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 811-09277
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VIKING MUTUAL FUNDS
-------------------
(Exact name of registrant as specified in charter)
1400 14TH AVE. SW, MINOT, ND 58701
(Address of principal executive offices) (Zip code)
DOUGLAS P. MILLER, 1400 14TH AVE. SW, MINOT, ND 58701
-----------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (701) 852-1264
--------------
Date of fiscal year end: 12/31
----
Date of reporting period: 12/31/03
-------
ITEM 1. REPORTS TO STOCKHOLDERS.
SHAREHOLDER LETTER
Dear Fellow Shareholder:
It is a pleasure to bring you the Viking Mutual Funds Annual Report for the
year ended December 31, 2003.
The specter of war with Iraq dominated investor psychology and media
headlines in the first quarter and contributed to near panic selling of
equities and continued buying of bonds. The end of uncertainty as to if
and when there was going to be a war lifted investors' spirits in late
March. Economic activity began to show modest signs of improvement in the
second quarter, the Bush Administration finally got a tax package approved,
and the labor market appeared to stabilize. Despite this positive news, the
central bank took out a quarter-point insurance policy against a sluggish
economy by cutting its fed funds rate for overnight loans between banks
to 1 percent or the lowest rate since 1958. Since the worlds largest economy
slipped into a mild recession at the start of 2001, the Fed has brought down
its key benchmark from 6 1/2 percent to its current 45 year low. This rate cut
by the Fed was the 13th in this economic cycle, as it viewed the deflationary
threat, albeit remote, to be of greater concern than an acceleration in
inflation. The stimulative monetary and fiscal polices gained traction in
the third quarter resulting in strong economic data that exceeded forecasts
in many areas. The third tax cut in as many years from the Bush
Administration began producing the desired affect along with the 13 rate cuts
from the Fed. In the fourth quarter, the economy continued to show signs of
sustainable recovery and the Fed continued its promise to keep rates low
"for a considerable period." The Fed's low rates have helped support the
recovery, especially in interest-sensitive sectors like housing, autos, and
business investment. The stock market has thrived on low rates and they have
helped to weaken the dollar. Just what Dr. Greenspan ordered.
The average investor, already awash in red ink at the start of the year,
plunged deeper into the minus column during the first quarter. However,
from the depths of despair in mid-March, the stock market surprised right
to the end of a very strong 2003, as it climbed the proverbial "wall of
worry" over the last nine months of the year. The majority of gains came
in two spurts -- one from mid-March to June, just after the U.S. began its
war with Iraq as investors began to bet on an economic recovery in the second
half, and another from early August to mid-October, when the recovery
actually began to materialize in corporate earnings reports. In typical
"buy the rumor" fashion, investors dove into stocks in mid-March on the
belief that a recovering economy would yield strong profit growth. In this
case, it did, but the "sell the news" aspect of this never really came into
play because the earnings growth was so good that multiples never really
expanded. It was an impressive year across the board as the Dow Jones
Industrial Average finished 2003 with a gain of 25 percent, the Nasdaq
Composite jumped an eye popping 50 percent, the S&P 500 Index was up 27
percent and the Russell 2000 Index soared 46%
As the economy continued to struggle in the first quarter as uncertainty
about war with Iraq loomed, municipal bond rates continued to slide,
sending prices higher. Although economic activity began to show some
improvement as the second quarter progressed, fears of the risk of deflation
increased sending rates still lower and municipal bond prices higher once
again. The third quarter was a period of historic interest rate
volatility. Rates rose dramatically in July, sending bond prices lower as
the strength of economic data exceeded forecasts. Bond prices gained back
some of July's losses as rates fell in August and September after the Fed
inserted the now-famous language vowing to maintain low rates "for a
considerable period" in its August statement in an effort to calm market
fears that the Fed would begin to raise rates quickly as the economy
recovered. Interest rates varied by a much smaller degree in the final
quarter of the year that witnessed a series of strong economic reports with
little or no inflation.
In this type of market environment, it continues to be highly important to
seek the help of a professional when investing. Making the right decisions
in these markets can be very difficult and an experienced investment
professional can address your concerns about the market and provide the
guidance needed to help you diversify your investments and stay focused on
the long term.
Fund reports containing a discussion of individual Fund performance as well
as the Funds' portfolios and financial statements are presented within for
your review.
We thank you for your confidence in Viking Mutual Funds. Our interests are
closely aligned with those of our shareholders because our money is invested
alongside with their own. As always we will do our best to make sure your
experience as a shareholder is a rewarding one.
Sincerely,
/s/Shannon D. Radke
Shannon D. Radke
President
Viking Mutual Funds
VIKING TAX-FREE FUND FOR MONTANA
By: Shannon D. Radke
President/Portfolio Manager
Viking Tax-Free Fund for Montana provided a total return of 4.45% (at net
asset value with distributions reinvested) for the year ended December 31,
2003.
As the economy continued to struggle in the first quarter as uncertainty
about war with Iraq loomed, municipal bond rates continued to slide,
sending prices higher. This resulted in a slight increase in the Fund's
share price. Although economic activity began to show some improvement as
the second quarter progressed, fears of the risk of deflation increased
sending rates still lower and municipal bond prices higher once again. As
a result, for the second quarter, the Fund's share price rose modestly.
The third quarter was a period of historic interest rate volatility. Rates
rose dramatically in July, sending bond prices and the Fund's share price
lower as the strength of economic data exceeded forecasts. Bond prices and
the Fund's share price gained back some of July's losses as rates fell in
August and September after the Fed inserted the now-famous language vowing to
maintain low rates "for a considerable period" in its August statement in an
effort to calm market fears that the Fed would begin to raise rates quickly
as the economy recovered. Interest rates varied by a much smaller degree
in the final quarter of the year that witnessed a series of strong economic
reports with little or no inflation. As a result, the Fund's share price
rose slightly in the fourth quarter and ended the year with a slight gain
as well.
Despite the continued scarcity of Montana municipal bonds throughout the
period, the Fund was able to obtain an adequate supply of high quality bonds
of various maturities. Purchases throughout the period included Butte-Silver
Bow Water Systems Revenue, Flathead County School District No. 44, Montana
State Board of Housing, Missoula County Airport Authority Revenue, State of
Montana G.O. and many other issues. Adding the various purchases to the
portfolio resulted in a duration at December 31 of 7.66 years. Average
credit quality remained a lofty AA+.
Going forward, we remain committed to our non-interest rate anticipatory
style of investing. Rather than betting on the direction of rates, we will
continue to seek out the best value among high quality issues of varying
maturities. The highest level of current income that is exempt from federal
and Montana income taxes and is consistent with preservation of capital
remains the investment objective of the Fund.
Recent volatility in the stock market has underscored the importance of
diversifying with fixed income investments. Municipal bond funds offer
high quality, favorable after-tax yields and comparatively lower volatility
than corporate bonds. These qualities can make them an ideal component
in an asset allocation plan.
VIKING TAX-FREE FUND FOR MONTANA
Growth of a $10,000 Investment
August 3, 1999 through December 31, 2003 (Unaudited)
Comparison of Change in Value of a $10,000 Investment in Viking
Tax-Free Fund for Montana vs. the Lehman Brother Municipal Bond Index
[Comparative index graph]
Viking Tax-Free Fund Viking Tax-Free Fund Lehman Brothers
for Montana for Montana Municipal Bond
with max sales charge without max sales charge Index
---------------------------------------------------------------------
August 3, 1999 $ 9,551 $10,000 $10,000
October 31, 1999 $ 9,196 $ 9,628 $ 9,817
December 31, 1999 $ 9,125 $ 9,554 $ 9,846
February 28, 2000 $ 9,185 $ 9,617 $ 9,918
April 30, 2000 $ 9,405 $ 9,847 $10,075
June 30, 2000 $ 9,468 $ 9,913 $10,288
August 31, 2000 $ 9,748 $10,206 $10,592
October 31, 2000 $ 9,796 $10,257 $10,652
December 31, 2000 $10,058 $10,531 $10,998
February 28, 2001 $10,185 $10,664 $11,142
April 30, 2001 $10,103 $10,578 $11,121
June 30, 2001 $10,263 $10,745 $11,317
August 31, 2001 $10,672 $11,173 $11,674
October 31, 2001 $10,719 $11,223 $11,772
December 31, 2001 $10,509 $11,002 $11,563
February 28, 2002 $10,785 $11,292 $11,905
April 30, 2002 $10,821 $11,330 $11,899
June 28, 2002 $10,981 $11,498 $12,099
August 31, 2002 $11,276 $11,806 $12,402
October 31, 2002 $11,329 $11,862 $12,463
December 31, 2002 $11,549 $12,092 $12,673
February 28, 2003 $11,710 $12,260 $12,818
April 30, 2003 $11,750 $12,303 $12,910
June 30, 2003 $11,934 $12,495 $13,155
July 31, 2003 $11,490 $12,030 $12,695
August 31, 2003 $11,575 $12,119 $12,790
September 30, 2003 $11,908 $12,468 $13,166
October 31, 2003 $11,832 $12,388 $13,100
November 30, 2003 $11,950 $12,511 $13,237
December 31, 2003 $12,063 $12,630 $13,347
The chart assumes $10,000 invested on August 3, 1999 and includes the
effect of a 4.50% front-end sales charge, as applicable and the
reinvestment of all dividends and capital gains. It is intended to
give you an ideal of how your fund performed compared to the index over
the period 08/03/99-12/31/03. It is important to understand the
differences between your fund and an index. An index measures the
performance of a hypothetical portfolio. A market index such as the
Lehman Brothers Municipal Bond Index is not managed and incurs no sales
charges, expenses or fees. If you could buy all the securities that
make up a market index, you would incur expenses that would affect your
investment's return. Returns shown do not reflect the deduction of the
taxes that a shareholder would pay on fund distributions or redemption of
fund shares. Past performance does not guarantee future
results.
Average Annual Total Returns Lifetime
Through December, 2003 One-Year Three-Year (Est. 8/3/99)
- - ----------------------------------------------------------------------
Excluding Sales Charge 4.45% 6.25% 5.43%
Including Sales Charge -0.26% 4.64% 4.34%
Returns reflect reinvestment of distributions and the effect of a 4.50%
front-end sales charge, as applicable. Return and share values will
fluctuate so that shares, when redeemed, may be worth more or less than
their original cost. Returns shown do not reflect the deduction of the
taxes that a shareholder would pay on fund distributions or redemption of
fund shares. Past performance is not a guarantee of future
results.
VIKING TAX-FREE FUND FOR NORTH DAKOTA
By: Shannon D. Radke
President/Portfolio Manager
Viking Tax-Free Fund for North Dakota provided a total return of 4.60% (at
net asset value with distributions reinvested) for the year ended
December 31, 2003.
