N-CSR 1 ncsr123108.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: 12/31/08 ------- 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, 2008. Economic growth slowed to a near standstill in the first three months of 2008 as the economy was hit by a series of blows including the credit crunch, a prolonged housing slump, rising unemployment and surging energy prices. In addition, there was a significant decline in the wealth effect; not only were housing values going down but the stock market continued to decline. With the combination of the declining wealth effect and slowing labor market, consumer confidence plunged to the lowest level since 1991. The Federal Reserve slashed the federal funds rate by 200 basis points in the first quarter to 2.25%, moving aggressively to contain a credit crisis threatening to push the country into recession. The path of the U.S economy in the second quarter remained the same with sub-par growth. In many respects it decelerated further, especially after excluding the temporary boost to GDP arising from the one-time payout of $100+ billion in tax rebates. High energy costs taxed growth. In fact, one published estimate calculated that the rise in oil prices offset the tax rebates. The labor market continued to weaken and asset values continued to decline with housing prices and the stock market sliding further. These factors contributed to the lowest consumer sentiment number in 30 years. The Fed again lowered rates in April, this time by a modest quarter percentage point. The Feds action took the federal funds rate to 2 percent, the lowest since December, 2004. In addition to rate cuts, the Fed took a number of emergency steps to ease credit strains that threatened to make the economys ills worse, pumping billions of dollars into markets to keep them from choking on mortgage-related bets. Factors contributing to the economic slowdown worsened in the third quarter. The labor market contracted at a faster pace, asset values continued to decline meaningfully with home prices dropping over 16% year-over-year and stock prices moving lower as well. These factors obviously affected consumer confidence and consumer spending which accounts for two-thirds of GDP. Additionally, the credit crisis exacerbated the situation as consumer credit became more difficult to obtain. If this were not enough, all major economies experienced a significant slowdown, precipitated by constrained credit availability. The beginning of the fourth quarter brought a rare coordinated move as the Federal Reserve and other major central banks from around the world slashed interest rates to prevent a mushrooming financial crisis from becoming a global economic meltdown. The Fed reduced its key rate from 2 percent to 1.5 percent as the pace of economic activity had slowed markedly and the intensification of financial market turmoil was likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit. The Fed again cut the funds rate by a half-point in late October stating that downside risks to growth remain. In December, the Fed pulled out all the stops in its campaign of unprecedented actions to arrest the worst financial crisis since the Great Depression, slashing interest rates to a range of zero to 0.25% and promising to try an array of new economic measures to stimulate spending. The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth, the central bank pledged in its policy statement. However, as 2008 drew to a close, the economic environment remained troublesome as economic data will continue to be negative for sometime, perhaps into the second half of 2009, and possibly longer. The massive deleveraging process that began with the difficulties at two Bear Stearns hedge funds in the spring of 2007 continues at an accelerating pace. Declining home prices, credit market concerns, massive write downs and concerns about companies such as Countrywide, Fannie Mae, Ambac and Bear Stearns, among many others, held the markets in a state of near panic for much of the first quarter. For the quarter, the S&P ended down 9.45%, while the Russell 1000 Value declined 8.72% and the Russell 2000 Value fell 6.52%. Most major domestic market indices sold off sharply in June, with the blue-chip Dow Jones Industrial Average turning in its worst June performance since 1930. Rapidly rising oil prices, more woes for financial firms, and the ongoing fallout from declining housing prices all weighed on investor sentiment and contributed to a challenging second quarter for equity investors. For the quarter, the S&P lost 2.73%, the Russell 1000 Value declined 5.31% and the Russell 2000 Value Index fell 3.55%. As the third quarter of 2008 unfolded, the already-weak environment for global equity and credit markets worsened. Domestic large-cap stocks as measured by the Russell 1000 Value index were down 6.11% while the S&P 500 was down 9.00%. The headlines accompanying these results were, if anything, even more disturbing. Lehman Brothers declared bankruptcy. Fannie Mae, Freddie Mac, AIG and Washington Mutual all failed and/or were rescued. Merrill Lynch and Wachovia agreed to shotgun marriages and concerned about their ability to raise capital, both Goldman Sachs and Morgan Stanley became commercial banks. Despite all this turmoil, the small-cap market held up relatively well. The Russell 2000 Value Index generated a positive return of 4.96% in the quarter. This was partially due to the absence of highly leveraged brokerage companies in the small-cap segment, a group that did dramatically worse than most others. To call the fourth quarter of 2008 memorable is clearly an understatement. The markets started the quarter on shaky legs and it didnt take long for those legs to give out. Fear was decisively in charge and clearly has continued to drive the performance of stocks. For the final three months of 2008, the S&P 500 fell 24.89% and in October it recorded its most volatile month in its 80 year history. The Russell 1000 Value declined 22.18% while the Russell 2000 Value lost 24.89%. The statistics for the year tell a similar tale. Large-cap value stocks declined 36.85%, and small-cap value stocks declined 28.92%, as represented by the Russell 1000 Value and 2000 Value, respectively. On a historical basis, 2008 was the worst year for equity performance since the Great Depression as the Dow slumped nearly 34% and the S&P 500 lost more than 38%. More than $5 trillion in wealth vanished out of the S&P alone. In the first quarter of 2008, for the third quarter in a row, the same trends persisted in the municipal bond market with wider credit spreads or a continuing flight-to-quality and a steepening of the yield curve with short-term rates declining while longer rates rose. The February collapse of the market for auction-rate securities a type of short term debt treated by investors as a cash equivalent and issued by municipalities looking to lower costs forced some municipal issuers to borrow at rates of 20%. This market fell apart after the bank underwriters refused to play their traditional roles in auctions because their books had been roiled by subprime mortgages. Municipal bonds have also been affected by the spillover of the sub-prime crisis to the financial guarantor industry. Bond insurers originally offered insurance mainly to municipalities, but in recent years expanded their operations to insure riskier, more profitable instruments, like bonds backed by pools of mortgages mainly sub prime loans given to customers with a poor credit history. Due to the rapid deterioration and lack of transparency in the market, the ratings agencies began to review the risk in these investments and as a result, the bond insurers AAA ratings. Thus, despite