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
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(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
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Date of reporting period: 12/31/04
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ITEM 1. REPORTS TO STOCKHOLDERS.
SHAREHOLDER LETTER
Dear Fellow Shareholder:
It is a pleasure to bring you the Viking Mutual Funds Semi-Annual Report for
the six months ended June 30, 2004.
Throughout the period under review, economic reports have remained healthy,
fueled by, among other things, the combined stimulus of the government's
monetary and fiscal policies. The lowest interest rates in 46 years
punctuated the extent of monetary punch. These low rates spurred record
housing and refinancing activity and funded a plethora of other consumer
purchases. On the fiscal policy side, three tax cuts and a shortened
depreciation schedule helped invigorate the economy further. GDP growth
exceeding 6% in the second half of 2003 proved that the policies worked,
but the markets remained unconvinced about the sustainability of the
strength as the payroll data showed a lack of hiring. That changed in the
second quarter of this year as all three payroll reports showed significant
strength. Other economic data remained robust. Capacity utilization
inched closer to the long-term average of 82%, GDP posted a 3.9% increase
for the first quarter, forecasts for the rest of 2004 estimate continued
strong GDP growth and consumer confidence surged to the highest level in
two years to 101.9 as the second quarter ended. As the economy showed signs
of self-sustaining growth, interest rates soared. This move in rates was in
anticipation of the Federal Reserve boosting the Fed Funds rate, which it did
by 25 basis points on the last day of the quarter. In summary, there is
solid, but not excessive, economic growth whereby the Fed can increase
interest rates at Chairman Greenspan's preferred measured pace.
The first quarter of 2004 provided mixed results for the equity market.
Equities were mostly positive with the S&P 500 Index gaining 1.7% and the
Russell 1000 Value Index returning 3.0%. However, the Dow Jones Industrial
Average and the NASDAQ Composite both had negative returns of less than 1%.
Small-caps continued to outperform large-caps. The first quarter also
concluded a strong 12-month period for stocks following a difficult
three-year bear market from March 2000 to March 2003. Productivity gains
continued to fuel earnings growth beyond what might have been expected from
GDP growth alone. Equity prices finished the second quarter slightly higher
and as a result finished the six-month period higher with the S&P 500 gaining
2.6%. Corporate earnings continued to grow at well-above-average rates during
the second quarter, but the rate of growth will likely slow in the second
half of the year.
In the first quarter of 2004, the fixed income markets reversed the weak
performance seen in the second half of last year. The turnaround occurred
despite robust economic data in a variety of areas. What propelled the fixed
income market higher in price and lower in yield was the lack of hiring that
usually accompanies a heightened level of economic activity. The logic being
that without new hiring, the economic strength will prove to be temporary.
Signs of self-sustaining growth in the economy in the second quarter,
evidenced by three consecutive powerful payroll reports sent interest rates
soaring and municipal bond prices sharply lower. It was the worst quarterly
performance in the bond market since 1980. It appears, as of June 30, that a
substantial amount of Fed tightening has already been priced into the markets.
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 (0.47%) (at net
asset value with distributions reinvested) for the six months ended June 30,
2004.
In the first quarter of 2004, the fixed income markets reversed the weak
performance seen in the second half of last year. The turnaround occurred
despite robust economic data in a variety of areas. What propelled the fixed
income market higher in price and lower in yield was the lack of hiring that
usually accompanies a heightened level of economic activity. The logic being
that without new hiring, the economic strength will prove to be temporary.
As a result, the Fund's share price rose modestly. Signs of self-sustaining
growth in the economy in the second quarter, evidenced by three consecutive
powerful payroll reports sent interest rates soaring and municipal bond
prices sharply lower. This resulted in a moderate decline in the Fund's
share price. However, our emphasis on preserving capital prevented what may
have been a more severe decline. It was the worst quarterly performance in
the bond market since 1980. It appears, as of June 30, that a substantial
amount of Fed tightening has already been priced into the markets.
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 Missoula
G.O., Montana State Board of Housing, State of Montana G.O., Montana State
Board of Regents for University of Montana and many other issues. Adding the
various purchases to the portfolio resulted in a duration at June 30 of 6.87
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.
Volatility in the stock market the last few years 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 June 30,2004 (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
January 31, 2004 $12,136 $12,706 $13,423
February 29, 2004 $12,313 $12,892 $13,625
March 31, 2004 $12,274 $12,850 $13,578
April 30, 2004 $12,001 $12,565 $13,256
May 31, 2004 $11,941 $12,503 $13,208
June 30, 2004 $12,006 $12,570 $13,256
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 08/03/99-06/30/04. 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 June 30,2004 One-Year Three-Year (Est. 8/3/99)
- - ----------------------------------------------------------------------
Excluding Sales Charge 0.60% 5.37% 4.76%
Including Sales Charge -3.96% 3.76% 3.79%
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 (0.91%) (at
net asset value with distributions reinvested) for the six months ended June
30, 2004.
In the first quarter of 2004, the fixed income markets reversed the weak
performance seen in the second half of last year. The turnaround occurred
despite robust economic data in a variety of areas. What propelled the fixed
income market higher in price and lower in yield was the lack of hiring that
usually accompanies a heightened level of economic activity. The logic being
that without new hiring, the economic strength will prove to be temporary.
As a result, the Fund's share price rose modestly. Signs of self-sustaining
growth in the economy in the second quarter, evidenced by three consecutive
powerful payroll reports sent interest rates soaring and municipal bond
prices sharply lower. This resulted in a moderate decline in the Fund's
share price. However, our emphasis on preserving capital prevented what may
have been a more severe decline. It was the worst quarterly performance in
the bond market since 1980. It appears, as of June 30, that a substantial
amount of Fed tightening has already been priced into the markets.
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, Fargo, ND Health Systems
Revenue for Meritcare, North Dakota State Board of Higher Education for UND,
North Dakota State Housing Finance Agency and many other issues. Adding the
various purchases to the portfolio resulted in a duration at June 30 of 6.14
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.
Volatility in the stock market the last few years 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 NORTH DAKOTA
Growth of a $10,000 Investment
August 3, 1999 through June 30, 2004 (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
January 31, 2004 $12,284 $12,862 $13,423
February 29, 2004 $12,450 $13,035 $13,625
March 31, 2004 $12,386 $12,968 $13,578
April 30, 2004 $12,100 $12,668 $13,256
May 31, 2004 $12,026 $12,591 $13,208
June 30, 2004 $12,077 $12,645 $13,256
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 08/03/99-06/30/04. 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 June 30, 2004 One-Year Three-Year (Est. 8/3/99)
- - ----------------------------------------------------------------------
Excluding Sales Charge 0.03% 5.05% 4.89%
Including Sales Charge -4.47% 3.46% 3.91%
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 3.98% (at net asset value)
for the six months ended June 30, 2004.
