N-CSR 1 ncsr.txt 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: 12/31/06 ------- 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, 2006. The Federal Reserve raised rates again as the first half of 2006 came to a close, but Wall Street cheered as some saw hints of a less aggressive central bank. Fed policy makers boosted their target for the federal funds rate to 5.25% June 29, in an effort to curb inflation. The quarter percentage point hike was the Feds 17th straight rate increase since June 2004. The funds rate, which was at a 46 year low of 1% at the start of the campaign, ended the second quarter at the highest level in more than five years. Many investors were worried that in an effort to ward off inflation, the Fed would raise rates too much and choke off economic growth and corporate profits. 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 statement accompanying the rate hike, however, contained some softer language which suggested that an end to the central banks two year old rate hiking campaign was in sight. It triggered a surge in stocks. Although the economy rebounded from its Hurricane Katrina related pause with GDP expanding at an upwardly revised 5.6% in Q1 2006, the fastest pace in three years, we left the second quarter with evidence of a slower pace to economic activity and a growing consensus that the Fed was about done. In the third quarter, the Fed did end its run of ratcheting up the Federal Funds rate as economic growth continued to moderate from its quite strong pace earlier in the year. The slowdown could be attributed to the cooling housing market and the impact of previous Fed rate hikes. The largest slowdown was in housing, which should not come as a surprise given the Feds two year campaign of interest rate hikes and endless press coverage. Economic growth appeared to stabilize in the fourth quarter as the Federal Reserve continued to operate in neutral with no change in Fed Funds. The economy achieved a balance where weakness in some sectors (notably housing) has been offset by strength in others. Equity markets around the world posted strong gains in the quarter ended March 31, 2006. The economy picked up pace from the weak performance in the Katrina depressed fourth quarter of 2005. The strength of equity prices was surprising, however, in the face of continued Fed tightening. For the quarter, the S&P 500 rose 4.2% while small-cap stocks outperformed their large-cap brethren. The second quarter began with fresh evidence in the GDP report that the economy was expanding briskly and a solemn view that the Fed was not done tightening. In contrast, the second quarter ended with evidence of a slower pace to economic activity and a growing consensus that the Fed was about done. The major indexes closed out the quarter on a mixed note. The Dow Industrials gained 0.4%, the Nasdaq lost 7.20% and the S&P 500 lost 1.4%. The NASDAQ and the S&P both broke strings of four straight quarterly gains, while the Dow extended its winning streak to four quarters. The equity markets performed exceedingly well in the third quarter as fears of an overheating economy, and an accordingly active vigilant Federal Reserve, abated. As investors perceived the Fed to be on-hold, they reacted vigorously by buying securities. Stocks scored their biggest third quarter advance in nine years as large-cap stocks led the way with the S&P 500 jumping 5.7%. The performance of the equity markets in the fourth quarter was nothing short of extraordinary with the overall market rising nearly 7%. Clearly, equity investors approved of the apparently smooth transition to a slower, much more balanced U.S. economic environment, marked by good growth and minimal inflation. Stocks finished the full year with all three major market averages booking their best performance since 2003. The Dow Jones gained 17.2% for the year, the S&P 500 index rose 15.8% and the NASDAQ advanced 10.4%. The fixed income markets declined in the first quarter as the U.S. economy bounced back from Hurricane Katrina with strong growth and the Fed continued tightening. Bonds took a further turn for the worse in the second quarter as the bond vigilantes sold bonds and pushed rates higher as their fear of accelerating inflation was exacerbated by the strong Q1 GDP report. In a stark reversal of the persistent down trend seen in prior quarters, prices for fixed income securities rallied significantly in the third quarter. The strength was driven by increasingly visible signs of a decelerating U.S. economy. After a number of quarters in which interest rates fluctuated significantly, rates settled down considerably in the fourth quarter. The U.S. central banks careful handling of the domestic economy against a backdrop of inflation and housing industry concerns led to respectable bond performance in 2006. 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 4.15% (at net asset value with distributions reinvested) for the year ended December 31, 2006. The fixed income markets declined in the first quarter as the U.S. economy rebounded from its Hurricane Katrina related pause with strong growth and the Fed continued tightening. As a result, the Funds share price declined slightly in the first quarter. Bonds took a further turn for the worse in the second quarter as the bond vigilantes sold bonds and pushed rates higher as their fear of accelerating inflation was exacerbated by the strong Q1 GDP report. This sent the Funds share price down moderately for the second quarter. In a stark reversal of the persistent down trend seen in prior quarters, prices for fixed income securities rallied significantly in the third quarter as did the Funds share price. The strength was driven by increasingly visible signs of a decelerating U.S. economy. In addition, the Federal Reserve ended its run of ratcheting up the Federal Funds rate at every FOMC meeting. After a number of quarters in which interest rates fluctuated significantly, rates settled down considerably in the fourth quarter as U.S. economic growth seems to have stabilized. The Funds share price was stable in the final quarter as well and ended 2006 up slightly. 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 31, 2006 (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 September 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 January 31, 2006 $12,865 $13,469 $14,475 February 28, 2006 $12,889 $13,495 $14,572 March 31, 2006 $12,845 $13,449 $14,471 April 30, 2006 $12,819 $13,422 $14,467 May 31, 2006 $12,916 $13,524 $14,532 June 30, 2006 $12,802 $13,404 $14,477 July 31, 2006 $12,986 $13,596 $14,649 August 31, 2006 $13,133 $13,750 $14,866 September 30, 2006 $13,225 $13,847 $14,970 October 31, 2006 $13,245 $13,867 $15,064 November 30, 2006 $13,339 $13,966 $15,189 December 31, 2006 $13,328 $13,954 $15,136