the reductions in the fed funds rate in the first quarter due to the economic slowdown, intermediate to long-term muni prices fell with yields rising. Many of the trends that were prevalent in the prior quarters reversed in the second quarter. Risk appetites increased as investors unwound, at least to some degree, the flight-to-quality trade and the yield curve flattened. The financial strength ratings were cut on bond insurers MBIA and Ambac due to their sub-prime exposure. And although there remains ongoing credit concerns of these and other financial guarantors, the credit quality of many underlying municipal issuers tends to be strong. For the quarter, intermediate to long term muni bond prices were mixed, but generally lower. Municipals sold off further in the third quarter with the bankruptcy of Lehman and a deteriorating economic outlook spurring a massive flight to U.S Treasury Securities. This resulted in wider credit spreads, a steeper yield curve, and thinner secondary market liquidity. The fourth quarter for munis was more of the same and brought to a close the worst year for municipal bonds in the past two decades. The municipal bond market faced a string of problems this year, many of which had nothing to do with the ability of the state or local governments to pay principal and interest on their bonds. All the havoc sent yields on municipals well above Treasurys of the same maturity. Thats highly unusual because debt sold by municipalities is exempt from federal taxes and most state and local taxes to make it cheaper to fund public projects. In this type of market environment, it is 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 -4.66% (at net asset value with distributions reinvested) for the year ended December 31, 2008. In the first quarter of 2008, for the third quarter in a row, the same trends persisted in the municipal bond market with wider credit spreads or a continuing flight-to-quality and a steepening of the yield curve with short-term rates declining while longer rates rose. The February collapse of the market for auction-rate securities a type of short term debt treated by investors as a cash equivalent and issued by municipalities looking to lower costs forced some municipal issuers to borrow at rates of 20%. This market fell apart after the bank underwriters refused to play their traditional roles in auctions because their books had been roiled by subprime mortgages. Municipal bonds have also been affected by the spillover of the sub prime crisis to the financial guarantor industry. Bond insurers originally offered insurance mainly to municipalities, but in recent years expanded their operations to insure riskier, more profitable instruments, like bonds backed by pools of mortgages mainly sub prime loans given to customers with a poor credit history. Due to the rapid deterioration and lack of transparency in the market, the ratings agencies began to review the risk in these investments and as a result, the bond insurers AAA ratings. Thus, despite the reductions in the fed funds rate in the first quarter due to the economic slowdown, intermediate to long term muni prices fell with yields rising. As a result, the Funds share price fell moderately. Many of the trends that were prevalent in the prior quarters reversed in the second quarter. Risk appetites increased as investors unwound, at least to some degree, the flight-to-quality trade and the yield curve flattened. The financial strength ratings were cut on bond insurers MBIA and Ambac due to their sub prime exposure. And although there remains ongoing credit concerns of these and other financial guarantors, the credit quality of many underlying municipal issuers tends to be strong. For the quarter, intermediate to long term muni bond prices were mixed, but generally lower with rates rising, causing the Funds share price to decline slightly. Municipals sold off further in the third quarter with the bankruptcy of Lehman and a deteriorating economic outlook spurring a massive flight to U.S Treasury Securities. This resulted in wider credit spreads, a steeper yield curve, thinner secondary market liquidity and a significant reduction in the Funds share price. The fourth quarter for munis and the Funds share price was more of the same and brought to a close the worst year for municipal bonds in the past two decades. The municipal bond market faced a string of problems this year, many of which had nothing to do with the ability of the state or local governments to pay principal and interest on their bonds. All the havoc sent yields on municipals well above Treasurys of the same maturity. Thats highly unusual because debt sold by municipalities is exempt from federal taxes and most state and local taxes to make it cheaper to fund public projects. Despite the continued scarcity of Montana municipal bonds throughout the period, the Fund was able to obtain an adequate supply of investment grade bonds of various maturities. Average credit quality was A+. 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 investment grade 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, 2008 (Unaudited) Comparison of Change in Value of a $10,000 Investment in Viking Tax-Free Fund for Montana vs. the Barclays Capital 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 January 31, 2007 $13,307 $13,933 $15,097 February 28, 2007 $13,492 $14,126 $15,296 March 31, 2007 $13,472 $14,105 $15,258 April 30, 2007 $13,462 $14,094 $15,303 May 31, 2007 $13,413 $14,043 $15,236 June 30, 2007 $13,346 $13,973 $15,157 July 31, 2007 $13,514 $14,149 $15,273 August 31, 2007 $13,450 $14,082 $15,208 September 28, 2007 $13,653 $14,295 $15,433 October 31, 2007 $13,743 $14,389 $15,502 November 30, 2007 $13,773 $14,420 $15,602 December 31, 2007 $13,722 $14,367 $15,645 January 31, 2008 $13,946 $13,602 $15,842 February 29, 2008 $13,642 $14,283 $15,117 March 31, 2008 $13,620 $14,261 $15,549 April 30, 2008 $13,665 $14,307 $15,731 May 31, 2008 $13,751 $14,397 $15,827 June 30, 2008 $13,653 $13,295 $15,648 July 31, 2008 $13,842 $14,493 $15,708 August 31, 2008 $13,927 $14,581 $15,891 September 30, 2008 $13,435 $14,067 $15,146 October 31, 2008 $13,185 $13,805 $14,992 November 30, 2008 $13,313 $13,939 $15,040 December 31, 2008 $13,082 $13,697 $15,259
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 08/03/99-12/31/08. 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 Barclays Capital 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, 2008 One-Year Three-Year Five Year (Est. 8/3/99) - ---------------------------------------------------------------------------- Excluding Sales Charge -4.66% 0.74% 1.63% 3.40% Including Sales Charge -8.26% -0.54% 0.70% 2.89% Returns reflect reinvestment of distributions and the maximum sales charge, as applicable. The total returns for the five year and lifetime periods reflect a maximum sales charge of 4.50%. The current maximum sales charge is 3.75%. Therefore, the total returns would have been higher had the current maximum sales charge been in effect for the stated periods. Return and share values will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of the taxes that a shareholder would pay on fund distributions or redemption of fund shares. Past performance is not a guarantee of future results. VIKING TAX-FREE FUND FOR NORTH DAKOTA By: Shannon D. Radke, President/Portfolio Manager