The first quarter of 2004 provided mixed results for the equity market.
Equities were mostly positive with the S&P 500 Index gaining 1.7% and the
Russell 1000 Value Index returning 3.0%. However, the Dow Jones Industrial
Average and the NASDAQ Composite both had negative returns of less than 1%.
The first quarter marked a strong 12-month period for stocks following a
difficult three-year bear market from March 2000 until March 2003. Our main
takeaway from the equity markets in the first quarter, despite many
crosscurrents, was that the equity prices consolidated their dramatic gains
of 2003 with only a modest, normal correction. In general, stronger-than-
expected earnings was the reason. For equity investors, productivity gains
continued to fuel earnings growth beyond what might have been expected from
GDP growth alone.
The Fund underperformed the Russell 1000 Value benchmark and modestly
underperformed the S&P 500 posting a gain of 1% for the first quarter. A key
theme to performance in the quarter was the impact of energy on various
holdings within the Fund. Our energy producers and providers generally
delivered solid performance on the heels of high and rising energy prices.
At the same time, energy-intensive users, such as the railroads were impacted
negatively. Although we are overweight in the energy space, this positive
was not sufficient to completely compensate for the negative energy-related
effect on these other holdings. Also, the overweight in healthcare hurt our
performance during the quarter.
The second quarter of 2004 witnessed a correction in the equity markets as
investors struggled with the uncertainty of the current investment climate.
Equity prices declined in the first half of the quarter and rallied in the
second half to finish the quarter slightly higher, though individual market
sectors performed very differently than during the first quarter.
The Fund nicely outperformed both the Russell 1000 Value Index and the S&P
500 benchmark for the second quarter. The Value Index had a positive return
of 0.9% and the S&P returned 1.7% while the Fund posted a gain of 2.95%. Our
positive performance for the quarter was led by our holdings in energy,
healthcare and industrials. Two areas that deteriorated were financials and
utilities. While valuation improved somewhat in the second quarter,
individual company growth and balance sheet quality will be of increasing
importance. We remain comfortable with the outlook, as well as the valuation
of our portfolio, given our usual emphasis on companies with strong balance
sheets and a secular growth profile. We enter the second half of 2004 with a
P/E ratio of 14.8 times 2004 estimated earnings versus 18.7 times for the S&P
500. Our long-term debt-to-capital ratio is approximately 27% vs. 41% for
the S&P 500 Index. 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
January 31, 2004 $ 9,806 $10,345 $11,118
February 29, 2004 $10,049 $10,601 $11,356
March 31, 2004 $ 9,883 $10,427 $11,257
April 30, 2004 $ 9,845 $10,386 $10,982
May 31, 2004 $ 9,932 $10,478 $11,094
June 30, 2004 $10,175 $10,735 $11,356
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 08/03/99-06/30/04. 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 June 30, 2004 One-Year Three-Year (Est. 8/3/99)
- - ----------------------------------------------------------------------
Excluding Sales Charge 18.23% -1.55% 1.45%
Including Sales Charge 12.06% -3.31% 0.35%
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 7.32% (at net asset value)
for the six months ended June 30, 2004.
The first quarter of 2004 provided mixed results for the equity market.
Equities were mostly positive with the S&P 500 Index gaining 1.7% and the
Russell 1000 Value Index returning 3.0%. However, the Dow Jones Industrial
Average and the NASDAQ Composite both had negative returns of less than 1%.
The first quarter marked a strong 12-month period for stocks following a
difficult three-year bear market from March 2000 until March 2003. Our main
takeaway from the equity markets in the first quarter, despite many
crosscurrents, was that the equity prices consolidated their dramatic gains
of 2003 with only a modest, normal correction. In general, stronger-than-
expected earnings was the reason. For equity investors, productivity gains
continued to fuel earnings growth beyond what might have been expected from
GDP growth alone.
The leadership of small-cap stocks continued in the first quarter of 2004, as
the Russell 2000 Index outpaced all other major domestic equity indices with
an outsized 6.3% gain. This followed the volatile two-year period of 2002-
2003, when the Russell 2000 posted its worst and best years, respectively,
since its 1979 inception. As might be expected given the continued strong
performance of the financial services sector and our significant underweight
to it, our small-cap portfolio lagged the Russell 2000 and its value subset
posting a Q1 return of 2.25%, as we continued to believe that interest rates
were at artificially and unsustainably low levels.
Following a significant decline in April, which was prompted by fears of
rising interest rates, a late-quarter spurt allowed the small-cap market to
post a modest gain in the April-June period. Specifically, the Russell 2000
Index eked out a modest 0.5% increase and the Russell 2000 Value Index edged
0.8% higher. Our Fund performed significantly better in the second quarter,
returning 5% and outpacing the benchmarks by over 400 basis points.
During the second quarter, the Fund was led higher by an eclectic group,
indeed, with the top five performers including two toy companies, an
electronics manufacturer, a trucker and a commodity chemical producer. New
purchases included two industry leaders, one being the dominant player in an
obscure but necessary niche of the paper machinery market, the other being
the largest independent provider of semiconductor fab automation solutions.
