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 -------- VIKING MUTUAL FUNDS ------------------- (Exact name of registrant as specified in charter) 116 1st St SW Suite C, MINOT, ND 58701 (Address of principal executive offices) (Zip code) SHANNON D RADKE, 116 1st St SW Suite C, MINOT, ND 58701 ----------------------------------------------------- (Name and address of agent for service) Registrants telephone number, including area code: (701) 852-1264 -------------- Date of fiscal year end: 12/31 ---- Date of reporting period: 12/30/05 ------- 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, 2005. Looking back at 2005, clearly the most dramatic events were the one-two punch of Hurricanes Katrina and Rita. It goes without saying that the economic consequences for the Gulf Coast region have been enormous. More than a million people have been displaced, thousands of businesses and jobs have been disrupted or destroyed, and the infrastructure-notably for energy-took a severe beating. Despite elevated energy prices and hurricane-related disruptions, the expansion in economic activity appears solid. GDP has posted increases exceeding 3% for ten straight quarters. The labor market shows strength, particularly in light of the aftermath of the Gulf storms. These figures should remain robust as the fiscal stimulus from the federal government rebuild of the Gulf region takes place. Corporations are also likely to invest more to increase capacity as recent capacity utilization figures show factories are operating at close to a five-year high. Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained. Nevertheless, possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures. The Federal Reserve, keeping a watchful eye on the impact of surging oil prices, dolled out 0.25 percent increases in the Fed Funds rate at each of the FOMC meetings. Those actions left the rate at 4.25 percent, the highest level in 4 1/2 years. The rate hike in December was the 13th quarter point move since the Fed began raising rates in June 2004. At that time, the Funds rate was at a 46-year low of 1 percent. The FOMC also signaled some further rate hikes in months to come would be needed to keep inflationary pressures at bay. Put simply, here is how Fed rate hikes directly affect consumer spending. Most consumer credit rates and adjustable mortgage rates are tied to the Prime rate. This rate moves in lock step with the Fed Funds rate. As Prime increases, more money is taken from the consumer in the form of higher interest rates and therefore is not available for the purchase of goods and services. Since consumer spending makes up roughly two-thirds of our economy, when spending slows, the economy slows causing the Fed to pause and eventually begin cutting rates again to stimulate the economy lest it should fall into recession. The Feds short-term rate increases normally produce an increase in long-term rates. However, that hasnt occurred during this cycle of increases. Although the Fed controls short-term borrowing rates, longer-term rates move up and down on expectations of future economic growth and inflation concerns and are controlled by market participants. With this flattening of rates, the yield curve inverted with two-year yields eclipsing ten-year yields, albeit slightly. The inverted yield curve is invigorating the debate over its accuracy as a harbinger of economic downturn, even recession. In the past 30 years, the yield curve has inverted five out of the eight times the Fed has been tightening monetary policy. Each of those five times an economic recession has ensued. However, many economists say the yield curve is different this time. Factors, including strong demand from foreigners for U.S. debt, which drives up prices and drives down yields, reduce the usefulness of the yield curve as a predictor of economic recession. Following the strong rally of last years fourth quarter and the abnormally high returns posted in 2003 and 2004, surging energy prices and rising interest rates took a toll on investors, as equities sagged in general in the first quarter of 2005. The Dow Jones Industrial average slid 2.6%, the broader S&P 500 Index also lost 2.6% for the quarter, while the tech-laden Nasdaq ended its worst first quarter performance in four years booking a loss of 8.1%. Stocks finished a turbulent second quarter with mixed results, as crude oil futures fluctuated widely and as concerns about inflation and a possible economic slowdown roiled the markets. For the second quarter, the Dow lost 2.2%, while the S&P gained 0.9% and the Nasdaq climbed 2.9%. One must marvel at the performance of the equity markets in the third quarter. The Dow was up 2.9%, the S&P 3.1% and the Nasdaq 4.6%. This occurred despite significant headwinds, such as persistent rate hikes from the Fed, even higher energy costs and, of course, the tragedy brought on by the Gulf Storms. While the fourth quarter equity market returns lagged the third quarter, they were enough to help offset the lackluster results of the first six months of 2005. For all of 2005, the returns in the equity markets were modest as the Dow lost 0.6% on the year, the S&P 500 gained 3% and the Nasdaq eked out a 1.4% gain. The fixed income markets, like the equity markets, took a decided turn for the worse in the first quarter of 2005, as the Fed hiked the Fed Funds rate twice, each by 25 basis points. The U.S. economy continued to show strong, above-trend growth in the first quarter. The labor market was healthy, commodity prices showed strong gains and housing data remained robust. The fixed income markets rebounded from negative performance of the prior quarter and provided strong returns in the second quarter. Despite the consistent measured pace of the Fed Funds rate hikes by the Federal Reserve, longer rates declined and the yield curve continued to flatten. Bullish bondholders were comforted by the Feds rate actions, believing modestly higher short-term interest rates would muffle inflation gains. The third quarter of 2005 was similar in many respects to the first quarter. Interest rates increased meaningfully as the economy continued to perform well and the Federal Reserve persisted in hiking the Fed Funds rate. The fourth quarter of 2005 was a scaled-down version of the third quarter, with continued economic expansion and persistent interest rate hikes by the Fed. The Fed hiked the Fed Funds rate twice, each time by 25 basis points, and the yield curve continued to flatten. 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 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 1.96% (at net asset value with distributions reinvested) for the year ended December 31, 2005. The fixed income markets, like the equity markets, took a decided turn for the worse in the first quarter of 2005, as the Fed hiked the Fed Funds rate twice, each by 25 basis points. The U.S. economy continued to show strong, above-trend growth in the first quarter. The labor market was healthy, commodity prices showed strong gains and housing data remained robust. As a result, the Funds share price declined in the first quarter. The fixed income markets rebounded from negative performance of the prior quarter and provided strong returns in the second quarter as the Funds share price rebounded as well. Despite the consistent measured pace of the Fed Funds rate hikes by the Federal Reserve, longer rates declined and the yield curve continued to flatten. Bullish bondholders were comforted by the Feds rate actions, believing modestly higher short-term interest rates would muffle inflation gains. The third quarter of 2005 was similar in many respects to the first quarter. Interest rates increased meaningfully as the economy continued to perform well and the Fed persisted in hiking the Fed Funds rate. As rates increased in the third quarter, the funds share price declined. Perhaps the most significant aspect of the third quarter was the continued flattening of the yield curve. Clearly, the Fed was concerned about a pickup of inflation, although it would appear that longer-term bond investors were not. The fourth quarter of 2005 was a scaled-down version of the third quarter, with continued economic expansion and persistent interest rate hikes by the Fed. This led to a slight decline in the Funds share price. The Fed hiked the Fed Funds rate twice, each time by 25 basis points, and the yield curve continued to flatten. 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. 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. VIKING TAX-FREE FUND FOR MONTANA Growth of a $10,000 Investment August 3, 1999 through December 30, 2005 (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 $ 9,550 $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 July 31, 2004 $12,165 $12,737 $13,429 August 31, 2004 $12,374 $12,956 $13,698 September 30, 2004 $12,436 $13,020 $13,771 October 31, 2004 $12,484 $13,071 $13,889 November 30, 2004 $12,414 $12,997 $13,775 December 31, 2004 $12,551 $13,141 $13,943 January 31, 2005 $12,601 $13,194 $14,074 February 28, 2005 $12,587 $13,179 $14,027 March 31, 2005 $12,443 $13,028 $13,939 April 30, 2005 $12,604 $13,196 $14,160 May 31, 2005 $12,693 $13,290 $14,260 June 30, 2005 $12,757 $13,356 $14,349 July 29, 2005 $12,682 $13,278 $14,284 August 31, 2005 $12,749 $13,348 $14,428 Septmeber 30, 2005 $12,750 $13,349 $14,332 October 31, 2005 $12,678 $13,274 $14,244 November 30, 2005 $12,718 $13,315 $14,313 December 30, 2005 $12,797 $13,398 $14,436 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 08/03/99-12/30/05. 