Viking Tax-Free Fund for North Dakota provided a total return of -4.89% (at net asset value with distributions reinvested) for the year ended December 31, 2008. In the first quarter of 2008, for the third quarter in a row, the same trends persisted in the municipal bond market with wider credit spreads or a continuing flight to quality and a steepening of the yield curve with short-term rates declining while longer rates rose. The February collapse of the market for auction rate securities a type of short term debt treated by investors as a cash equivalent and issued by municipalities looking to lower costs forced some municipal issuers to borrow at rates of 20%. This market fell apart after the bank underwriters refused to play their traditional roles in auctions because their books had been roiled by subprime mortgages. Municipal bonds have also been affected by the spillover of the sub prime crisis to the financial guarantor industry. Bond insurers originally offered insurance mainly to municipalities, but in recent years expanded their operations to insure riskier, more profitable instruments, like bonds backed by pools of mortgages mainly sub prime loans given to customers with a poor credit history. Due to the rapid deterioration and lack of transparency in the market, the ratings agencies began to review the risk in these investments and as a result, the bond insurers AAA ratings. Thus, despite the reductions in the fed funds rate in the first quarter due to the economic slowdown, intermediate to long term muni prices fell with yields rising. As a result, the Funds share price fell moderately. Many of the trends that were prevalent in the prior quarters reversed in the second quarter. Risk appetites increased as investors unwound, at least to some degree, the flight-to-quality trade and the yield curve flattened. The financial strength ratings were cut on bond insurers MBIA and Ambac due to their sub prime exposure. And although there remains ongoing credit concerns of these and other financial guarantors, the credit quality of many underlying municipal issuers tends to be strong. For the quarter, intermediate to long term muni bond prices were mixed, but generally lower with rates rising while the Funds share price remained nearly unchanged. Municipals sold off further in the third quarter with the bankruptcy of Lehman and a deteriorating economic outlook spurring a massive flight to U.S Treasury Securities. This resulted in wider credit spreads, a steeper yield curve, thinner secondary market liquidity and a significant reduction in the Funds share price. The fourth quarter for munis and the Funds share price was more of the same and brought to a close the worst year for municipal bonds in the past two decades. The municipal bond market faced a string of problems this year, many of which had nothing to do with the ability of the state or local governments to pay principal and interest on their bonds. All the havoc sent yields on municipals well above Treasurys of the same maturity. Thats highly unusual because debt sold by municipalities is exempt from federal taxes and most state and local taxes to make it cheaper to fund public projects. Despite the continued scarcity of North Dakota municipal bonds throughout the period, the Fund was able to obtain an adequate supply of investment grade bonds of various maturities. Average credit quality was A. 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 investment grade 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, 2008 (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 January 31, 2007 $13,499 $14,134 $15,097 February 28, 2007 $13,685 $14,328 $15,296 March 31, 2007 $13,665 $14,307 $15,258 April 30, 2007 $13,656 $14,298 $15,303 May 31, 2007 $13,607 $14,247 $15,236 June 30, 2007 $13,500 $14,135 $15,157 July 31, 2007 $13,697 $14,340 $15,273 August 31, 2007 $13,578 $14,217 $15,208 September 28, 2007 $13,836 $14,487 $15,433 October 31, 2007 $13,940 $14,596 $15,502 November 30, 2007 $13,998 $14,656 $15,602 December 31, 2007 $13,921 $14,575 $15,645 January 31, 2008 $14,132 $14,796 $15,842 February 29, 2008 $13,718 $14,363 $15,117 March 31, 2008 $13,753 $14,399 $15,549 April 30, 2008 $13,812 $14,461 $15,731 May 31, 2008 $13,914 $14,568 $15,827 June 30, 2008 $13,904 $14,558 $15,648 July 31, 2008 $14,093 $14,755 $15,708 August 31, 2008 $14,164 $14,830 $15,891 September 30, 2008 $13,504 $14,139 $15,146 October 31, 2008 $13,171 $13,790 $14,992 November 30, 2008 $13,386 $14,015 $15,040 December 31, 2008 $13,241 $13,863 $15,259
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 08/03/99-12/31/08. 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 Barclays Capital 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, 2008 One-Year Three-Year Five Year (Est. 8/3/99) - ---------------------------------------------------------------------------- Excluding Sales Charge -4.88% 0.80% 1.68% 3.53% Including Sales Charge -8.42% -0.49% 0.75% 3.03% Returns reflect reinvestment of distributions and the maximum sales charge, as applicable. The total returns for the three year, five year, and lifetime periods reflect a maximum sales charge of 4.50%. The current maximum sales charge is 3.75%. Therefore, the total returns would have been higher had the current maximum sales charge been in effect for the stated periods. Return and share values will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of the taxes that a shareholder would pay on fund distributions or redemption of fund shares. Past performance is not a guarantee of future results. VIKING LARGE-CAP VALUE FUND By: William E. Dodge, President & CEO, Fox Asset Management, LLC Shannon D. Radke, President
Viking Large-Cap Value Fund provided a total return of -40.41% (at net asset value) for the year ended December 31, 2008. Declining home prices, credit market concerns, massive write downs and concerns about companies such as Countrywide, Fannie Mae, Ambac and Bear Stearns, among many others, held the markets in a state of near panic for much of the first quarter. For the quarter, the S&P ended down 9.45%, while the Russell 1000 Value declined 8.72%. In the first quarter, the Fund shed 10.77%. The top performing areas were the materials and telecommunications sectors, both of which contributed positively to relative performance. On the flip side, healthcare, consumer staples, and electric utilities were a notable drag on relative performance. Most major domestic market indices sold off sharply in June, with the blue-chip Dow Jones Industrial Average turning in its worst June performance since 1930. Rapidly rising oil prices, more woes for financial firms, and the ongoing fallout from declining housing prices all weighed on investor sentiment and contributed to a challenging second quarter for equity investors. For the second quarter, the S&P lost 2.73%, the Russell 1000 Value declined 5.31%, while the Fund slipped 4.25%. The sharp rebound of agricultural product prices drove positive results in the consumer staples sector. In addition, our underweight in the consumer discretionary sector and industrial sector was a benefit as well. Finally, superior stock selection in the IT segment added positively to results. The healthcare, telecommunications, utilities and energy sectors were generally all on the minus side. As the third quarter of 2008 unfolded, the already weak environment for global equity markets worsened. Domestic large cap stocks as measured by the Russell 1000 Value index were down 6.11% while the S&P 500 was down 9.00% and the Fund lost 5.94%. The headlines accompanying these results were, if anything, even more disturbing. Lehman Brothers declared bankruptcy, Fannie Mae, Freddie Mac, AIG and Washington Mutual all failed and/or were rescued. Merrill Lynch and Wachovia agreed to shotgun marriages and concerned about their ability to raise capital, both Goldman Sachs and Morgan Stanley became commercial banks. Stock selection was a major positive led by names in the financial sector that we owned and others we generally avoided, such as some of the poorest