The chart assumes $10,000 invested on August 3, 1999 and includes the effect of a 4.50% front-end sales charge, as applicable and the reinvestment of all dividends and capital gains. It is intended to give you an ideal of how your fund performed compared to the index over the period 08/03/99-12/31/06. 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 31, 2006 One-Year Three-Year Five Year (Est. 8/3/99) - ---------------------------------------------------------------------------- Excluding Sales Charge 4.15% 3.38% 4.87% 4.60% Including Sales Charge 0.25% 1.81% 3.90% 3.95% Returns reflect reinvestment of distributions and the effect of 4.50% front- end sales charge, as applicable. The current maximum sales charge is 3.75. Therefore, the total returns, for the three year, five year and lifetime would have been higher had the current maximum sales charge been in effect for those 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 4.77% (at net asset value with distributions reinvested) for the year ended December 31, 2006. The fixed income markets declined in the first quarter as the U.S. economy rebounded from its Hurricane Katrina related pause with strong growth and the Fed continued tightening. As a result, the Funds share price declined slightly in the first quarter. Bonds took a further turn for the worse in the second quarter as the bond vigilantes sold bonds and pushed rates higher as their fear of accelerating inflation was exacerbated by the strong Q1 GDP report. This sent the Funds share price down moderately for the second quarter. In a stark reversal of the persistent down trend seen in prior quarters, prices for fixed income securities rallied significantly in the third quarter as did the Funds share price. The strength was driven by increasingly visible signs of a decelerating U.S. economy. In addition, the Federal Reserve ended its run of ratcheting up the Federal Funds rate at every FOMC meeting. After a number of quarters in which interest rates fluctuated significantly, rates settled down considerably in the fourth quarter as U.S. economic growth seems to have stabilized. The Funds share price was stable in the final quarter as well and ended 2006 up modestly. 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 31, 2006 (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 $13,537 $14,436 January 31, 2006 $13,009 $13,621 $14,475 February 28, 2006 $13,021 $13,633 $14,572 March 31, 2006 $12,990 $13,600 $14,471 April 30, 2006 $12,938 $13,546 $14,467 May 31, 2006 $13,036 $13,649 $14,532 June 30, 2006 $12,935 $13,543 $14,477 July 31, 2006 $13,149 $13,767 $14,649 August 31, 2006 $13,323 $13,949 $14,866 September 30, 2006 $13,429 $14,060 $14,970 October 31, 2006 $13,448 $14,080 $15,064 November 30, 2006 $13,556 $14,193 $15,189 December 31, 2006 $13,546 $14,182 $15,136
The chart assumes $10,000 invested on August 3, 1999 and includes the effect of a 4.50% front-end sales charge, as applicable and the reinvestment of all dividends and capital gains. It is intended to give you an ideal of how your fund performed compared to the index over the period 08/03/99-12/31/06. 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 31, 2006 One-Year Three-Year Five Year (Est. 8/3/99) - ---------------------------------------------------------------------------- Excluding Sales Charge 4.77% 3.49% 5.06% 4.83% Including Sales Charge 0.81% 1.92% 4.09% 4.18% 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, for the three year, five year, and lifetime 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 15.58% (at net asset value) for the year ended December 31, 2006. Equity markets around the world posted strong gains in the quarter ended March 31, 2006. The dollar was relatively stable and the economy clearly picked-up pace from the weak performance in the Katrina depressed fourth quarter of 2005. The strength of equity prices was surprising in the face of continued Fed tightening. The total return of the broad market, as measured by the S&P 500 rose 4.2% in the quarter, the strongest since the first quarter of 2001, and the Russell 1000 Value benchmark was even stronger, rising 5.9%. The Fund rose 4.5% during the first quarter. Leading the list of top performers was International Rectifier Corp, a supplier of electronic parts. Two other technology names, Hewlett Packard and Honeywell, also rose sharply in the quarter. Underperformers included Intel, and utility stocks, led by Dominion Resources and American Electric Power. The second quarter began with fresh evidence in the GDP report that the economy was expanding briskly and a solemn view that the Fed was not done tightening. In contrast, we left the second quarter with evidence of a slower pace to economic activity and a growing consensus that the Fed was just about done tightening. Although the Fund posted a positive return of 0.7%, the second quarter was generally unkind to financial assets with the S&P 500 off 1.44%. The equity markets performed exceedingly well in the third quarter as fears of an overheating economy, and an accordingly active vigilant Federal Reserve abated. As investors perceived the Fed to be on-hold, they reacted vigorously by buying securities, sending the S&P 500 up 5.7%. The defensive nature of our strategy and our low beta generally cause the Fund to lag strong market advances. This was the situation in the third quarter. In addition, we were overweight in economically sensitive stocks such as energy, basic materials and processing, which didnt perform well as market sentiment began to reflect a sharp downturn in economic activity. The performance of the equity markets in the fourth quarter was nothing short of extraordinary with the overall market and the Fund rising nearly 7%, about what most market strategists had expected for the entire year. For all of 2006, stocks finished strong with all major stock averages booking their best performance since 2003. The Dow Jones gained 17.2% for the year, while the S&P 500 rose 15.8% and the NASDAQ advanced 10.4%. As bottom up, fundamentally-driven stock pickers, we do not try to predict broader stock market performance. That stated, we believe that a solid economic backdrop of low unemployment, rising wages, strong corporate balance sheets, robust profitability and reasonable equity valuations are all supportive of a rising stock market. As always, we remain steadfast in our commitment to finding higher quality companies, with strong balance sheets and cash flow, selling at discount valuations. Long-term total return and capital preservation remains the investment objective of the Fund. VIKING LARGE-CAP VALUE FUND Growth of a $10,000 Investment August 3, 1999 through December 31, 2006 (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 January 31, 2006 $11,771 $12,418 $14,155 February 28, 2006 $11,810 $12,460 $14,241 March 31, 2006 $11,968 $12,626 $14,434 April 30, 2006 $12,283 $12,958 $14,801 May 31, 2006 $12,046 $12,709 $14,427 June 30, 2006 $12,046 $12,709 $14,519 July 31, 2006 $12,086 $12,750 $14,872 August 31, 2006 $12,204 $12,875 $15,121 September 30, 2006 $12,411 $13,093 $15,423 October 31, 2006 $12,775 $13,477 $15,927 November 30, 2006 $13,070 $13,789 $16,291 December 31, 2006 $13,241 $13,969 $16,657