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 investments 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 30, 2005 One-Year Three-Year Five Year (Est. 8/3/99) - - ---------------------------------------------------------------------------- Excluding Sales Charge 1.96% 3.48% 4.93% 4.66% Including Sales Charge -2.62% 1.90% 3.98% 3.92% Returns reflect reinvestment of distributions and the effect of a 4.50% front-end sales charge, as applicable. The current maximum sales charge is 3.75%. Therefore, the total returns would have been higher had the current maximum sales charge been in effect for the stated periods. 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 2.24% (at net asset value with distributions reinvested) for the year ended December 31, 2005. The fixed income markets, like the equity markets, took a decided turn for the worse in the first quarter of 2005, as the Fed hiked the Fed Funds rate twice, each by 25 basis points. The U.S. economy continued to show strong, above-trend growth in the first quarter. The labor market was healthy, commodity prices showed strong gains and housing data remained robust. As a result, the Funds share price declined in the first quarter. The fixed income markets rebounded from negative performance of the prior quarter and provided strong returns in the second quarter as the Funds share price rebounded as well. Despite the consistent measured pace of the Fed Funds rate hikes by the Federal Reserve, longer rates declined and the yield curve continued to flatten. Bullish bondholders were comforted by the Feds rate actions, believing modestly higher short-term interest rates would muffle inflation gains. The third quarter of 2005 was similar in many respects to the first quarter. Interest rates increased meaningfully as the economy continued to perform well and the Fed persisted in hiking the Fed Funds rate. As rates increased in the third quarter, the funds share price declined. Perhaps the most significant aspect of the third quarter was the continued flattening of the yield curve. Clearly, the Fed was concerned about a pickup of inflation, although it would appear that longer-term bond investors were not. The fourth quarter of 2005 was a scaled-down version of the third quarter, with continued economic expansion and persistent interest rate hikes by the Fed. This led to a slight decline in the Funds share price. The Fed hiked the Fed Funds rate twice, each time by 25 basis points, and the yield curve continued to flatten. 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. 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. VIKING TAX-FREE FUND FOR NORTH DAKOTA Growth of a $10,000 Investment August 3, 1999 through December 30, 2005 (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 $ 9,550 $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 July 31, 2004 $12,214 $12,788 $13,429 August 31, 2004 $12,435 $13,019 $13,698 September 30, 2004 $12,495 $13,082 $13,771 October 31, 2004 $12,568 $13,158 $13,889 November 30, 2004 $12,497 $13,084 $13,775 December 31, 2004 $12,646 $13,240 $13,943 January 31, 2005 $12,721 $13,319 $14,074 February 28, 2005 $12,719 $13,316 $14,027 March 31, 2005 $12,576 $13,167 $13,939 April 30, 2005 $12,761 $13,360 $14,160 May 31, 2005 $12,864 $13,469 $14,260 June 30, 2005 $12,915 $13,522 $14,349 July 29, 2005 $12,816 $13,418 $14,284 August 31, 2005 $12,895 $13,501 $14,428 September 30, 2005 $12,884 $13,489 $14,332 October 31, 2005 $12,824 $13,427 $14,244 November 30, 2005 $12,851 $13,455 $14,313 December 30, 2005 $12,929 $13,357 $14,436 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 08/03/99-12/30/05. 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 investments 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 30, 2005 One-Year Three-Year Five Year (Est. 8/3/99) - - ---------------------------------------------------------------------------- Excluding Sales Charge 2.24% 3.53% 4.75% 4.83% Including Sales Charge -2.32% 1.96% 3.79% 4.09% Returns reflect reinvestment of distributions and the effect of a 4.50% front-end sales charge, as applicable. The current maximum sales charge is 3.75%. Therefore, the total returns would have been higher had the current maximum sales charge been in effect for the stated periods. 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: William E. Dodge, President and CEO, Fox Asset Management, LLC Shannon D. Radke, President Viking Large-Cap Value Fund provided a return of 7.76% (at net asset value) for the year ended December 31, 2005. Stocks worked their way lower in the first quarter of 2005, pressured by Surging oil prices and rising interest rates. The economy continued to Perform satisfactorily in the face of the higher energy and capital costs. Despite losses for the major indices during the first quarter, the Fund posted Positive results. Our overall emphasis on high quality names served us well. Our healthcare holdings performed well in the quarter as investors moved toward the companies with more stable earnings prospects. Also, our consumer staples stocks appreciated nicely. Additionally, our substantial underweight of the financial services sector, which we have long maintained, worked well as the Feds interest rate moves began to negatively affect shares in this sector. Finally, the overweight energy position rebounded impressively form the weakness seen in the fourth quarter of 2004. Stocks finished a turbulent second quarter with mixed results, as crude oil futures fluctuated widely and as concerns about inflation and a possible economic slowdown roiled the markets. Signs that the economy may be cooling from its rapid pace of recent years buoyed investor hopes that the Fed may ease off the brakes earlier than expected, leading many investors to bid financial shares higher. Yet, Greenspan and Co. indicated that it would continue to hike rates to keep a lid on inflation, nudging the Fed funds rate to 3.25% on June 30th. This flattened the yield curve even further, thus squeezing banks net interest margins, especially those of less diversified institutions that depend more heavily on this basic source of income. For the second quarter the Dow had a small loss. The S&P 500 and the Nasdaq posted small gains as did the Fund. Healthcare continued to perform well, but weakness in certain of our cyclical names and our underweight to the financial services sector proved to be a drag on results. One must marvel at the performance of the equity market in the third quarter as all major domestic market indices gained ground. The Fund gained ground as well despite significant headwinds, such as persistent rate hikes from the Federal Reserve, even higher energy costs and, of course, the tragedy brought on by the Gulf Storms. In general, while there was plenty to fret about, the market was extremely resilient. However, performance within the market was very uneven. Sector strength was very narrow (namely, energy and technology), while the number of stocks advancing roughly equaled the number declining. For the Fund, performance was pretty good as our sector and stock emphasis more than participated in the rally. Despite a strong global economy, the US stock market muddled through the fourth quarter. And while the fourth quarter equity market returns lagged the third quarter, they were enough to help offset the lackluster results of the first six months of 2005. A pullback in energy stocks, to which we maintain significant exposure, and an outperforming financial services sector, to which we remain underweight, were primarily responsible for the Funds underperformance in the final quarter. For all of 2005, the returns in the equity markets were modest as most indices posted low single digit gains. For the Fund, performance was significantly better than the benchmarks for the year. The returns were particularly good considering the headwinds from the Federal Reserve and higher energy costs. While the energy sector was the top performing sector on Wall Street, the impact on Main Street was less discretionary income. Throw in the storms that ravaged the Gulf Region and one must concede that the market did pretty well in the face of gale force winds. 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 30, 2005 (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 $ 9,475 $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 July 31, 2004 $ 9,786 $10,324 $11,196 August 31, 2004 $ 9,757 $10,294 $11,355 September 30, 2004 $ 9,874 $10,417 $11,531 October 31, 2004 $ 9,971 $10,519 $11,723 November 30, 2004 $10,428 $11,002 $12,316 December 31, 2004 $10,631 $11,215 $12,728 January 31, 2005 $10,523 $11,102 $12.502 February 28, 2005 $11,061 $11,669 $12,921 March 31, 2005 $11,041 $11,648 $12,739 April 30, 2005 $10,738 $11,329 $12,510 May 31, 2005 $11,031 $11,638 $12,812 June 30, 2005 $11,168 $11,782 $12,952 July 29, 2005 $11,490 $12,122 $13,327 August 31, 2005 $11,393 $12,019 $13,269 September 30, 2005 $11,490 $12,122 $13,455 October 31, 2005 $10,963 $11,566 $13,114 November 30, 2005 $11,373 $11,999 $13,543 December 30, 2005 $11,456 $12,086 $13,626 The chart assumes $10,000 invested on August 3, 1999 and includes the effect of a 5.25% 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 08/03/99-12/30/05. 