We also initiated purchase of a rapidly growing generic pharmaceutical
company and added to our positions in a specialty retailer and a
medical/surgical equipment maker. The balance of our position in a troubled
gas utility was sold after having reduced it in earlier periods, and we
trimmed our investments in a discount retailer, a food wholesaler and a
dental supplies company for various reasons. As the economy expands at a
slower pace, companies exhibiting a pattern of less volatile, more consistent
earnings growth should continue to curry favor from investors. The
omnipresent terrorist threat with which we unfortunately live adds to the
appeal of such issues. In addition, a rising interest-rate environment that
features a flattening of the yield curve should keep the pressure on
financial services stocks, particularly those in the small-cap arena. And
while the underlying commodity prices are likely to recede somewhat in the
near future, energy stocks remain attractive over the intermediate-to-longer
term. With the clear exception of the significant underweight to the
financial services sector, our portfolio is well balanced with good exposure
to energy and relatively defensive positions. As always, we will remain
vigilant for undervalued situations that offer extraordinary returns for our
shareholders. 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 June 30, 2004 (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
January 31, 2004 $11,839 $12,490 $14,437
February 29, 2004 $12,028 $12,690 $14,716
March 31, 2004 $12,047 $12,710 $14,920
April 30, 2004 $11,848 $12,500 $14,148
May 31, 2004 $11,924 $12,580 $14,319
June 30, 2004 $12,645 $13,340 $15,046
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 05/03/01-06/30/04. 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 June 30, 2004 One-Year Three-Year (Est. 5/3/01)
- - ----------------------------------------------------------------------
Excluding Sales Charge 28.64% 9.25% 9.53%
Including Sales Charge 21.94% 7.30% 7.69%
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, June 30, 2004 (Unaudited)
Viking Tax-Free Fund for Montana
PRINCIPAL MARKET
AMOUNT VALUE
MUNICIPAL BONDS 96.4%
General Obligations 22.8%
Bozeman MT Ser A 4.95% 07/01/20 170,000 $174,240
Butte Silver Bow MT City & Cnty (AMBAC) 4.75% 07/01/11 210,000 225,517
Cascade Cnty MT High Sch A Great Falls 2.85% 07/01/05 225,000 227,349
Cascade Cnty MT High Sch A Great Falls 3.15% 07/01/06 100,000 101,799
Flathead Cnty MT Sch Dist No. 6 Columbia Falls 5.65% 07/01/19 75,000 81,871
Flathead Cnty MT Sch Dist No. 44 (MBIA) 3.00% 07/01/11 195,000 188,961
Kalispell MT (MBIA) 4.625% 07/01/05 130,000 133,682
Misoula MT Ser A (FSA) 3.00% 07/01/09 250,000 249,600
MT St Long Range Building Pg-Ser G 4.00% 08/01/13 250,000 252,017
MT St Long Range Building Pg - Ser G 5.375% 08/01/11 250,000 244,843
MT St Water Pollution Ctl 5.60% 07/15/20 100,000 106,888
MT St Long Range Building Pg - Ser D 5.375% 08/01/11 100,000 105,959
Puerto Rico Mun Fin Agy Ser A (FSA) 5.50% 08/01/23 250,000 266,340
Ravalli Cnty MT Sch Dist No. 1 Corvallis (FSA) 3.00% 07/01/12 140,000 133,672
Ravalli Cnty MT Sch Dist No. 003 Hamilton (FSA) 4.00% 07/01/16 80,000 78,355
Ravalli Cnty MT Sch Dist No. 003 Hamilton (FSA) 4.65% 07/01/09 105,000 111,854
---------
2,682,937
---------
Continuing Care Revenue Bonds 0.5%
MT St Hlth Facs Auth Rev Hillcrest Sr Ctr 6.90% 06/01/15 30,000 31,165
MT St Hlth Facs Auth Rev Hillcrest Sr Ctr 7.25% 06/01/25 35,000 36,412
---------
67,577
---------
Higher Education Revenue Bonds 16.8%
MT St Brd Regents Hgher Ed Rev Rnv of MT (MBIA) 3.75% 11/15/15 200,000 190,802
MT St Hgher Ed Stud Assist Corp Rev Ser B 6.40% 12/01/32 415,000 432,916
MT Brd Regents (MSU) Ref & Imp Hghr Ed Facs-D (MBIA) 5.375% 11/15/21 300,000 319,389
MT Brd Regents (U of M) Hgher Ed Rev Ser F (MBIA) 5.75% 05/15/24 150,000 161,739
Puerto Rico Tour Edl Med & Env Facs Mendez Univ 5.375% 02/01/19 75,000 75,583
*Univ of MT Revs Facs Acq & Imp Ser C (MBIA) 5.00% 11/15/17 140,000 148,652
Univ of MT Revs Higher Ed Facs Imp Ser D (MBIA) 5.375% 05/15/15 75,000 81,915
Univ of MT Revs Higher Ed Facs Imp Ser D (MBIA) 5.375% 05/15/19 220,000 239,499
Univ Puerto Rico Revs Ser O (MBIA) 5.75% 06/01/17 300,000 328,755
---------
1,979,250
---------
Hospital Revenue Bonds 18.8%
MT Hlth Fac Fin Auth Rev Mstr Ln Program Comm Med Ctr 5.20% 12/01/21 145,000 148,402
MT Fac Fin Auth Providence Serv (MBIA) 4.60% 12/01/18 150,000 152,926
MT Fac Fin Auth Providence Serv (MBIA) 5.00% 12/01/18 500,000 525,315
MT Fac Fin Auth Providence Serv (MBIA) 4.80% 12/01/20 200,000 203,502
*MT Hlth Fac Auth Sisters Chrty Leavenworth (MBIA) 5.125% 12/01/18 200,000 213,644
MT St Hlth Fac Auth Rev Comm Med Ctr 6.375% 06/01/18 370,000 370,500
MT St Hlth Fac Auth Rev Holy Rosary Pre-Ref (MBIA) 5.25% 07/01/20 130,000 134,541
MT St Hlth Fac Auth Rev Kalispell Med Ctr (AMBAC) 5.00% 07/01/16 450,000 466,596
---------
2,215,426
---------
Housing Revenue Bonds 14.4%
*MT St Brd Hsg Sngle Fam Mtg Ser A-2 5.75% 06/01/30 100,000 101,133
*MT St Brd Hsg Sngle Fam Ser A-2 5.50% 12/01/20 110,000 110,725