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 08/03/99-12/31/06. 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. Past performance does not guarantee future results. Average Annual Total Returns Lifetime Through December 31, 2006 One-Year Three-Year Five Year (Est. 8/3/99) - ---------------------------------------------------------------------------- Excluding Sales Charge 15.58% 10.60% 5.14% 4.61% Including Sales Charge 9.56% 8.62% 4.00% 3.86% 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 total return of 14.02% (at net asset value) for the year ended December 31, 2006. Equity markets around the world posted strong gains in the quarter ended March 31, 2006. Small-Cap stocks continued their impressive performance during the quarter, with the Russell 2000 Index surging nearly 14%. The small-cap indexs strong advance was led by lower quality stocks. Our long- standing focus on investing in higher quality, financially sound companies typically lags in lower quality advances. Nonetheless, the Fund advanced 9% for the quarter. Our underweight in the underperforming financial services sector contributed to relative performance. Stock selection in producer durables, which continued to benefit from strong industrial demand also contributed to performance. Detracting from performance during the quarter included our overweight in the underperforming auto and transportation sector, as well as stock selection in the energy-related and technology sectors. Small-cap stocks ended lower along with most major domestic market indices in the second quarter of 2006, as the Russell 2000 index declined 5%, and the Russell 2000 Value Index declined 2.7%. While small-cap stocks could not escape the global market weakness during the period, they continued their six plus year streak of out performance relative to their larger-cap brethren. Our long standing strategy of investing in higher quality financially sound companies was rewarded during the quarter as the Fund declined only 1.4%. Our underweighting in the technology sector and overweighting in the autos and transportation sector contributed to favorable relative performance. Stock selection in the consumer discretionary sector, as well as our long standing underweight (and adverse stock selection) in financials, detracted from performance during the quarter. Small-Cap stocks along with most major domestic market indices, ended higher in the third quarter, with the Russell 2000 Index increasing 0.4%, and the Russell 2000 Value Index advancing 2.6%. The Fund inched up 0.1%. Helping performance in the third quarter was our overweight in the healthcare and consumer staples sectors. Investors sought out the relative safety and predictability of defensive sectors as the economy began to slow. A combination of overweight positions and adverse stock selection in energy and transportation sectors detracted from performance. Small-Cap stocks, along with all the other major domestic equity market indices, posted a strong fourth quarter, with the Russell 2000 Index increasing 8.9%. The Fund returned just over 6% as our long standing focus on higher quality companies hurt relative performance during the period. Lower quality stocks, which we define as those with S&P Quality Rankings of B or lower, often outperform higher quality stocks in a rapidly-rising market similar to the fourth quarter. We have always favored high quality companies, those with dominant and growing business franchises, strong balance sheets, and predictable cash flows; unfortunately, companies with these characteristics lagged the broader small-cap market in 2006. We will not change our process to adapt to current investment trends, and continue to believe that investing in undervalued and high quality companies will outperform the market with less risk over the long term. We also believe that the potential for decelerating earnings per share (EPS) growth in 2007 should help refocus investors toward higher quality companies. VIKING SMALL-CAP VALUE FUND Growth of a $10,000 Investment May 3, 1999 through December 31, 2006 (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 January 31, 2006 $15,516 $16,370 $19,338 February 28, 2006 $15,203 $16,039 $19,337 March 31, 2006 $15,769 $16,636 $20,274 April 30, 2006 $15,931 $16,807 $20,328 May 31, 2006 $15,213 $16,050 $19,486 June 30, 2006 $15,547 $16,402 $19,725 July 31, 2006 $15,193 $16,029 $19,452 August 31, 2006 $15,456 $16,306 $20,033 September 30, 2006 $15,557 $16,412 $20,229 October 31, 2006 $15,870 $16,743 $21,258 November 30, 2006 $16,365 $17,265 $21,865 December 31, 2006 $16,494 $17,401 $22,055
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 idea of how your fund performed compared to the index over the period 05/03/01-12/31/06. 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. Past performance does not guarantee future results. Average Annual Total Returns Lifetime Through December 31, 2006 One-Year Three-Year Five Year (Est. 5/3/01) -------------------------------------------------------------------------------- Excluding Sales Charge 14.02% 11.87% 11.14% 10.28% Including Sales Charge 8.06% 9.87% 9.95% 9.24% 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 MUTUAL FUNDS Schedule of Investments December 31, 2006 Viking Tax-Free Fund for Montana
PRINCIPAL MARKET AMOUNT VALUE MUNICIPAL BONDS 99.8% General Obligations 8.1% Bozeman MT Ser A 4.95% 07/01/20 170,000 $179,449 Puerto Rico Mun Fin Agy Ser A (FSA) 5.50% 08/01/23 250,000 263,730 Ravalli Cnty MT Sch Dist No. 07 Victor (FSA) 4.00% 07/01/26 150,000 147,246 Ravalli Cnty MT Sch Dist No. 003 Hamilton (FSA) 4.65% 07/01/09 105,000 106,830 Yellowstone & Carbon Cntys Elem Sch Dist (MBIA) 4.25% 07/01/24 200,000 203,322 --------- 900,577 --------- Continuing Care Revenue Bonds 0.6% MT St Hlth Facs Auth Rev Hillcrest Sr Ctr 6.90% 06/01/15 30,000 33,310 MT St Hlth Facs Auth Rev Hillcrest Sr Ctr 7.25% 06/01/25 35,000 39,218 --------- 72,528 --------- Higher Education Revenue Bonds 14.3% MT St Hgher Ed Stud Assist Corp Rev Ser B 6.40% 12/01/32 415,000 436,792 MT St Brd Regents (MSU) Rev Facs Imp-E (AMBAC) 5.00% 11/15/21 80,000 81,912 MT Brd Regents (MSU) Hghr Ed Rev (AMBAC) 4.30% 11/15/19 200,000 202,362 MT Brd Regents (U of M) Hgher Ed Rev Ser F (MBIA) 5.75% 05/15/24 135,000 144,721 Puerto Rico Tour Edl Med & Env Facs Mendez Univ 5.375% 02/01/19 75,000 77,363 *Univ of MT Revs Facs Acq & Imp Ser C (MBIA) 5.00% 11/15/17 140,000 147,834 Univ of MT Revs Higher Ed Facs Imp Ser D (MBIA) 5.375% 05/15/15 75,000 80,460 Univ of MT Revs Higher Ed Facs Imp Ser D (MBIA) 5.375% 05/15/19 370,000 412,298 --------- 1,583,742 --------- Hospital Revenue Bonds 19.5% MT Fac Fin Auth Providence Svcs (MBIA) 4.60% 12/01/18 80,000 83,310 MT Fac Fin Auth Providence Svcs (MBIA) 5.00% 12/01/18 270,000 287,658 MT Fac Fin Auth Providence Svcs (MBIA) 4.80% 12/01/20 105,000 110,874 MT Fac Fin Auth Providence Svcs (MBIA) 4.60% 12/01/18 70,000 72,494 MT Fac Fin Auth Providence Svcs (MBIA) 5.00% 12/01/18 230,000 242,855 MT Fac Fin Auth Providence Svcs (MBIA) 4.80% 12/01/20 95,000 99,063 MT Hlth Fac Fin Auth Rev Mstr Ln Program Comm Med Ctr 5.20% 12/01/21 145,000 150,090 *MT Hlth Fac Auth Sisters Chrty Leavenworth (MBIA) 5.125% 12/01/18 200,000 206,236 MT Hlth Fac Auth Sisters Chrty Leavenworth (MBIA) 5.00% 12/01/24 515,000 530,368 MT St Hlth Fac Auth Rev Comm Med Ctr 6.375% 06/01/18 370,000 373,215 --------- 2,156,163 --------- Housing Revenue Bonds 14.7% *MT St Brd Hsg Sngle Fam Mtg Ser A-2 5.75% 06/01/30 70,000 70,018 *MT St Brd Hsg Sngle Fam Ser A-2 5.50% 12/01/20 80,000 79,592 *MT St Brd Hsg Sngle Fam Ser A-2 5.60% 12/01/23 65,000 64,692 MT St Brd Hsg Sngle Fam Ser A-2 5.20% 12/01/22 115,000 116,387 MT St Brd Hsg Sngle Fam Ser B-2 4.85% 12/01/15 95,000 95,767 MT St Brd Hsg Sngle Fam Mtg Ser B-2 5.55% 06/01/33 160,000 161,595 MT St Brd Hsg Sngle Fam Mtg Ser C2 4.85% 12/01/26 200,000 201,868 MT St Brd Hsg Sngle Fam Prog Ser B 4.55% 12/01/11 345,000 350,768 MT St Brd Hsg Sngle Fam Mtg Ser A 4.30% 06/01/12 240,000 242,131 MT St Brd Hsg Sngle Fam Mtg Ser A 4.30% 12/01/12 240,000 241,865 --------- 1,624,683 --------- Psychiatric and Substance Abuse Hospital Bonds 16.6% MT Fac Fin Auth Developmental Ctr Prog 4.50% 06/01/16 250,000 256,428 MT Fac Fin Auth Developmental Ctr Prog 