As the economy continued to struggle in the first quarter as uncertainty
about war with Iraq loomed, municipal bond rates continued to slide, sending
prices higher. This resulted in a slight increase in the Fund's share
price. Although economic activity began to show some improvement as the
second quarter progressed, fears of the risk of deflation increased sending
rates still lower and municipal bond prices higher once again. As a result,
for the second quarter, the Fund's share price rose modestly. The third
quarter was a period of historic interest rate volatility. Rates rose
dramatically in July, sending bond prices and the Fund's share price lower as
the strength of economic data exceeded forecasts. Bond prices and the Fund's
share price gained back some of July's losses as rates fell in August and
September after the Fed inserted the now-famous language vowing to maintain
low rates "for a considerable period" in its August statement in an effort to
calm market fears that the Fed would begin to raise rates quickly as the
economy recovered. Interest rates varied by a much smaller degree in the
final quarter of the year that witnessed a series of strong economic
reports with little or no inflation. As a result, the Fund's share price
rose slightly in the fourth quarter and ended the year with a slight
gain as well.
Despite the continued scarcity of North Dakota municipal bonds throughout
the period, the Fund was able to obtain an adequate supply of high quality
bonds of various maturities. Purchases throughout the period included
Burleigh County Health Care Revenue for MedCenter One, Cass County University
Facilities Revenue for NDSU, Fargo G.O., Grand Forks Sales Tax Revenue for
Dike Improvements, Minot Highway G.O. and many other issues. Adding the
various purchases to the portfolio resulted in a duration at December 31
of 6.92 years. Average credit quality remained a lofty AA+.
Going forward, we remain committed to our non-interest rate anticipatory
style of investing. Rather than betting on the direction of rates, we
will continue to seek out the best value among high quality issues of
varying maturities. The highest level of current income that is exempt
from federal and North Dakota income taxes and is consistent with
preservation of capital remains the investment objective of the Fund.
Recent volatility in the stock market has underscored the importance of
diversifying with fixed income investments. Municipal bond funds offer
high quality, favorable after-tax yields and comparatively lower v
olatility than corporate bonds. These qualities can make them an ideal
component in an asset allocation plan.
VIKING TAX-FREE FUND FOR NORTH DAKOTA
Growth of a $10,000 Investment
August 3, 1999 through December 31, 2003 (Unaudited)
Comparison of Change in Value of a $10,000 Investment in Viking
Tax-Free Fund for North Dakota vs. the Lehman Brother Municipal Bond
Index
[Comparative index graph]
Viking Tax-Free Fund Viking Tax-Free Fund Lehman Brothers
for North Dakota for North Dakota Municipal Bond
with max sales charge without max sales charge Index
---------------------------------------------------------------------
August 3, 1999 $ 9,551 $10,000 $10,000
October 31, 1999 $ 9,163 $ 9,594 $ 9,817
December 31, 1999 $ 9,211 $ 9,644 $ 9,846
February 28, 2000 $ 9,227 $ 9,660 $ 9,918
April 30, 2000 $ 9,422 $ 9,864 $10,075
June 30, 2000 $ 9,533 $ 9,981 $10,288
August 31, 2000 $ 9,833 $10,295 $10,592
October 31, 2000 $ 9,965 $10,434 $10,652
December 31, 2000 $10,252 $10,734 $10,998
February 28, 2001 $10,412 $10,901 $11,142
April 30, 2001 $10,303 $10,795 $11,121
June 30, 2001 $10,419 $10,909 $11,317
August 31, 2001 $10,809 $11,317 $11,674
October 31, 2001 $10,825 $11,334 $11,772
December 31, 2001 $10,586 $11,084 $11,563
February 28, 2002 $10,910 $11,423 $11,905
April 30, 2002 $10,934 $11,448 $11,899
June 28, 2002 $11,108 $11,630 $12,099
August 31, 2002 $11,409 $11,945 $12,402
October 31, 2002 $11,452 $11,990 $12,463
December 31, 2002 $11,652 $12,200 $12,673
February 28, 2003 $11,815 $12,369 $12,818
April 30, 2003 $11,868 $12,426 $12,910
June 30, 2003 $12,074 $12,641 $13,155
July 31, 2003 $11,652 $12,196 $12,695
August 31, 2003 $11,761 $12,314 $12,790
September 30, 2003 $12,046 $12,612 $13,166
October 31, 2003 $11,982 $12,545 $13,100
November 30, 2003 $12,087 $12,656 $13,237
December 31, 2003 $12,188 $12,761 $13,347
The chart assumes $10,000 invested on August 3, 1999 and includes the
effect of a 4.50% front-end sales charge, as applicable and the
reinvestment of all dividends and capital gains. It is intended to
give you an ideal of how your fund performed compared to the index over
the period 08/03/99-12/31/03. It is important to understand the
differences between your fund and an index. An index measures the
performance of a hypothetical portfolio. A market index such as the
Lehman Brothers Municipal Bond Index is not managed and incurs no sales
charges, expenses or fees. If you could buy all the securities that
make up a market index, you would incur expenses that would affect your
investment's return. Returns shown do not reflect the deduction of the
taxes that a shareholder would pay on fund distributions or redemption of
fund shares. Past performance does not guarantee future
results.
Average Annual Total Returns Lifetime
Through December 31, 2003 One-Year Three-Year (Est. 8/3/99)
- - ----------------------------------------------------------------------
Excluding Sales Charge 4.60% 5.94% 5.67%
Including Sales Charge -0.08% 4.32% 4.58%
Returns reflect reinvestment of distributions and the effect of a 4.50%
front-end sales charge, as applicable. Return and share values will
fluctuate so that shares, when redeemed, may be worth more or less than
their original cost. Returns shown do not reflect the deduction of the
taxes that a shareholder would pay on fund distributions or redemption of
fund shares. Past performance is not a guarantee of future
results.
VIKING LARGE-CAP VALUE FUND
By: J. Peter Skirkanich, Chairman of Investment Committee
Shannon D. Radke, President
Viking Large-Cap Value Fund provided a return of 23.42% (at net asset value)
for the year ended December 31, 2003.
The specter of war with Iraq dominated investor psychology and media
headlines in the first quarter. That combined with concerns about corporate
profits and economic growth contributed to near-panic selling of equities.
It marked the eighth negative quarter for the S&P 500 in the past 12
quarters. The Fund's share price incurred some erosion along the way posting
a decline of 7.32% in quarter one. The end of uncertainty as to whether and
when there was going to be a war and a modest improvement in economic
activity lifted investors' spirits in late March and through the second
quarter. This resulted in a strong rally in stocks and a gain of over 17%
for the Fund. The stimulative monetary and fiscal policies gained traction
in the third quarter resulting in strong economic data that exceeded
forecasts in many areas. As a result, stocks continued their advance and the
fund added slightly to its gains. In the fourth quarter, the economy
continued to show signs of sustainable recovery and the Fed continued its
promise to keep rates low for a considerable period. Much of the final
quarter was spent in a holding pattern as money managers sought to guard
their gains. But in late December, the Dow convincingly rose above the
psychological barrier of 10,000. And in the final week, the Nasdaq made
its own symbolic breakthrough by surpassing the 2,000 level. Large-cap
stocks delivered strong returns in the final quarter and the fund
participated with a gain of over 13%.
From the depths of despair at the end of March, the stock market surprised
right to the end of a very strong 2003, as it climbed the proverbial "wall
of worry" over the last nine months of the year. It was an impressive year
across the board as the Dow Jones Industrial Average finished 2003 with a
gain of 25 percent, the Nasdaq Composite jumped an eye popping 50 percent,
the S&P 500 Index was up 27 percent and the Russell 2000 Index soared 46
percent.
Given the traumatic equity market from March 2000 through March 2003, we
find the level to which caution seems to have been thrown to the wind
surprising. The apparent disregard for risk is manifested in continued
momentum-type buying in lower-priced stocks, stocks with little or no
earnings and stocks of companies with poor balance sheets. The capital
markets have rewarded speculation over investment as is often witnessed
in the early stages of a recovery. However, at this stage, with absolute
gains becoming harder to come by, security selection will become increasingly
important and quality companies with reasonable valuations should lead the
equity market going forward. Long-term total return and capital
preservation remains the investment objective of the Fund.
VIKING LARGE-CAP VALUE FUND
Growth of a $10,000 Investment
August 3, 1999 through December 31, 2003 (Unaudited)
Comparison of Change in Value of a $10,000 Investment in Viking
Large-Cap Value Fund vs. the Russell 1000 Value Index
[Comparative index graph]
Viking Large-Cap Viking Large-Cap Russell 1000
Value Fund Value Fund Value Index
with max sales charge without max sales charge
---------------------------------------------------------------------
August 3, 1999 $ 9,479 $10,000 $10,000
October 31, 1999 $ 9,147 $ 9,650 $ 9,875
December 31, 1999 $ 9,406 $ 9,924 $ 9,845
February 28, 2000 $ 8,057 $ 8,500 $ 8,816
April 30, 2000 $ 9,292 $ 9,803 $ 9,777
June 30, 2000 $ 9,245 $ 9,753 $ 9,428
August 31, 2000 $ 9,957 $10,505 $10,078
October 31, 2000 $10,252 $10,816 $10,420
December 31, 2000 $10,598 $11,181 $10,535
February 28, 2001 $10,483 $11,059 $10,282
April 30, 2001 $11,018 $11,624 $10,405
June 30, 2001 $10,665 $11,251 $10,403
August 31, 2001 $10,368 $10,938 $ 9,965
October 31, 2001 $ 9,431 $ 9,949 $ 9,184
December 31, 2001 $10,308 $10,875 $ 9,947
February 28, 2002 $10,298 $10,865 $ 9,886
April 30, 2002 $10,471 $11,047 $ 9,998
June 28, 2002 $ 9,588 $10,115 $ 9,472
July 31, 2002 $ 8,571 $ 9,042 $ 8,591
August 31, 2002 $ 8,542 $ 9,012 $ 8,656
September 30, 2002 $ 7,486 $ 7,898 $ 7,693
October 31, 2002 $ 7,697 $ 8,121 $ 8,263
November 30, 2002 $ 8,302 $ 8,759 $ 8,784
December 31, 2002 $ 7,929 $ 8,365 $ 8,403
January 31, 2003 $ 7,668 $ 8,090 $ 8,199
February 28, 2003 $ 7,417 $ 7,825 $ 7,980
March 31, 2003 $ 7,349 $ 7,753 $ 7,994
April 30, 2003 $ 7,890 $ 8,324 $ 8,697
May 31, 2003 $ 8,413 $ 8,875 $ 9,259
June 30, 2003 $ 8,606 $ 9,079 $ 9,375
July 31, 2003 $ 8,606 $ 9,079 $ 9,514
August 31, 2003 $ 8,828 $ 9,314 $ 9,663
September 30, 2003 $ 8,645 $ 9,120 $ 9,568
October 31, 2003 $ 9,138 $ 9,640 $10,154
November 30, 2003 $ 9,351 $ 9,865 $10,291
December 31, 2003 $ 9,786 $10,324 $10,926
The chart assumes $10,000 invested on August 3, 1999 and includes the
effect of a 4.50% front-end sales charge, as applicable and the
reinvestment of all dividends and capital gains. It is intended to
give you an ideal of how your fund performed compared to the index over
the period 08/03/99-12/31/03. It is important to understand the
differences between your fund and an index. An index measures the
performance of a hypothetical portfolio. A market index such as the
Russell 1000 Value Index is not managed and incurs no sales
charges, expenses or fees. If you could buy all the securities that
make up a market index, you would incur expenses that would affect your
investment's return. Returns shown do not reflect the deduction of the
taxes that a shareholder would pay on fund distributions or redemption of
fund shares. Past performance does not guarantee future
results.