*MT St Brd Hsg Sngle Fam Ser A-2 5.60% 12/01/23 90,000 90,620
MT St Brd Hsg Sngle Fam Ser A-2 5.20% 12/01/22 155,000 155,656
MT St Brd Hsg Sngle Fam Ser B-2 4.85% 12/01/15 150,000 151,116
MT St Brd Hsg Sngle Fam Ser B-2 3.05% 12/01/10 200,000 190,488
MT St Brd Hsg Sngle Fam Ser B-2 3.40% 12/01/12 310,000 298,828
MT St Brd Hsg Sngle Fam Prog Ser C 3.95% 06/01/11 200,000 198,774
MT St Brd Hsg Sngle Fam Prog Ser B 4.55% 12/01/11 400,000 404,996
---------
1,702,336
---------
Transportation Revenue Bonds 4.3%
Missoula Cnty MT Arpt Auth Arpt Rec Ser C 3.30% 07/01/10 250,000 244,077
Puerto Rico Hwy & Trans Auth Rev Ser G (FGIC) 5.25% 07/01/20 250,000 264,402
---------
508,479
---------
Water Revenue Bonds 3.8%
Butte Silver Bow MT Wtr Sys Rev 3.40% 11/01/12 350,000 342,156
Great Falls MT Wtr Sys Rev Ref Ser A (AMBAC) 3.85% 08/01/08 100,000 103,418
---------
445,574
---------
Other Revenue Bonds 15.0%
Great Falls MT Tax Increment (MBIA) 3.00% 08/15/08 100,000 100,384
MT Fac Fin Auth Developmental Ctr Prog 4.50% 06/01/16 250,000 241,437
MT Fac Fin Auth Developmental Ctr Prog 4.75% 06/01/19 170,000 165,561
MT St Brd Invt Refunded 1996 Pay Tax (MBIA) 6.875% 06/01/20 105,000 116,327
MT St Brd Invt Refunded 1996 Pay Tax (MBIA) 6.875% 06/01/20 105,000 116,327
Puerto Rico Childrens Trust Fund Tobacco Settlement Rev 6.00% 07/01/26 195,000 221,526
Puerto Rico Comwlth Aqueduct & Swr Auth Rev (MBIA) 5.00% 07/01/19 125,000 129,714
Puerto Rico Comwlth Infra Fing Auth Ser A (AMBAC) 5.00% 07/01/21 250,000 256,215
Puerto Rico Comwlth Inf Fin Auth Ser A (AMBAC) 5.25% 07/01/10 100,000 109,632
Puerto Rico Pub Fin Corp Ser A (MBIA) 5.50% 08/01/17 275,000 307,098
---------
1,764,221
---------
Total Municipal Bonds (cost $11,387,615) 11,365,800
TOTAL MARKET VALUE OF SECURITIES OWNED 96.4% (COST $11,387,615) 11,365,800
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 3.6% 419,320
-----------
NET ASSETS APPLICABLE TO 1,183,709 SHARES (0.001 PAR VALUE) OUTSTANDING - 100.0% $11,785,120
===========
*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, June 30, 2004 (Unaudited)
Viking Tax-Free Fund for North Dakota
PRINCIPAL MARKET
AMOUNT VALUE
MUNICIPAL BONDS 95.9%
General Obligations 17.1%
*Bismarck ND Ref & Imp - Ser L 4.00% 06/01/07 75,000 $76,200
Bismarck ND Ref & Imp - Ser P 2.90% 05/01/12 100,000 92,958
Bismarck ND Ref & Imp - Ser P 3.50% 05/01/16 100,000 92,316
*Fargo ND Ref & Imp - Ser B (FGIC) 5.125% 05/01/17 60,000 62,143
Hillsboro ND Pub Sch Dist No. 9 (FSA) 4.85% 06/01/19 50,000 51,266
*Jamestown ND Pub Sch Dist No. 011 (FGIC) 4.60% 05/01/15 50,000 50,947
*Mandan ND Ref & Imp - Ser B (MBIA) 5.00% 05/01/16 70,000 73,081
Mandan ND Ref & Imp - Ser A (MBIA) 3.60% 05/01/15 75,000 69,698
Puerto Rico Commonwealth (MBIA) 5.375% 07/01/25 50,000 54,053
*West Fargo ND Ref & Imp 5.00% 05/01/08 250,000 254,438
West Fargo ND Pub Sch Dist No. 006 (FGIC) 5.00% 05/01/14 50,000 52,920
---------
929,920
---------
Building Authority Revenue Bonds 8.3%
Fargo ND Bldg Auth Lease Rev Ser A 5.00% 05/01/20 50,000 50,675
ND St Bldg Auth Lease Rev Ser A (MBIA) 5.00% 12/01/17 50,000 52,318
ND St Bldg Auth Lease Rev Ser A (MBIA) 5.00% 12/01/16 50,000 51,605
ND St Bldg Auth Lease Rev Ser A (MBIA) 5.20% 12/01/19 90,000 92,453
ND St Bldg Auth Lease Rev Ser C (AMBAC) 4.00% 08/15/11 100,000 101,503
ND St Bldg Auth Lease Rev Ser C (AMBAC) 4.20% 08/15/13 100,000 99,999
---------
448,553
---------
Education Revenue Bonds 1.0%
Fargo ND School District Bldg Auth Rev (MBIA) 5.50% 05/01/14 50,000 52,855
---------
52,855
---------
Higher Education Revenue Bonds 11.8%
Fargo ND Lease Rev NDSU Lease Oblig Ser-A (AMBAC) 3.50% 05/01/09 60,000 59,968
ND St Brd Hgher Ed Rev Hsg & Aux Facs UND (AMBAC) 4.80% 04/01/14 25,000 25,379
ND St Brd Hgher Ed Rev Hsg & Aux Facs UND (FGIC) 5.00% 04/01/18 250,000 261,337
Puerto Rico Tour Edl Med & Env Facs Mendez Univ 5.375% 02/01/19 25,000 25,194
UND Univ Revs Hsg & Auxillary Facs Ref (FSA) 5.00% 04/01/21 50,000 50,123
Univ Puerto Rico Revs Ser O (MBIA) 5.75% 06/01/17 200,000 219,170
---------
641,171
---------
Hospital Revenue Bonds 16.6%
Bismarck ND Hlth Care Facs Rev St. Alexius (FSA) 4.30% 07/01/08 150,000 155,878
Burleigh Cnty ND Hlth Care MedCenter One (MBIA) 5.25% 05/01/12 325,000 343,242
Carrington ND Hlth Fac Rev Hlth Ctr Proj 6.25% 11/15/15 15,000 15,039
Fargo ND Hlth Sys Rev Meritcare Obl (FSA) 5.375% 06/01/15 65,000 68,015
Fargo ND Hlth Sys Rev Meritcare Obl (AMBAC) 4.125% 06/01/11 150,000 152,589
Fargo ND Hlth Sys Rev Meritcare Obl (AMBAC) 5.00% 06/01/22 45,000 45,146
Grand Forks ND Hlth Care Facs Untd Hosp Obli Group (MBIA) 6.25% 12/01/24 25,000 25,790
Grand Forks ND Hlth Care Altru Hlth Obl Group (MBIA) 5.60% 08/15/17 20,000 21,519
Grand Forks ND Hlth Care Altru Hlth Obl Group 7.125% 08/15/24 20,000 21,360
Valley City ND Rev Ref Lutheran Hlth Ser A-5 (MBIA) 4.20% 01/01/06 25,000 25,527
Ward Cnty ND Hlth Care Facs Rev Trinity Obl Group - B 6.00% 07/01/10 25,000 26,583
---------
900,688
---------
Housing Revenue Bonds 15.3%
Fargo ND Multifam Rev Ref Hsg Trollwood Village 6.90% 09/01/13 25,000 24,722