4.75% 06/01/19 170,000 174,641 MT Fac Fin Auth Childrens Home 4.55% 01/01/17 250,000 256,560 MT Fac Fin Auth Rev Cmnty Counsl & Corectnl Svcs (CIFG) 4.50% 10/01/23 340,000 350,139 MT Fac Fin Auth Boyd Andrew Cmnty Svcs Proj (CIFG) 4.375% 10/01/20 285,000 286,596 MT St Hlth Fac Auth Hlth Care Rev State Hosp (AMBAC) 5.00% 06/01/22 500,000 518,120 --------- 1,842,484 --------- Transportation Revenue Bonds 4.7% MT St Dept Trans Rev Grant Antic Hwy 93 (MBIA) 4.00% 06/01/14 250,000 252,635 Puerto Rico Hwy & Trans Auth Rev Ser G (FGIC) 5.25% 07/01/20 250,000 268,660 --------- 521,295 --------- Utility Revenue Bonds 9.6% Forsyth MT Poll Ctl Rev Ref Puget Sound Energy (AMBAC) 5.00% 03/01/31 190,000 201,047 Forsyth MT Poll Ctl Rev Northwestern Corp (AMBAC) 4.65% 08/01/23 850,000 863,098 --------- 1,064,145 --------- Water Revenue Bonds 0.9% Great Falls MT Wtr Sys Rev Ref Ser A (AMBAC) 3.85% 08/01/08 100,000 100,544 --------- 100,544 --------- Other Revenue Bonds 10.8% Missoula MT Spl Impt Dists No 540 4.60% 07/01/24 100,000 100,099 Missoula MT Spl Impt Dists No 540 4.60% 07/01/25 105,000 105,107 Missoula Tax Increment Urban Renewal (RADIAN) 5.125% 07/01/26 125,000 131,236 MT Fac Fin Auth Prerelease Ctr Rev (XLCA) 5.25% 10/01/20 300,000 326,700 MT St Brd Invt Refunded 1996 Pay Tax (MBIA) 6.875% 06/01/20 105,000 109,980 MT St Brd Invt Refunded 1996 Pay Tax (MBIA) 6.875% 06/01/20 105,000 109,784 Puerto Rico Childrens Trust Fund Tobacco Settlement Rev 6.00% 07/01/26 195,000 210,122 Puerto Rico Comwlth Inf Fin Auth Ser A (AMBAC) 5.25% 07/01/10 100,000 103,226 --------- 1,196,254 ---------- Total Municipal Bonds (cost $10,885,140) 11,062,415 SHORT-TERM INVESMENTS 0.0% Total Short-Term Investments (cost: $0) 0 --------- TOTAL MARKET VALUE OF SECURITIES OWNED 99.8% (COST $10,885,140) 11,062,415 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 0.2% 21,625 ----------- NET ASSETS APPLICABLE TO 1,102,311 SHARES (0.001 PAR VALUE) OUTSTANDING - 100.0% $11,084,040 ===========
*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 XLCA Insured by XL Capital Assurance RADIAN Insured by Radian Group Inc. VIKING MUTUAL FUNDS Schedule of Investments December 31, 2006 Viking Tax-Free Fund for North Dakota
PRINCIPAL MARKET AMOUNT VALUE MUNICIPAL BONDS 99.5% General Obligations 23.1% *Bismarck ND Ref & Imp - Ser L 4.00% 06/01/07 75,000 $74,775 Bismarck ND Ref & Imp - Ser P 2.90% 05/01/12 100,000 94,751 Bismarck ND Ref & Impt Ser T 4.45% 05/01/21 100,000 101,119 *Fargo ND Ref & Imp - Ser B (FGIC) 5.125% 05/01/17 60,000 61,096 Fargo ND Ref & Impt Ser D (MBIA) 5.00% 05/01/28 200,000 210,672 Hillsboro ND Pub Sch Dist No. 9 (FSA) 4.85% 06/01/19 50,000 52,016 *Jamestown ND Pub Sch Dist No. 011 (FGIC) 4.60% 05/01/15 50,000 51,000 *Mandan ND Ref & Imp - Ser B (MBIA) 5.00% 05/01/16 70,000 70,106 Mandan ND Ref Impt Ser C (AMBAC) 4.50% 05/01/18 200,000 204,724 Puerto Rico Commonwealth (MBIA) 5.375% 07/01/25 50,000 50,488 Valley City ND (CIFG) 4.50% 06/01/24 80,000 82,391 West Fargo ND Ref & Impt Ser D (MBIA) 4.25% 05/01/20 150,000 149,463 West Fargo ND Ref & Impt (MBIA) 4.10% 05/01/17 100,000 101,131 West Fargo ND Pub Sch Dist No. 006 (FGIC) 5.00% 05/01/14 50,000 52,499 --------- 1,356,231 --------- Building Authority Revenue Bonds 7.8% Fargo ND Bldg Auth Lease Rev Ser A 5.00% 05/01/20 50,000 52,326 GF Cnty ND Bldg Auth Rev 5.00% 12/01/20 200,000 207,608 ND St Bldg Auth Lease Rev Ser A (MBIA) 5.00% 12/01/17 50,000 51,531 ND St Bldg Auth Lease Rev Ser A (MBIA) 5.00% 12/01/16 50,000 52,224 ND St Bldg Auth Lease Rev Ser A (MBIA) 5.20% 12/01/19 90,000 95,030 --------- 458,719 --------- Continuing Care Revenue Bonds 3.9% Burleigh Cnty Indl Dev Rev MO Slope Luth Care Ctr 5.05% 11/01/18 125,000 126,662 Grand Forks ND Sr Hsg Rev Ref 4000 Valley Square Proj 5.00% 12/01/16 100,000 101,535 --------- 228,197 --------- Education Revenue Bonds 7.7% Fargo ND School District Bldg Auth Rev (MBIA) 5.50% 05/01/14 50,000 51,744 Minot Pub School District No 1 Bldg Auth 4.80% 05/01/23 290,000 299,150 West Fargo Pub School District Bldg Auth Lease Rev 4.20% 05/01/17 100,000 100,161 --------- 451,055 --------- Higher Education Revenue Bonds 17.5% ND St Brd Hgher Ed Student Svcs Facs Rev MSU 5.50% 08/01/23 125,000 129,474 ND St Brd Hgher Ed Student Svcs Facs MSU 5.00% 08/01/18 175,000 178,210 ND St Brd Hgher Ed Rev Hsg & Aux Facs UND (FGIC) 4.375% 04/01/26 105,000 105,152 ND St Brd Hgher Ed Rev Hsg & Aux Facs NDSU (FGIC) 4.00% 04/01/15 150,000 151,535 ND St Brd Hgher Ed Rev Hsg & Aux BSC 4.75% 05/01/19 100,000 102,064 ND St Brd Hgher Ed Rev Hsg & Aux Facs NDSU (AMBAC) 4.25% 04/01/23 100,000 99,839 ND St Brd Hgher Ed Rev Hsg & Aux Facs UND (FSA) 5.00% 04/01/21 150,000 157,782 NDSU Rev Ser 2006A (AMBAC) 4.75% 04/01/29 75,000 77,491 Puerto Rico Tour Edl Med & Env Facs Mendez Univ 5.375% 02/01/19 25,000 25,788 --------- 1,027,335 --------- Hospital Revenue Bonds 6.2% Fargo ND Hlth Sys Rev Meritcare Obl (AMBAC) 5.125% 06/01/27 75,000 79,051 Fargo ND Hlth Sys Rev Meritcare Ser A (MBIA) 5.375% 06/01/27 100,000 102,657 Fargo ND Hlth Sys Rev Meritcare Obl (FSA) 5.375% 06/01/15 65,000 68,447 Fargo ND Hlth Sys Rev Meritcare Obl (AMBAC) 5.00% 06/01/22 45,000 46,741 Grand Forks ND Hlth Care Altru Hlth Obl Group (MBIA) 5.60% 08/15/17 20,000 20,491 Grand Forks ND Hlth Care Altru Hlth Obl Group 7.125% 08/15/24 20,000 21,815 Ward Cnty ND Hlth Care Facs Rev Trinity Obl Group - B 6.00% 07/01/10 25,000 25,551 --------- 364,753 --------- Housing Revenue Bonds 10.3% Fargo ND Multifam Rev Ref Hsg Trollwood Village 6.90% 09/01/13 25,000 25,552 ND St Hsg Fin Agy Rev Home Mtg Prog C 4.90% 07/01/15 150,000 152,898 ND St Hsg Fin Agy Rev Hsg Fin Home MTG Fin-C 4.45% 07/01/16 200,000 199,544 ND St Hsg Fin Agy Hsg Fin Home MTG-C-RMK 6.10% 07/01/28 5,000 5,005 ND St Hsg Fin Agy Rev Hsg Fin Pg Home Mtg B 5.85% 07/01/28 5,000 4,999 ND St Hsg Fin Agy Rev Hsg Fin Pg Home Mtg A 5.25% 07/01/18 45,000 44,998 ND St Hsg Fin Agy Rev Hsg Fin Pg Home Mtg A 5.80% 07/01/10 55,000 55,851 ND St Hsg Fin Agy Rev Hsg Fin Pg Home Mtg A 5.70% 07/01/09 50,000 50,754 *ND St Hsg Fin Agy Rev Hsg Fin Pg Home Mtg A 5.55% 07/01/22 65,000 65,023 --------- 604,624 --------- Transportation Revenue Bonds 2.7% Guam Intl Arpt Auth Ser C (MBIA) 5.375% 10/01/17 150,000 159,473 --------- 159,473 --------- Water Revenue Bonds 6.1% Minot ND Wtr & Swr Util Resv Rev Ser A (XLCA) 4.20% 10/01/21 50,000 49,616 ND St Water Comm Rev Water Dev & Mgmt Prg Ser A (MBIA) 5.50% 08/01/10 50,000 53,049 ND St Water Comm Rev Water dev & Mgmt Prog (MBIA) 5.00% 08/01/25 100,000 105,272 South Central Reg Water Dist Burleigh Cnty Rev 5.00% 10/01/23 150,000 152,435 --------- 360,372 --------- Other Revenue Bonds 14.2% *Grand Forks ND Sales Tax Rev Dike Imp (AMBAC) 4.50% 09/01/10 50,000 51,293 Mercer Cnty ND PCR Otter Tail Corp (AMBAC) 4.85% 09/01/22 65,000 65,942 ND Pub Fin Auth Cap Fin Prog Ser A 5.00% 06/01/31 100,000 105,055 ND Pub Fin Auth Indl Dev Prog Ser A 5.00% 06/01/20 150,000 152,740 ND St Muni Bond Bank Cap Fing Prog 6.00% 06/01/21 25,000 26,397 ND St Muni Bond Bank St Revolv Fund Prog Ser A 4.90% 10/01/18 50,000 51,958 ND St Muni Bond Bank St Revolv Fund Prog Ser A 4.625% 10/01/19 100,000 102,810 Puerto Rico Childrens Trust Fund Tobacco Settlement Rev 6.00% 07/01/26 15,000 16,163 Puerto Rico Pub Fin Corp Ser A (MBIA) 5.375% 08/01/24 150,000 161,145 Williams Cnty ND Sales Tax Rev 5.00% 11/01/21 100,000 103,925 --------- 837,428 --------- Total Municipal Bonds (cost $5,748,928) 5,848,187 SHORT-TERM INVESMENTS 0.1% Federated Municipal Obligations Fund #852 7,000 7,000 ---------- Total Short-Term Investments (cost: $7,000) 7,000 --------- TOTAL MARKET VALUE OF SECURITIES OWNED 99.6% (COST $5,755,928) 5,855,187 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 0.4% 20,640 ---------- NET ASSETS APPLICABLE TO 575,169 SHARES (0.001 PAR VALUE) OUTSTANDING - 100.00% $5,875,827 ==========