Average Annual Total Returns Lifetime
Through December 31, 2003 One-Year Three-Year (Est. 8/3/99)
- - ----------------------------------------------------------------------
Excluding Sales Charge 23.42% -2.62% 0.73%
Including Sales Charge 17.00% -4.35% -0.49%
Returns reflect reinvestment of distributions and the effect of a 4.50%
front-end sales charge, as applicable. Return and share values will
fluctuate so that shares, when redeemed, may be worth more or less than
their original cost. Returns shown do not reflect the deduction of the
taxes that a shareholder would pay on fund distributions or redemption of
fund shares. Past performance is not a guarantee of future
results.
VIKING SMALL-CAP VALUE FUND
By: George C. Pierides, Director of Small-Cap Equities
Shannon D. Radke, President
Viking Small-Cap Value Fund provided a return of 32.94% (at net asset value)
for the year ended December 31, 2003.
The specter of war with Iraq dominated investor psychology and media
headlines in the first quarter. That combined with concerns about
corporate profits and economic growth contributed to near-panic selling
of equities. It marked the eighth negative quarter for the S&P 500 in
the past 12 quarters. The Fund's share price incurred slight erosion
along the way posting a decline of just 2.67% in quarter one. The end
of uncertainty as to whether and when there was going to be a war and a
modest improvement in economic activity lifted investors' spirits in late
March and through the second quarter. This resulted in a strong rally in
stocks and a gain of 14% for the Fund. The stimulative monetary and fiscal
policies gained traction in the third quarter resulting in strong economic
data that exceeded forecasts in many areas. As a result, stocks continued
their advance and the Fund added nearly 7% to its gains. In the fourth
quarter, the economy continued to show signs of sustainable recovery and the
Fed continued its promise to keep rates low for a considerable period. Much
of the final quarter was spent in a holding pattern as money managers sought
to guard their gains. But in late December, the Dow convincingly rose above
the psychological barrier of 10,000. And in the final week, the Nasdaq made
its own symbolic breakthrough by surpassing the 2,000 level. Small-cap
stocks continued to surge in the final quarter and the Fund participated with
a gain of over 12%.
From the depths of despair at the end of March, the stock market surprised
right to the end of a very strong 2003, as it climbed the proverbial "wall of
worry" over the last nine months of the year. It was an impressive year
across the board as the Dow Jones Industrial Average finished 2003 with a
gain of 25 percent, the Nasdaq Composite jumped an eye popping 50 percent,
the S&P 500 Index was up 27 percent and the Russell 2000 Index soared 46
percent.
Given the traumatic equity market from March 2000 through March 2003, we
find the level to which caution seems to have been thrown to the wind
surprising. The apparent disregard for risk is manifested in continued
momentum-type buying in lower-priced stocks, stocks with little or no
earnings and stocks of companies with poor balance sheets. The capital
markets have rewarded speculation over investment as is often witnessed
in the early stages of a recovery. However, at this stage, with absolute
gains becoming harder to come by, security selection will become
increasingly important and quality companies with reasonable valuations
should lead the equity market going forward. Long-term total return and
capital preservation remains the investment objective of the Fund.
VIKING SMALL-CAP VALUE FUND
Growth of a $10,000 Investment
May 3, 1999 through December 31, 2003 (Unaudited)
Comparison of Change in Value of a $10,000 Investment in Viking
Small-Cap Value Fund vs. the Russell 2000 Value Index
[Comparative index graph]
Viking Small-Cap Viking Small-Cap Russell 2000
Value Fund Value Fund Value Index
with max sales charge without max sales charge
---------------------------------------------------------------------
May 3, 2001 $ 9,479 $10,000 $10,000
June 30, 2001 $ 9,697 $10,230 $10,665
July 31, 2001 $ 9,421 $ 9,940 $10,426
August 31, 2001 $ 9,299 $ 9,810 $10,390
September 30, 2001 $ 8,227 $ 8,680 $ 9,243
October 31, 2001 $ 8,682 $ 9,160 $ 9,484
November 30, 2001 $ 9,204 $ 9,710 $10,166
December 31, 2001 $ 9,725 $10,260 $10,788
January 31, 2002 $ 9,839 $10,380 $10,932
February 28, 2002 $ 9,754 $10,290 $10,998
March 31, 2002 $10,597 $11,180 $11,821
April 30, 2002 $10,891 $11,490 $12,238
May 31, 2002 $10,768 $11,360 $11,833
June 28, 2002 $10,332 $10,900 $11,571
July 31, 2002 $ 8,910 $ 9,400 $ 9,852
August 31, 2002 $ 8,986 $ 9,480 $ 9,808
September 30, 2002 $ 8,569 $ 9,040 $ 9,108
October 31, 2002 $ 8,682 $ 9,160 $ 9,245
November 30, 2002 $ 9,137 $ 9,640 $ 9,982
December 31, 2002 $ 8,863 $ 9,350 $ 9,556
January 31, 2003 $ 8,474 $ 8,940 $ 9,287
February 28, 2003 $ 8,483 $ 8,950 $ 8,975
March 31, 2003 $ 8,626 $ 9,100 $ 9,070
April 30, 2003 $ 9,156 $ 9,660 $ 9,932
May 31, 2003 $ 9,668 $10,200 $10,946
June 30, 2003 $ 9,829 $10,370 $11,132
July 31, 2003 $10,218 $10,780 $11,687
August 31, 2003 $10,692 $11,280 $12,131
September 30, 2003 $10,502 $11,080 $11,991
October 31, 2003 $11,175 $11,790 $12,969
November 30, 2003 $11,555 $12,190 $13,467
December 31, 2003 $11,782 $12,430 $13,954
The chart assumes $10,000 invested on May 3, 2001 and includes the
effect of a 4.50% front-end sales charge, as applicable and the
reinvestment of all dividends and capital gains. It is intended to
give you an ideal of how your fund performed compared to the index over
the period 05/03/01-12/31/03. It is important to understand the
differences between your fund and an index. An index measures the
performance of a hypothetical portfolio. A market index such as the
Russell 2000 Value Index is not managed and incurs no sales
charges, expenses or fees. If you could buy all the securities that
make up a market index, you would incur expenses that would affect your
investment's return. Returns shown do not reflect the deduction of the
taxes that a shareholder would pay on fund distributions or redemption of
fund shares. Past performance does not guarantee future
results.
Average Annual Total Returns Lifetime
Through December 31, 2003 One Year (Est. 5/3/01)
- - -------------------------------------------------------------------
Excluding Sales Charge 32.94% 8.50%
Including Sales Charge 25.94% 6.34%
Returns reflect reinvestment of distributions and the effect of a 4.50%
front-end sales charge, as applicable. Return and share values will
fluctuate so that shares, when redeemed, may be worth more or less than
their original cost. Returns shown do not reflect the deduction of the
taxes that a shareholder would pay on fund distributions or redemption of
fund shares. Past performance is not a guarantee of future
results.
VIKING MUTUAL FUNDS
Statement of Investments, December 31, 2003
Viking Tax-Free Fund for Montana
PRINCIPAL MARKET
AMOUNT VALUE
MUNICIPAL BONDS 96.5%
General Obligations 20.8%
Bozeman MT Ser A 4.95% 07/01/20 170,000 $178,456
Broadwater Cnty MT Sch Dist No. 1 Townsend (AMBAC) 4.95% 07/01/16 25,000 26,989
Butte Silver Bow MT City & Cnty (AMBAC) 4.75% 07/01/11 210,000 233,553
Cascade Cnty MT High Sch A Great Falls 2.85% 07/01/05 225,000 229,090
Cascade Cnty MT High Sch A Great Falls 3.15% 07/01/06 100,000 103,583
Flathead Cnty MT Sch Dist No. 6 Columbia Falls 5.65% 07/01/19 75,000 84,890
Flathead Cnty MT Sch Dist No. 44 (MBIA) 3.00% 07/01/11 195,000 194,815
Kalispell MT (MBIA) 4.625% 07/01/05 130,000 137,930
Lake Cnty MT Elem Sch Dist No. 30 (MBIA) 4.70% 07/01/19 100,000 104,122
MT St Long Range Building Pg - Ser D 3.50% 08/01/11 150,000 153,956
MT St Long Range Building Pg - Ser G 5.375% 08/01/11 250,000 252,310
MT St Water Pollution Ctl 5.60% 07/15/20 100,000 110,316
MT St Long Range Building Pg - Ser D 5.375% 08/01/11 100,000 108,471
MT St Water Pollution Ctl Revolving D 3.75% 07/15/18 100,000 96,326
Puerto Rico Mun Fin Agy Ser A (FSA) 5.50% 08/01/23 250,000 277,718
Ravalli Cnty MT Sch Dist No. 1 Corvallis (FSA) 3.00% 07/01/12 140,000 137,273
Ravalli Cnty MT Sch Dist No. 003 Hamilton (FSA) 4.00% 07/01/16 80,000 80,389
Ravalli Cnty MT Sch Dist No. 003 Hamilton (FSA) 4.65% 07/01/09 105,000 114,867
---------
2,623,018
---------
Continuing Care Revenue Bonds 0.5%
MT St Hlth Facs Auth Rev Hillcrest Sr Ctr 6.90% 06/01/15 30,000 31,222
MT St Hlth Facs Auth Rev Hillcrest Sr Ctr 7.25% 06/01/25 35,000 37,054
---------
68,276
---------
Higher Education Revenue Bonds 14.6%
MT Brd Regents (U of M) Hgher Ed Rev Ser G (MBIA) 3.75% 05/15/14 100,000 100,495
MT St Hgher Ed Stud Assist Corp Rev Ser B 6.40% 12/01/32 415,000 446,042
MT Brd Regents (MSU) Ref & Imp Hghr Ed Facs-D (MBIA) 5.375% 11/15/21 260,000 276,292
MT Brd Regents (U of M) Hgher Ed Rev Ser F (MBIA) 5.75% 05/15/24 150,000 166,851
MT Brd Regents (U of M) Hgher Ed Rev Ser F (MBIA) 5.75% 05/15/16 50,000 56,318
Puerto Rico Tour Edl Med & Env Facs Mendez Univ 5.375% 02/01/19 75,000 76,529
*Univ of MT Revs Facs Acq & Imp Ser C (MBIA) 5.00% 11/15/17 140,000 150,426
Univ of MT Revs Higher Ed Facs Imp Ser D (MBIA) 5.375% 05/15/15 70,000 84,002