ND St Hsg Fin Agy Rev Hsg Fin Pg Home Mtg A 3.75% 07/01/12 150,000 144,831
ND St Hsg Fin Agy Home Mtg Ser B 3.50% 07/01/10 300,000 292,053
ND St Hsg Fin Agy Rev Home Mtg Prog C 4.90% 07/01/15 150,000 150,447
ND St Hsg Fin Agy Hsg Fin Home MTG-C-RMK 6.10% 07/01/28 15,000 15,204
ND St Hsg Fin Agy Rev Hsg Fin Pg Home Mtg B 5.85% 07/01/28 5,000 5,000
ND St Hsg Fin Agy Rev Hsg Fin Pg Home Mtg D 5.05% 01/01/06 10,000 10,147
ND St Hsg Fin Agy Rev Hsg Fin Pg Home Mtg A 5.25% 07/01/18 80,000 80,824
*ND St Hsg Fin Agy Rev Hsg Fin Pg Home Mtg A 5.55% 07/01/22 105,000 105,813
---------
829,041
---------
Utility Revenue Bonds 4.3%
Mercer Cnty Poll Ctl Rev Basin Electric Power Coop (AMBAC) 6.05% 01/01/19 85,000 87,794
Puerto Rico Elec Pwr Auth Rev Ser DD (FSA) 5.125% 07/01/13 135,000 144,886
---------
232,680
---------
Transportation Revenue Bonds 2.9%
Guam Intl Arpt Auth Ser C (MBIA) 5.375% 10/01/17 150,000 159,270
---------
159,270
---------
Water Revenue Bonds 1.0%
ND St Water Comm Rev Water Dev & Mgmt Prg Ser A (MBIA) 5.50% 08/01/10 50,000 55,256
---------
55,256
---------
Other Revenue Bonds 17.6%
Bismarck ND Lodging & Restaurant Tax Rev 4.00% 12/01/12 100,000 98,000
Grand Forks ND Sales Tax Rev Aurora Project Ser A (MBIA) 5.625% 12/15/29 185,000 196,729
*Grand Forks ND Sales Tax Rev Dike Imp (AMBAC) 4.50% 09/01/10 50,000 52,152
Grand Forks ND Sales Tax Rev Dike Imp (AMBAC) 5.00% 09/01/13 100,000 106,509
Grand Forks ND Sales Tax Rev Dike Imp (AMBAC) 5.00% 09/01/17 145,000 149,844
ND St Muni Bond Bank Cap Fing Prog 6.00% 06/01/21 25,000 26,048
ND St Muni Bond Bank St Revolv Fund Prog - Ser A 4.90% 10/01/18 50,000 50,839
ND St Muni Bond Bank St Revolv Fund Prog - Ser A 3.40% 10/01/15 100,000 89,889
Puerto Rico Childrens Trust Fund Tobacco Settlement Rev 6.00% 07/01/26 15,000 17,040
Puerto Rico Pub Fin Corp Ser A (MBIA) 5.375% 08/01/24 150,000 165,422
---------
952,472
---------
Total Municipal Bonds (cost $5,225,830) 5,201,906
SHORT-TERM INVESTMENTS 4.2%
Franklin Double Tax Free Income Fund 228,186
---------
Total Short Term Investment (cost: $230,064) 228,186
---------
TOTAL MARKET VALUE OF SECURITIES OWNED 100.1% (COST $5,485,894) 5,430,092
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES (0.1)% (5.164)
----------
NET ASSETS APPLICABLE TO 542,221 SHARES (0.001 PAR VALUE) OUTSTANDING - 100.00% $5,424,928
==========
*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, June 30, 2004 (Unaudited)
Viking Large-Cap Value Fund
SHARES VALUE
Common Stocks 97.9%
Banks/Financial Services 11.9%
Bank of America 700 $59,234
Citigroup 2,200 102,300
Merrill Lynch 600 32,388
Morgan Stanley 600 31,662
National City 1,000 35,013
U.S. Bancorp 1,265 34,863
Washington Mutual 1,500 57,960
--------
353,420
--------
Building Materials 3.0%
Masco Corporation 2,900 90,422
--------
90,422
--------
Computer/Communications Related 4.9%
Hewlett-Packard 3,000 63,300
International Rectifier 2,000 82,840
--------
146,140
--------
Drug 3.8%
Phizer 3,300 113,124
--------
131,124
--------
Drug Distribution 11.9%
Amerisource Bergen 1,200 71,736
CVS Corp. 2,700 113,454
Cardinal Health 1,300 91,065
Mckesson 2,300 78,959
--------
355,214
--------
Energy 13.1%
Anadarko Petroleum 1,700 99,620
Apache 2,410 104,956
ChevronTexaco 1,000 94,110
ConocoPhillips 1,200 91,548
--------
390,234
--------
Entertainment 2.1%
Disney 2,500 63,725
--------
63,725
--------
Food 4.5%
Dean Foods 2,500 93,275
Unilever NV ADR 600 41,106
--------
134,381
--------
Household Products 2.9%
Kimberly-Clark 1,300 85,644
--------
85,644
--------
Industrial Products 3.0%
Ingersoll-Rand 1,300 88,803
--------
88,803
--------
Insurance 5.5%
Hartford Financial Services Group 800 54,992
MBIA, Inc. 700 39,984
Partnerre Ltd. 1,200 68,076
--------
163,052
--------
Medical Services / Supplies 4.9%
HCA Healthcare 1,000 41,590
Health Management Associates 2,700 60,534
Triad Hospital 1,200 44,676
--------
146,800
--------
Metals 4.5%
ALCOA 2,800 92,484
Rio Tinto Plc ADR 400 39,220
--------
131,704
--------
Multi-Industry 3.9%
Honeywell 1,600 58,608
ITT Industries 700 58,100
--------
116,708
--------
Packaging 3.6%
Sealed Air 2,000 106,540
--------
106,540
--------
Retail 1.7%
BJ's Wholesale 2,000 50,000
--------
50,000
--------
Telecommunications 2.0%
Verizon Communications 1,600 57,904
--------
57,904
--------
Transportation 4.1%
Canadian Pacific 1,300 32,019
Union Pacific 1,500 89,175
--------
121,194
--------
Utilities 6.6%
American Electric Power 1,600 51,200
Dominion Resources 1,400 88,312
Public Service Enterprise Group 1,400 56,042
--------
195,554
--------
Total Common Stocks (Cost $2,400,763) 2,910,563
SHORT-TERM INVESTMENTS 2.0%
Federated Prime Value Obligations #853 59,000
----------
Total Short-Term Investments (cost: $59,000) 59,000
----------
TOTAL MARKET VALUE OF SECURITIES OWNED 99.9% (COST $2,459,763) 2,969,563
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES (0.1)% (3,245)
----------
NET ASSETS APPLICABLE TO 284,265 SHARES ($0.001 PAR VALUE)
OUTSTANDING 100.0% $2,972,808
==========
The accompanying notes are an integral part of these financial statements.