performing brokerage firms. Stock selection was also positive in the energy, materials and telecommunication services sectors. Sector selection detracted from performance, mainly due to a slight underweight in the outperforming financial sector. To call the fourth quarter of 2008 memorable is clearly an understatement. The markets started the quarter on shaky legs and it didnt take long for those legs to give out. Fear was decisively in charge and clearly has continued to drive the performance of stocks. For the final three months of 2008, the S&P 500 fell 24.89% and in October it recorded its most volatile month in its 80 year history. The Russell 1000 Value declined 22.18% while the Russell 2000 Value lost 24.89% and the Fund dropped 25.85%. In the fourth quarter, we increased our exposure to insurance stocks and banks after they plummeted earlier in the prior quarter. We particularly emphasized the insurance area, which had held up rather well and had little exposure to the toxic assets that dominated the headlines in the months earlier. But several insurance companies have liabilities associated with guaranteed returns that are tied to the stock market, and the short sellers went wild. Two thirds of the performance shortfall came from this area and another third can be attributed to the weakness in the banks. Frankly, we had misestimated the scope and scale of the banking crisis, and it hurt performance as a result. The statistics for the year tell a similar tale. Large-cap value stocks declined 36.85%, as represented by the Russell 1000 Value while the Fund fell 40.41%. On a historical basis, 2008 was the worst year for equity performance since the Great Depression as the Dow slumped nearly 34% and the S&P 500 lost more than 38%. More than $5 trillion in wealth vanished out of the S&P alone. We are steadfast in our commitment to finding well managed companies with decent balance sheets and free cash flow or the ability to dramatically increase cash flow that are selling at discount valuations to the market. 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, 2008 (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 January 31, 2007 $13,473 $14,214 $16,870 February 28, 2007 $13,301 $14,033 $16,607 March 31, 2007 $13,655 $14,406 $16,864 April 30, 2007 $14,262 $15,047 $17,487 May 31, 2007 $14,910 $15,730 $18,118 June 30, 2007 $14,768 $15,580 $17,694 July 31, 2007 $14,454 $15,249 $16,876 August 31, 2007 $14,465 $15,260 $17,065 September 28, 2007 $14,970 $15,794 $17,651 October 31, 2007 $15,334 $16,178 $17,653 November 30, 2007 $14,687 $15,495 $16,790 December 31, 2007 $14,766 $15,578 $16,628 January 31, 2008 $14,150 $14,928 $15,962 February 29, 2008 $13,568 $14,314 $15,293 March 31, 2008 $13,176 $13,901 $15,178 April 30, 2008 $13,904 $14,669 $15,918 May 31, 2008 $13,848 $14,609 $15,893 June 30, 2008 $12,617 $13,310 $14,371 July 31, 2008 $12,594 $13,287 $14,320 August 31, 2008 $12,796 $13,499 $14,563 September 30, 2008 $11,866 $12,519 $13,493 October 31, 2008 $9,639 $10,169 $11,157 November 30, 2008 $8,754 $9,236 $10,357 December 31, 2008 $8,799 $9,283 $10,501
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 08/03/99-12/31/08. 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, 2008 One-Year Three-Year Five Year (Est. 8/3/99) - ---------------------------------------------------------------------------- Excluding Sales Charge -40.41% -8.42% -2.10% -0.79% Including Sales Charge -43.54% -10.03% -3.16% -1.35% 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: Gregory Greene, Managing Director, Fox Asset Management, LLC Shannon D. Radke, President
Viking Small-Cap Value Fund provided a total return of -27.12% (at net asset value) for the year ended December 31, 2008. Declining home prices, credit market concerns, massive write downs and concerns about companies such as Countrywide, Fannie Mae, Ambac and Bear Stearns, among many others, held the markets in a state of near panic for much of the first quarter. For the quarter, the S&P ended down 9.45%, while the Russell 2000 Value fell 6.52% and the Fund was off 7.21%. Our top contributor to relative performance was consumer staples. Performance was helped by a significant overweight in the sector and positive stock selection among food producers, distributors and retailers. On the downside, performance in the financial services sector detracted from investment results. Most major domestic market indices sold off sharply in June, with the blue chip Dow Jones Industrial Average turning in its worst June performance since 1930. Rapidly rising oil prices, more woes for financial firms, and the ongoing fallout from declining housing prices all weighed on investor sentiment and contributed to a challenging second quarter for equity investors. For the quarter, the S&P lost 2.73%, and the Russell 2000 Value Index fell 3.55%, while the Fund gained 1.38%. Favorable stock selection in the industrials sector was the single largest contributor to performance. Performance also benefited from favorable stock selection in the information technology sector. On the negative side, we were overweight in the underperforming consumer staples sector and fell short of the mark in energy. As the third quarter of 2008 unfolded, the already weak environment for global equity markets worsened. Domestic large-cap stocks as measured by the Russell 1000 Value index were down 6.11% while the S&P 500 was down 9.00%. The headlines accompanying these results were, if anything, even more disturbing. Lehman Brothers declared bankruptcy. Fannie Mae, Freddie Mac, AIG and Washington Mutual all failed and/or were rescued. Merrill Lynch and Wachovia agreed to shotgun marriages and concerned about their ability to raise capital, both Goldman Sachs and Morgan Stanley became commercial banks. Despite all this turmoil, the small-cap market held up relatively well. The Russell 2000 Value Index generated a positive return of 4.96% in the quarter. This was partially due to the absence of highly leveraged brokerage companies in the small cap segment, a group that did dramatically worse than most others. For the third quarter, the Fund rose 0.57%. Relative performance was hurt by an underweight and poor stock selection in the financial services sector. Information technology was also a source of weakness, as our picks failed to live up to expectations in the short-term. On the positive side, the consumer staples and healthcare sectors each benefited from a holding that received a takeover offer. To call the fourth quarter of 2008 memorable is clearly an understatement. The markets started the quarter on shaky legs and it didnt take long for those legs to give out. Fear was decisively in charge and clearly has continued to drive the performance of stocks. For the final three months of 2008, the S&P 500 fell 24.89% and in October it recorded its most volatile month in its 80 year history. The Russell 2000 Value lost 24.89% and the Fund declined 22.97%. While the Fund was not impervious to the declines in the markets, it did decline less than its benchmark. Our best performing sector relative to the benchmark was the consumer discretionary sector due to positive stock selection. Consumer staples was also a source of relative strength and a slight overweight in utilities helped as well. On the negative side, our stock picks in the industrial sector did not perform well, due to problems experienced by a contractor to the utility industry. Our stock holdings in energy also contributed negatively exacerbated by the sharp decline in the price of crude oil over the period. The statistics for the year tell a similar tale. Small cap value stocks declined 28.92%, as represented by the Russell 2000 Value while the Fund fell 27.12%. On a historical basis, 2008 was the worst year for equity performance since the Great Depression as the Dow slumped nearly 34% and the S&P 500 lost more than 38%. More than $5 trillion in wealth vanished out of the S&P alone. We are steadfast in our commitment to finding well managed companies with decent balance sheets and free cash flow or the ability to dramatically increase cash flow that are selling at discount valuations to the market. Long-term total return and capital preservation remains the investment objective of the Fund.