*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 CIFG Insured by CIFG Company XLCA Insured by XL Capital Assurance VIKING MUTUAL FUNDS Schedule of Investments December 31, 2006 Viking Large-Cap Value Fund
SHARES VALUE Common Stocks 100.1% Basic Materials 25.9% ALCOA 2,500 $75,025 Anadarko Petroleum 2,200 95,744 Apache 1,600 106,416 BP Amoco Plc ADR 1,600 107,360 Bunge Limited 1,400 101,514 Chevron Texaco 1,900 139,707 Conoco Phillips 2,100 151,095 Exxon Mobil 2,700 206,901 Freeport-McMoran Copper & Gold 400 22,292 Questar 500 41,525 Rio Tinto Plc ADS 300 63,747 -------- 1,111,326 -------- Conglomerates 2.3% Honeywell 2,200 99,528 -------- 99,528 -------- Consumer Goods 8.7% Dean Foods* 1,900 80,332 Johnson Controls 1,300 111,696 Kimberly-Clark 1,900 129,105 Sealed Air 800 51,936 -------- 373,069 -------- Financial Services 28.0% American International Group 1,400 100,324 Bank of America 2,600 138,814 BB&T 800 35,144 Citigroup 2,800 155,960 Hartford Financial Services Group 1,100 102,641 Legg Mason 600 57,030 Marsh & McLennan 2,200 67,452 Morgan Stanley 1,100 89,573 National City 2,100 76,776 Sun Trust Bank 1,100 92,895 U.S. Bancorp 3,100 112,189 Wachovia 1,900 108,205 Washington Mutual 1,400 63,686 --------- 1,200,689 --------- Healthcare 6.9% Health Management Associates 2,300 48,553 Merck 2,900 126,440 Pfizer, Inc 4,700 121,730 -------- 296,723 -------- Industrial Goods 2.0% Ingersoll-Rand 2,200 86,086 -------- 86,086 -------- Services 11.8% Amerisource Bergen 1,000 44,960 AT&T 2,500 89,375 Canadian Pacific 700 36,932 CSX 1,600 55,088 CVS Corp. 2,400 74,184 Disney 2,800 95,956 Idearc Inc.* 1,510 43,262 Union Pacific 700 64,414 -------- 504,171 -------- Technology 7.3% Hewlett-Packard 1,100 45,309 Intel 2,900 58,725 Microsoft 1,700 50,762 Nokia 3,700 75,184 Verizon Communications 2,200 81,928 -------- 311,908 -------- Utilities 7.2% American Electric Power 2,700 114,966 Dominion resources 1,100 92,224 Public Service Enterprise Group 1,500 99,570 -------- 306,760 -------- Total Common Stocks (Cost $3,336,919) 4,290,260 SHORT-TERM INVESTMENTS 2.5% Federated Prime Value Obligations #853 108,000 108,000 ---------- Total Short-Term Investments (cost: $108,000) 108,000 ---------- TOTAL MARKET VALUE OF SECURITIES OWNED 102.6% (COST $3,444,919) 4,398,260 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES (2.6%) (112,721) ---------- NET ASSETS APPLICABLE TO 327,328 SHARES ($0.001 PAR VALUE) OUTSTANDING 100.0% $4,285,539 ==========
*Non-income producing investments. The accompanying notes are an integral part of these financial statements. VIKING MUTUAL FUNDS Schedule of Investments December 31, 2006 Viking Small-Cap Value Fund
SHARES VALUE Common Stocks 99.2% Basic Materials 7.8% LoneStar Technologies* 1,400 $32,412 Newfield Exploration* 900 41,355 Oil States Intl Inc.* 1,000 32 230 Pioneer Drilling* 5,200 69,056 Cimarex Energy 1,200 43,800 -------- 254,215 -------- Conglomerates 2.2% Telefex 1,100 71,016 -------- 71,016 -------- Consumer Goods 17.3% AO Smith 1,550 58,218 AptarGroup 1,300 76,752 Borg Warner Automotive 600 35,412 Carters Inc.* 600 15,300 Chiquita Brands Intl 4,600 73,462 Church & Dwight 2,050 87,433 Clarcor 1,600 54,096 RC 2 Corp* 1,600 70,400 Tupperware 3,900 88,179 -------- 559,252 -------- Financial 21.5% Boston Private Financial Holdings 1,100 31,031 First Midwest Bancorp 1,300 50,284 Hanmi Financial 2,500 56,325 Highland Hospitality 4,700 66,975 Provident Bankshares 1,200 42,720 Senior Housing Properties Trust 2,500 61,200 Strategic Hotels & Resorts 3,100 67,549 Sunstone Hotel Investors 1,600 42,768 UCBH Holdings 2,800 49,168 Umpqua Holdings 1,800 52,974 Protective Life 1,900 90,250 IPC Holdings 2,700 84,915 -------- 696,159 -------- Healthcare 9.4% Chattem* 1,000 50,080 Conmed* 2,500 57,800 PolyMedica 1,400 56,574 Prestige Brands Holdings* 4,900 63,798 West Pharmaceutical Services 1,500 76,845 -------- 305,097 -------- Industrial Groups 11.1% Albany International 2,300 75,693 Belden CDT 2,700 105,543 Granite Construction 600 30,192 K&F Industries Holdings* 3,400 77,214 RPM 3,400 71,026 -------- 359,668 -------- Services 18.3% Arkansas Best 1,400 50,400 Applebees 1,900 46,873 BJs Wholesale* 2,300 71,553 CBRL Group 700 31,332 Claires Stores 1,500 49,710 Bristow Group* 1,400 50,526 Owens & Minor 2,600 81,302 OMI Corp 1,800 38,106 Performance Food Group* 1,200 33,168 Stage Stores 3,000 91,170 YRC Worldwide* 1,300 49,049 -------- 593,189 -------- Technology 5.7% Aeroflex Inc.* 2,800 32,816 ON Semiconductor* 10,800 81,756 Technitrol 2,950 70,475 -------- 185,047 -------- Utilities 5.9% Piedmont Natural Gas 3,500 93,625 Pike Electric Corp* 2,000 32,660 Questar 800 66,440 -------- 192,725 -------- Total Common Stocks (Cost $2,576,540) 3,216,368 SHORT-TERM INVESTMENTS 6.5% Federated Prime Value Obligations Fund #853 163,000 163,000 Federated Treasury Cash Reserves #125 48,000 48,000 ---------- Total Short-Term Investments (Cost $211,000) 211,000 TOTAL MARKET VALUE OF SECURITIES OWNED 105.7% (COST $2,787,540) 3,427,368 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES (5.7)% (184,608) ---------- NET ASSETS APPLICABLE TO 210,132 SHARES ($0.001 PAR VALUE) OUTSTANDING 100.0% $3,242,760 ==========
*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 31, 2006
Tax-Free Fund Tax-Free Fund Large-Cap Small-Cap for Montana for North Dakota Value Fund Value Fund ASSETS: Investments in securities: Cost $10,885,140 $5,755,928 $3,444,919 $2,787,540 ------------------------------------------------------------------------------------ Value 11,062,415 5,855,187 4,398,260 3,427,368 Cash 1,480 2,295 4,080 4,486 Receivable for fund shares sold 0 0 0 0 Prepaid assets 2,501 951 1,021 818 Security sales receivable 0 175,000 0 0 Interest & dividends receivable 111,325 73,397 8,708 7,451 Other Receivables 155 0 81 79 ------------------------------------------------------------------------------------ Total assets 11,177,876 6,106,830 4,412,150 3,440,202 ------------------------------------------------------------------------------------ LIABILITIES: Security purchases payable 0 206,359 0 0 Payable for shares redeemed 50,261 0 0 1,300 Distributions payable 34,705 18,436 118,972 188,621 Other accounts payable and accrued expenses 8,870 6,208 7,639 7,521 ------------------------------------------------------------------------------------ Total liabilities 93,836 231,003 126,611 197,442 ------------------------------------------------------------------------------------ NET ASSETS 11,084,040 5,875,827 4,285,539 3,242,760 ------------------------------------------------------------------------------------ COMPONENTS OF NET ASSETS AT December 31, 2006 Capital shares, $0.001 par value, unlimited shares authorized 11,051,689 5,859,494 3,332,198 2,602,932 Net unrealized appreciation (depreciation) 177,274 99,258 953,341 639,828 Accumulated net realized gain (loss) on investments (144,923) (82,925) 0 0 Undistributed net investment income (loss) 0 0 0 0 ------------------------------------------------------------------------------------ NET ASSETS $11,084,040 $5,875,827 $4,285,539 $3,242,760 ------------------------------------------------------------------------------------ NET ASSET VALUE AND OFFERING PRICE PER SHARE Net assets, at value $11,084,040 $5,875,827 $4,285,539 $3,242,760 Shares outstanding 1,102,311 575,169 327,328 210,132 Net asset value per share $10.06 $10.22 $13.09 $15.43 Maximum offering price per share (net asset value per share divided by 96.25%, 96.25%, 94.75% and 94.75%, respectively) $10.45 $10.62 $13.82 $16.28 ------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. VIKING MUTUAL FUNDS Financial Statements Statements of Operations For the year ended December 31, 2006