VIKING MUTUAL FUNDS
Statement of Investments, June 30, 2004 (Unaudited)
Viking Small-Cap Value Fund
SHARES VALUE
Common Stocks 92.6%
Auto Related 4.3%
Borg Warner 1,000 $43,770
Superior Industrial International 600 20,070
--------
63,840
--------
Basic Materials 1.1%
Albany International 500 16,780
--------
16,780
--------
Cement 2.9%
Lafarge 1,000 43,300
--------
43,300
--------
Chemical 4.3%
Georgia Gulf Corp. 800 28,688
RPM 2,300 34,960
--------
63,648
--------
Computer/Communications Related 3.1%
Actel 500 9,250
Brooks Automation 1,000 20,150
International Rectifier 400 16,568
--------
45,968
--------
Construction/Engineering 2.9%
Granite Construction 1,200 21,876
Insituform Technologies 1,300 21,151
--------
43,027
--------
Drug Distribution 0.7%
Par Pharmaceutical Companies 300 10,563
--------
10,563
--------
Electrical Equipment 3.4%
Belden 1,400 30,002
Cable Design Tech. 1,900 20,140
--------
50,142
--------
Electronics 3.7%
Bel Fuse Cl. B 900 37,530
Technitrol 800 17,520
--------
55,050
--------
Energy 11.7%
Newfield Exploration 800 44,592
Piedmont Natural Gas 700 29,890
Questar 1,100 42,504
Spinnaker Explorations 800 31,504
XTO Energy 875 26,066
--------
174,556
--------
Food Wholesalers/Retailers 1.8%
SuperValu 900 27,549
--------
27,549
--------
Household Products 6.0%
Church & Dwight 1,300 59,514
Libbey 1,100 30,536
--------
90,050
--------
Industrial Products 7.0%
AO Smith 1,400 44,506
CLARCOR 200 9,160
Teleflex 1,000 50,150
--------
103,816
--------
Insurance 5.0%
Protective Life 1,200 46,404
Scottish RE Group Ltd 1,200 27,900
--------
74,304
--------
Medical Services/Supplies 10.0%
Conmed 1,100 30,140
Dentsply International 300 15,630
Mentor 800 27,432
MIM Corp. 1,100 9,570
Owens & Minor 600 15,540
Polymedica 1,100 34,144
West Pharm. Services 400 16,920
--------
149,376
--------
Packaging 2.9%
Aptar Group 1,000 43,690
--------
43,690
--------
Real Estate Investment Trusts 0.8%
Mack-Cali Realty 300 12,414
--------
12,414
--------
Restaurant 4.5%
Applebee's International 750 17,265
CBRL Group 1,100 33,935
Outback Steakhouse 400 16,544
--------
67,744
--------
Retail 5.0%
BJ's Wholesale 1,200 30,000
Claire's Stores 1,400 30,380
ShopKo Stores 1,000 14,140
--------
74,520
--------
Toy 5.2%
Jakks Pacific 2,000 41,580
RC2 Corp. 1,000 35,500
--------
77,080
--------
Transportation 6.3%
Arkansas Best 1,900 62,548
Yellow Roadway 798 31,809
--------
94,357
--------
Total Common Stocks (Cost $1,060,126) 1,381,774
SHORT-TERM INVESTMENTS 7.3%
Federated Prime Value Obligations Fund #853 65,000
Federated Treasury Cash Reserves #125 43,100
----------
Total Short-Term Investments (Cost $108,100) 108,100
TOTAL MARKET VALUE OF SECURITIES OWNED 99.9% COST ($1,168,226) 1,489,874
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 0.1% 1,740
----------
NET ASSETS APPLICABLE TO 111,813 SHARES ($0.001 PAR VALUE)
OUTSTANDING 100.0% $1,491,614
==========
The accompanying notes are an integral part of these financial statements.
VIKING MUTUAL FUNDS
Financial Statements
Statements of Assets and Liabilities
June 30, 2004 (Unaudited)
Tax-Free Fund Tax-Free Fund Large-Cap Small-Cap
for Montana for North Dakota Value Fund Value Fund
ASSETS:
Investments in securities:
Cost $11,387,615 $5,485,894 $2,459,763 $1,168,226
------------------------------------------------------------------------------------
Value 11,365,800 5,430,092 2,969,563 1,489,874
Cash 9,773 65,393 15,715 4,172
Receivable for fund shares sold 198 15,138 - -
Prepaid assets 678 271 271 168
Security sales receivable 717,705 30,000 - -
Interest & dividends receivable 136,026 59,538 3,889 926
------------------------------------------------------------------------------------
Total assets 12,230,180 5,600,432 2,989,438 1,495,140
------------------------------------------------------------------------------------
LIABILITIES:
Security purchases payable 400,000 150,265 12,120 -
Distributions payable 40,174 17,478 - -
Other accounts payable and
accrued expenses 4,886 7,761 4,510 3,525
------------------------------------------------------------------------------------
Total liabilities 445,060 175,504 16,630 3,525
------------------------------------------------------------------------------------
NET ASSETS 11,785,120 5,424,928 2,972,808 1,491,615
------------------------------------------------------------------------------------
COMPONENTS OF NET ASSETS AT JUNE 30, 2004
Capital shares, $0.001 par value,
unlimited shares authorized 11,859,034 5,509,123 2,797,292 1,174,526
Net unrealized appreciation
(depreciation) (21,815) (55,802) 509,800 321,648
Accumulated net realized gain
(loss) on investments (52,099) (28,393) (340,353) (1,505)
Undistributed net investment
income (loss) - - 6,069 (3,054)
------------------------------------------------------------------------------------
NET ASSETS $11,785,120 $5,424,928 $2,972,808 $1,491,615
------------------------------------------------------------------------------------
NET ASSET VALUE AND
OFFERING PRICE PER SHARE
Net assets, at value $11,785,120 $5,424,928 $2,972,808 $1,491,615
Shares outstanding 1,183,709 542,221 284,265 111,813
Net asset value per share $9.96 $10.01 $10.46 $13.34
Maximum offering price per share
(net asset value per share divided
by 95.50%, 95.50%, 94.75% and
94.75%, respectively) $10.43 $10.48 $11.04 $14.08
------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
VIKING MUTUAL FUNDS
Financial Statements
Statements of Operations
For the six months ended June 30, 2004 (Unaudited)
Tax-Free Fund Tax-Free Fund Large-Cap Small-Cap
for Montana for North Dakota Value Fund Value Fund
-------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $259,457 $104,193 $ - $ -
Dividends 3,623 2,362 25,058 8,021
-------------------------------------------------------------------------------------
Total investment income 263,080 106,555 25,058 8,201
-------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees 31,292 12,928 9,846 6,712
Administrative fees 6,258 2,586 1,407 671
Distribution fees 15,646 6,464 5,626 2,685
Transfer agent fees 1,545 831 1,679 1,219
Accounting fees 3,129 1,293 703 336
Professional fees 2,891 2,921 2,914 2,921
Insurance 1,810 592 380 145
Trustee fees 776 782 784 782
Registration fees 498 62 317 338
Custodian fees 1,707 1,706 1,746 1,675
Other 92 45 173 92
-------------------------------------------------------------------------------------
Total expenses 65,644 30,210 25,575 17,576
-------------------------------------------------------------------------------------
Less expenses waived or
reimbursed (42,624) (19,541) (6,586) (6,501)
------------------------------------------------------------------------------------
Net expenses 23,020 10,669 18,989 11,075
-------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 240,060 95,886 6,069 (3,054)
