, or change of observable inputs or reduced market data reliability. Transferred from Level 3 to Level 2 are the result of observable inputs became available or increased market data reliability. The Fund’s policy is to recognize transfers into and out of Level 3 when management becomes aware of a change to significant observable input or market data reliability.

From September 30, 2011 to March 31, 2012, there were no Level 1 Securities.

Purchase Accrued (note 7)


Purchase Accrued Beginning Balance September 30, 2011			44,026,872
Unrealized Losses			—
Unrealized Gains			—
Realized Losses			—
Realized Gains			—
Purchases			—
Sales			—
Transfers In to			—
Transfers Out of			—

Ending Balance March 31, 2012			44,026,872

Fixed-income securities owned by the Fund are subject to interest-rate risk, credit risk, prepayment risk and market risk. The Fund invests in not 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 rated fixed income securities. The Fund concentrates its investments in Colorado and, therefore, may be impacted by specific events, issuers or factors affecting Colorado. The Fund has more credit risk related to the economic conditions of Colorado than a portfolio with a broader geographical diversification.

(b)

Income Tax Information and Distributions to Shareholders

The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code, as amended, applicable to regulated investment companies and to distribute all its net investment income and any net realized gain on investments not offset by capital loss carryforwards to shareholders. The Fund distributes investment income monthly and due to the tax-exempt nature of its investments the income is generally non-taxable to the shareholders. The Fund distributes net realized capital gains, if any, to its shareholders at least annually. Income distributions and capital gain distributions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences are primarily due to the differing treatment of tax allocations.

Colorado BondShares

A Tax-Exempt Fund

Notes to Financial Statements (unaudited) — (Continued)

Management has reviewed the Fund’s tax position for all open tax years. As of March 31, 2012, the Fund did not have a liability for any unrecognized tax benefits. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. The Fund has no examinations in progress.

At March 31, 2012, the cost and unrealized appreciation (depreciation) of investments, as determined on a federal income tax basis , were as follows:


Cost of investments ...	$	741,010,950

Gross unrealized appreciation	$	33,534,241
Gross unrealized depreciation		(50,609,615	)

Net unrealized depreciation of investments	$	(17,075,374	)

(c)

Defaulted or Non-income Producing Investments

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 $37,948,009 and such bonds have a value of $17,500,938 or 2.15% of net assets, as of March 31, 2012. These securities have been identified in the accompanying Schedule of Investments.

The Fund has entered into a forbearance agreement with one district under which it agrees that the issuer may pay a reduced rate of interest in lieu of the contract rate for a period of time. Total face amount of the bond for which the Fund has entered into the forbearance agreement is $2,080,000 and has a value of $1,040,000 or .13% of net assets, as of March 31, 2012. This security has been identified in the accompanying Schedule of Investments.

(d)

Investment Transactions and Revenue Recognition

Investment transactions are accounted for on the date the investments are purchased or sold (trade date). Purchases and sales of securities, other than short-term securities, aggregated to $14,140,000 and $34,300,405, respectively.

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. Interest income is recorded on the accrual basis.

Variable Rate Demand Obligations (“VRDO”) purchased by the Fund are floating rate obligations that have a nominal long-term maturity but have a coupon rate that is reset periodically (e.g., daily, or weekly). The investor has the option to put the issue back to the trustee or tender agent at any time with specified

Colorado BondShares

A Tax-Exempt Fund

Notes to Financial Statements — (Continued)

(e.g., seven days’) notice, accordingly the Fund treats these obligations as short-term holdings. On March 31, 2012, the interest rates paid on these obligations ranged from 0.14% to 1.34%.

(e)

Classification of Distributions to Shareholders

The character of distributions made during the year from net investment income or net realized gains may differ from its ultimate characterization for federal income tax purposes. Also, due to timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the fiscal year in which the income or realized gain was recorded by the Fund.