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 investments 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 30, 2005 One-Year Three-Year Five Year (Est. 8/3/99) - - ---------------------------------------------------------------------------- Excluding Sales Charge 7.76% 13.05% 1.57% 3.00% Including Sales Charge 2.13% 11.05% 0.49% 2.14% Returns reflect reinvestment of distributions and the effect of a 5.25% 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, Senior Managing Director, Fox Asset Management, LLC Shannon D. Radke, President Viking Small-Cap Value Fund provided a return of 4.18 % (at net asset value) for the year ended December 31, 2005. Stocks worked their way lower in the first quarter of 2005, pressured by surging oil prices and rising interest rates. The economy continued to perform satisfactorily in the face of the higher energy and capital costs. Small-cap stocks succumbed to the same pressures that affected the major stock-market indices in the first quarter with the Russell 2000 Value Index declining 4.0%. Although those pressures were too much for the Fund to overcome fully, our exposure to energy and underweight to financial services and technology stocks aided results with the Fund posting a smaller loss. Stocks finished a turbulent second quarter with mixed results, as crude oil futures fluctuated widely and as concerns about inflation and a possible economic slowdown roiled the markets. Signs that the economy may be cooling from its rapid pace of recent year buoyed investor hopes that the Fed may ease off the brakes earlier than expected, leading many investors to bid financial shares higher. Yet, Greenspan and Co. indicated that it would continue to hike rates to keep a lid on inflation, nudging the Fed funds rate to 3.25% on June 30th. This flattened the yield curve even further, thus squeezing banks net interest margins, especially those of less diversified institutions that depend more heavily on this basic source of income. For the second quarter the Dow had a small loss. The S&P 500 and the Nasdaq posted small gains. Small- cap stocks rebounded in the second quarter with the Russell 2000 Value Index gaining 5.1%. The Fund lagged the strong small-cap market, following its outperformance in the down market of the first quarter. Weakness in certain of our cyclical names and our underweight to the financial services proved to be a drag on results. One must marvel at the performance of the equity market in the third quarter as all major domestic market indices gained ground. Small-cap stocks ended higher along with the major indices as the Russell 2000 Value Index advanced 3.1%. The Fund gained ground as well despite significant headwinds, such as Persistent rate hikes from the Federal Reserve, even higher energy costs and, of course, the tragedy brought on by the Gulf Storms. In general, while there was plenty to fret about, the market was extremely resilient. However, performance within the market was very uneven. Sector strength was very narrow (namely, energy and technology), while the number of stocks advancing roughly equaled the number declining. For the Fund, performance was pretty good as our sector and stock emphasis more than participated in the rally. Our overweight to the energy sector and underweight to financials aided results as they did in the first quarter. Despite a strong global economy, the US stock market muddled through the fourth quarter. And while the fourth quarter equity market returns lagged the third quarter, they were enough to help offset the lackluster results of the first six months of 2005. The Russell 2000 Value Index posted a very slight gain in the final quarter, while the Fund posted a small decline. A pullback in energy stocks, to which we maintain significant exposure, and an outperforming financial services sector, to which we remain underweight, were primarily responsible for the Funds underperformance in the final quarter. For all of 2005, the returns in the equity markets were modest as most indices posted low single digit gains. Performance for the Fund was similar. The returns were particularly good considering the headwinds from the Federal Reserve and higher energy costs. While the energy sector was the top performing sector on Wall Street, the impact on Main Street was less discretionary income. Throw in the storms that ravaged the Gulf Region and one must concede that the market did pretty well in the face of gale force winds. 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 30, 2005 (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 $ 9,475 $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 July 31, 2004 $12,237 $12,910 $14,354 August 31, 2004 $12,265 $12,940 $14,495 September 30, 2004 $12,664 $13,360 $15,069 October 31, 2004 $12,758 $13,460 $15,303 November 30, 2004 $13,602 $14,350 $16,661 December 31, 2004 $13,886 $14,649 $17,058 January 31, 2005 $13,394 $14,131 $16,398 February 28, 2005 $13,857 $14,619 $16,724 March 31, 2005 $13,674 $14,426 $16,380 April 30, 2005 $13,066 $13,785 $15,535 May 31, 2005 $13,799 $14,558 $16,482 June 30, 2005 $14,011 $14,782 $17,211 July 29, 2005 $14,484 $15,280 $18,190 August 31, 2005 $14,503 $15,300 $17,773 September 30, 2005 $14,551 $15,351 $17,743 October 31, 2005 $14,214 $14,995 $17,298 November 30, 2005 $14,628 $15,433 $17,999 December 30, 2005 $14,666 $15,261 $17,861 The chart assumes $10,000 invested on May 3, 2001 and includes the effect of a 5.25% 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 05/03/01-12/30/05. 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 investments 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 30, 2005 One-Year Three-Year (Est. 5/3/01) - - ---------------------------------------------------------------------- Excluding Sales Charge 4.18% 17.74% 9.48% Including Sales Charge -1.31% 15.64% 8.23% 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 Schedule of Investments December 30, 2005 Viking Tax-Free Fund for Montana PRINCIPAL MARKET AMOUNT VALUE MUNICIPAL BONDS 96.7% General Obligations 16.6% Bozeman MT Ser A 4.95% 07/01/20 170,000 $179,736 Broadwater Cnty MT Sch Dist No. 1 Townsend (AMBAC) 5.1% 07/01/18 250,000 266,217 Cascade Cnty MT High Sch A Great Falls 3.15% 07/01/06 100,000 99,960 Misoula Cnty MT Ref (XLCA) 3.75% 07/01/14 250,000 247,495 MT St Long Range Building Pg-Ser G 4.00% 08/01/13 250,000 253,843 MT St Long Range Building Pg - Ser G 4.00% 08/01/16 250,000 251,207 MT St Water Pollution Ctl 5.60% 07/15/20 100,000 110,144 Puerto Rico Mun Fin Agy Ser A (FSA) 5.50% 08/01/23 250,000 265,008 Ravalli Cnty MT Sch Dist No. 003 Hamilton (FSA) 4.00% 07/01/16 80,000 80,186 Ravalli Cnty MT Sch Dist No. 003 Hamilton (FSA) 4.65% 07/01/09 105,000 108,369 Yellowstone & Carbon Cntys Elem Sch Dist (MBIA) 4.25% 07/01/24 200,000 199,300 --------- 2,061,320 --------- Continuing Care Revenue Bonds 2.0% MT Fac Fin Auth Marias Med Ctr 3.80% 01/01/10 175,000 172,744 MT St Hlth Facs Auth Rev Hillcrest Sr Ctr 6.90% 06/01/15 30,000 34,328 MT St Hlth Facs Auth Rev Hillcrest Sr Ctr 7.25% 06/01/25 35,000 40,414 --------- 247,486 --------- Higher Education Revenue Bonds 13.6% MT Brd Regents U of M Hgher Ed Rev Ser J (MBIA) 4.00% 05/15/16 300,000 297,138 MT St Hgher Ed Stud Assist Corp Rev Ser B 6.40% 12/01/32 415,000 434,907 MT St Brd Regents (MSU) Rev Facs Imp-E (AMBAC) 5.00% 11/15/21 80,000 82,459 MT Brd Regents (U of M) Hgher Ed Rev Ser F (MBIA) 5.75% 05/15/24 150,000 165,873 Puerto Rico Tour Edl Med & Env Facs Mendez Univ 5.375% 02/01/19 75,000 77,306 *Univ of MT Revs Facs Acq & Imp Ser C (MBIA) 5.00% 11/15/17 140,000 142,526 Univ of MT Revs Higher Ed Facs Imp Ser D (MBIA) 5.375% 05/15/15 75,000 78,645 Univ of MT Revs Higher Ed Facs Imp Ser D (MBIA) 5.375% 05/15/19 370,000 411,362 --------- 1,690,216 --------- Hospital Revenue Bonds 22.8% MT Hlth Fac Fin Auth Rev Mstr Ln Program Comm Med Ctr 5.20% 12/01/21 145,000 150,855 MT Fac Fin Auth Rev Bozeman Deaconess 4.125% 06/01/18 200,000 191,354 MT Fac Fin Auth Providence Serv (MBIA) 4.60% 12/01/18 150,000 156,348 MT Fac Fin Auth Providence Serv (MBIA) 5.00% 12/01/18 500,000 532,000 MT Fac Fin Auth Providence Serv (MBIA) 4.80% 12/01/20 200,000 210,146 *MT Hlth Fac Auth Sisters Chrty Leavenworth (MBIA) 5.125% 12/01/18 200,000 210,156 MT Hlth Fac Auth Sisters Chrty Leavenworth (MBIA) 5.00% 12/01/24 515,000 532,912 MT St Hlth Fac Auth Rev Comm Med Ctr 6.375% 06/01/18 370,000 377,370 *MT St Hlth Fac Auth Rev Kalispell Med Ctr (AMBAC) 5.00% 07/01/16 450,000 474,039 --------- 2,835,180 --------- Housing Revenue Bonds 14.3% *MT St Brd Hsg Sngle Fam Mtg Ser A-2 5.75% 06/01/30 70,000 69,897 *MT St Brd Hsg Sngle Fam Ser A-2 5.50% 12/01/20 85,000 84,523 *MT St Brd Hsg Sngle Fam Ser A-2 5.60% 12/01/23 70,000 69,658 MT St Brd Hsg Sngle Fam Ser A-2 5.20% 12/01/22 120,000 121,652 MT St Brd Hsg Sngle Fam Ser B-2 4.85% 12/01/15 135,000 121,339 MT St Brd Hsg Sngle Fam Mtg Ser B-2 5.55% 06/01/33 185,000 188,530 MT St Brd Hsg Sngle Fam Prog Ser B 4.55% 12/01/11 385,000 392,427 MT St Brd Hsg Sngle Fam Mtg Ser A 4.30% 06/01/12 250,000 248,718 MT St Brd Hsg Sngle Fam Mtg Ser A 4.30% 12/01/12 480,000 478,109 --------- 1,774,853 --------- Psychiatric and Substance Abuse Hospital Bonds 9.7% MT Fac Fin Auth Developmental Ctr Prog 4.50% 06/01/16 250,000 254,392 MT Fac Fin Auth Developmental Ctr Prog 4.75% 06/01/19 170,000 173,936 MT Fac Fin Auth Childrens Home 4.55% 01/01/17 250,000 251,228 MT St Hlth Fac Auth Hlth Care Rev State Hosp (AMBAC) 5.00% 06/01/22 500,000 521,310 --------- 1,200,866 --------- Transportation Revenue Bonds 5.1% MT St Dept Trnsf Rev Grant Antic Hwy 93 (MBIA) 5.00% 06/01/20 100,000 105,940 MT St Dept Trans Rev Grant Antic Hwy 93 (MBIA) 4.00% 06/01/14 250,000 251,183 Puerto Rico Hwy & Trans Auth Rev Ser G (FGIC) 5.25% 07/01/20 250,000 271,665 --------- 628,788 --------- Water Revenue Bonds 0.8% Great Falls MT Wtr Sys Rev Ref Ser A (AMBAC) 3.85% 08/01/08 100,000 101,480 --------- 101,480 --------- Other Revenue Bonds 11.7% MT St Brd Invt Refunded 1996 Pay Tax (MBIA) 6.875% 06/01/20 105,000 112,706 MT St Brd Invt Refunded 1996 Pay Tax (MBIA) 6.875% 06/01/20 105,000 112,430 Puerto Rico Childrens Trust Fund Tobacco Settlement Rev 6.00% 07/01/26 195,000 215,280 Puerto Rico Comwlth Aqueduct & Swr Auth Rev (MBIA) 5.00% 07/01/19 125,000 129,411 Puerto Rico Comwlth Infra Fing Auth Ser A (AMBAC) 5.00% 07/01/21 250,000 263,237 Puerto Rico Comwlth Inf Fin Auth Ser A (AMBAC) 5.25% 07/01/10 100,000 105,166 Puerto Rico Mun Fin Agy Ser A (FSA) 5.25% 08/01/21 200,000 217,048 Puerto Rico Pub Fin Corp Ser A (MBIA) 5.50% 08/01/17 275,000 301,760 --------- 1,457,038 ---------- Total Municipal Bonds (cost $11,887,353) 11,997,227 SHORT-TERM INVESMENTS 2.6% Federated Municipal Obligations Fund #852 325,000 325,000 ---------- Total Short-Term Investments (cost: $325,000) 325,000 --------- TOTAL MARKET VALUE OF SECURITIES OWNED 99.3% (COST $12,212,353) 12,322,227 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 0.7% 86,155 ----------- NET ASSETS APPLICABLE TO 1,236,208 SHARES (0.001 PAR VALUE) OUTSTANDING - 100.0% $12,408,382 =========== *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 Schedule of Investments December 30, 2005 Viking Tax-Free Fund for North Dakota PRINCIPAL MARKET AMOUNT VALUE MUNICIPAL BONDS 99.8% General Obligations 24.2% *Bismarck ND Ref & Imp - Ser L 4.00% 06/01/07 75,000 $74,578 Bismarck ND Ref & Imp - Ser P 2.90% 05/01/12 100,000 95,762 Bismarck ND Pub Sch Dist No 1 (FGIC) 4.50% 05/01/16 55,000 54,847 *Fargo ND Ref & Imp - Ser B (FGIC) 5.125% 05/01/17 60,000 61,949 Fargo ND Ref & Impt Ser D (MBIA) 5.00% 05/01/28 200,000 207,622 Hillsboro ND Pub Sch Dist No. 9 (FSA) 4.85% 06/01/19 50,000 52,300 *Jamestown ND Pub Sch Dist No. 011 (FGIC) 4.60% 05/01/15 50,000 50,958 *Mandan ND Ref & Imp - Ser B (MBIA) 5.00% 05/01/16 70,000 70,750 Mandan ND Ref Impt Ser C (AMBAC) 4.00% 05/01/18 150,000 147,051 Puerto Rico Commonwealth (MBIA) 5.375% 07/01/25 50,000 51,548 Wahpeton ND Pub Sch Dist No 37 (FSA) 4.10% 05/01/15 100,000 98,968 *West Fargo ND Ref & Imp 5.00% 05/01/18 250,000 260,723 West Fargo ND Ref & Impt (AMBAC) 4.00% 05/01/15 200,000 205,550 West Fargo ND Pub Sch Dist No. 006 (FGIC) 5.00% 05/01/14 50,000 53,128 --------- 1,580,855 --------- Building Authority Revenue Bonds 6.9% Fargo ND Bldg Auth Lease Rev Ser A 5.00% 05/01/20 50,000 52,336 GF Cnty ND Bldg Auth Lease Rev 4.00% 12/01/14 100,000 98,405 ND St Bldg Auth Lease Rev Ser A (MBIA) 5.00% 12/01/17 50,000 52,041 ND St Bldg Auth Lease Rev Ser A (MBIA) 5.00% 12/01/16 50,000 52,357 ND St Bldg Auth Lease Rev Ser A (MBIA) 5.20% 12/01/19 90,000 94,374 ND St Bldg Auth Lease Rev Ser C (AMBAC) 4.20% 08/15/13 100,000 101,839 --------- 451,352 --------- Education Revenue Bonds 6.9% Fargo ND School District Bldg Auth Rev (MBIA) 5.50% 05/01/14 50,000 52,671 Minot Pub School District No 1 Bldg Auth 4.80% 05/01/23 290,000 296,936 West Fargo Pub School District Bldg Auth Lease Rev 4.20% 05/01/17 100,000 99,975 --------- 449,582 --------- Higher Education Revenue Bonds 14.7% Fargo ND Lease Rev NDSU Lease Oblig Ser-A (AMBAC) 3.50% 05/01/09 60,000 59,526 ND St Brd Hgher Ed Student Svcs Facs MSU 5.00% 08/01/18 175,000 174,368 ND St Brd Hgher Ed Rev Hsg & Aux Facs UND (FGIC) 5.00% 04/01/18 250,000 264,025 ND St Brd Hgher Ed Rev Hsg & Aux Facs UND (FGIC) 4.375% 04/01/26 100,000 97,504 ND St Brd Hgher Ed Rev Hsg & Aux Facs NSDU (FGIC) 4.00% 04/01/15 150,000 150,244 ND St Brd Hgher Ed Rev Hsg & Aux BSC 4.75% 05/01/19 100,000 99,723 ND St Brd Hgher Ed Rev Hsg & Aux Facs NDSU (AMBAC) 4.25% 04/01/23 100,000 98,075 Puerto Rico Tour Edl Med & Env Facs Mendez Univ 5.375% 02/01/19 25,000 25,769 --------- 969,234 --------- Hospital Revenue Bonds 12.3% Burleigh Cnty ND Hlth Care MedCenter One (MBIA) 5.25% 05/01/12 325,000 337,327 Fargo ND Hlth Sys Rev Meritcare Ser A (MBIA) 5.375% 06/01/27 100,000 104,090 Fargo ND Hlth Sys Rev Meritcare Obl (FSA) 5.375% 06/01/15 65,000 69,553 Fargo ND Hlth Sys Rev Meritcare Obl (AMBAC) 4.125% 06/01/11 150,000 152,806 Fargo ND Hlth Sys Rev Meritcare Obl (AMBAC) 5.00% 06/01/22 45,000 45,859 Grand Forks ND Hlth Care Altru Hlth Obl Group (MBIA) 5.60% 08/15/17 20,000 20,846 Grand Forks ND Hlth Care Altru Hlth Obl Group 7.125% 08/15/24 20,000 21,377 Valley City ND Rev Ref Lutheran Hlth Ser A-5 (MBIA) 4.20% 01/01/06 25,000 25,000 Ward Cnty ND Hlth Care Facs Rev Trinity Obl Group - B 6.00% 07/01/10 25,000 25,883 --------- 802,709 --------- Housing Revenue Bonds 15.7% Fargo ND Multifam Rev Ref Hsg Trollwood Village 6.90% 09/01/13 25,000 24,935 ND St Hsg Fin Agy Home Mtg Ser B 3.50% 07/01/10 295,000 291,752 ND St Hsg Fin Agy Rev Home Mtg Prog C 4.90% 07/01/15 150,000 152,669 ND St Hsg Fin Agy Rev Hsg Fin Pg 4.60% 01/01/15 200,000 198,398 ND St Hsg Fin Agy Rev Hsg Fin Home MTG Fin-C 4.45% 07/01/16 200,000 196,804 ND St Hsg Fin Agy Hsg Fin Home MTG-C-RMK 6.10% 07/01/28 10,000 9,972 ND St Hsg Fin Agy Rev Hsg Fin Pg Home Mtg B 5.85% 07/01/28 5,000 4,984 ND St Hsg Fin Agy Rev Hsg Fin Pg Home Mtg D 5.05% 01/01/06 10,000 10,000 ND St Hsg Fin Agy Rev Hsg Fin Pg Home Mtg A 5.25% 07/01/18 55,000 54,779 *ND St Hsg Fin Agy Rev Hsg Fin Pg Home Mtg A 5.55% 07/01/22 80,000 80,335 --------- 1,024,628 --------- Transportation Revenue Bonds 2.4% Guam Intl Arpt Auth Ser C (MBIA) 5.375% 10/01/17 150,000 159,969 --------- 159,969 --------- Water Revenue Bonds 5.4% ND St Water Comm Rev Water Dev & Mgmt Prg Ser A (MBIA) 5.50% 08/01/10 50,000 53,956 ND St Water Comm Rev Ref Prog Ser A (MBIA) 4.00% 08/01/13 150,000 151,385 South Central Reg Water Dist Burleigh Cnty Rev 5.00% 10/01/23 150,000 150,831 --------- 356,172 --------- Other Revenue Bonds 11.2% *Grand Forks ND Sales Tax Rev Dike Imp (AMBAC) 4.50% 09/01/10 50,000 51,816 Grand Forks ND Sales Tax Rev Dike Imp (AMBAC) 5.00% 09/01/17 145,000 153,120 Grand Forks ND Sales Tax Rev (MBIA) 3.50% 12/15/10 150,000 149,322 Grand Forks Sales Tax Rev Alerus Project (MBIA) 5.00% 12/15/21 115,000 122,650 ND St Muni Bond Bank Cap Fing Prog 6.00% 06/01/21 25,000 25,654 ND St Muni Bond Bank St Revolv Fund Prog - Ser A 4.90% 10/01/18 50,000 50,936 Puerto Rico Childrens Trust Fund Tobacco Settlement Rev 6.00% 07/01/26 15,000 16,560 Puerto Rico Pub Fin Corp Ser A (MBIA) 5.375% 08/01/24 150,000 163,172 --------- 733,230 --------- Total Municipal Bonds (cost $6,502,679) 6,527,731 SHORT-TERM INVESMENTS 2.1% Federated Municipal Obligations Fund #852 140,000 140,000 ---------- Total Short-Term Investments (cost: $140,000) 140,000 --------- TOTAL MARKET VALUE OF SECURITIES OWNED 101.9% (COST $6,642,679) 6,667,731 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES (1.9)% (127,208) ---------- NET ASSETS APPLICABLE TO 644,755 SHARES (0.001 PAR VALUE) OUTSTANDING - 100.00% $6,540,523 ========== *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 Schedule of Investments December 30, 2005 Viking Large-Cap Value Fund SHARES VALUE Common Stocks 95.7% Basic Materials 20.5% ALCOA 3,400 $100,538 Anadarko Petroleum 600 56,850 Apache 800 54,816 BP Amoco Plc ADR 1,000 64,220 Bunge Limited 1,400 79,254 Dow Chemical 900 39,438 Chevron Texaco 1,600 90,832 Conoco Phillips 1,600 93,088 Exxon Mobil 2,000 112,340 Rio Tinto Plc ADR 300 54,837 -------- 746,213 -------- Conglomerates 3.9% Honeywell 1,900 70,775 ITT Industries 700 71,974 -------- 142,749 -------- Consumer Goods 9.2% Dean Foods* 1,900 71,554 Johnson Controls 1,000 72,910 Kimberly-Clark 1,900 113,335 Sealed Air* 800 44,936 Whirlpool 400 33,504 -------- 336,239 -------- Financial Services 24.3% American International Group 1,100 75,053 Bank of America 2,400 110,760 BB&T 800 33,528 Citigroup 2,800 135,884 Hartford Financial Services Group 900 77,301 Marsch & Mclennan 2,500 79,400 Merrill Lynch 800 54,184 Morgan Stanley 1,100 62,414 National City 2,100 70,497 U.S. Bancorp 2,400 71,736 Wachovia 700 37,002 Washington Mutual 1,700 73,950 -------- 881,709 -------- Healthcare 5.2% Health Management Associates 2,300 50,508 Merck 2,900 92,249 Triad Hospital* 1,200 47,076 -------- 189,833 -------- Industrial Goods 3.9% Ingersoll-Rand 1,900 76,703 Masco Corporation 2,100 63,399 -------- 140,102 -------- Services 14.2% Amerisource Bergen 1,000 41,400 BJs Wholesale* 2,000 59,120 Canadian Pacific 900 37,755 CSX 1,500 76,155 CVS Corp. 2,700 71,334 Disney 2,800 67,116 Union Pacific 1,100 88,561 Wal-Mart 1,600 74,880 -------- 516,321 -------- Technology 7.8% Hewlett-Packard 3,000 85,890 Intel 1,400 34,944 International Rectifier* 1,000 31,900 Microsoft 1,300 33,995 Nokia 2,000 36,600 Verizon Communications 2,000 60,240 -------- 283,569 -------- Utilities 6.6% American Electric Power 2,700 100,143 Dominion resources 900 69,480 Public Service Enterprise Group 1,100 71,467 -------- 241,090 -------- Total Common Stocks (Cost $2,852,803) 3,477,825 SHORT-TERM INVESTMENTS 4.9% Federated Prime Value Obligations #853 150,000 150,000 Federated Treasury Cash Reserves #125 28,000 28,000 ---------- Total Short-Term Investments (cost: $178,000) 178,000 ---------- TOTAL MARKET VALUE OF SECURITIES OWNED 100.6% (COST $3,030,803) 3,655,825 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES (0.6)% (20,183) ---------- NET ASSETS APPLICABLE TO 312,251 SHARES ($0.001 PAR VALUE) OUTSTANDING 100.0% $3,635,642 ========== *Non-income producing investments. The accompanying notes are an integral part of these financial statements. VIKING MUTUAL FUNDS Schedule of Investments December 30, 2005 Viking Small-Cap Value Fund SHARES VALUE Common Stocks 93.6% Basic Materials 11.0% Grey Wolf, Inc.