VIKING SMALL-CAP VALUE FUND Growth of a $10,000 Investment May 3, 1999 through December 31, 2008 (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 January 31, 2007 $16,804 $17,728 $22,385 February 28, 2007 $16,782 $17,705 $22,110 March 31, 2007 $17,296 $18,247 $22,377 April 30, 2007 $17,702 $18,675 $22,609 May 31, 2007 $18,450 $19,465 $23,438 June 30, 2007 $18,226 $19,228 $22,892 July 31, 2007 $17,135 $18,077 $20,944 August 31, 2007 $17,296 $18,247 $21,363 September 28, 2007 $17,595 $18,562 $21,460 October 31, 2007 $17,670 $18,641 $21,694 November 30, 2007 $16,986 $17,920 $20,068 December 31, 2007 $16,891 $17,820 $19,899 January 31, 2008 $16,061 $16,944 $19,082 February 29, 2008 $15,480 $16,332 $18,324 March 31, 2008 $15,674 $16,536 $18,600 April 30, 2008 $16,208 $17,100 $19,188 May 31, 2008 $16,993 $17,928 $19,844 June 30, 2008 $15,890 $16,764 $17,940 July 31, 2008 $16,243 $17,136 $18,860 August 31, 2008 $16,834 $17,760 $19,756 September 30, 2008 $15,981 $16,859 $18,830 October 31, 2008 $13,319 $14,052 $15,069 November 30, 2008 $12,080 $12,744 $13,323 December 31, 2008 $12,310 $12,987 $14,143
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 05/03/01-12/31/08. 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, 2008 One-Year Three-Year Five Year (Est. 5/3/01) -------------------------------------------------------------------------------- Excluding Sales Charge -27.12% -5.24% 0.88% 3.47% Including Sales Charge -30.94% -6.92% -0.20% 2.75% 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, 2008 Viking Tax-Free Fund for Montana
PRINCIPAL MARKET AMOUNT VALUE MUNICIPAL BONDS 95.7% General Obligations 10.3% Bozeman MT Ser A 4.95% 07/01/20 170,000 $179,719 Missoula Cnty Sch Dist #4 Hellgate (ASSGTY) 4.25% 06/15/24 235,000 216,588 Puerto Rico Commonwealth GO (MBIA) 6.00% 07/01/27 500,000 433,530 Puerto Rico Mun Fin Agy Ser A (FSA) 5.50% 08/01/23 250,000 257,730 1,087,567 Continuing Care Revenue Bonds 0.6% MT St Hlth Facs Auth Rev Hillcrest Sr Ctr 6.90% 06/01/15 30,000 32,213 MT St Hlth Facs Auth Rev Hillcrest Sr Ctr 7.25% 06/01/25 35,000 37,315 69,528 Higher Education Revenue Bonds 14.1% MT St Hgher Ed Stud Assist Corp Rev Ser B 6.40% 12/01/32 575,000 521,657 MT St Brd Regents Hghr Ed Rev MSU (AMBAC) 5.00% 11/15/18 260,000 278,788 MT Brd Regents (U of M) Hgher Ed Rev Ser F (MBIA) 5.75% 05/15/24 135,000 139,686 *Univ of MT Revs Facs Acq & Imp Ser C (MBIA) 5.00% 11/15/17 140,000 150,415 Univ of MT Revs Higher Ed Facs Imp Ser D (MBIA) 5.375% 05/15/19 370,000 408,769 1,499,315 Hospital Revenue Bonds 23.6% MT Fac Fin Auth St Luke Cmnty Hlth 5.00% 01/01/22 100,000 98,168 MT Fac FIn Auth Glendive Med Pj 4.50% 07/01/23 250,000 228,327 MT Fac Fin Auth Prov Hlth & Svce 5.00% 10/01/19 175,000 182,310 MT Fac Fin Auth Providence Svcs (MBIA) 5.00% 12/01/18 270,000 292,027 MT Fac Fin Auth Providence Svcs (MBIA) 4.80% 12/01/20 105,000 113,010 MT Fac Fin Auth Benefits Hlth Sys (ASSGTY) 4.75% 01/01/24 150,000 139,347 MT Fac Fin Auth Benefits Hlth Sys (ASSGTY) 4.75% 01/01/25 125,000 115,115 MT Hlth Fac Fin Auth Rev Mstr Ln Program Comm Med Ctr 5.20% 12/01/21 145,000 143,592 *MT Hlth Fac Auth Sisters Chrty Leavenworth (MBIA) 5.125% 12/01/18 100,000 101,384 MT Hlth Fac Auth Sisters Chrty Leavenworth (MBIA) 5.00% 12/01/24 515,000 510,525 MT Fac Fin Auth NE Health Services 4.50% 05/01/27 250,000 219,370 MT St Hlth Fac Auth Rev Comm Med Ctr 6.375% 06/01/18 370,000 351,389 2,494,564 Housing Revenue Bonds 15.9% *MT St Brd Hsg Sngle Fam Mtg Ser A-2 5.75% 06/01/30 55,000 47,891 *MT St Brd Hsg Sngle Fam Ser A-2 5.50% 12/01/20 75,000 70,078 *MT St Brd Hsg Sngle Fam Ser A-2 5.60% 12/01/23 660,000 601,062 MT St Brd Hsg Sngle Fam Ser A-2 5.20% 12/01/22 105,000 93,581 MT St Brd Hsg Sngle Fam Ser B-2 4.85% 12/01/15 70,000 69,087 MT St Brd Hsg Sngle Fam Mtg Ser B-2 5.55% 06/01/33 125,000 104,155 MT St Brd Hsg Sngle Fam Prog Ser A Non-AMT 5.30% 12/01/29 500,000 461,775 MT St Brd Hsg Sngle Fam Mtg Ser C2 4.85% 12/01/26 190,000 152,534 MT St Brd Hsg Sngle Fam Mtg Ser A-2 4.75% 12/01/27 105,000 81,984 1,682,147 Psychiatric and Substance Abuse Hospital Bonds 9.1% MT Fac Fin Auth Developmental Ctr Prog 4.50% 06/01/16 250,000 $257,355 MT Fac Fin Auth Developmental Ctr Proj 4.75% 06/01/19 170,000 170,076 MT Fac Fin Auth Childrens Home 4.55% 01/01/17 250,000 256,425 MT Fac Fin Auth Boyd Andrew Cmnty Svcs Proj (CIFG) 4.375% 10/01/20 285,000 275,153 959,009 Utility Revenue Bonds 8.1% Forsyth MT Poll Ctl Rev Ref Puget Sound Energy (AMBAC) 5.00% 03/01/31 355,000 241,567 *Forsyth MT Poll Ctl Rev Northwestern Corp (AMBAC) 4.65% 08/01/23 750,000 613,980 855,547 Other Revenue Bonds 14.0% Billings MT Spl Impt Dist no 1385 7.00% 07/01/17 2,55000 253,753 Bozeman MT Downtown Impt Dist 4.95% 07/01/28 200,000 136,744 Missoula MT Spl Assmnt Sidewalk Curb 4.75% 07/01/27 200,000 150,186 Missoula MT Spl Impt Dists No 540 4.60% 07/01/24 100,000 77,843 Missoula MT Spl Impt Dists No 540 4.60% 07/01/25 105,000 80,495 Missoula Tax Increment Urban Renewal (RADIAN) 5.125% 07/01/26 125,000 108,367 MT St Dept Transn Rev Grant Antic 5.00% 06/11/22 350,000 366,135 Puerto Rico Childrens Trust Fund Tobacco Settlement Rev 6.00% 07/01/26 195,000 206,809 Puerto Rico Comwlth Inf Fin Auth Ser A (AMBAC) 5.25% 07/01/10 100,000 100,928 1,481,260 Total Municipal Bonds (cost $10,897,713) 10,128,937 SHORT-TERM INVESTMENTS 2.5% Federated Municipal Obligations Fund #852 (1.65%) 270,000 270,000 Total Short-Term Investments (cost: $270,000) 270,000 TOTAL MARKET VALUE OF SECURITIES OWNED 98.2% (COST $11,167,713) 10,398,937 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 1.8% 186,581 NET ASSETS APPLICABLE TO 1,160,502 SHARES (0.001 PAR VALUE) OUTSTANDING - 100.0% $10,585,518
*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 ASSGTY Insured by Assured Guaranty Ltd CIFG Insured by CIFG Guaranty FSA Insured by Financial Security Assurance MBIA Insured by the Municipal Bond Insurance Association RADIAN Insured by Radian Group Inc. VIKING MUTUAL FUNDS Schedule of Investments December 31, 2008 Viking Tax-Free Fund for North Dakota