Univ of MT Revs Higher Ed Facs Imp Ser D (MBIA) 5.375% 05/15/19 135,000 150,956
Univ Puerto Rico Revs Ser O (MBIA) 5.75% 06/01/17 300,000 340,767
---------
1,848,678
---------
Hospital Revenue Bonds 24.6%
MT Hlth Fac Fin Auth Rev Mstr Ln Program Comm Med Ctr 5.20% 12/01/21 145,000 152,405
MT Fac Fin Auth Providence Serv (MBIA) 4.60% 12/01/18 150,000 156,390
MT Fac Fin Auth Providence Serv (MBIA) 5.00% 12/01/18 500,000 537,445
MT Fac Fin Auth Providence Serv (MBIA) 4.80% 12/01/20 200,000 208,138
*MT Fac Fin Auth Providence Serv (MBIA) 5.00% 12/01/25 500,000 517,440
*MT Hlth Fac Auth Sisters Chrty Leavenworth (MBIA) 5.125% 12/01/18 200,000 214,956
MT Hlth Fac Auth Sisters Chrty Leavenworth (MBIA) 5.00% 12/01/24 320,000 328,774
MT St Hlth Fac Auth Rev Comm Med Ctr 6.375% 06/01/18 370,000 366,411
MT St Hlth Fac Auth Rev Holy Rosary Pre-Ref (MBIA) 5.25% 07/01/20 130,000 137,179
MT St Hlth Fac Auth Rev Kalispell Med Ctr (AMBAC) 5.00% 07/01/16 450,000 484,992
---------
3,104,130
---------
Housing Revenue Bonds 10.9%
*MT St Brd Hsg Sngle Fam Mtg Ser A-2 5.75% 06/01/30 120,000 122,858
*MT St Brd Hsg Sngle Fam Ser A-2 5.50% 12/01/20 115,000 118,088
*MT St Brd Hsg Sngle Fam Ser A-2 5.60% 12/01/23 95,000 97,612
MT St Brd Hsg Sngle Fam Ser A-2 5.20% 12/01/22 170,000 172,637
MT St Brd Hsg Sngle Fam Ser B-2 4.85% 12/01/15 155,000 158,782
MT St Brd Hsg Sngle Fam Ser B-2 3.05% 12/01/10 200,000 195,714
MT St Brd Hsg Sngle Fam Ser B-2 3.40% 12/01/12 310,000 308,813
MT St Brd Hsg Sngle Fam Prog Ser C 3.95% 06/01/11 200,000 201,402
---------
1,375,906
---------
Utility Revenue Bonds 1.2%
Forsyth MT PCR Ref Puget Sound Energy (AMBAC) 5.00% 03/01/31 150,000 154,141
---------
154,141
---------
Transportation Revenue Bonds 8.7%
Guam Intl Arpt Auth Ser C (MBIA) 4.75% 10/01/16 300,000 314,601
Guam Intl Arpt Auth Ser C (MBIA) 5.375% 10/01/17 235,000 255,092
Missoula Cnty MT Arpt Auth Arpt Rec Ser C 3.30% 07/01/10 250,000 251,872
Puerto Rico Hwy & Trans Auth Rev Ser G (FGIC) 5.25% 07/01/20 250,000 275,282
---------
1,096,847
---------
Water Revenue Bonds 4.0%
Butte Silver Bow MT Wtr Sys Rev 3.40% 11/01/12 350,000 350,231
Great Falls MT Wtr Sys Rev Ref Ser A (AMBAC) 3.85% 08/01/08 100,000 105,880
Silver Bow Wtr Inc MT Wtr Sys Rev (FGIC) 5.10% 11/01/07 50,000 50,885
---------
506,996
---------
Other Revenue Bonds 11.2%
Great Falls MT San Sew Sys Rev Ref (AMBAC) 4.00% 08/01/09 50,000 52,394
Great Falls MT Tax Increment (MBIA) 3.00% 08/15/08 100,000 102,702
MT Fac Fin Auth Developmental Ctr Prog 4.50% 06/01/16 250,000 253,800
MT St Brd Invt Refunded 1996 Pay Tax (MBIA) 6.875% 06/01/20 105,000 120,368
MT St Brd Invt Refunded 1996 Pay Tax (MBIA) 6.875% 06/01/20 105,000 120,368
MT St Hlth Fac Auth Prerelease Ctr Andrew Proj 6.30% 10/01/20 25,000 26,350
Puerto Rico Childrens Trust Fund Tobacco Settlement Rev 6.00% 07/01/26 195,000 229,868
Puerto Rico Comwlth Aqueduct & Swr Auth Rev (MBIA) 5.00% 07/01/19 125,000 134,919
Puerto Rico Comwlth Infra Fing Auth Ser A (AMBAC) 5.00% 07/01/21 250,000 262,397
Puerto Rico Comwlth Inf Fin Auth Ser A (AMBAC) 5.25% 07/01/10 100,000 113,020
---------
1,416,186
---------
Total Municipal Bonds (cost $11,919,022) 12,194,178
TOTAL MARKET VALUE OF SECURITIES OWNED 96.5% (COST $11,919,022) 12,194,178
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 3.5% 440,072
-----------
NET ASSETS APPLICABLE TO 1,238,805 SHARES (0.001 PAR VALUE) OUTSTANDING - 100.0% $12,634,250
===========
*Indicates bonds are segregated by the custodian to cover when-issued or
delayed-delivery purchases.
The accompanying notes are an integral part of these financial statements.
VIKING MUTUAL FUNDS
Statement of Investments, December 31, 2003
Viking Tax-Free Fund for North Dakota
PRINCIPAL MARKET
AMOUNT VALUE
MUNICIPAL BONDS 94.4%
General Obligations 25.3%
*Bismarck ND Ref & Imp - Ser L 4.00% 06/01/07 75,000 $77,023
Bismarck ND Ref & Imp - Ser P 2.90% 05/01/12 100,000 95,902
Bismarck ND Ref & Imp - Ser P 3.50% 05/01/16 100,000 95,311
*Fargo ND Ref & Imp - Ser B (FGIC) 5.125% 05/01/17 60,000 63,843
Fargo ND Ref & Imp - Ser A (FGIC) 4.70% 05/01/24 100,000 100,975
Hillsboro ND Pub Sch Dist No. 9 (FSA) 4.85% 06/01/19 50,000 52,224
*Jamestown ND Pub Sch Dist No. 011 (FGIC) 4.60% 05/01/15 50,000 52,034
*Mandan ND Ref & Imp - Ser B (MBIA) 5.00% 05/01/16 70,000 74,774
Mandan ND Ref & Imp - Ser A (MBIA) 3.60% 05/01/15 75,000 72,913
Minot ND Hwy Ser B (MBIA) 4.50% 10/01/20 100,000 101,463
Puerto Rico Commonwealth (MBIA) 5.375% 07/01/25 50,000 55,552
UND Foundation Lease Rev (AMBAC) 5.00% 06/01/27 50,000 51,614
*West Fargo ND Ref & Imp 5.00% 05/01/08 250,000 262,438
West Fargo ND Pub Sch Dist No. 006 (FGIC) 5.00% 05/01/14 50,000 54,349
---------
1,210,415
---------
Building Authority Revenue Bonds 7.7%
Fargo ND Bldg Auth Lease Rev Ser A 5.00% 05/01/20 50,000 52,723
ND St Bldg Auth Lease Rev Ser A 5.125% 12/01/13 10,000 10,846
ND St Bldg Auth Lease Rev Ser A (MBIA) 5.00% 12/01/17 50,000 53,652
ND St Bldg Auth Lease Rev Ser A (MBIA) 5.00% 12/01/16 50,000 53,870
ND St Bldg Auth Lease Rev Ser A (MBIA) 5.20% 12/01/19 90,000 96,500
ND St Bldg Auth Lease Rev Ser C (AMBAC) 4.00% 08/15/11 100,000 104,407
---------
369,998
---------
Education Revenue Bonds 1.4%
Fargo ND School District Bldg Auth Rev (MBIA) 5.50% 05/01/14 50,000 54,561
Fargo ND School District Bldg Auth Rev First Mtg Ser B (AMBAC) 5.00% 05/01/10 10,000 10,563
---------
65,124
---------
Higher Education Revenue Bonds 11.8%
Cass Cnty Univ Facs Rev NDSU Dev Found (AMBAC) 4.45% 11/01/21 175,000 173,889
Fargo ND Lease Rev NDSU Lease Oblig Ser-A (AMBAC) 3.50% 05/01/09 60,000 61,388
ND St Brd Hgher Ed Rev Hsg & Aux Facs UND (AMBAC) 4.80% 04/01/14 25,000 25,825
Puerto Rico Tour Edl Med & Env Facs Mendez Univ 5.375% 02/01/19 25,000 25,510
UND Univ Revs Hsg & Auxillary Facs Ref (FSA) 5.00% 04/01/21 50,000 52,288
Univ Puerto Rico Revs Ser O (MBIA) 5.75% 06/01/17 200,000 227,178
---------
566,078
---------
Hospital Revenue Bonds 8.0%
Burleigh Cnty ND Hlth Care MedCenter One (MBIA) 5.25% 05/01/13 20,000 21,302
Burleigh Cnty ND Hlth Care MedCenter One (MBIA) 5.25% 05/01/12 250,000 272,725
Carrington ND Hlth Fac Rev Hlth Ctr Proj 6.25% 11/15/15 15,000 15,161
Fargo ND Hlth Sys Rev Meritcare Obl (FSA) 5.375% 06/01/15 65,000 70,124
Fargo ND Hlth Sys Rev Meritcare Obl (AMBAC) 5.00% 06/01/22 45,000 46,245
Grand Forks ND Hlth Care Facs Untd Hosp Obli Group (MBIA) 6.25% 12/01/24 25,000 26,328
Grand Forks ND Hlth Care Altru Hlth Obl Group (MBIA) 5.60% 08/15/17 20,000 22,069
Grand Forks ND Hlth Care Altru Hlth Obl Group 7.125% 08/15/24 20,000 21,429
Valley City ND Rev Ref Lutheran Hlth Ser A-5 (MBIA) 4.20% 01/01/06 25,000 25,902
Ward Cnty ND Hlth Care Facs Rev Trinity Obl Group - B 6.00% 07/01/10 25,000 26,399
---------
547,684
---------
Housing Revenue Bonds 10.3%
Fargo ND Multifam Rev Ref Hsg Trollwood Village 6.90% 09/01/13 25,000 25,124
ND St Hsg Fin Agy Rev Hsg Fin Pg Home Mtg A 3.75% 07/01/12 155,000 153,552
ND St Hsg Fin Agy Rev Hsg Fin Pg Home Mtg D 5.40% 07/01/29 65,000 66,174
ND St Hsg Fin Agy Hsg Fin Home MTG-C-RMK 6.10% 07/01/28 25,000 25,591
ND St Hsg Fin Agy Rev Hsg Fin Pg Home Mtg B 5.85% 07/01/28 10,000 10,145
ND St Hsg Fin Agy Rev Hsg Fin Pg Home Mtg D 5.05% 01/01/06 10,000 10,241
ND St Hsg Fin Agy Rev Hsg Fin Pg Home Mtg A 5.25% 07/01/18 85,000 87,139
*ND St Hsg Fin Agy Rev Hsg Fin Pg Home Mtg A 5.55% 07/01/22 110,000 113,391
---------
491,357
---------
Utility Revenue Bonds 6.8%
Mercer Cnty Poll Ctl Rev Basin Electric Power Coop (AMBAC) 6.05% 01/01/19 85,000 89,236
Oliver Cnty PCR Ref Square Butte Elec-A (AMBAC) 5.30% 01/01/27 225,000 235,985
---------
325,221
---------
Transportation Revenue Bonds 3.8%
Guam Intl Arpt Auth Ser C (MBIA) 5.375% 10/01/17 150,000 162,825
Minot ND Airport Revenue 5.40% 10/01/09 15,000 16,286
---------
179,111
---------
Water Revenue Bonds 1.6%
Fargo ND Water Rev 5.125% 01/01/10 10,000 10,877
ND St Water Comm Rev Water Dev - SW Pipeline A (AMBAC) 5.70% 07/01/17 10,000 10,805
ND St Water Comm Rev Water Dev & Mgmt Prg Ser A (MBIA) 5.50% 08/01/10 50,000 56,107
---------
77,789
---------
Other Revenue Bonds 14.2%
Puerto Rico Childrens Trust Fund Tobacco Settlement Rev 6.00% 07/01/26 15,000 17,682
Grand Forks ND Sales Tax Rev Aurora Project Ser A (MBIA) 5.625% 12/15/29 110,000 117,605
*Grand Forks ND Sales Tax Rev Dike Imp (AMBAC) 4.50% 09/01/10 50,000 53,646
Grand Forks ND Sales Tax Rev Dike Imp (AMBAC) 5.00% 09/01/17 145,000 153,668
ND St Muni Bond Bank Cap Fing Prog 6.00% 06/01/21 25,000 27,271
ND St Muni Bond Bank St Revolv Fund Prog - Ser A 4.90% 10/01/18 50,000 52,946
ND St Muni Bond Bank St Revolv Fund Prog - Ser A 3.40% 10/01/15 100,000 95,434
Puerto Rico Pub Fin Corp Ser A (MBIA) 5.375% 08/01/24 150,000 161,964
---------
680,216
---------
Total Municipal Bonds (cost $4,420,404) 4,512,993
TOTAL MARKET VALUE OF SECURITIES OWNED 94.4% (COST $4,420,404) 4,512,993
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 5.6% 268,435
----------
NET ASSETS APPLICABLE TO 464,523 SHARES (0.001 PAR VALUE) OUTSTANDING - 100.00% $4,781,428
==========
*Indicates bonds are segregated by the custodian to cover when-issued or
delayed-delivery purchases.