Tax-Free Fund Tax-Free Fund Large-Cap Small-Cap for Montana for North Dakota Value Fund Value Fund ------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest $524,751 $269,942 $ 0 $ 0 Dividends 6,881 4,370 100,832 53,510 ------------------------------------------------------------------------------------- Total investment income 531,632 274,312 100,832 53,510 ------------------------------------------------------------------------------------- EXPENSES: Investment advisory fees 58,936 30,369 27,845 30,925 Administrative fees 11,787 6,090 3,978 3,092 Distribution fees 29,468 15,179 15,912 12,370 Transfer agent fees 3,724 2,055 5,175 5,443 Accounting fees 5,877 3,045 1,989 1,546 Professional fees 9,468 9,312 9,254 9,052 Insurance 3,068 1,506 888 620 Trustee fees 1,344 1,343 1,353 1,345 Registration fees 1,001 126 1,151 913 Custodian fees 3,443 3,443 3,448 3,442 Other 60 42 221 124 ------------------------------------------------------------------------------------- Total expenses 128,176 72,510 71,214 68,872 ------------------------------------------------------------------------------------- Less expenses waived or reimbursed (53,771) (34,667) (17,512) (17,847) ------------------------------------------------------------------------------------ Net expenses 74,405 37,843 53,702 51,025 ------------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) 457,227 236,469 47,130 2,485 ------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments (51,061) (38,426) 209,203 186,137 Net change in unrealized appreciation (depreciation) of investments 67,400 74,203 328,319 216,025 ------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 16,339 35,777 537,522 402,162 ------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $473,566 $272,246 $584,652 $404,647 -------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. VIKING MUTUAL FUNDS Financial Statements Statements of Changes in Net Assets For the year ended December 31, 2006
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) $457,227 $236,469 $47,130 $2,485 Net realized gain (loss) on investments (51,061) (38,426) 209,203 186,137 Net change in unrealized appreciation (depreciation) of investments 67,400 74,203 328,319 216,025 ------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 473,566 272,246 584,652 404,647 ------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (457,227) (236,469) (47,130) (2,485) Net realized gains 0 0 (71,842) (186,137) ------------------------------------------------------------------------------------- Total distributions to shareholders (457,227) (236,469) (118,972) (188,622) ------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold 1,727,487 431,577 470,724 598,354 Proceeds from reinvestment of distributions 339,997 146,177 26,175 119,026 Cost of shares repurchased (3,408,165) (1,278,230) (312,682) (199,712) ------------------------------------------------------------------------------------- Increase in net assets derived from capital share transactions (1,340,681) (700,476) 184,217 517,668 ------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS $(1,324,342) $(664,699) $649,897 $733,693 ------------------------------------------------------------------------------------- NET ASSETS: Beginning of period $12,408,382 $6,540,526 $3,635,642 $2,509,067 ------------------------------------------------------------------------------------- End of period $11,084,040 $5,875,827 $4,285,539 $3,242,760 -------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. VIKING MUTUAL FUNDS Financial Statements Statements of Changes in Net Assets For the year ended December 31, 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 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 01/01/06- 01/01/05- 01/01/04- 01/01/03- 01/01/02- 12/31/06 12/31/05 12/31/04 12/31/03 12/31/02 ------------------------------------------------------------- Net asset value, beginning of period $10.04 $10.22 $10.20 $10.18 $9.74 ------------------------------------------------------------- Income (loss) from investment operations: Net investment income 0.39 0.38 0.38 0.42 0.46 Net realized and unrealized gain (loss) on investments 0.02 (0.18) 0.02 0.02 0.48 ------------------------------------------------------------- Total from investment operations 0.41 0.20 0.40 0.44 0.94 ------------------------------------------------------------- Less distributions from: Net investment income (0.39) (0.38) (0.38) (0.42) (0.46) Net realized gains 0.00 0.00 0.00 0.00 (0.04) -------------------------------------------------------------- Total distributions (0.39) (0.38) (0.38) (0.42) (0.50) -------------------------------------------------------------- Net asset value, end of period $10.06 $10.04 $10.22 $10.20 $10.18 -------------------------------------------------------------- Total return1 4.15% 1.96% 4.05% 4.45% 9.90% -------------------------------------------------------------- Ratios/supplemental data: Net assets, end of period (000s) $11,084 $12,408 $12,206 $12,634 $8,513 Ratio of net expenses to average net assets 0.63%2 0.55%2 0.41%2 0.31%2 0.15%2 Ratio of net investment income to average net assets 3.87% 3.71% 3.78% 4.13% 4.58% Portfolio turnover rate 24.39% 24.59% 26.55% 24.72% 40.09%
1Total return assumes reinvestment of distributions at net asset value and does not reflect the impact of a sales charge. 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 $53,771, $65,270, $80,645, $81,954 and $67,712. 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 1.08%, 1.06%, 1.06%, 1.09% and 1.30% 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 01/01/06- 01/01/05- 01/01/04- 01/01/03- 01/01/02- 12/31/06 12/31/05 12/31/04 12/31/03 12/31/02 --------------------------------------------------------------- Net asset value, beginning of period $10.14 $10.29 $10.29 $10.25 $9.76 --------------------------------------------------------------- Income (loss) from investment operations: Net investment income 0.39 0.38 0.38 0.42 0.47 Net realized and unrealized gain (loss) on investments 0.08 (0.15) 0.00 0.04 0.49 --------------------------------------------------------------- Total from investment operations 0.47 0.23 0.38 0.46 0.96 --------------------------------------------------------------- Less distributions from: Net investment income (0.39) (0.38) (0.38) (0.42) (0.47) Net realized gains 0.00 0.00 0.00 0.00 0.00 --------------------------------------------------------------- Total distributions (0.39) (0.38) (0.38) (0.42) (0.47) --------------------------------------------------------------- Net asset value, end of period $10.22 $10.14 $10.29 $10.29 $10.25 --------------------------------------------------------------- Total return1 4.77% 2.24% 3.76% 4.60% 10.07% Ratios/supplemental data: Net assets, end of period (000s) $5,876 $6,541 $6,086 $4,781 $2,059 Ratio of net expenses to average net assets 0.62%2 0.52%2 0.44%2 0.36%2 0.22%2 Ratio of net investment income to average net assets 3.86% 3.70% 3.68% 4.06% 4.73% Portfolio turnover rate 35.84% 17.61% 22.36% 7.49% 27.95%