PRINCIPAL MARKET AMOUNT VALUE MUNICIPAL BONDS 95.9% General Obligations 12.9% Fargo, ND Pub Sch Dist 5.00% 05/01/23 200,000 $197,200 *Fargo ND Ref & Imp - Ser B (FGIC) 5.125% 05/01/17 60,000 60,377 *Fargo ND Ref & Impt Ser D (MBIA) 5.00% 05/01/28 200,000 195,978 Grand Forks, ND Pub Bldg Ser A 4.625% 12/01/26 100,000 95,591 Hillsboro ND Pub Sch Dist No. 9 (FSA) 4.85% 06/01/19 50,000 51,429 West Fargo ND Pub Sch Dist No. 006 (FGIC) 5.00% 05/01/14 50,000 51,862 652,437 Building Authority Revenue Bonds 6.8% Fargo ND Bldg Auth Lease Rev Ser A 5.00% 05/01/20 50,000 51,288 GF Cnty ND Bldg Auth Lease Rev 5.00% 12/01/20 200,000 199,298 ND St Bldg Auth Lease Rev Ser A (MBIA) 5.20% 12/01/19 90,000 91,552 342,138 Continuing Care Revenue Bonds 3.9% Burleigh Cnty Indl Dev Rev MO Slope Luth Care Ctr 5.05% 11/01/18 125,000 108,265 Grand Forks ND Sr Hsg Rev Ref 4000 Valley Square Proj 5.00% 12/01/16 100,000 89,573 197,838 Education Revenue Bonds 5.3% Fargo ND School District Bldg Auth Rev (MBIA) 5.50% 05/01/14 50,000 50,573 Minot Pub School District No 1 Bldg Auth 4.80% 05/01/23 210,000 215,095 265,668 Higher Education Revenue Bonds 8.2% ND St Brd Hgher Ed Student Svcs Facs Rev MSU 5.50% 08/01/23 125,000 102,070 ND St Brd Hgher Ed Student Svcs Facs MSU 5.00% 08/01/18 175,000 154,705 ND St Brd Hgher Ed Rev Hsg & Aux BSC 4.75% 05/01/19 100,000 88,213 NDSU Rev Ser 2006A (AMBAC) 4.75% 04/01/29 75,000 66,818 411,806 Hospital Revenue Bonds 17.8% Fargo ND Hlth Sys Rev Meritcare Obl (AMBAC) 5.125% 06/01/27 75,000 71,515 Fargo ND Hlth Sys Rev Meritcare Ser A (MBIA) 5.375% 06/01/27 200,000 184,418 Fargo ND Hlth Sys Rev Meritcare Obl (FSA) 5.375% 06/01/15 65,000 65,473 Fargo ND Hlth Sys Rev Meritcare Obl (AMBAC) 5.00% 06/01/22 45,000 44,826 GF ND Hlth Care Facs Rev United Hos Obl Grp (MBIA) 6.25% 12/01/24 150,000 126,240 GF ND Hlth Care Sys Rev Altru Hlth Obl Group 5.125% 08/15/27 200,000 168,482 Grand Forks ND Hlth Care Altru Hlth Obl Group 7.125% 08/15/24 20,000 21,484 Ward Cnty ND Hlth Care Fac Rev Trinity Old Group 5.125% 07/01/29 200,000 128,556 Ward Cnty ND Hlth Care Fac Rev Trinity Obl 5.125% 07/01/25 100,000 70,528 Ward Cnty ND Hlth Care Facs Rev Trinity Obl Group - B 6.00% 07/01/10 20,000 20,085 901,607 Housing Revenue Bonds 15.3% Fargo ND Multifam Rev Ref Hsg Trollwood Village 6.90% 09/01/13 25,000 15,000 ND St Hsg Fin Agy Rev Home Mtg Prog C 4.90% 07/01/15 150,000 142,103 ND St Hsg Fin Agy Rev Hsg Fin Pg Home MTG D 5.20% 07/01/22 200,000 169,544 ND St Hsg Fin Agy Rev Hsg Fin Pg Non-AMT 5.15% 07/01/23 300,000 292,545 ND St Hsg Fin Agy Rev Hsg Fin Pg Home Mtg A 5.80% 07/01/10 55,000 55,000 ND St Hsg Fin Agy Rev Hsg Fin Pg Home Mtg A 5.70% 07/01/09 50,000 50,000 *ND St Hsg Fin Agy Rev Hsg Fin Pg Home Mtg A 5.55% 07/01/22 55,000 48,923 773,115 Utility Revenue Bonds 4.2% Oliver Cnty PCR Ref Squre Butte Elec-A (AMBAC) 5.30% 01/01/27 115,000 107,281 Mercer County ND PCR Otter Tail Corp (AMBAC) 4.85% 09/01/22 115,000 106,255 213,536 Water Revenue Bonds 9.8% Minot ND Wtr & Swr Util Rev Ser D 5.25% 10/01/22 200,000 200,182 ND St Water Comm Rev Water Dev & Mgmt Prg Ser A (MBIA) 5.50% 08/01/10 50,000 52,432 ND St Water Comm Rev Water Dev & Mgmt Prog (MBIA) 5.00% 08/01/25 125,000 122,030 South Central Reg Water Dist Burleigh Cnty Rev 5.00% 10/01/23 150,000 121,743 496,387 Other Revenue Bonds 11.7% Grand Forks ND Mosquito Control Rev 4.75% 09/01/24 100,000 95,336 ND Pub Fin Auth Cap Fin Prog Ser A 5.00% 06/01/31 100,000 91,540 ND Pub Fin Auth Indl Dev Prog Ser A 5.00% 06/01/20 150,000 140,330 ND St Muni Bond Bank Cap Fing Prog 6.00% 06/01/21 25,000 26,077 ND St Muni Bond Bank St Revolv Fund Prog Ser A 4.90% 10/01/18 50,000 51,699 Puerto Rico Childrens Trust Fund Tobacco Settlement Rev 6.00% 07/01/26 15,000 15,908 Williams Cnty ND Sales Tax Rev 5.00% 11/01/21 100,000 80,682 Williams Cnty ND Sales Tax Rev 5.00% 11/01/26 125,000 91,131 592,703 Total Municipal Bonds (cost $5,245,924) 4,847,235 SHORT-TERM INVESTMENTS 3.2% Federated Municipal Obligations Fund#852 (1.65%) 160,000 160,000 Total Short-Term Investments (cost: $160,000) 160,000 TOTAL MARKET VALUE OF SECURITIES OWNED 99.1% (COST $5,405,924) 5,007,235 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 0.9% 47,083 NET ASSETS APPLICABLE TO 548,258 SHARES (0.001 PAR VALUE) OUTSTANDING - 100.00% $5,054,318
*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 CIFG Insured by CIFG Guaranty FSA Insured by Financial Security Assurance MBIA Insured by the Municipal Bond Insurance Association VIKING MUTUAL FUNDS Schedule of Investments December 31, 2008 Viking Large-Cap Value Fund
SHARES VALUE Common Stocks 95.4% Basic Materials 20.8% Anadarko Petroleum 2,100 $80,955 Apache 900 67,077 Bunge Limited 900 46,593 ChevronTexaco 1,600 118,352 ConocoPhillips 1,200 62,160 Ensco International 1,400 39,746 Exxon Mobil 2,400 191,592 Freeport-McMoran Copper and Gold 1,400 34,216 Hess Corp 600 32,184 672,875 Conglomerates 6.7% General Electrics 5,000 81,000 Honeywell 2,200 72,226 PPG Industries 1,500 63,645 216,871 Consumer Goods 9.5% Kimberly-Clark 2,000 105,480 Mattel 2,500 40,000 Sealed Air 6,200 92,628 Tupperware 3,100 70,370 308,478 Financial Services 18.6% Bank of America 2,400 33,792 BB&T 1,300 35,698 Chubb 1,300 66,300 JP Morgan Chase & Co. 3,300 104,049 PNC Financial Services 1,700 83,300 Prudential Financial 1,200 36,312 Sun Trust Bank 2,300 67,942 U.S. Bancorp 3,400 85,034 Wells Fargo & Co 3,000 88,440 600,867 Healthcare 6.8% Merck 3,300 100,320 Pfizer 6,700 118,657 218,977 Services 17.8% Amerisource Bergen 2,200 78,452 AT&T 2,800 79,800 CVS Corp. 3,000 86,220 Disney 4,300 97,567 J.C. Penney Company 2,600 51,220 Target 1,500 51,795 TJX Companies 3,200 65,824 Time Warner Cable* 3,100 66,495 577,373 Technology 7.7% Intel 2,400 35,184 Microsoft 4,400 85,536 Verizon Communications 3,800 128,820 249,540 Utilities 7.5% American Electric Power 3,000 99,840 Dominion Resources 1,900 68,096 Public Service Enterprise Group 2,600 75,842 243,778 Total Common Stocks (Cost $3,323,015) 3,088,759 SHORT-TERM INVESTMENTS 7.1% Federated Prime Value Obligations #853 (2.06%) 150,000 150,000 Federated Treasury Cash Reserves #125 (0.40%) 80,000 80,000 Total Short-Term Investments (cost: $230,000) 230,000 TOTAL MARKET VALUE OF SECURITIES OWNED 102.5% (COST $3,553,015) 3,318,759 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES (2.5)% (81,707) NET ASSETS APPLICABLE TO 422,499 SHARES ($0.001 PAR VALUE) OUTSTANDING 100.0% $3,237,052
*Non-income producing investments. The accompanying notes are an integral part of these financial statements. VIKING MUTUAL FUNDS Schedule of Investments December 31, 2008 Viking Small-Cap Value Fund
SHARES VALUE Common Stocks 97.8% Basic Materials 3.5% Oil States Intl Inc.* 3,000 56,070 Stone Energy Corp* 3,700 40,774 Walter Industries 700 12,257 109,101 Conglomerates 2.9% Crane 600 10,344 Teleflex 1,600 80,160 90,504 Consumer Goods 21.6% AO Smith 2,450 72,324 AptarGroup 2,400 84,576 Borg Warner Automotive 2,200 47,894 Carters Inc.* 4,600 88,596 Chiquita Brands Intl* 6,100 90,158 Church & Dwight 1,500 84,180 Hanesbrands* 3,100 39,525 Tupperware 3,600 81,720 588,973 Financial 26.5% Astoria Financial 3,500 57,680 First Midwest Bancorp 3,700 73,889 First Niagara Financial Group Inc 6,400 103,488 Glacier 3,400 64,668 IPC Holdings 3,600 107,640 National Penn Bancshares* 6,500 94,315 Prosperity Bancshares 2,700 79,893 Senior Housing Properties Trust 1,900 34,048 Sterling Bankshares Inc. 4,900 29,792 Tanger Factory Outlet Centers 1,700 63,954 Trustmark Corp. 4,800 103,632 Washington Federal 900 13,464 826,463 Healthcare 5.2% Chattem* 1,200 85,836 West Pharmaceutical Services 2,000 75,540 161,376 Industrial Goods 9.9% Barnes Group 6,100 88,450 Gardner Denver Inc* 2,400 56,016 Lincoln Electric Holdings Inc 1,000 50,930 Nordson Corp 800 25,832 RPM 5,600 74,424 Timken 600 11,778 307,430 Services 16.5% BJs Wholesale* 2,400 82,224 Bristow Group* 1,200 32,148 Dicks Sporting Goods* 6,000 84,660 Jack in the Box* 2,000 44,180 Maximus Inc 1,900 66,709 Owens & Minor 2,000 75,300 Trinity Industries 600 9,456 Wabtec 1,800 71,550 Watson Wyatt Worldwide Inc 1,000 47,820 514,047 Technology 2.9% Brocade Communications* 4,400 12,452 Mettler-Toledo Intl* 600 40,440 Netgear Inc* 3,300 37,653 90,545 Utilities 9.3% Cleco Corporation 3,600 82,188 Piedmont Natural Gas 3,500 110,845 Portland Gen Elect Co 800 15,576 Westar Energy Inc. 4,000 82,040 290,649 Exchange Traded Funds 2.2% iShares Russell 2000 Index 1,400 68,838 68,838 Total Common Stocks (Cost $2,937,784) 3,047,926 SHORT-TERM INVESTMENTS 2.6% Federated Prime Value Obligations Fund #853 (2.06%) 82,000 82,000 Total Short-Term Investments (Cost $82,000) 82,000 TOTAL MARKET VALUE OF SECURITIES OWNED 100.4% (COST $3,019,784) 3,129,926 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES (0.4)% (11,250) NET ASSETS APPLICABLE TO 289,789 SHARES ($0.001 PAR VALUE) OUTSTANDING 100.0% $3,118,676