The accompanying notes are an integral part of these financial statements.
Summary of Abbreviations:
AMBAC Insured by the AMBAC Indemnity Corporation
FGIC Insured by the Financial Guaranty Insurance Company
FSA Insured by Financial Security Assurance
MBIA Insured by the Municipal Bond Insurance Association
VIKING MUTUAL FUNDS
Statement of Investments, December 31, 2003
Viking Large-Cap Value Fund
SHARES VALUE
Common Stocks 99.5%
Banks/Financial Services 9.9%
Citigroup 1,700 $82,518
Merrill Lynch 500 29,325
Morgan Stanley 500 28,935
National City 1,000 33,940
U.S. Bancorp 1,265 37,672
Washington Mutual 1,500 60,180
--------
272,570
--------
Building Materials 2.9%
Masco Corporation 2,900 79,489
--------
79,489
--------
Computer/Communications Related 2.9%
Veeco Instruments 2,800 78,848
--------
78,848
--------
Drug 5.2%
Bristol-Myers Squibb 2,000 57,200
Phizer 2,400 84,792
--------
141,992
--------
Drug Distribution 11.4%
Amerisource Bergen 800 44,920
CVS Corp. 3,200 115,584
Cardinal Health 1,300 79,508
Mckesson 2,300 73,968
--------
313,980
--------
Electronics 2.1%
Emerson Electric 900 58,275
--------
58,275
--------
Energy 13.1%
Anadarko Petroleum 1,500 76,515
Apache 1,155 93,670
ChevronTexaco 1,000 86,390
ConocoPhillips 1,561 102,355
--------
358,930
--------
Entertainment 2.1%
Disney 2,500 58,325
--------
58,325
--------
Food 4.2%
Dean Foods 2,000 65,740
Unilever NV ADR 1,300 84,370
--------
150,110
--------
Food Wholesalers/Retailers 3.4%
Kroger 5,000 92,550
--------
92,550
--------
Household Products 3.7%
Kimberly-Clark 1,700 100,453
--------
100,453
--------
Industrial Products 2.5%
Ingersoll-Rand 1,000 67,880
--------
67,880
--------
Insurance 6.6%
Hartford Financial Services Group 800 47,224
MBIA, Inc. 1,400 82,922
Partnerre Ltd. 900 52,245
--------
182,391
--------
Medical Services / Supplies 4.2%
HCA Healthcare 700 30,072
Health Management Associates 2,400 57,600
Triad Hospital 800 26,616
--------
114,288
--------
Metals 3.0%
ALCOA 1,000 38,000
Rio Tinto Plc ADR 400 44,524
--------
82,524
--------
Multi-Industry 3.8%
Honeywell 1,600 53,488
ITT Industries 700 51,947
--------
105,435
--------
Packaging 3.9%
Sealed Air 2,000 108,280
--------
108,280
--------
Retail 1.0%
Office Depot 1,700 28,407
--------
28,407
--------
Telecommunications 4.2%
SBC Communications 1,700 44,319
Verizon Communications 2,000 70,160
--------
114,479
--------
Transportation 3.8%
Canadian Pacific 1,000 28,150
Union Pacific 1,100 76,428
--------
104,578
--------
Utilities 4.3%
Dominion Resources 1,100 70,213
Public Service Enterprise Group 1,100 48,180
--------
118,393
--------
Total Common Stocks (Cost $2,329,172) 2,732,177
SHORT-TERM INVESTMENTS 1.0%
Federated Prime Value Obligations #853 27,000
----------
Total Short-Term Investments (cost: $27,000) 27,000
----------
TOTAL MARKET VALUE OF SECURITIES OWNED 100.5% (COST $2,356,172) 2,759,177
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES (0.5)% (14,558)
----------
NET ASSETS APPLICABLE TO 272,944 SHARES ($0.001 PAR VALUE)
OUTSTANDING 100.0% $2,744,619
==========
The accompanying notes are an integral part of these financial statements.
VIKING MUTUAL FUNDS
Statement of Investments, December 31, 2003
Viking Small-Cap Value Fund
SHARES VALUE
Common Stocks 92.8%
Auto Related 4.8%
Borg Warner 500 $42,535
Superior Industrial International 400 17,408
--------
59,943
--------
Cement 3.2%
Lafarge 1,000 40,520
--------
40,520
--------
Chemical 3.9%
Georgia Gulf Corp. 500 14,440
RPM 2,100 34,566
--------
49,006
--------
Computer/Communications Related 3.4%
Actel 500 12,045
International Rectifier 400 19,764
Veeco Instruments 400 11,264
--------
43,073
--------
Construction/Engineering 4.0%
Granite Construction 1,200 28,188
Insituform Technologies 1,300 21,450
--------
49,638
--------
Electrical Equipment 3.6%
Belden 1,300 27,417
Cable Design Tech. 1,900 17,081
--------
44,498
--------
Electronics 3.3%
Bel Fuse Cl. B 900 29,367
Technitrol 600 12,444
--------
41,811
--------
Energy 12.7%
NUI 700 11,284
Newfield Exploration 800 35,632
Piedmont Natural Gas 700 30,422
Questar 1,100 38,665
Spinnaker Explorations 700 22,589
XTO Energy 700 19,810
--------
158,402
--------
Food Wholesalers/Retailers 2.1%
SuperValu 900 25,731
--------
25,731
--------
Household Products 5.9%
Church & Dwight 1,200 47,520
Libbey 900 25,632
--------
73,152
--------
Industrial Products 7.3%
AO Smith 1,100 38,555
CLARCOR 200 8,820
Teleflex 900 43,497
--------
90,872
--------
Insurance 3.2%
Protective Life 1,200 40,608
--------
40,608
--------
Medical Services/Supplies 9.9%
Conmed 900 21,420
Dentsply International 500 22,585
Mentor 800 19,248
MIM Corp. 1,100 7,733
Owens & Minor 600 13,146
Polymedica 1,000 26,300
West Pharm. Services 400 13,560
--------
123,992
--------
Packaging 3.1%
Aptar Group 1,000 39,000
--------
39,000
--------
Real Estate Investment Trusts 1.0%
Mack-Cali Realty 300 12,486
--------
12,486
--------
Restaurant 6.1%
Applebee's International 500 19,670
CBRL Group 1,000 38,280
Outback Steakhouse 400 17,684
--------
75,634
--------
Retailing 5.7%
BJ's Wholesale 1,100 25,256
Claire's Stores 1,000 18,840
ShopKo Stores 1,800 27,450
--------
71,546
--------
Toy 3.6%
Jakks Pacific 1,800 23,670
RC2 Corp. 1,000 20,830
--------
44,500
--------
Transportation 6.0%
Arkansas Best 1,600 50,336
Yellow Roadway 698 25,247
--------
75,583
--------
Total Common Stocks (Cost $934,670) 1,159,995
SHORT-TERM INVESTMENTS 9.5%
Federated Prime Value Obligations Fund #853 59,000
Federated Treasury Cash Reserves #125 59,000
----------
Total Short-Term Investments (Cost $118,000) 118,000
TOTAL MARKET VALUE OF SECURITIES OWNED 102.3% COST ($1,052,670) 1,277,995
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES (2.3)% (28,359)
----------
NET ASSETS APPLICABLE TO 100,558 SHARES ($0.001 PAR VALUE)
OUTSTANDING 100.0% $1,249,636
==========
The accompanying notes are an integral part of these financial statements.