(f)

Securities Purchased on a When-Issued Basis

The Fund may purchase securities on a when-issued basis with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and may increase or decrease in value prior to the delivery date. The Fund maintains segregated assets with a value equal to or greater than the amount of its purchases commitments. The Fund did not have any when-issued securities at March 31, 2012.

(3)

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 were as follows:


	Six Months Ended March 31, 2012						Year Ended September 30, 2011
	Shares			Amount			Shares			Amount
Shares sold		5,309,535		$	48,706,676			7,301,240		$	66,226,744
Dividends and distributions reinvested		1,242,500			11,392,974			2,560,973			23,185,865

		6,552,035			60,099,650			9,862,213			89,412,609
Shares redeemed		(3,851,818	)		(35,339,494	)		(16,523,705	)		(149,346,212	)

Net (decrease) increase in shares outstanding		2,700,217		$	24,760,156			(6,661,492	)	$	(59,933,603	)

(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 expense 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

Colorado BondShares

A Tax-Exempt Fund

Notes to Financial Statements — (Continued)

the period ended March 31, 2012. Transfer agency expenses on the Statement of Operations represent direct expenses charged to the Fund by third parties.

Allen Insurance, an affiliate of the investment adviser, acted as agent for the Fidelity Bond and the Errors and Omissions insurance policy maintained by the Fund and as a result received compensation in the form of commissions. The policies were provided by Traveler’s Insurance Company and all the commissions referred to above were paid by Travelers. Allen Insurance received no compensation directly from the assets of the Fund.

(5)

Custody Credits

Expenses paid indirectly by the Fund represent earnings credits on cash balances maintained with the Fund’s custodian bank, UMB Bank, N.A. The earnings credits resulted in offsetting custodian fees of $2,164 for the six month period ended March 31, 2012.

(6)

Litigation

From time to time the Fund may be involved in certain disputes and legal actions arising in the ordinary course of its business. While it is not feasible to predict or determine the outcome of these proceedings, in management’s opinion, based on a review with legal counsel, none of these disputes and legal actions is expected to have a material impact on its financial position or results of operations. However, litigation is subject to inherent uncertainties, and an adverse result in these matters may arise from time to time that may harm the Fund’s business.

(7)

Purchase Accrued Interest

Purchase accrued interest is typically a component of a municipal bond purchase and is paid on settlement date. The accrual period begins on the last interest payment date (or original issue date) and runs through the day immediately preceding the settlement date. The Fund has purchased three bonds from the Meadows Metropolitan Districts No. 1, 2 and 7 with an aggregate balance of purchase accrued of $44,026,872 (99.11% of the March 31, 2012 balance of $44,424,458). Approximately $24,891,956 of additional interest has accrued on the purchase accrued interest since its purchase in 2007. This additional accrued interest has been fair valued in accordance with ASC 820 at approximately $18,518,706 and is included in other assets net of liabilities in the Schedule of Investments. This amount bears interest at the rate of 7.999% and will be received over an uncertain period of years. The value of the Meadows bonds is contained within three separate line items of the financial statements which all relate to a single set of bonds that cannot be sold separately.

(8)

Subsequent Events

Management has evaluated the possibility of subsequent events in the Fund’s financial statements through the date of issuance. Management has determined that there are no material events that would require disclosure in the Fund’s financial statements through this date.

Officers and Trustees of the Fund (unaudited)

The following table lists the trustees and officers of the Fund, together with their address, age, positions held with the Fund, the term of each office held and the length of time served in each office, principal business occupations during the past five years and other directorships, if any, held by each trustee and officer. Each trustee and officer has served in that capacity for the Fund continuously since originally elected or appointed. The Board supervises the business activities of the Fund. Each trustee serves as a trustee until termination of the Fund unless the Trustee dies, resigns, retires, or is removed.