* 6,400 $49,472 Maverick Tube* 2,600 103,636 Newfield Exploration 1,200 60,084 Remington Oil & Gas* 1,000 36,500 Cinmarex Energy* 600 25,806 Albany International 2,000 64,220 -------- 275,498 -------- Conglomerates 2.6% Telefex 1,000 64,980 -------- 64,980 -------- Consumer Goods 20.0% AO Smith 2,400 84,240 AptarGroup 1,800 93,960 Borg Warner Automotive 1,300 78,819 Church & Dwight 2,450 80,924 Clarcor 400 11,884 Libbey 1,300 13,286 TC 2 Corp* 1,600 56,832 Tupperware 1,600 35,840 West Pharmaceutical Services 1,800 45,054 -------- 500,839 -------- Financial 6.4% Protective Life 1,900 83,163 Scottish Re Group 2,200 54,010 IPC Holdings 900 24,642 -------- 161,815 -------- Healthcare 7.4% Chattem* 700 25,473 Conmed* 1,900 44,954 PolyMedica 1,800 60,246 Prestige Brands Holdings* 4,400 55,000 -------- 185,673 -------- Industrial Groups 12.4% Albany International 2,000 72,320 Belden CDT 3,900 95,277 Granite Construction 700 25,137 Lafarge 800 44,016 RPM 4,300 74,691 -------- 311,441 -------- Services 21.5% Arkansas Best 2,300 100,464 Applebees 1,500 33,885 BJs Wholesale* 2,300 67,988 CBRL 1,300 45,695 Claires Stores 1,300 37,986 Landrys Seafood Restaurants 1,000 26,710 Nash Finch 1,300 33,124 Offshore Logistics* 1,400 40,880 Owens & Minor 1,400 25,410 OMI Corp 2,300 63,319 Performance Food Group* 700 19,859 Supervalue 500 16,240 YRC Worldwide* 600 26,766 -------- 538,326 -------- Technology 6.5% Bel Fuse, Inc. 1,600 50,880 InPhonic* 3,900 33,891 International Rectifier* 1,100 35,090 Technitrol 2,600 44,460 -------- 164,321 -------- Utilities 5.8% Piedmont Natural Gas 3,500 84,560 Questar 800 60,560 -------- 145,120 -------- Total Common Stocks (Cost $1,924,210) 2,348,013 SHORT-TERM INVESTMENTS 10.7% Federated Prime Value Obligations Fund #853 120,000 120,000 Federated Treasury Cash Reserves #125 120,000 120,000 First Western Collective Asset 28,000 28,000 ---------- Total Short-Term Investments (Cost $268,000) 268,000 TOTAL MARKET VALUE OF SECURITIES OWNED 104.3% (COST $2,192,210) 2,616,013 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES (4.3)% (106,946) ---------- NET ASSETS APPLICABLE TO 175,241 SHARES ($0.001 PAR VALUE) OUTSTANDING 100.0% $2,509,067 ========== *Non-income producing investments. The accompanying notes are an integral part of these financial statements. VIKING MUTUAL FUNDS Financial Statements Statements of Assets and Liabilities December 30, 2005 Tax-Free Fund Tax-Free Fund Large-Cap Small-Cap for Montana for North Dakota Value Fund Value Fund ASSETS: Investments in securities: Cost $12,212,353 $6,642,679 $3,030,803 $2,192,210 ------------------------------------------------------------------------------------ Value 12,322,227 6,667,734 3,655,825 2,616,013 Cash 1,514 3,055 262 3,199 Receivable for fund shares sold 124 0 5,775 1,910 Receivable from manager 51,588 0 0 0 Prepaid assets 2,672 0 0 12,539 Security sales receivable 0 0 34,517 0 Interest & dividends receivable 135,598 71,219 7,909 3,088 ------------------------------------------------------------------------------------ Total assets 12,513,723 6,743,047 3,670,989 2,637,482 ------------------------------------------------------------------------------------ LIABILITIES: Security purchases payable 0 174,185 0 0 Payable for shares redeemed 55,392 0 0 0 Distributions payable 39,362 20,592 26,376 119,341 Other accounts payable and accrued expenses 10,587 7,744 8,971 9,074 ------------------------------------------------------------------------------------ Total liabilities 105,341 202,521 35,347 128,415 ------------------------------------------------------------------------------------ NET ASSETS 12,408,382 6,540,526 3,635,642 2,509,067 ------------------------------------------------------------------------------------ COMPONENTS OF NET ASSETS AT December 30, 2005 Capital shares, $0.001 par value, unlimited shares authorized 12,392,370 6,559,970 3,147,980 2,089,729 Net unrealized appreciation (depreciation) 109,874 25,055 625,022 423,803 Accumulated net realized gain (loss) on investments (93,862) (44,499) (137,360) 0 Undistributed net investment income (loss) 0 0 0 (2,381) ------------------------------------------------------------------------------------ NET ASSETS $12,408,382 $6,540,526 $3,635,642 $2,509,067 ------------------------------------------------------------------------------------ NET ASSET VALUE AND OFFERING PRICE PER SHARE Net assets, at value $12,408,382 $6,540,526 $3,635,642 $2,509,067 Shares outstanding 1,236,208 644,755 312,251 175,241 Net asset value per share $10.04 $10.14 $11.64 $14.32 Maximum offering price per share (net asset value per share divided by 96.25%, 96.25%, 94.75% and 94.75%, respectively) $10.43 $10.54 $12.28 $15.11 ------------------------------------------------------------------------------------ The accompanying notes are an integral part of these financial statements. VIKING MUTUAL FUNDS Financial Statements Statements of Operations For the six months ended December 30, 2005 Tax-Free Fund Tax-Free Fund Large-Cap Small-Cap for Montana for North Dakota Value Fund Value Fund ------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest $525,904 $265,544 $ 0 $ 0 Dividends 9,780 3,302 69,819 30,320 ------------------------------------------------------------------------------------- Total investment income 535,684 268,846 69,819 30,320 ------------------------------------------------------------------------------------- EXPENSES: Investment advisory fees 62,751 31,895 22,526 21,082 Administrative fees 12,550 6,379 3,218 2,108 Distribution fees 31,299 15,947 12,872 8,433 Transfer agent fees 3,502 1,859 3,812 3,259 Accounting fees 6,275 3,190 1,614 1,096 Professional fees 8,394 8,490 8,417 8,362 Insurance 3,204 1,498 782 450 Trustee fees 1,349 1,346 1,353 1,360 Registration fees 1,005 126 637 681 Custodian fees 3,468 3,469 3,415 3,420 Other 112 80 372 195 ------------------------------------------------------------------------------------- Total expenses 133,909 74,279 59,018 50,446 ------------------------------------------------------------------------------------- Less expenses waived or reimbursed (65,270) (41,214) (15,575) (15,661) ------------------------------------------------------------------------------------ Net expenses 68,639 33,065 43,443 34,785 ------------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) 467,045 235,781 26,376 (4,465) ------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments (50,681) (16,197) 208,512 117,983 Net change in unrealized appreciation (depreciation) of investments (176,258) (75,800) (12,615) (23,903) ------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (226,939) (91,997) 195,897 94,080 ------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $240,106 $143,784 $220,273 $89,615 ------------------------------------------------------------------------------------- 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 30, 2005 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) $467,045 $235,781 $26,376 $(4,465) Net realized gain (loss) on investments (50,681) (16,197) 208,512 117,983 Net change in unrealized appreciation (depreciation) of investments (176,258) (75,800) (12,615) (23,903) ------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 240,106 143,784 222,273 89,615 ------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (467,045) (235,781) (26,376) 0 Net realized gains 0 0 0 (119,340) ------------------------------------------------------------------------------------- Total distributions to shareholders (467,045) (235,781) (26,376) (119,340) ------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold 2,390,572 712,016 880,163 982,915 Proceeds from reinvestment of distributions 307,649 141,849 13,522 29,579 Cost of shares repurchased (2,268,804) (307,612) (542,077) (188,253) ------------------------------------------------------------------------------------- Increase in net assets derived from capital share transactions 429,417 546,253 351,608 824,241 ------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS $202,478 $454,256 $547,505 $794,516 ------------------------------------------------------------------------------------- NET ASSETS: Beginning of period $12,205,904 $6,086,270 $3,088,137 $1,714,551 ------------------------------------------------------------------------------------- End of period $12,408,382 $6,540,526 $3,635,642 $2,509,067 ------------------------------------------------------------------------------------- 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, 2004 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) $467,382 $201,952 $13,634 $(6,774) Net realized gain (loss) on investments 354 (10,980) (5,153) 38,977 Net change in unrealized appreciation (depreciation) of investments 10,976 8,266 234,632 222,381 ------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 478,712 199,238 243,113 254,584 ------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (467,382) (201,952) (13,634) - Net realized gains - - - (29,579) ------------------------------------------------------------------------------------- Total distributions to shareholders (467,382) (201,952) (13,634) (29,579) ------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold 1,832,422 1,980,510 340,357 403,263 Proceeds from reinvestment of distributions 328,201 129,141 16,147 - Cost of shares repurchased (2,600,299) (802,095) (242,465) (163,353) ------------------------------------------------------------------------------------- Increase in net assets derived from capital share transactions (439,676) 1,307,556 114,039 239,910 ------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS $(428,346) $1,304,842 $343,518 $464,915 ------------------------------------------------------------------------------------- NET ASSETS: Beginning of period $12,634,250 $4,781,428 $2,744,619 $1,249,636 ------------------------------------------------------------------------------------- End of period $12,205,904 $6,086,270 $3,088,137 $1,714,551 ------------------------------------------------------------------------------------- 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 01/01/05- 01/01/04- 01/01/03- 01/01/02- 01/01/01- 12/30/05 12/31/04 12/31/03 12/31/02 12/31/01 --------------------------------------------------------------- Net asset value, beginning of period $10.22 $10.20 $10.18 $9.74 $9.82 --------------------------------------------------------------- Income (loss) from investment operations: Net investment income 0.38 0.38 0.42 0.46 0.51 Net realized and unrealized gain (loss) on investments (0.18) 0.02 0.02 0.48 (0.08) --------------------------------------------------------------- Total from investment operations 0.20 0.40 0.44 0.94 0.43 --------------------------------------------------------------- Less distributions from: Net investment income (0.38) (0.38) (0.42) (0.46) (0.51) Net realized gains 0.00 0.00 0.00 (0.04) 0.00 --------------------------------------------------------------- Total distributions (0.38) (0.38) (0.42) (0.50) (0.51) --------------------------------------------------------------- Net asset value, end of period $10.04 $10.22 $10.20 $10.18 $9.74 --------------------------------------------------------------- Total return1 1.96% 4.05% 4.45% 9.90% 4.48% ---------------------------------------------------------------- Ratios/supplemental data: Net assets, end of period (000s) $12,408 $12,206 $12,634 $8,513 $3,549 Ratio of net expenses to average net assets 0.55%2, 0.41%2 0.31%2 0.15%2 0.06%2 Ratio of net investment income to average net assets 3.71% 3.78% 4.13% 4.58% 5.06% Portfolio turnover rate 24.59% 26.55% 24.72% 40.09% 6.14% 1Total return assumes reinvestment of distributions at net asset value, does not reflect the impact of a sales charge and is not annualized. 2Viking Fund Management, LLC, the Funds investment manager, has contractually agreed to waive its fees or reimburse the Fund for its expenses through August 1, 2009 so that the Funds 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 $65270, $80,645, $81,954, $67,712, $30,300 and $17,505. 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 1.06%, 1.06%, 1.09%, 1.30%, and 1.60% respectively. 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 01/01/05- 01/01/04- 01/01/03- 01/01/02- 01/01/01- 12/30/05 12/31/04 12/31/03 12/31/02 12/31/01 ---------------------------------------------------------------- Net asset value, beginning of period $10.29 $10.29 $10.25 $9.76 $9.95 ---------------------------------------------------------------- Income (loss) from investment operations: Net investment income 0.38 0.38 0.42 0.47 0.51 Net realized and unrealized gain (loss) on investments (0.15) 0.00 0.04 0.49 (0.19) ---------------------------------------------------------------- Total from investment operations 0.23 0.38 0.46 0.96 0.32 ---------------------------------------------------------------- Less distributions from: Net investment income (0.38) (0.38) (0.42) (0.47) (0.51) Net realized gains 0.00 0.00 0.00 0.00 0.00 ---------------------------------------------------------------- Total distributions (0.38) (0.38) (0.42) (0.47) (0.51) ---------------------------------------------------------------- Net asset value, end of period $10.14 $10.29 $10.29 $10.25 $9.76 ---------------------------------------------------------------- Total return1 2.24% 3.76% 4.60% 10.07% 3.26% Ratios/supplemental data: Net assets, end of period (000s) $6,541 $6,086 $4,781 $2,059 $1,614 Ratio of net expenses to average net assets 0.52%2, 0.44%2 0.36%2 0.22%2 0.11%2 Ratio of net investment income to average net assets 3.70% 3.68% 4.06% 4.73% 4.85% Portfolio turnover rate 17.61% 22.36% 7.49% 27.95% 3.83% 1Total return assumes reinvestment of distributions at net asset value, does not reflect the impact of a sales charge and is not annualized. 2Viking Fund Management, LLC, the Funds investment manager, has contractually agreed to waive	its fees or reimburse the Fund for its expenses through August 1, 2009 so that the Funds 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 $41,214, $40,375, $32,710, $30,993, $16,352 and $15,441. 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%, 1.18%, 1.32%, 1.90% and 2.57% respectively. 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 01/01/05- 01/01/04- 01/01/03- 01/01/02- 01/01/01- 12/30/05 12/31/04 12/31/03 12/31/02 12/31/01 ---------------------------------------------------------------- Net asset value, beginning of period $10.88 $10.06 $8.20 $10.74 $11.08 ---------------------------------------------------------------- Income (loss) from investment operations: Net investment income 0.08 0.05 0.06 0.06 0.04 Net realized and unrealized gain (loss) on investments 0.76 0.82 1.86 (2.54) (0.34) ---------------------------------------------------------------- Total from investment operations 0.84 0.87 1.92 (2.48) (0.30) ---------------------------------------------------------------- Less distributions from: Net investment income (0.08) (0.05) (0.06) (0.06) (0.04) Net realized gains 0.00 0.00 0.00 0.00 0.00 ---------------------------------------------------------------- Total distributions (0.08) (0.05) (0.06) (0.06) (0.04) ---------------------------------------------------------------- Net asset value, end of period $11.64 $10.88 $10.06 $8.20 $10.74 ---------------------------------------------------------------- Total return1 7.76% 8.63% 23.42% (23.08)% (2.73)% Ratios/supplemental data: Net assets, end of period (000s) $3,636 $3,088 $2,745 $1,962 $2,143 Ratio of net expenses to average net assets 1.34%2 1.34%2 1.35%2 1.35%2 1.35%2 Ratio of net investment income to average net assets 0.81% 0.47% 0.73% 0.71% 0.37% Portfolio turnover rate 37.51% 25.70% 26.75% 36.52% 27.59% 1Total return assumes reinvestment of distributions at net asset value, does not reflect the impact of a sales charge and is not annualized. 2Viking Fund Management, LLC, the Funds investment manager, has contractually agreed to waive its fees or reimburse the Fund for its expenses through August 1, 2009 so that the Funds 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 $15,575, $14,372, $15,021, $20,422, $15,184 and $17,512. 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 1.82%, 1.84%, 2.02%, 2.34% and 2.10% respectively. 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 01/01/05- 01/01/04- 01/01/03- 01/01/02- 05/03/011- 12/30/05 12/31/04 12/31/03 12/31/02 12/31/01 --------------------------------------------------------------- Net asset value, beginning of period $14.40 $12.43 $9.35 $10.26 $10.00 -------------------------------------------------- Income (loss) from investment operations: Net investment income (loss) (0.03) (0.06) (0.03) (0.03) 0.00 Net realized and unrealized gain (loss) on investments 0.63 2.22 3.11 (0.88) 0.26 -------------------------------------------------- Total from investment operations 0.60 2.16 3.08 (0.91) 0.26 -------------------------------------------------- Less distributions from: Net investment income 0.00 0.00 0.00 0.00 0.00 Net realized gains (0.68) (0.25) 0.00 0.00 0.00 -------------------------------------------------- Total distributions (0.68) (0.25) 0.00 0.00 0.00 -------------------------------------------------- Net asset value, end of period $14.32 $14.40 $12.43 $9.35 $10.26 -------------------------------------------------- Total return2 4.18% 17.86% 32.94% (8.87)% 2.60% Ratios/supplemental data: Net assets, end of period (000s) $2,509 $1,715 $1,250 $604 $321 Ratio of net expenses to average net assets 1.65%3 1.65%3 1.65%3 1.65%3 1.59%3,4 Ratio of net investment income to average net assets (0.21)% (0.46)% (0.37)%4 (0.41)% (0.28)%4 Portfolio turnover rate 21.93% 15.39% 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 Funds investment manager, has contractually agreed to waive	its fees or reimburse the Fund for its expenses through August 1, 2009 so that the Funds 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 $15,661, $7,623, $14,316,$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 2.39%, 2.63%, 3.16%, 5.24% and 5.67% respectively. The accompanying notes are an integral part of these financial statements. VIKING MUTUAL FUNDS Notes to Financial Statements December 30, 2005 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. The matrix system gives consideration to the following: yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity, rating, and indications as to value from dealers and general market conditions. Because the market value of municipal securities can only be established by Agreement between parties in a sales transaction, and because of uncertainty inherent in the valuation process, the fair values as determined may differ from the value that would have been used had a ready market for the securities existed. Federal Income Taxes The Funds intend to qualify for treatment as a regulated investment company under Subchapter M of the Internal Revenue Code, and the funds intend to distribute investment company net taxable income and net capital gains to shareholders. Therefore, no federal tax provision is recorded. Premiums and Discounts Premiums and discounts on municipal securities are amortized for financial reporting purposes. 