*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, 2008
Tax-Free Fund Tax-Free Fund Large-Cap Small-Cap for Montana for North Dakota Value Fund Value Fund ASSETS: Investments in securities: Cost $11,167,713 $5,405,924 $3,553,015 $3,019,784 Value 10,398,937 5,007,235 3,318,759 3,129,926 Cash 14,235 5,103 6,601 7,765 Receivable for fund shares sold 97,350 0 0 0 Prepaid assets 2,246 841 1,203 1,061 Security Sales Receivable 0 0 288,424 0 Interest & dividends receivable 132,021 69,364 9,508 5,950 Other receivables 0 116 33 27 Total assets 10,644,789 5,082,659 3,624,528 3,144,729 LIABILITIES: Security purchases payable 0 0 295,807 0 Payable for shares redeemed 0 0 0 0 Distributions payable 44,057 21,016 84,399 18,088 Other accounts payable and accrued expenses 15,214 7,325 7,270 7,965 Total liabilities 59,271 28,341 387,476 26,053 NET ASSETS 10,585,518 5,054,318 3,237,052 3,118,676 COMPONENTS OF NET ASSETS AT December 31, 2008 Capital shares, $0.001 par value, unlimited shares authorized 11,573,836 5,578,869 4,596,860 3,825,643 Net unrealized appreciation (depreciation) (768,776) (398,689) (234,256) 110,142 Accumulated net realized gain (loss) on investments (219,542) (125,862) (1,125,552) (817,109) Undistributed net investment income (loss) 0 0 0 0 NET ASSETS $10,585,518 $5,054,318 $3,237,052 $3,118,676 NET ASSET VALUE AND OFFERING PRICE PER SHARE Net assets, at value $10,585,518 $5,054,318 $3,237,052 $3,118,676 Shares outstanding 1,160,502 548,258 422,499 289,789 Net asset value per share $9.12 $9.22 $7.66 $10.76 Maximum offering price per share (net asset value per share divided by 96.25%, 96.25%, 94.75% and 94.75%, respectively) $9.48 $9.58 $8.08 $11.36
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, 2008
Tax-Free Fund Tax-Free Fund Large-Cap Small-Cap for Montana for North Dakota Value Fund Value Fund ------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest $500,615 $262,211 $ 0 $ 0 Dividends 6,293 1,856 139,489 75,288 ------------------------------------------------------------------------------------- Total investment income 506,908 264,067 139,489 75,228 ------------------------------------------------------------------------------------- EXPENSES: Investment advisory fees 52,090 26,753 32,136 38,133 Administrative fees 10,413 5,351 4,591 3,792 Distribution fees 26,019 13,377 11,477 9,512 Transfer agent fees 3,269 1,688 5,971 6,685 Accounting fees 5,249 2,668 2,295 1,907 Professional fees 9,025 9,028 8,612 8,613 Insurance 2,482 1,372 1,203 964 Trustee fees 991 991 990 990 Registration fees 1,091 126 1,181 1,128 Custodian fees 3,450 3,450 3,450 3,450 ------------------------------------------------------------------------------------- Total expenses 114,079 64,804 71,906 75,174 ------------------------------------------------------------------------------------- Less expenses waived or reimbursed (25,855) (19,442) (16,816) (17,974) ------------------------------------------------------------------------------------ Net expenses 88,224 45,362 55,090 57,200 ------------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) 418,684 218,705 84,399 18,088 ------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments (72,824) (44,995) (1,125,552) (817,109) Net change in unrealized appreciation (depreciation) of investments (856,868) (429,956) (1,189,305) (350,276) ------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (929,692) (474,951) (2,314,857) (1,167,385) ------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(511,008) $(256,246) $(2,230,458) $(1,149,297) -------------------------------------------------------------------------------------
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, 2008
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) $418,684 $218,705 $84,399 $18,088 Net realized gain (loss) on investments (72,824) (44,995) (1,125,552) (817,109) Net change in unrealized appreciation (depreciation) of investments (856,868) (429,956) (1,189,305) (350,276) ------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations (511,008) (256,246) (2,230,458) (1,149,297) ------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (418,684) (218,705) (84,399) (18,088) Net realized gains 0 0 0 0 ------------------------------------------------------------------------------------- Total distributions to shareholders (418,684) (218,705) (84,399) (18,088) ------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold 2,490,950 658,839 681,669 669,000 Proceeds from reinvestment of distributions 305,835 159,937 510,952 242,191 Cost of shares repurchased (1,180,766) (941,248) (480,631) (443,604) ------------------------------------------------------------------------------------- Increase in net assets derived from capital share transactions 1,616,019 (122,472) 711,990 467,587 ------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS $686,327 $(597,423) $(1,602,867) $(699,798) ------------------------------------------------------------------------------------- NET ASSETS: Beginning of period $9,899,191 $5,651,741 $4,839,919 $3,818,474 ------------------------------------------------------------------------------------- End of period $ 10,585,518 $5,054,318 $3,237,052 $3,118,676 -------------------------------------------------------------------------------------
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, 2007
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) $402,239 $228,446 $99,426 $6,208 Net realized gain (loss) on investments (1,794) 2,058 417,137 238,500 Net change in unrealized appreciation (depreciation) of investments (89,182) (67,991) 1,708 (179,410) ------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 311,263 162,513 518,271 65,298 ------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (402,239) (228,446) (99,426) (6,208) Net realized gains 0 0 (417,137) (238,500) ------------------------------------------------------------------------------------- Total distributions to shareholders (402,239) (228,446) (516,563) (244,708) ------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold 1,176,641 628,427 837,540 876,705 Proceeds from reinvestment of distributions 302,091 150,189 117,676 188,207 Cost of shares repurchased (2,572,605) (936,769) (402,544) (309,788) ------------------------------------------------------------------------------------- Increase in net assets derived from capital share transactions (1,093,873) (158,153) 552,672 755,124 ------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS (1,184,849) $(224,086) $554,380 $575,714 ------------------------------------------------------------------------------------- NET ASSETS: Beginning of period $11,084,040 $5,875,827 $4,285,539 $3,242,760 ------------------------------------------------------------------------------------- End of period $9,899,191 $5,651,741 $ 4,839,919 $3,818,474 -------------------------------------------------------------------------------------
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 01/01/08- 01/01/07- 01/01/06- 01/01/05- 01/01/04- 12/31/08 12/31/07 12/31/06 12/31/05 12/31/04 ------------------------------------------------------------- Net asset value, beginning of period $9.96 $10.06 $10.04 $10.22 $10.20 ------------------------------------------------------------- Income (loss) from investment operations: Net investment income 0.39 0.39 0.39 0.38 0.38 Net realized and unrealized gain (loss) on investments (0.84) (0.10) 0.02 (0.18) 0.02 ------------------------------------------------------------- Total from investment operations ( 0.45) 0.29 0.41 0.20 0.40 ------------------------------------------------------------- Less distributions from: Net investment income (0.39) (0.39) (0.39) (0.38) (0.38) Net realized gains 0.00 0.00 0.00 0.00 0.00 -------------------------------------------------------------- Total distributions (0.39) (0.39) (0.39) (0.38) (0.38) -------------------------------------------------------------- Net asset value, end of period $9.12 $9.96 $10.06 $10.04 $10.22 -------------------------------------------------------------- Total return1 (4.66)% 2.96% 4.15% 1.96% 4.05% -------------------------------------------------------------- Ratios/supplemental data: Net assets, end of period (000s) $10,586 $9,899 $11,084 $12,408 $12,206 Ratio of net expenses to average net assets 0.85%2 0.76%2 0.63%2 0.55%2 0.41%2 Ratio of net investment income to average net assets 4.03% 3.91% 3.87% 3.71% 3.78% Portfolio turnover rate 14.34% 26.57% 24.39% 24.59% 26.55%