1Total return assumes reinvestment of distributions at net asset value and does not reflect the impact of a sales charge. 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 $34,667, $41,214, $40,375, $32,710 and $30,993. 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 1.18%, 1.16%, 1.18%, 1.32% and 1.90% 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 01/01/06- 01/01/05- 01/01/04- 01/01/03- 01/01/02- 12/31/06 12/31/05 12/31/04 12/31/03 12/31/02 --------------------------------------------------------------- Net asset value, beginning of period $11.64 $10.88 $10.06 $8.20 $10.74 --------------------------------------------------------------- Income (loss) from investment operations: Net investment income 0.14 0.08 0.05 0.06 0.06 Net realized and unrealized gain (loss) on investments 1.67 0.76 0.82 1.86 (2.54) --------------------------------------------------------------- Total from investment operations 1.81 0.84 0.87 1.92 (2.48) --------------------------------------------------------------- Less distributions from: Net investment income (0.14) (0.08) (0.05) (0.06) (0.06) Net realized gains (0.22) 0.00 0.00 0.00 0.00 --------------------------------------------------------------- Total distributions (0.36) (0.08) (0.05) (0.06) (0.06) --------------------------------------------------------------- Net asset value, end of period $13.09 $11.64 $10.88 $10.06 $8.20 --------------------------------------------------------------- Total return1 15.58% 7.76% 8.63% 23.42% (23.08)% Ratios/supplemental data: Net assets, end of period (000s) $4,286 $3,636 $3,088 $2,745 $1,962 Ratio of net expenses to average net assets 1.35%2 1.34%2 1.34%2 1.35%2 1.35%2 Ratio of net investment income to average net assets 1.18% 0.81% 0.47% 0.73% 0.71% Portfolio turnover rate 22.53% 37.51% 25.70% 26.75% 36.52%
1Total return assumes reinvestment of distributions at net asset value and does not reflect the impact of a sales charge. 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 $17,512, $15,575, $14,372, $15,021 and $20,422. 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 1.78%, 1.82%, 1.84%, 2.02% and 2.34% 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 01/01/06- 01/01/05- 01/01/04- 01/01/03- 01/01/02- 12/31/06 12/30/05 12/31/04 12/31/03 12/31/02 --------------------------------------------------------------- Net asset value, beginning of period $14.32 $14.40 $12.43 $9.35 $10.26 --------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss) 0.01 (0.03) (0.06) (0.03) (0.03) Net realized and unrealized gain (loss) on investments 2.00 0.63 2.22 3.11 (0.88) -------------------------------------------------------------- Total from investment operations 2.01 0.60 2.16 3.08 (0.91) -------------------------------------------------------------- Less distributions from: Net investment income (0.01) 0.00 0.00 0.00 0.00 Net realized gains (0.89) (0.68) (0.25) 0.00 0.00 -------------------------------------------------------------- Total distributions (0.90) (0.68) (0.25) 0.00 0.00 -------------------------------------------------------------- Net asset value, end of period $15.43 $14.32 $14.40 $12.43 $9.35 -------------------------------------------------------------- Total return1 14.02% 4.18% 17.86% 32.94% (8.87)% Ratios/supplemental data: Net assets, end of period (000s) $3,243 $2,509 $1,715 $1,250 $604 Ratio of net expenses to average net assets 1.65%2 1.65%2 1.65%2 1.65%2 1.65%2 Ratio of net investment income to average net assets 0.08% (0.21)% (0.46)% (0.37)% (0.41)% Portfolio turnover rate 36.96% 21.93% 15.39% 14.77% 16.24%
1Total return assumes reinvestment of distributions at net asset value and does not reflect the impact of a sales charge. 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 1.65% of its average net assets on an annual basis. For the periods indicated above, Viking Fund Management, LLC waived fees and reimbursed expenses totaling $17,847, $15,661, $14,316, $12,883 and $17,392. 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 2.23%, 2.39%, 2.63%, 3.16% and 5.24% respectively. The accompanying notes are an integral part of these financial statements. VIKING MUTUAL FUNDS Notes to Financial Statements December 31, 2006 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 year ended December 31, 2006 and year ended December 31, 2005 were as follows:
Tax-Free Fund for Tax-Free Fund for Large-Cap Small-Cap Montana North Dakota Value Fund Value Fund ----------------------------------------------------------------------------------- 2006 2005 2006 2005 2006 2005 2006 2005 ----------------------------------------------------------------------------------- Distributions paid from: Tax-exempt income $457,227 $467,045 $236,469 $235,781 $0 $0 $0 $0 Ordinary income $0 $0 $0 $0 $47,130 $26,376 $2,485 $0 Long-term capital gain $0 $0 $0 $0 $71,842 $0 $186,137 $119,340
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 01/01/06 from 01/01/06 from 01/01/06 from 01/01/06 through 12/31/06 through 12/31/06 through 12/31/06 through 12/31/06 ---------------------------------------------------------------------------- Shares sold 172,719 42,747 38,108 39,550 Shares issued in reinvestment of distributions 34,007 14,435 2,249 8,312 Shares redeemed (340,623) (126,768) (25,280) (12,971) ---------------------------------------------------------------------------- Net Increase (Decrease) (133,897) (69,586) 15,077 34,891 ----------------------------------------------------------------------------
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 $55,187 of investment advisory fees after a partial waiver for the year ended December 31, 2006. On December 31, 2006, the Tax-Free Fund for Montana had a payable to VFM for investment advisory fees of $4,505. The Tax-Free Fund for North Dakota recognized $21,949 of investment advisory fees after a partial waiver for the year ended December 31, 2006. On December 31, 2006, the Tax-Free Fund for North Dakota had a payable to VFM for investment advisory fees of $1,885. The Large-Cap Fund recognized $27,845 of investment advisory fees for the year ended December 31, 2006. On December 31, 2006, the Large-Cap Fund had a payable to VFM for investment advisory fees of $2,431. The Small-Cap Fund recognized $30,925 of investment advisory fees for the year ended December 31, 2006. On December 31, 2006, the Small-Cap Fund had a payable to VFM for investment advisory fees of $2,720. 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 31, 2006 the Tax-Free Fund for North Dakota recognized $82 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. 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 31, 2006, the Tax-Free Fund for Montana recognized $934, the Tax-Free Fund for North Dakota recognized $41, Large-Cap Value Fund recognized $9,542 and Small-Cap Value Fund recognized $4,604 of 12b-1 fees after a partial waiver. On December 31, 2006, the Tax Free Fund for Montana, the Large-Cap Fund and Small-Cap Fund had payables to VFD for 12b-1 fees of $93, $873 and $438, respectively. For the year ending December 31, 2006, the net amounts of sales charges deducted from the proceeds of sale of capital shares which were retained by VFD as principal underwriter were $11,654, $435, $2,673 and $2,809 for the Tax-Free Fund for Montana, Tax-Free Fund for North Dakota, Large-Cap Fund and Small-Cap Fund, respectively. On December 31, 2006 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 $47, $53, $101, and $109, 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. 