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 30, 2005 and December 31, 2004 were as follows: Tax-Free Fund for Tax-Free Fund for Large-Cap Small-Cap Montana North Dakota Value Fund Value Fund --------------------------------------------------------------------------------- 2005 2004 2005 2004 2005 2004 2005 2004 --------------------------------------------------------------------------------- Distributions paid from: Tax-exempt income $467,045 $467,382 $235,781 $201,952 $0 $0 $0 $0 Ordinary income $0 $0 $0 $0 $26,376 $13,634 $0 $0 Long-term capital gain $0 $0 $0 $0 $0 $0 $119,340 $29,579 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 01/01/05 from 01/01/05 from 01/01/05 from 01/01/05 through 12/30/05 through 12/30/05 through 12/30/05 through 12/30/05 -------------------------------------------------------------------------- Shares sold 235,903 69,583 76,598 67,446 Shares issued in reinvestment of distributions 30,381 13,863 1,243 2,054 Shares redeemed (224,752) (30,175) (49,537) (13,339) -------------------------------------------------------------------------- Net Increase (Decrease) 41,532 53,271 28,304 56,161 -------------------------------------------------------------------------- 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 Funds daily net assets and 1.00% to the Small-Cap Funds daily net assets. The Tax-Free Fund for Montana recognized $50,892 of investment advisory fees after a partial waiver for the year ended December 30, 2005. On December 30, 2005, the Tax-Free Fund for Montana had a payable to VFM for investment advisory fees of $4,328. The Tax-Free Fund for North Dakota recognized $18,055 of investment advisory fees after a partial waiver for the year ended December 30, 2005. On December 30, 2005, the Tax-Free Fund for North Dakota had a payable to VFM for investment advisory fees of $1,520. The Large-Cap Fund recognized $22,526 of investment advisory fees after a partial waiver for the year ended December 30, 2005. On December 30, 2005, the Large-Cap Fund had a payable to VFM for investment advisory fees of $2,114. The Small-Cap Fund recognized $19,589 of investment advisory fees after a partial waiver for the year ended December 30, 2005. On December 30, 2005, the Small-Cap Fund had a payable to VFM for investment advisory fees of $2,172. 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 Funds daily net assets of up to $100 million and 0.35% to the Large-Cap Funds 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 Funds daily net assets until the net assets reach $5 million and 0.60% to the Small-Cap Funds 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. For the year ended December 30, 2005 the Large-Cap Fund recognized $34 for transfer-agent services. After the Fee waivers, no other fees for administrative services, portfolio accounting And transfer agent services were recognized by the Funds. On December 30, 2005 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 $30, $21, $105 and $61, 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 Funds shares and for servicing shareholder accounts. For the year ended December 30, 2005, the Tax-Free Fund for Montana recognized $214, Large-Cap Value Fund recognized $5,907 and Small-Cap Fund recognized $676 of 12b-1 fees after a partial waiver. On December 30, 2005, the Large-Cap Fund and Small-Cap Fund had payables to VFD for 12b-1 fees of $517 and $129, respectively. Tax-Free Fund for North Dakota recognized no 12b-1 fees after the waiver. For the year ending December 30, 2005, the net amounts of sales charges deducted from the proceeds of sale of capital shares which were retained by VFD as principal underwriter were $10,777, $1,757, $4,367 and $5,647 for the Tax-Free Fund for Montana, Tax-Free Fund for North Dakota, Large-Cap Fund and Small-Cap Fund, respectively. On December 30, 2005 the Tax-Free Fund for Montana, Tax-Free for North Dakota, Large-Cap Fund and Small-Cap Fund had payables to VFD for underwriting fees of $540, $278, $92 and $245, 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 Funds total operating expenses during this period will not exceed 0.85% of average net assets on an annual basis, the Large-Cap Funds total operating expenses during this period will not exceed 1.35% of average net assets on an annual basis and the Small-Cap Funds total operating expenses during this period will not exceed 1.65% of average net assets on an annual basis. As of December 30, 2005, Tax-Free Fund for Montana had a receivable from VFM For $51,588. 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 Funds 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 30, 2005, the Funds most recently completed year end, Tax-Free Fund for Montana, Tax-Free Fund for North Dakota and Large-Cap Value Fund had capital losses of $93,862, $44,499 and $137,360 respectively, which may be carried over to offset future capital gains. Such losses start to expire in 2008. At December 30, 2005, 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 $12,212,353 $6,642,679 $3,030,803 $2,192,210 ------------------------------------------------------------------------------------ Unrealized appreciation 165,590 68,165 671,653 479,796 Unrealized depreciation (55,716) (43,110) (46,631) (55,993) ------------------------------------------------------------------------------------ Net unrealized appreciation (depreciation) $109,874 $25,055 $625,022 $423,803 ------------------------------------------------------------------------------------ 7. INVESTMENT TRANSACTIONS Purchases and sales of securities (excluding short-term securities) for the six months ended June 30, 2005 were as follows: Tax-Free Fund Tax-Free Fund Large-Cap Small-Cap for Montana for North Dakota Value Fund Value Fund ----------------------------------------------------------------------------------- Purchases $3,956,886 $1,064,189 $1,484,995 $1,149,925 Sales $3,094,176 $1,123,246 $1,215,536 $463,235 8. CREDIT AND MARKET RISK The Tax-Free Funds concentrate their investments in securities mainly issued by each specific states 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 ADVISORY CONTRACT APPROVAL DISCUSSION (Unaudited) In connection with each annual approval, the Board of Trustees is provided with information to assist it in evaluating whether to approve the continuance of the Agreements. In considering whether to approve the Investment Management Agreement, the Board, including the Independent Trustees, considered a number of factors they believed to be relevant. These factors included the following: (1) the resources, experience and expertise of the adviser; (2) the performance of the Funds and the adviser; (3) the financial capability of the adviser; (4) the compliance history of the adviser; (5) the performance of the funds in comparison to similarly managed funds; (6) the amount of the contractual advisory fee in comparison to similarly managed funds; (7) the profitability of the adviser; (8) the extent of any economies of scale; and (9) the e existence of any collateral benefits realized by the adviser and by the Funds. On the basis of the information provided to the Trustees for their review, the following conclusions were reached: (1) a comparison of the net operating expenses for the Viking Tax-Free Fund for Montana and for the Viking Tax-Free Fund for North Dakota to other funds of similar objective and size reflected that the Viking Tax-Free Funds have similar expense structures to the other funds; (2) a comparison of the net operating expense for the Viking Large-Cap Value Fund to other funds of similar objective and size reflect that the Large-Cap Value Fund has a similar expense structure to the other funds; (3) a comparison of the net operating expense for the Viking Small-Cap Value Fund to other funds of similar objective and size reflect that the Small-Cap Value Fund has a similar expense structure to the other funds; (4) a comparison of the management fees charged by the Adviser seemed reasonable to the Trustees when compared to similar funds in objective and size; (5) upon a review of the total return history and category rankings of each Fund, the Trustees deemed the performance of each Fund to be satisfactory; (6) the overall nature and quality of the services provided by the Adviser had historically been, and continued to be, satisfactory to the Trustees; (7) the Trustees discussed the fact that the Adviser does not benefit from economies of scale due to its relationship to the Funds as the Viking Funds are relatively small and are its only clients; (8) the Trustees discussed the profitability issues regarding the Adviser and felt comfortable with the direction of the Adviser and its prospects for future profitability. In reviewing the Sub-Advisory Agreements, the Trustees considered the proposed sub-advisory fees compared to the level of sub-advisory fees paid by other similar funds, past performance and the nature and quality of the services provided. On the basis of the information provided for their review, the Trustees reached the following conclusions: (1) the Trustees felt the overall nature and quality of services of Fox Asset Management, LLC (Fox) are satisfactory; (2) Fox has a good long-term track record in managing value accounts; (3) the sub-advisory fees paid to Fox are fair and reasonable in light of the sub-advisory services expected to be provided and the comparability of the sub-advisory fees paid by comparable mutual funds and separately managed accounts; (4) the investment performance of Fox has lagged the last couple of years but appears to be improving during the last year and year-to-date; (5) the Trustees are atisfied with Fox regarding its staffing and capabilities to manage the Value funds, including the retention of personnel with significant portfolio management experience. VIKING MUTUAL FUNDS Miscellaneous Information (Unaudited) December 30, 2005 Your Funds Expenses As a Fund shareholder, you can incur two types of costs: ?	