VIKING MUTUAL FUNDS
Financial Statements
Statements of Assets and Liabilities
December 31, 2003
Tax-Free Fund Tax-Free Fund Large-Cap Small-Cap
for Montana for North Dakota Value Fund Value Fund
ASSETS:
Investments in securities:
Cost $11,919,022 $4,420,404 $2,356,172 $1,052,670
------------------------------------------------------------------------------------
Value 12,194,178 4,512,993 2,759,177 1,277,995
Cash 335,552 135,098 4,744 2,506
Receivable for fund shares sold 18,028 19,466 - -
Prepaid assets 2,986 801 753 437
Security sales receivable - 75,000 - 4,927
Interest & dividends receivable 135,906 59,924 3,808 831
Other assets - - 26 -
------------------------------------------------------------------------------------
Total assets 12,686,650 3,964,920 2,768,508 1,286,695
------------------------------------------------------------------------------------
LIABILITIES:
Security purchases payable - - - 30,908
Distributions payable 43,977 15,968 16,486 -
Other accounts payable and
accrued expenses 8,423 5,886 7,403 6,151
------------------------------------------------------------------------------------
Total liabilities 52,400 21,854 23,889 37,059
------------------------------------------------------------------------------------
NET ASSETS 12,634,250 4,781,428 2,744,619 1,249,636
------------------------------------------------------------------------------------
COMPONENTS OF NET ASSETS AT DECEMBER 31, 2003
Capital shares, $0.001 par value,
unlimited shares authorized 12,402,629 4,706,161 2,682,333 1,035,550
Net unrealized appreciation
(depreciation) 275,156 92,589 403,005 225,325
Accumulated net realized gain
(loss) on investments (43,535) (17,322) (340,719) (8,041)
Undistributed net investment
income (loss) - - - (3,198)
------------------------------------------------------------------------------------
NET ASSETS $12,634,250 $4,781,428 $2,744,619 $1,249,636
------------------------------------------------------------------------------------
NET ASSET VALUE AND
OFFERING PRICE PER SHARE
Net assets, at value $12,634,250 $4,781,428 $2,744,619 $1,249,636
Shares outstanding 1,238,805 464,523 272,944 100,558
Net asset value per share $10.20 $10.29 $10.09 $12.43
Maximum offering price per share
(net asset value per share divided
by 95.50%, 95.50%, 94.75% and
94.75%, respectively) $10.68 $10.77 $10.62 $13.12
------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
VIKING MUTUAL FUNDS
Financial Statements
Statements of Operations
For the twelve months ended December 31, 2003
Tax-Free Fund Tax-Free Fund Large-Cap Small-Cap
for Montana for North Dakota Value Fund Value Fund
-------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $446,486 $144,364 $ - $ -
Dividends 19,988 7,745 47,004 11,091
-------------------------------------------------------------------------------------
Total investment income 466,474 152,109 47,004 11,091
-------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 52,538 17,246 15,824 8,660
Administrative fees 10,508 3,440 2,261 866
Distribution fees 26,269 8,623 9,042 3,464
Transfer agent fees 2,611 1,206 3,062 1,810
Accounting fees 5,254 1,723 1,128 433
Professional fees 6,698 6,535 6,722 5,887
Insurance 4,738 1,461 1,458 400
Trustee fees 1,284 1,285 1,298 1,287
Registration fees 1,008 124 860 656
Custodian fees 3,449 3,449 3,450 3,450
Other 207 143 434 259
-------------------------------------------------------------------------------------
Total expenses 114,564 45,235 45,539 27,172
-------------------------------------------------------------------------------------
Less expenses waived or
reimbursed (81,954) (32,710) (15,021) (12,883)
------------------------------------------------------------------------------------
Net expenses 32,610 12,525 30,518 14,289
-------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 433,864 139,584 16,486 (3,198)
-------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss)
on investments (43,535) (16,696) (325,216) 982
Net change in unrealized
appreciation (depreciation)
of investments 39,263 23,916 829,366 271,714
-------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (4,272) 7,220 504,150 272,696
-------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS $429,592 $146,804 $520,636 $269,498
-------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
VIKING MUTUAL FUNDS
Financial Statements
Statements of Changes in Net Assets
For the twelve months ended December 31, 2003
Tax-Free Fund Tax-Free Fund Large-Cap Small-Cap
for Montana for North Dakota Value Fund Value Fund
-------------------------------------------------------------------------------------
INCREASE (DECREASE) IN
NET ASSETS FROM
OPERATIONS:
Net investment income (loss) $433,864 $139,584 $16,486 $(3,198)
Net realized gain (loss)
on investments (43,535) (16,696) (325,216) 982
Net change in unrealized
appreciation (depreciation)
of investments 39,263 23,916 829,366 271,714
-------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting
from operations 429,592 146,804 520,636 269,498
-------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (433,864) (139,584) (16,486) -
Net realized gains - - - -
-------------------------------------------------------------------------------------
Total distributions to
shareholders (433,864) (139,584) (16,486) -
-------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 4,623,768 2,928,544 377,617 406,681
Proceeds from reinvestment
of distributions 307,041 83,423 14,516 -
Cost of shares repurchased (805,083) (296,608) (113,695) (30,356)
-------------------------------------------------------------------------------------
Increase in net assets
derived from capital share
transactions 4,125,726 2,715,359 278,438 376,325
-------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS $4,121,454 $2,722,579 $782,588 $645,828
-------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period $8,512,796 $2,058,849 $1,962,031 $603,813
-------------------------------------------------------------------------------------
End of period $12,634,250 $4,781,428 $2,744,619 $1,249,636
-------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
VIKING MUTUAL FUNDS
Financial Statements
Statements of Changes in Net Assets
For the twelve months ended December 31, 2002
Tax-Free Fund Tax-Free Fund Large-Cap Small-Cap
for Montana for North Dakota Value Fund Value Fund
-------------------------------------------------------------------------
INCREASE (DECREASE) IN
NET ASSETS FROM
OPERATIONS:
Net investment income (loss) $271,365 $87,297 $14,718 $(1,989)
Net realized gain (loss)
on investments 35,731 1,108 2,514 (2,977)
Net change in unrealized
appreciation (depreciation)
of investments 258,153 90,134 (540,267) (60,744)
-------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations 565,249 178,539 (523,035) (65,710)
-------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (271,365) (87,297) (14,718) -
Net realized gains (34,626) - - -
-------------------------------------------------------------------------
Total distributions to
shareholders (305,991) (87,297) (14,718) -
-------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 4,937,815 447,893 428,130 380,932
Proceeds from reinvestment
of distributions 170,963 45,423 7,377 -
Cost of shares repurchased (404,531) (140.136) (79,164) (32,411)
-------------------------------------------------------------------------
Increase in net assets derived
from capital share
transactions 4,704,247 353,180 356,343 348,521
-------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS $4,963,505 $444,422 $(181,410) $282,811
-------------------------------------------------------------------------
NET ASSETS:
Beginning of period $3,549,291 $1,614,427 $2,143,441 $321,002
End of period $8,512,796 $2,058,849 $1,962,031 $603,813
The accompanying notes are an integral part of these financial statements.
VIKING MUTUAL FUNDS
Financial Highlights
Viking Tax-Free Fund for Montana
Selected data for each share of the Fund outstanding throughout each period
were as follows:
For the Period
01/01/03- 01/01/02- 01/01/01- 01/01/00- 08/03/991-
12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
-------------------------------------------------------------
Net asset value, beginning of period $10.18 $9.74 $9.82 $9.41 $10.00
-------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.42 0.46 0.51 0.52 0.15
Net realized and unrealized gain
(loss) on investments 0.02 0.48 (0.08) 0.41 (0.59)
-------------------------------------------------------------
Total from investment operations 0.44 0.94 0.43 0.93 (0.44)
-------------------------------------------------------------
Less distributions from:
Net investment income (0.42) (0.46) (0.51) (0.52) (0.15)
Net realized gains - (0.04) - - -
-------------------------------------------------------------
Total distributions (0.42) (0.50) (0.51) (0.52) (0.15)
-------------------------------------------------------------
Net asset value, end of period $10.20 $10.18 $9.74 $9.82 $9.41
-------------------------------------------------------------
Total return2 4.45% 9.90% 4.48% 10.23% (4.47)%
-------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000's) $12,634 $8,513 $3,549 $1,131 $145
Ratio of net expenses to average net assets 0.31%3 0.15%3 0.06%3 0.01%3 0.00%3,4
Ratio of net investment income to
average net assets 4.13% 4.58% 5.06% 5.13% 4.15%4
Portfolio turnover rate 24.72% 40.09% 6.14% 21.12% 4.36%
1Commencement of operations.
2Total return assumes reinvestment of distributions at net asset value, does
not reflect the impact of a sales charge and is not annualized.
3Viking Fund Management, LLC, the Fund's investment manager, has contractually
agreed to waive its fees or reimburse the Fund for its expenses through
August 1, 2009 so that the Fund's total operating expenses during this period
will not exceed 0.85% of its average net assets on an annual basis. For the
periods indicated above, Viking Fund Management, LLC waived fees and
reimbursed expenses totaling $114,564, $67,712, $30,300, $17,505 and $9,972.
If the fees had not been waived or expenses had not been reimbursed, the
annualized ratio of total expenses to average net assets would have been
1.09%, 1.30%, 1.60%, 4.79% and 24.90% respectively.
4Annualized.
The accompanying notes are an integral part of these financial statements.
VIKING MUTUAL FUNDS
Financial Highlights
Viking Tax-Free Fund for North Dakota
Selected data for each share of the Fund outstanding throughout each period
were as follows:
For the Period
01/01/03- 01/01/02- 01/01/01- 01/01/00- 08/03/991-
12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
-------------------------------------------------------------
Net asset value, beginning of period $10.25 $9.76 $9.95 $9.47 $10.00
-------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.42 0.47 0.51 0.55 0.18
Net realized and unrealized gain
(loss) on investments 0.04 0.49 (0.19) 0.48 (0.53)
-------------------------------------------------------------
Total from investment operations 0.46 0.96 (0.32) 1.03 (0.35)
-------------------------------------------------------------
Less distributions from:
Net investment income (0.42) (0.47) (0.51) (0.55) (0.18)
Net realized gains - - - - -
-------------------------------------------------------------
Total distributions (0.42) (0.47) (0.51) (0.55) (0.18)
-------------------------------------------------------------
Net asset value, end of period $10.29 $10.25 $9.76 $9.95 $9.47
-------------------------------------------------------------
Total return2 4.60% 10.07% 3.26% 11.30% (3.56)%
Ratios/supplemental data:
Net assets, end of period (000's) $4,781 $2,059 $1,614 $327 $128
Ratio of net expenses to average net assets 0.36%3 0.22%3 0.11%3 0.05%3 0.00%3,4
Ratio of net investment income to
average net assets 4.06% 4.73% 4.85% 5.73% 4.28%4
Portfolio turnover rate 7.49% 27.95% 3.83% 16.16% 0.00%
1Commencement of operations.
2Total return assumes reinvestment of distributions at net asset value,
does not reflect the impact of a sales charge and is not annualized
3Viking Fund Management, LLC, the Fund's investment manager, has
contractually agreed to waive its fees or reimburse the Fund for its
expenses through August 1, 2009 so that the Fund's total operating expenses
during this period will not exceed 0.85% of its average net
assets on an annual basis. For the periods indicated above, Viking Fund
Management, LLC waived fees and reimbursed expenses totaling $45,235,
$30,993, $16,352, $15,441 and $9,786. If the fees had not been waived
or expenses had not been reimbursed, the annualized ratio of total
expenses to average net assets would have been 1.32%, 1.90%, 2.57%,
7.10% and 29.72% respectively.