-------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss)
on investments (8,564) (11,070) 366 6,536
Net change in unrealized
appreciation (depreciation)
of investments (296,971) (148,391) 106,795 96,323
-------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (305,535) (159,461) 107,161 102.859
-------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS $(65,475) $(63,575) $113,230 $99,805
-------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
VIKING MUTUAL FUNDS
Financial Statements
Statements of Changes in Net Assets
For the six months ended June 30, 2004 (Unaudited)
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) $240,060 $95,886 $6,069 $(3,054)
Net realized gain (loss)
on investments (8,564) (11,070) 366 6,536
Net change in unrealized
appreciation (depreciation)
of investments (296,971) (148,391) 106,795 96,323
-------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting
from operations (65,475) (63,575) 113,230 99,805
-------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (240,060) (95,886) - -
Net realized gains - - - -
-------------------------------------------------------------------------------------
Total distributions to
shareholders (240,060) (95,886) - -
-------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 725,323 1,000,667 182,820 153,182
Proceeds from reinvestment
of distributions 180,350 66,051 16,486 -
Cost of shares repurchased (1,449,268) (263,757) (84,347) (11,008)
-------------------------------------------------------------------------------------
Increase in net assets
derived from capital share
transactions (543,595) 802,961 114,959 142,174
-------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS $(849,130) $643,500 $228,189 $241,979
-------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period $12,634,250 $4,781,428 $2,744,619 $1,249,636
-------------------------------------------------------------------------------------
End of period $11,785,120 $5,424,928 $2,972,808 $1,491,615
-------------------------------------------------------------------------------------
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) $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 (Unaudited)
Viking Tax-Free Fund for Montana
Selected data for each share of the Fund outstanding throughout each period
were as follows:
For the Period
01/01/04- 01/01/03- 01/01/02- 01/01/01- 01/01/00- 08/03/991-
06/30/04 12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
---------------------------------------------------------------------------
Net asset value, beginning of period $10.20 $10.18 $9.74 $9.82 $9.41 $10.00
---------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.19 0.42 0.46 0.51 0.52 0.15
Net realized and unrealized gain
(loss) on investments (0.24) 0.02 0.48 (0.08) 0.41 (0.59)
---------------------------------------------------------------------------
Total from investment operations (0.05) 0.44 0.94 0.43 0.93 (0.44)
---------------------------------------------------------------------------
Less distributions from:
Net investment income (0.15) (0.42) (0.46) (0.51) (0.52) (0.15)
Net realized gains - - (0.04) - - -
---------------------------------------------------------------------------
Total distributions (0.19) (0.42) (0.50) (0.51) (0.52) (0.15)
---------------------------------------------------------------------------
Net asset value, end of period $9.96 $10.20 $10.18 $9.74 $9.82 $9.41
---------------------------------------------------------------------------
Total return2 (0.47)% 4.45% 9.90% 4.48% 10.23% (4.47)%
---------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000's) $11,785 $12,634 $8,513 $3,549 $1,131 $145
Ratio of net expenses to average net assets 0.37%3,4 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 3.83%4 4.13% 4.58% 5.06% 5.13% 4.15%4
Portfolio turnover rate 17.72% 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 $42,624 $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
1.05%, 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 (Unaudited)
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
01/01/04- 01/01/03- 01/01/02- 01/01/01- 01/01/00- 08/03/991-
06/30/04 12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
--------------------------------------------------------------------------
Net asset value, beginning of period $10.29 $10.25 $9.76 $9.95 $9.47 $10.00
--------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.19 0.42 0.47 0.51 0.55 0.18
Net realized and unrealized gain
(loss) on investments (0.18) 0.04 0.49 (0.19) 0.48 (0.53)
--------------------------------------------------------------------------
Total from investment operations 0.01 0.46 0.96 (0.32) 1.03 (0.35)
--------------------------------------------------------------------------
Less distributions from:
Net investment income (0.19) (0.42) (0.47) (0.51) (0.55) (0.18)
Net realized gains - - - - - -
--------------------------------------------------------------------------
Total distributions (0.19) (0.42) (0.47) (0.51) (0.55) (0.18)
--------------------------------------------------------------------------
Net asset value, end of period $10.01 $10.29 $10.25 $9.76 $9.95 $9.47
---------------------------------------------------------------------------
Total return2 (0.91)% 4.60% 10.07% 3.26% 11.30% (3.56)%
Ratios/supplemental data:
Net assets, end of period (000's) $5,425 $4,781 $2,059 $1,614 $327 $128
Ratio of net expenses to average net assets 0.41%3,4 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 3.70%4 4.06% 4.73% 4.85% 5.73% 4.28%4
Portfolio turnover rate 15.92% 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 $19,541, $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 1.16%, 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 (Unaudited)
Viking Large-Cap Value Fund
Selected data for each share of the Fund outstanding throughout each period
were as follows:
For the Period
01/01/04- 01/01/03- 01/01/02- 01/01/01- 01/01/00- 08/03/991-
06/30/04 12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
-------------------------------------------------------------------------
Net asset value, beginning of period $10.06 $8.20 $10.74 $11.08 $9.90 $10.00
-------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.02 0.06 0.06 0.04 0.07 0.02
Net realized and unrealized gain
(loss) on investments 0.38 1.86 (2.60) (0.34) 1.18 (0.10)
-------------------------------------------------------------------------
Total from investment operations 0.40 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 $10.46 $10.06 $8.20 $10.74 $11.08 $9.90
-------------------------------------------------------------------------
Total return2 3.98% 23.42% (23.08)% (2.73)% 12.67% (0.77)%
Ratios/supplemental data:
Net assets, end of period (000's) $2,973 $2,745 $1,962 $2,143 $1,367 $591
Ratio of net expenses to average net assets 1.33%3,4 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 0.21% 0.73% 0.71% 0.37% 0.90% 0.83%4
Portfolio turnover rate 18.90% 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 $6,586, $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
1.80%, 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 (Unaudited)
Viking Small-Cap Value Fund
Selected data for each share of the Fund outstanding throughout the period
was as follows:
For the Period
01/01/04- 01/01/03- 01/01/02- 05/03/011-
06/30/04 12/31/03 12/31/02 12/31/01
--------------------------------------------------
Net asset value, beginning of period $12.43 $9.35 $10.26 $10.00
--------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (0.03) (0.03) (0.03) -
Net realized and unrealized gain
(loss) on investments 0.94 3.11 (0.88) 0.26
--------------------------------------------------
Total from investment operations 0.91 3.08 (0.91) 0.26
--------------------------------------------------
Less distributions from:
Net investment income - - - -
Net realized gains - - - -
--------------------------------------------------
Total distributions - - - -
--------------------------------------------------
Net asset value, end of period $13.34 $12.43 $9.35 $10.26
--------------------------------------------------
Total return2 7.32% 32.94% (8.87)% 2.60%
Ratios/supplemental data:
Net assets, end of period (000's) $1,492 $1,250 $604 $321
Ratio of net expenses to average net assets 1.63%3,4 1.65%3 1.65%3 1.59%3,4
Ratio of net investment income to average
net assets (0.23)% (0.37)%4 (0.41)% (0.28)%4
Portfolio turnover rate 3.19% 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 $6,501, $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
2.59%, 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
June 30, 2004 (Unaudited)
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 six months ended
June 30, 2004 and the year endedDecember 31, 2003 were as follows:
Tax-Free Fund for Tax-Free Fund for Large-Cap Small-Cap
Montana North Dakota Value Fund Value Fund
------------------------------------------------------------------------------
2004 2003 2004 2003 2004 2003 2004 2003
------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $240,060 $433,864 $95,886 $139,584 $0 $16,486 $0 $0
Long-term capital gain $0 $0 $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 01/01/04 from 01/01/04 from 01/01/04 from 01/01/04
through 06/30/04 through 06/30/04 through 06/30/04 through 06/30/04
--------------------------------------------------------------------------
Shares sold 107,314 112,895 21,223 14,890
Shares issued in reinvestment
of distributions 17,719 6,442 1,605 0
Shares redeemed (180,129) (41,639) (11,507) (3,635)
--------------------------------------------------------------------------
Net Increase 402,594 77,698 11,321 11,255
--------------------------------------------------------------------------
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 $15,247 of investment advisory fees after a partial
waiver for the six months ended June 30, 2004. On June 30, 2004,
the Tax-Free Fund for Montana had a payable to VFM for investment advisory
fees of $2,319. The Tax-Free Fund for North Dakota recognized $4,560 of
investment advisory fees after a partial waiver for the six months ended
June 30, 2004. On June 30, 2004, the Tax-Free Fund for North Dakota
had a payable to VFM for investment advisory fees of $593. The Large-Cap
Fund recognized $9,846 of investment advisory fees after a partial waiver
for the six months ended June 30, 2004. On June 30, 2004, the
Large-Cap Fund had a payable to VFM for investment advisory fees of $1,832.
The Small-Cap Fund recognized $5,095 of investment advisory fees after a
partial waiver for the six months ended June 30, 2004. On June 30, 2004
, the Small-Cap Fund had a payable to VFM for investment advisory fees
of $730. 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 June 30, 2004, 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
$18, $14, $30 and $30, 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 six months ended June 30, 2004, Large-Cap Value Fund recognized $2,819
and Small-Cap Value Fund recognized $24 of 12b-1 fees after a partial waiver.
On June 30, 2004, the Large-Cap Fund had a payable to VFD for 12b-1 fees of
$254.Tax-Free Fund for Montana and Tax-Free Fund for North Dakota recognized no
12b-1 fees after the fee waiver.
For the six months ending June 30, 2004, the net amounts of sales charges
deducted from the proceeds of sale of capital shares which were retained
by VFD as principal underwriter were $2,583, $3,292, $515 and $821
for the Tax-Free Fund for Montana, Tax-Free Fund for North Dakota, Large-Cap
Fund and Small-Cap Fund, respectively. On June 30, 2004 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 $5, $229, $29 and $38,
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, the Funds' most recently completed year end, 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 June 30, 2004, 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 $11,387,615 $5,485,894 $2,459,763 $1,168,226
------------------------------------------------------------------------------------
Unrealized appreciation 119,160 50,264 515,785 334,939
Unrealized depreciation (140,975) (106,066) (5,985) (13,291)
------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) $(21,815) $(55,802) $509,800 $321,648
------------------------------------------------------------------------------------
7. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
six months ended June 30, 2004 were as follows:
Tax-Free Fund Tax-Free Fund Large-Cap Small-Cap
for Montana for North Dakota Value Fund Value Fund
-----------------------------------------------------------------------------------
Purchases $2,222,816 $1,717,406 $610,625 $160,934
Sales $2,637,545 $825,953 $537,742 $43,346
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.
VIKING MUTUAL FUNDS
Trustee Information (Unaudited)
June 30, 2004
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.
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.).
Mike Timm 67 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).
Peter C. Zimmerman 38 Trustee General Manager, Holiday Inn Riverside
1400 14th Ave. SW (1995-pres.); Trustee, Viking Mutual
Minot, ND 58701 Funds (2004-pres.)
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
Peter C. Zimmerman
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: August 30, 2004
By: /s/ DOUGLAS P. MILLER
------------------------------
Douglas P. Miller
Principal Financial Officer
Date: August 30, 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.