Transaction costs, including sales charges (loads) on Fund purchases; and ?	Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in each Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. Actual Fund Expenses The first line (Actual) for each Fund listed in the table below provides actual account values and expenses. The Ending Account Value is derived from each Funds actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period, by following these steps. Of course, your account value and expenses will differ from those in this illustration: 1. Divide your account value by $1,000. If an account had an $8,600 value, then $8,600 ? $1,000 = 8.6. 2. Multiply the result by the number under the heading Expenses Paid During Period for the Fund(s) you own shares in. 	If Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. Hypothetical Example for Comparison with Other Funds Information in the second line (Hypothetical) for each Fund in the table can help you compare ongoing costs of investing in the Fund(s) you own with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical Ending Account Value is based on the actual expense ratio for each Fund and an assumed 5% annual rate of return before expenses, which does not represent each Funds actual return. The figure under the heading Expenses Paid During Period shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transaction costs, such as sales charges. Therefore, the second line for each Fund is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactions costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses. Beginning Account Ending Account Expenses Paid During Value 07/01/05 Value 12/30/05 Period1 07/01/05-12/30/05 Viking Tax-Free Fund for Montana Actual $1,000.00 $1,003.14 $2.762 Hypothetical (5% return before expenses) $1,000.00 $1,022.31 $2.792 Viking Tax-Free Fund for North Dakota Actual $1,000.00 $1,001.11 $2.613 Hypothetical (5% return before expenses) $1,000.00 $1,022.45 $2.643 Viking Large-Cap Value Fund Actual $1,000.00 $1,028.07 $6.86 Hypothetical (5% return before expenses) $1,000.00 $1,018.30 $6.83 Viking Small-Cap Value Fund Actual $1,000.00 $1,032.34 $8.41 Hypothetical (5% return before expenses) $1,000.00 $1,016.80 $8.34 1Expenses are equal to the annualized expense ratio for each Fund (Viking Tax-Free Fund for Montana: 0.52%; Viking Tax-Free Fund for North Dakota: 0.52%; Viking Large-Cap Value Fund: 1.35%; and Viking Small-Cap Value Fund: 1.65%), multiplied by the average account value over the period, multiplied by 181/365 to reflect the one-half year period. 2Expenses for the Viking Tax-Free Fund for Montana have increased since the Funds most recent fiscal half-year. Had the current expense ratio of the Fund, 0.55%, been in place throughout the entire most recent fiscal half-year, the Actual Expenses Paid During Period would have been $2.75 and the Hypothetical Expenses Paid During Period would have been $2.76. Proxy Voting on Fund Portfolio Securities A description of the policies and procedures that the Funds use to determine how to vote proxies relating to securities held in the Funds portfolios is available, without charge and upon request, by calling 1-800-933-8413. A report on Form N-PX of how the Funds voted any such proxies during the most recent 12-month period ended June 30 is available from the EDGAR database on the SECs Internet site at http://www.sec.gov. Quarterly Portfolio Schedule The Funds provide a complete schedule of portfolio holdings in its semi- annual and annual reports within 60 days of the end of the Funds second and fourth fiscal quarters on the Form N-CSR(S). The semi-annual and annual reports are filed electronically with the SEC and are delivered to the shareholders of the Funds. The Funds also file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds Forms N-Q and N-CSR(S) are available on the SECs website at http://www.sec.gov. The Funds Form N-Q and N-CSR(S) may be reviewed and copied at the SECs Public Reference Room in Washington, DC and the information on the operation of the Public Reference Room in may be obtained by calling 1-800-SEC-0330. VIKING MUTUAL FUNDS Trustee Information (Unaudited) December 30, 2005 NAME AND PRINCIPAL OCCUPATION(S) ADDRESS AGE POSITION(S) HELD DURING PAST 5 YEARS - ----------------------------------------------------------------------------------------------------------------------- Shirley R. Martz 81 Trustee Retired CPA (1989-pres.); Trustee, Viking 116 1st St SW Suite C Mutual Funds (1999-pres.); Principal Minot, ND 58701 shareholder and employee of Brady, Martz & Associates and its predecessor (1948- 1989). Shannon D. Radke 39 Trustee President, Viking Fund Management, LLC 116 1st St SW Suite C 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 68 Trustee Retired; Trustee, Viking Mutual Funds 116 1st St SW Suite C (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 39 Trustee General Manager, Holiday Inn Riverside 116 1st St SW Suite C (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 116 1st St SW Suite C Minot, ND 58701 BOARD OF TRUSTEES Shirley R. Martz Shannon D. Radke Mike Timm Peter C. Zimmerman INVESTMENT MANAGER Viking Fund Management, LLC 116 1st St SW Suite C 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 116 1st St SW Suite C 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-NCSR. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Viking Mutual Funds 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. (a) Audit Fees The aggregate fees billed by registrants independent public accountants, Brady Martz & Associates (BMA) for each of the last two fiscal years for professional services rendered in connection with the audit of registrants annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements were $41,600 for the year ended December 30, 2005, and $18,800 for the year ended December 31, 2004. (b) Audit-Related Fees Not Applicable (c) Tax Fees The aggregate tax fees BMA billed to registrant for each of the last two fiscal years for tax compliance, tax advice, and tax planning services were $2000 for the year ended December 30, 2005, and $2000 for the year ended December 31 2004. The aggregate tax fees BMA billed to registrants investment adviser and any entity controlling, controlled by, or under common control with registrants investment adviser for tax compliance, tax advice, and tax planning services were $0 for the year ended December 30, 2005, and $860 for the year ended December 31 2004. (d) All Other Fees Not Applicable (e) (1) Not Applicable (2) 100% of the applicable services for the registrant described in paragraph (c) of this item were approved by the audit committee. (f) Not Applicable (g) The aggregate non-audit fees billed by BMA to registrant and to registrants investment adviser and any entity controlling, controlled by, or under common control with registrants investment adviser for the fiscal years ending December 30, 2005, and December 31, 2004, were $2000 and $2860. (h) The registrants audit committee considered and determined that the provision of nonaudit services that were rendered to the registrants investment advisor and any entity controlling, controlled by, or under common control with the investment advisor that provides ongoing services to the registrant that were not preapproved pursuant to paragraph (c)(7)(ii) of rule 2 01 of regulation S X were not incompatible with maintaining the principal accountants independence. ITEM 5. Audit Committee of Listed Registrants Not Applicable ITEM 6. Schedule of Investments Included as part of report to shareholders under Item 1 ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. Portfolio Managers of Closed End Management Investment Companies Not applicable. ITEM 9. Purchases of Equity Securities by Closed End Management Investment Company and Affiliated Purchasers. Not applicable. ITEM 10. Submission of Matters to a Vote of Security Holders. Not applicable. ITEM 11. CONTROLS AND PROCEDURES. (a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrants 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. The registrant has modified its internal controls over financial reporting, including additional separation of responsibilities between accounting and reconciliation and between accounting and authorized signatory functions. ITEM 12 EXHIBITS. (a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and Attached as an exhibit. (a)(2) The certifications required by rule 30(a)2(a) under the Investment Company Act of 1940 is filed and attached as an exhibit. (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. 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 By: /s/ SHANNON D. RADKE ------------------------------- Shannon D. Radke Principal Financial Officer Date: March 10, 2006