4Annualized.
The accompanying notes are an integral part of these financial statements.
VIKING MUTUAL FUNDS
Financial Highlights
Viking Large-Cap Value Fund
Selected data for each share of the Fund outstanding throughout each period
were as follows:
For the Period
01/01/03- 01/01/02- 01/01/01- 01/01/00- 08/03/991-
12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
-------------------------------------------------------------
Net asset value, beginning of period $8.20 $10.74 $11.08 $9.90 $10.00
-------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.06 0.06 0.04 0.07 0.02
Net realized and unrealized gain
(loss) on investments 1.86 (2.60) (0.34) 1.18 (0.10)
-------------------------------------------------------------
Total from investment operations 1.92 (2.54) (0.30) 1.25 (0.08)
-------------------------------------------------------------
Less distributions from:
Net investment income (0.06) (0.06) (0.04) (0.07) (0.02)
Net realized gains - - - - -
-------------------------------------------------------------
Total distributions (0.06) (0.06) (0.04) (0.07) (0.02)
-------------------------------------------------------------
Net asset value, end of period $10.06 $8.20 $10.74 $11.08 $9.90
-------------------------------------------------------------
Total return2 23.42% (23.08)% (2.73)% 12.67% (0.77)%
Ratios/supplemental data:
Net assets, end of period (000's) $2,745 $1,962 $2,143 $1,367 $591
Ratio of net expenses to average net assets 1.35%3 1.35%3 1.35%3 1.35%3 1.35%3,4
Ratio of net investment income to
average net assets 0.73% 0.71% 0.37% 0.90% 0.83%4
Portfolio turnover rate 26.75% 36.52% 27.59% 48.97% 6.30%
1Commencement of operations.
2Total return assumes reinvestment of distributions at net asset value, does
not reflect the impact of a sales charge and is not annualized.
3Viking Fund Management, LLC, the Fund's investment manager, has contractually
agreed to waive its fees or reimburse the Fund for its expenses through
August 1, 2009 so that the Fund's total operating expenses during this period
will not exceed 1.35% of its average net assets on an annual basis. For the
periods indicated above, Viking Fund Management, LLC waived fees and
reimbursed expenses totaling $15,021, $20,422, $15,184, $17,512 and $11,025.
If the fees had not been waived or expenses had not been reimbursed, the
annualized ratio of total expenses to average net assets would have been
2.02%, 2.34%, 2.10%, 3.07% and 8.58% respectively.
4Annualized.
The accompanying notes are an integral part of these financial statements.
VIKING MUTUAL FUNDS
Financial Highlights
Viking Small-Cap Value Fund
Selected data for each share of the Fund outstanding throughout the period
was as follows:
For the Period
01/01/03- 01/01/02- 05/03/011 -
12/31/03 12/31/02 12/31/01
------------------------------------
Net asset value, beginning of period $9.35 $10.26 $10.00
------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (0.03) (0.03) -
Net realized and unrealized gain
(loss) on investments 3.11 (0.88) 0.26
------------------------------------
Total from investment operations 3.08 (0.91) 0.26
------------------------------------
Less distributions from:
Net investment income - - -
Net realized gains - - -
------------------------------------
Total distributions - - -
------------------------------------
Net asset value, end of period $12.43 $9.35 $10.26
------------------------------------
Total return2 32.94% (8.87)% 2.60%
Ratios/supplemental data:
Net assets, end of period (000's) $1,250 $604 $321
Ratio of net expenses to average net assets 1.65%3 1.65%3 1.59%3,4
Ratio of net investment income to average
net assets (0.37)%4 (0.41)% (0.28)%4
Portfolio turnover rate 14.77% 16.24% 1.81%
1Commencement of operations.
2Total return assumes reinvestment of distributions at net asset value,
does not reflect the impact of a sales charge and is not annualized.
3Viking Fund Management, LLC, the Fund's investment manager, has
contractually agreed to waive its fees or reimburse the Fund for
its expenses through August 1, 2009 so that the Fund's total operating
expenses during this period will not exceed 1.65% of its average net assets
on an annual basis. For the periods indicated above, Viking Fund Management,
LLC waived fees and reimbursed expenses totaling $12,883, $17,392 and $6,593.
If the fees had not been waived or expenses had not been reimbursed, the
annualized ratio of total expenses to average net assets would have been
3.16%, 5.24% and 5.67% respectively.
4Annualized.
The accompanying notes are an integral part of these financial statements.
VIKING MUTUAL FUNDS
Notes to Financial Statements
December 31, 2003
1. ORGANIZATION
Viking Mutual Funds (the "Company") is registered under the Investment Company
Act of 1940 as a non-diversified, open-end management investment company,
consisting of four series (the "Funds").
The Viking Tax-Free Fund for Montana and Viking Tax-Free Fund for North Dakota
(each a "Tax-Free Fund"), each a non-diversified Fund, seek the highest level
of current income that is exempt from both federal and state income taxes and
is consistent with preservation of capital. The Viking Large-Cap Value Fund
("Large-Cap") and Viking Small-Cap Value Fund ("Small-Cap"), each a
diversified Fund, seek long-term total return and capital preservation.
2. SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies are in accordance with accounting
principles generally accepted in the United States of America and are
consistently followed by the Funds.
Security Valuation Securities listed or traded on a recognized national
exchange or NASDAQ are valued at the last reported sales price. Securities
for which market quotations are not readily available (which will constitute
a majority of the securities held by the Tax-Free Funds) are valued using a
matrix system at fair value as determined by management in
accordance with procedures established by the Board of Trustees.
Premiums and Discounts On January 1, 2001, the Tax-Free
Funds adopted the provisions of the American Institute of Certified Public
Accountants' revised Audit and Accounting Guide Audits of Investment
Companies (the guide). The guide requires all premiums and discounts on debt
securities to be amortized. Prior to January 1, 2001, the Tax-Free Funds
recognized market discount at time of disposition as gain or loss. Upon
adoption, the Tax-Free Funds reviewed their investment portfolios and
determined the impact of this accounting change to be insignificant. The
Tax-Free Funds have therefore not made a cumulative effect adjustment to its
financial statements. This accounting change had no effect on the Fund's
net assets or total returns. Bonds acquired at a market discount after
January 1, 2001 are being amortized in accordance with provisions of the
audit guide.
Security Transactions, Investment Income, Expenses and Distributions
Security transactions are accounted for on trade date. Realized gains
and losses on security transactions are determined on the identified cost
basis. Interest income and estimated expenses are accrued daily. Dividend
income is recognized on the ex-dividend date. Premiums and discounts on
municipal securities are amortized to interest income using the constant
yield method over the estimated lives of the respective securities. The
Tax-Free Funds declare dividends from net investment income daily and pay
such dividends monthly. The Large-Cap Fund and the Small-Cap Fund will
declare and pay dividends from net investment income at least annually.
Capital gains, if any, are distributed annually. Income and capital gain
distributions are determined in accordance with federal income tax
regulations and may differ from net investment income and realized gains
determined in accordance with accounting principles generally accepted in
the United States of America. These differences are primarily due to
differing treatment for market discount, capital loss carryforwards and
losses due to wash sales and futures transactions.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid-in
capital. Temporary book and tax basis differences will reverse in a
subsequent period. Common expenses incurred by the Company are
allocated among the Funds based on the ratio of net assets of each Fund
to the combined net assets. Other expenses are charged to each Fund on
a specific identification basis.
Use of Estimates The preparation of financial statements in accordance
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the years ended
December 31, 2003 and December 31, 2002 were as follows:
Tax-Free Fund for Tax-Free Fund for Large-Cap Small-Cap
Montana North Dakota Value Fund Value Fund
------------------------------------------------------------------------------
2003 2002 2003 2002 2003 2002 2003 2002
------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $433,864 $284,916 $139,584 $87,297 $16,486 $14,718 $0 $0
Long-term capital gain $0 $21,075 $0 $0 $0 $0 $0 $0
All the ordinary income distributions described above were exempt from federal
income taxes.
4. CAPITAL STOCK
Transactions in capital shares were as follows:
Tax-Free Fund Tax-Free Fund Large-Cap Small-Cap
for Montana for North Dakota Value Fund Value Fund
-------------------------------------------------------------------------
For the Period For the Period For the Period For the Period
from 01/01/03 from 01/01/03 from 01/01/03 from 01/01/03
through 12/31/03 through 12/31/03 through 12/31/03 through 12/31/03
--------------------------------------------------------------------------
Shares sold 680,032 335,607 51,194 38,719
Shares issued in reinvestment
of distributions 30,248 8,148 1,770 0
Shares redeemed (307,686) (80,125) (19,326) (2,747)
--------------------------------------------------------------------------
Net Increase 402,594 263,630 33,634 35,972
--------------------------------------------------------------------------
5. INVESTMENT MANAGEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
The Funds have retained Viking Fund Management, LLC ("VFM") to provide the
Funds with investment advice and portfolio management. As compensation for
the advisory services furnished to the Funds, the Funds pay VFM monthly
compensation calculated daily by applying the annual rates of 0.50% to the
Tax-Free Funds daily net assets, 0.70% to the Large-Cap Fund's daily net
assets and 1.00% to the Small-Cap Fund's daily net assets. The Tax-Free Fund
for Montana recognized $15,179 of investment advisory fees after a partial
waiver for the twelve months ended December 31, 2003. On December 31, 2003,
the Tax-Free Fund for Montana had a payable to VFM for investment advisory
fees of $2,461. The Tax-Free Fund for North Dakota recognized $2,064 of
investment advisory fees after a partial waiver for the twelve months ended
December 31, 2003. On December 31, 2003, the Tax-Free Fund for North Dakota
had a payable to VFM for investment advisory fees of $680. The Large-Cap
Fund recognized $14,412 of investment advisory fees after a partial waiver
for the twelve months ended December 31, 2003. On December 31, 2003, the
Large-Cap Fund had a payable to VFM for investment advisory fees of $1,698.
The Small-Cap Fund recognized $3,014 of investment advisory fees after a
partial waiver for the twelve months ended December 31, 2003. On December 31,
2003, the Small-Cap Fund had a payable to VFM for investment advisory fees
of $694. Under a sub-advisory agreement between Fox Asset Management, LLC
(the "sub-adviser") and VFM, the sub-adviser provides the Large-Cap Fund and
the Small-Cap Fund with investment advice and portfolio management subject
to the overall supervision of VFM. As compensation for its services
provided to the Large-Cap Fund, VFM pays the sub-adviser monthly compensation
calculated daily by applying the annual rate of 0.40% to the Large-Cap Fund's
daily net assets of up to $100 million and 0.35% to the Large-Cap Fund's
daily net assets in excess of $100 million. As compensation for its
services provided to the Small-Cap fund, VFM pays the sub-adviser monthly
compensation calculated daily by applying the annual rate of 0.40% to the
Small-Cap Fund's daily net assets until the net assets reach $5 million and
0.60% to the Small-Cap Fund's daily net assets when the net assets surpass
$5 million.