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 31, 2006, the Funds most recently completed year end, Tax-Free Fund for Montana and Tax-Free Fund for North Dakota had capital losses of $144,923 and $82,925 respectively, which may be carried over to offset future capital gains. Such losses start to expire in 2008. At December 31, 2006, 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 $10,885,140 $5,755,928 $3,444,919 $2,787,540 ------------------------------------------------------------------------------------ Unrealized appreciation 199,746 104,989 990,050 678,746 Unrealized depreciation (22,472) (5,721) (36,709) (38,918) ------------------------------------------------------------------------------------ Net unrealized appreciation (depreciation) $177,274 $99,268 $953,341 $639,828 ------------------------------------------------------------------------------------
7. INVESTMENT TRANSACTIONS Purchases and sales of securities (excluding short-term securities) for the year ended December 31, 2006 were as follows:
Tax-Free Fund Tax-Free Fund Large-Cap Small-Cap for Montana for North Dakota Value Fund Value Fund ------------------------------------------------------------------------------------ Purchases $2,882,291 $2,194,090 $1,176,549 $1,622,704 Sales $3,805,657 $2,899,573 $899,541 $1,140,475
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. 9. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. This standard defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund is presently evaluating the impact of adopting SFAS 157. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees of Viking Mutual Funds We have audited the accompanying statements of assets and liabilities of Viking Mutual Funds (the trust), including the schedules of investments, as of December 31, 2006, the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Trusts management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2006, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Viking Mutual Funds as of December 31, 2006, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. BRADY, MARTZ & ASSOCIATES, P.C. Bismarck, North Dakota, USA February 23, 2007 VIKING MUTUAL FUNDS Miscellaneous Information (Unaudited) December 31, 2006 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 transaction 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 07/01/06 Value 12/31/06 Period1 07/01/06-12/31/06 Viking Tax-Free Fund for Montana Actual $1,000.00 $1,041.10 $3.45 2 Hypothetical (5% return before expenses) $1,000.00 $1,021.83 $3.41 2 Viking Tax-Free Fund for North Dakota Actual $1,000.00 $1,047.20 $3.46 2 Hypothetical (5% return before expenses) $1,000.00 $1,021.83 $3.41 2 Viking Large-Cap Value Fund Actual $1,000.00 $1,099.14 $7.14 Hypothetical (5% return before expenses) $1,000.00 $1,018.40 $6.87 Viking Small-Cap Value Fund Actual $1,000.00 $1,060.92 $8.57 Hypothetical (5% return before expenses) $1,000.00 $1,016.89 $8.39
1Expenses are equal to the annualized expense ratio for each Fund (Viking Tax-Free Fund for Montana: 0.67%; Viking Tax-Free Fund for North Dakota: 0.67%; 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 184/365 to reflect the one-half year period. 2Expenses for the Viking Tax-Free Fund for North Dakota and Viking Tax Free Fund for Montana have increased since the Funds most recent fiscal half-year. Had the current expense ratio of the Fund, 0.71%, been in place throughout the entire most recent fiscal half-year, the Actual "Expenses Paid During Period" would have been $3.65 and $3.66, respectively, and the Hypothetical "Expenses Paid During Period" would have been $3.62 for each of the Funds. 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, without charge, and upon request, by calling 1-800-933-8413 and on the SECs website at http://www.sec.gov. Quarterly Portfolio Schedule The Funds 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 are available on the SECs website at http://www.sec.gov. The Funds Form N-Q may be reviewed and copied at the SECs Public Reference Room in Washington, DC and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. VIKING MUTUAL FUNDS Trustee Information (Unaudited) December 31, 2006
NAME AND PRINCIPAL OCCUPATION(S) ADDRESS AGE POSITION(S) HELD DURING PAST 5 YEARS ----------------------------------------------------------------------------------------------------------------------- Shannon D. Radke 40 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 69 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 40 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 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 331 Newman Springs Road Suite 122 Red Bank, NJ 07701 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-CSR, and is available without charge, upon request by calling (800)933-8413. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The Board of Trustees of Viking Mutual Funds has determined that it does not have a member who qualifies as an audit committee financial expert, as defined in Item 3 of Form N-CSR, serving on its audit committee. However, the Board of Trustees determined that, although none of its members meet the technical definition of an audit committee financial expert, the Audit Committee members have sufficient financial expertise to address any issues that are likely to come before the Committee, including the evaluation of the Companys financial statements, supervision of the Companys preparation of its financial statements, and oversight of the work of the Companys independent auditors. 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 $19,200 for the year ended December 31, 2006, and $41,600 for the year ended December 31, 2005. (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 $2200 for the year ended December 31, 2006, and $2000 for the year ended December 31 2005. 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 $890 for the year ended December 31, 2006, and $860 for the year ended December 31 2005. (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 31, 2006, and December 31, 2005, were $3090 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. There was no change in the internal controls over financial reporting (as defined in Rule 30a-3(d) under the Act) of the registrant that occurred during the second half of its fiscal year that has materially affected or is reasonably likely to materially affect, its internal control over financial reporting. 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 30a-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(b) under the Investment Company Act of 1940. Certification of principal executive officer and principal financial officer as required by Section 906 of the Sarbanes-Oxley Act of 2002. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VIKING MUTUAL FUNDS Date: March 8, 2007 /s/Shannon D. Radke -------------------------------- Shannon D. Radke President 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. Date: March 8, 2007 /s/ Shannon D. Radke -------------------------------- Shannon D. Radke President Date: March 8, 2007 /s/ Shannon D. Radke -------------------------------- Shannon D. Radke Treasurer