Name, Address and Age	Position held with the Fund and Length of Time Served	Principal Occupation During the Past Five Years:	Other Directorships Held By Director

Non-Interested Trustees
Bruce G. Ely 1200 17th Street, Suite 850 Denver CO 80202 Age: 61	Trustee since July 2002	Mr. Ely is currently a Regional Director for Cutwater Asset Management, a wholly owned subsidiary of MBIA, Inc.	None

James R. Madden 1200 17th Street, Suite 850 Denver CO 80202 Age: 68	Trustee since September 2004	Mr. Madden has owned Madden Enterprises, a real estate company that owns and leases commercial buildings and real estate, for the past thirty years. He is also a stockholder and director of Community National Bank in western Kansas. He has been a bank director for 25 years.	None

Interested Trustees*
George N. Donnelly 1200 17th Street, Suite 850 Denver CO 80202 Age: 65	Chairman of the Board of Trustees, Trustee since inception of the Fund in 1987 and Interim President, Secretary and Treasurer of the Fund since September 26, 2008	Mr. Donnelly was a Senior Regional Vice President for Phoenix Life Insurance Company until his retirement in January 2010.	None

*George N. Donnelly is an “interested person” of the Fund as defined in the Investment Company Act of 1940 (the “1940 Act”) by virtue of his position as both an officer and a trustee of the Fund as described in the table above. None of the trustees nor the officers of the Fund has any position with the Investment Adviser, the principal underwriter of the Fund, the distribution agent of the Fund, the service agent of the Fund or the custodian of the Fund, or any affiliates thereof. There is no family relationship between any officers and trustees of the Fund.

Other Information (Unaudited)

Proxy Voting Record

The Fund does not invest in equity securities. Accordingly, there were no matters relating to a portfolio security considered during the 12 months ended June 30, 2011 with respect to which the Fund was entitled to vote. Applicable regulations require us to inform you that the foregoing proxy voting information is available on the SEC website at http://www.sec.gov or you may call us at 1-800-572-0069.

Quarterly Statement of Investments

The Fund files a complete statement of investments with the Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission’s website at http://www.sec.gov. The filed form may also be viewed and copied at the Commission’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800-732-0330 or you may call us at 1-800-572-0069.

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LOGO

A Tax-Exempt Fund

SEMI-ANNUAL REPORT

March 31, 2012

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 applicable.

ITEM 6. INVESTMENTS.

(a) Please see the Schedule of Investments contained in the Semi-Annual Report included under Item 1 of this Form N-CSR.

(b) Not applicable.

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable.

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable.

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.

Not applicable.

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

The registrant has not adopted procedures by which shareholders may recommend nominees to the registrant’s board of trustees.

ITEM 11. CONTROLS AND PROCEDURES.

(a) The registrant has adopted and maintained disclosure controls and procedures (as such term is defined in Rules 30a-3(c) under the Investment Company Act of 1940, as amended (the “Act”)) that are designed to ensure that information required to be disclosed in the registrant’s reports under the Act, is recorded, processed, summarized and reported within the time periods required under the SEC’s rules and forms and that the information is accumulated and communicated to the registrant’s management, including its principal executive officer and principal financial officer to allow for timely decisions regarding required disclosure.

As required by Rule 30a-3(b) of the Act, the registrant carried out an evaluation under the supervision and with the participation of its management, including its principal executive officer and principal financial officer, of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures within the 90-day period prior to the filing date of this report. Based on the foregoing, the registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures were effective, as of that date.

(b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) during 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 12. EXHIBITS.

(a)(2)(i)

(99.302) Interim President’s (Principal Executive Officer) Section 302 Certification

(a)(2)(ii)

(99.302) Interim Treasurer’s (Principal Financial Officer) Section 302 Certification

(a)(3) Not applicable.

(b)

(99.906) Combined Interim President & Treasurer (Principal Executive Officer and Principal Financial Officer) 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.

Colorado BondShares — A Tax-Exempt Fund

/s/ George N. Donnelly

George N. Donnelly,

Interim President, Secretary and Treasurer

Date: June 7, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ George N. Donnelly

George N. Donnelly,

Interim President, Secretary and Treasurer

(Principal Executive Officer and Principal Financial Officer)

Date: June 7, 2012