The Funds have also entered into an agreement with VFM to provide
administrative services, portfolio accounting and transfer agent
services to each of the Funds for a fee at an annual rate of 0.15%
of daily net assets, plus a per account charge and reimbursement of
certain direct expenses. On December 31, 2003, the Tax-Free Fund for
Montana, Tax-Free Fund for North Dakota, Large-Cap Fund and Small-Cap
Fund had payables to VFM for transfer agent out-of-pocket expenses of
$54, $31, $97 and $53, respectively.
The Funds have a distribution plan, sometimes known as a Rule 12b-1 plan,
that allows the Tax-Free Funds to pay distribution and service fees of up
to 0.25% of average daily net assets per year and the Large-Cap Fund and
the Small-Cap Fund to pay distribution and service fees of up to 0.40% of
average daily net assets per year to Viking Fund Distributors, LLC ("VFD")
for distributing each Fund's shares and for servicing shareholder accounts.
For the year ended December 31, 2003, Large-Cap Value Fund recognized $1,898
Of 12b-1 fees after a partial waiver. Tax-Free Fund for Montana, Tax-Free
Fund for North Dakota and Small-Cap Value Fund recognized no 12b-1 fees after
the fee waiver.
For the period ending December 31, 2003, the net amounts of sales charges
deducted from the proceeds of sale of capital shares which were retained
by VFD as principal underwriter were $19,197, $14,664, $1,467 and $2,495
for the Tax-Free Fund for Montana, Tax-Free Fund for North Dakota, Large-Cap
Fund and Small-Cap Fund, respectively. On December 31, 2003 the Tax-Free Fund
for Montana, Tax-Free Fund for North Dakota, Large-Cap Fund and Small-Cap
Fund had payables to VFD for underwriting fees of $893, $144, $3 and $8,
respectively.
VFM has contractually agreed to waive its fees or reimburse the Funds
for their expenses through August 1, 2009 so that the Tax-Free Fund's
total operating expenses during this period will not exceed 0.85% of
average net assets on an annual basis, the Large-Cap Fund's total operating
expenses during this period will not exceed 1.35% of average net assets on
an annual basis and the Small-Cap Fund's total operating expenses during this
period will not exceed 1.65% of average net assets on an annual basis.
On June 30, 2003, the Tax-Free Fund for Montana, Tax-Free Fund for North
Dakota, Large-Cap Fund and Small-Cap Fund had receivables from VFM for
reimbursement of certain expenses of $3,600, $8,932, $2,977 and $5,484,
respectively. Certain officers and trustees of the Funds are also officers
and governors of VFM and VFD.
6. INCOME TAXES
No provision has been made for income taxes because each Fund's policy is
to qualify as a regulated investment company under the Internal Revenue
Code and to distribute substantially all of its taxable income. At December
31, 2003, Tax-Free Fund for Montana, Tax-Free Fund for North Dakota,
Large-Cap Value Fund and Small-Cap fund had capital losses of $43,535, $17,322,
$340,719 and $8,041 respectively, which may be carried over to offset future
capital gains. Such losses start to expire in 2008.
At December 31, 2003, the net unrealized appreciation based on the cost of
investments for federal income tax purposes was as follows:
Tax-Free Fund Tax-Free Fund Large-Cap Small-Cap
for Montana for North Dakota Value Fund Value Fund
------------------------------------------------------------------------------------
Investments at cost $11,919,022 $4,420,404 $2,356,172 $1,052,670
------------------------------------------------------------------------------------
Unrealized appreciation 293,504 108,690 471,125 241,288
Unrealized depreciation (18,348) (16,101) (68,120) (15,963)
------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) $275,156 $92,589 $403,005 $225,325
------------------------------------------------------------------------------------
7. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended December 31, 2003 were as follows:
Tax-Free Fund Tax-Free Fund Large-Cap Small-Cap
for Montana for North Dakota Value Fund Value Fund
-----------------------------------------------------------------------------------
Purchases $6,939,894 $3,163,816 $998,446 $476,951
Sales $2,596,140 $257,311 $602,744 $127,173
8. CREDIT AND MARKET RISK
The Tax-Free Funds concentrate their investments in securities mainly issued
by each specific state's municipalities. The value of these investments may
be adversely affected by new legislation within the state, regional or local
economic conditions, and differing levels of supply and demand for municipal
bonds. Many municipalities insure repayment for their obligations. Although
bond insurance reduces the risk of loss due to default by an issuer, such
bonds remain subject to the risk that market value may fluctuate for other
reasons and there is no assurance that the insurance company will meet its
obligations. These securities have been identified in the Statement of
Investments.
INDEPENDENT AUDITORS'S REPORT
To the shareholders and Board of Trustees
Viking Mutual Funds
We have audited the accompanying statement of assets and liabilities of Viking
Mutual Funds (the trust) including the schedule of investments as of December
31, 2003, the related statements of operations for the periods then ended, the
statements of changes in net assets for the periods ended December 31, 2002
and the year ended December 31, 2002 and the financial highlights for the
periods ended December 31, 2003. These financial statements and financial
highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the 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. Our
procedures include confirmation of securities owned as of December 31, 2002
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 Viking Mutual Funds as of December 31, 2003, the results of it's operations
for the period then ended, the changes in its net assets and the financial
highlights for each of the respective periods stated in the first paragraph,
in conformity with accounting principles generally accepted in the United
States of America.
BRADY, MARTZ & ASSOCIATES, P.C.
Bismarck, North Dakota
January 30, 2004
VIKING MUTUAL FUNDS
Trustee Information (Unaudited)
December 31, 2003
NAME AND PRINCIPAL OCCUPATION(S)
ADDRESS AGE POSITION(S) HELD DURING PAST 5 YEARS
- -----------------------------------------------------------------------------------------------------------------------
Shirley R. Martz 78 Trustee Retired CPA (1989-pres.); Trustee, Viking
1400 14th Ave. SW Mutual Funds (1999-pres.); Principal
Minot, ND 58701 shareholder and employee of Brady, Martz
& Associates and its predecessor (1948-
1989).
Douglas P. Miller 30 Trustee Secretary and Treasurer, Viking Fund
1400 14th Ave. SW Vice-President Management, LLC (1998-pres.); Secretary
Minot, ND 58701 Secretary and Treasurer, Viking Fund Distributors,
LLC (1999-pres.); Trustee, Vice-President
and Secretary, Viking Mutual Funds (1999
-pres.); Controller, ND Holdings, Inc.
(1998); Fund Accountant, ND Holdings,
Inc. (1996-1998).
Shannon D. Radke 37 Trustee President, Viking Fund Management, LLC
1400 14th Ave. SW President (1998- pres.); President, Viking Fund
Minot, ND 58701 Treasurer Distributors, LLC (1999-pres.); Trustee,
President and Treasurer, Viking Mutual
Funds (1999-pres.); Chief Operating
Officer, ND Holdings, Inc. (1997-1998);
Operations Manager, ND Holdings, Inc.
(1993-1997).
Mike Timm 66 Trustee Retired; Trustee, Viking Mutual Funds
1400 14th Ave. SW (1999-pres.); President and General
Minot, ND 58701 Manager, Timm Moving and Storage (1959-
2000); State Representative, North Dakota
House of Representatives (1973-pres.);
Speaker of the North Dakota House of
Representatives (1997).
The SAI has additional information about the Trustees and is available
at (800) 933-8413 without charge upon request.
VIKING MUTUAL FUNDS
1400 14th Avenue SW
Minot, ND 58701
BOARD OF TRUSTEES
Shirley R. Martz
Douglas P. Miller
Shannon D. Radke
Mike Timm
INVESTMENT MANAGER
Viking Fund Management, LLC
1400 14th Avenue SW
Minot, ND 58701
SUB-ADVISOR
(For Viking Large-Cap Value Fund)
(For Viking Small-Cap Value Fund)
Fox Asset Management, LLC
44 Sycamore Avenue
Little Silver, NJ 07739
DISTRIBUTOR
Viking Fund Distributors, LLC
1400 14th Avenue SW
Minot, ND 58701
CUSTODIAN
First Western Bank & Trust
900 South Broadway
Minot, ND 58701
TRANSFER AGENT
Viking Fund Management, LLC
P.O. Box 500
Minot, ND 58702
INDEPENDENT AUDITORS
Brady, Martz & Associates, P.C.
201 East Broadway, Suite 200
Bismarck, ND 58501
Shareholder Services
1-800-933-8413
When used with prospective investors, this report must be preceded by
a current Viking Mutual Funds prospectus. The prospectus sets forth details
about charges, expenses, investment objectives and operating policies of each
of the Funds. You should read the prospectus carefully before you invest.
To obtain a prospectus, contact your investment professional or Viking Mutual
Funds.
ITEM 2. CODE OF ETHICS.
Viking Mutual Funds has adopted a code of ethics, as defined in Item 2 of
Form N-CSR, that applies to the President and Treasurer. A copy of this
code of ethics is filed as an exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Viking Mutual Fund's board of trustees has determined that there
is one audit committee financial expert serving on its audit committee.
Shirley Martz is the audit committee financial expert and is considered
"independent." In order to be considered "independent", a member of an audit
committee may not, other than in his or her capacity as a member of the audit
committee, the board of trustees, or any other board committee:
(i) Accept directly or indirectly any consulting, advisory, or other
compensatory fee from the issuer; or
(ii) Be an "interested person" of the investment company as defined in
Section 2(a)(19) of the Act (15 U.S.C. 80a-2(a)(19)).
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. [RESERVED]
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) Disclosure Controls and Procedures. The Principal Executive and
Financial Officers concluded that the Registrant's Disclosure Controls
and Procedures are effective based on their evaluation of the Disclosure
Controls and Procedures as of a date within 90 days of the filing date of this
report.
(b) Internal Controls. There were no significant changes in
Registrant's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
ITEM 10. EXHIBITS.
(a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and
attached.
(b)(1) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2 under the Investment Company Act of
1940. Certification of principal executive officer and principal
financial officer as required by Section 906 of the Sarbanes-Oxley
Act of 2002.
SIGNATURES
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.
By: /s/ SHANNON D. RADKE
-------------------------------
Shannon D. Radke
Principal Executive Officer
Date: March 1, 2004
By: /s/ DOUGLAS P. MILLER
------------------------------
Douglas P. Miller
Principal Financial Officer
Date: March 1, 2004
EXHIBIT INDEX
(a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached
hereto as Exhibit 99.CODEETH.
(b)(1) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2 under the Investment Company Act of
1940. Certification of principal executive officer and principal
financial officer as required by Section 906 of the Sarbanes-Oxley
Act of 2002.