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 $25,855, $35,778, $53,771, $65,270, and $80,645. 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 1.10%, 1.11%, 1.08%, 1.06%, and 1.06% 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 01/01/08- 01/01/07- 01/01/06- 01/01/05- 01/01/04- 12/31/08 12/31/07 12/31/06 12/31/05 12/31/04 --------------------------------------------------------------- Net asset value, beginning of period $10.10 $10.22 $10.14 $10.29 $10.29 --------------------------------------------------------------- Income (loss) from investment operations: Net investment income 0.40 0.40 0.39 0.38 0.38 Net realized and unrealized gain (loss) on investments (0.88) (0.12) 0.08 (0.15) 0.00 --------------------------------------------------------------- Total from investment operations (0.48) 0.28 0.47 0.23 0.38 --------------------------------------------------------------- Less distributions from: Net investment income (0.40) (0.40) (0.39) (0.38) (0.38) Net realized gains 0.00 0.00 0.00 0.00 0.00 --------------------------------------------------------------- Total distributions (0.40) (0.40) (0.39) (0.38) (0.38) --------------------------------------------------------------- Net asset value, end of period $9.22 $10.10 $10.22 $10.14 $10.29 --------------------------------------------------------------- Total return1 (4.89)% 2.77% 4.77% 2.24% 3.76% Ratios/supplemental data: Net assets, end of period (000s) $5,054 $5,652 $5,876 $6,541 $6,086 Ratio of net expenses to average net assets 0.85%2 0.77%2 0.62%2 0.52%2 0.44%2 Ratio of net investment income to average net assets 4.10% 3.92% 3.86% 3.70% 3.68% Portfolio turnover rate 30.91% 28.12% 35.84% 17.61% 22.36%
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 $19,442, $25,374, $34,667, $41,214, and $40,375. 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 1.21%, 1.20%, 1.18%, 1.16%, and 1.18% 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 01/01/08- 01/01/07- 01/01/06- 01/01/05- 01/01/04- 12/31/08 12/31/07 12/31/06 12/31/05 12/31/04 --------------------------------------------------------------- Net asset value, beginning of period $13.19 $13.09 $11.64 $10.88 $10.06 --------------------------------------------------------------- Income (loss) from investment operations: Net investment income 0.20 0.27 0.14 0.08 0.05 Net realized and unrealized gain (loss) on investments (5.53) 1.24 1.67 0.76 0.82 --------------------------------------------------------------- Total from investment operations (5.33) 1.51 1.81 0.84 0.87 --------------------------------------------------------------- Less distributions from: Net investment income (0.20) (0.27) (0.14) (0.08) (0.05) Net realized gains 0 (1.14) (0.22) 0.00 0.00 --------------------------------------------------------------- Total distributions (0.20) (1.41) (0.36) (0.08) (0.05) --------------------------------------------------------------- Net asset value, end of period $7.66 $13.19 $13.09 $11.64 $10.88 --------------------------------------------------------------- Total return1 (40.41)% 11.52% 15.58% 7.76% 8.63% Ratios/supplemental data: Net assets, end of period (000s) $3,237 $4,840 $4,286 $3,636 $3,088 Ratio of net expenses to average net assets 1.20%2 1.35%2 1.35%2 1.34%2 1.34%2 Ratio of net investment income to average net assets 1.84% 2.01% 1.18% 0.81% 0.47% Portfolio turnover rate 61.86% 35.23% 22.53% 37.51% 25.70%
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. The contractual agreement was amended on December 5, 2007 so that the Funds total operating expenses during this period will not exceed 1.20% of average net assets on an annual basis. For the periods indicated above, Viking Fund Management, LLC waived fees and reimbursed expenses totaling $16,816, $17,059, $17,512, $15,575, and $14,372. 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 1.56%, 1.70%, 1.78%, 1.82%, and 1.84% 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 01/01/08- 01/01/07- 01/01/06- 01/01/05- 01/01/04- 12/31/08 12/30/07 12/31/06 12/31/05 12/31/04 --------------------------------------------------------------- Net asset value, beginning of period $14.85 $15.43 $14.32 $14.40 $12.43 --------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss) 0.06 0.02 0.01 (0.03) (0.06) Net realized and unrealized gain (loss) on investments (4.09) 0.35 2.00 0.63 2.28 -------------------------------------------------------------- Total from investment operations (4.03) 0.37 2.01 0.60 2.22 -------------------------------------------------------------- Less distributions from: Net investment income (0.06) (0.02) (0.01) 0.00 0.00 Net realized gains 0.00 (0.93) (0.89) (0.68) (0.25) -------------------------------------------------------------- Total distributions (0.06) (0.95) (0.90) (0.68) (0.25) -------------------------------------------------------------- Net asset value, end of period $10.76 $14.85 $15.43 $14.32 $14.40 -------------------------------------------------------------- Total return1 (27.12)% 2.41% 14.02% 4.18% 17.86% Ratios/supplemental data: Net assets, end of period (000s) $3,119 $3,818 $3,243 $2,509 $1,715 Ratio of net expenses to average net assets 1.50%2 1.65%2 1.65%2 1.65%2 1.65%2 Ratio of net investment income to average net assets 0.47% 0.16% 0.08% (0.21)% (0.46)% Portfolio turnover rate 71.46% 46.19% 36.96% 21.93% 15.39%
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. The contractual agreement was amended on December 5, 2007 so that the Funds total operating expenses during this period will not exceed 1.50% of average net assets on an annual basis For the periods indicated above, Viking Fund Management, LLC waived fees and reimbursed expenses totaling $17,974 $18,509, $17,847, $15,661, and $14,316. If the fees had not been waived or expenses had not been reimbursed, the annualized ratio of total expenses to average net assetswould have been 1.96%, 2.15%, 2.23%, 2.39%, and 2.63% respectively.
The accompanying notes are an integral part of these financial statements. VIKING MUTUAL FUNDS Notes to Financial Statements December 31, 2008
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. In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, (FIN 48)). FIN 48 establishes the minimum threshold for recognizing, and a system for measuring, the benefits of tax-return positions in financial statements. Management has analyzed the Funds tax positions on federal income tax returns for all open tax years for the purposes of implementing FIN 48, and has concluded that no provision for income tax is required in the Funds financial statements. Interest and penalties related to uncertain tax positions, if any, are classified in the Funds financial statements as Other Expense. 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reportin period. Actual results could differ from those estimates. 3. DISTRIBUTIONS TO SHAREHOLDERS The tax character of distributions paid during the year ended December 31, 2008 and year ended December 31, 2007 were as follows:
Tax-Free Fund for Tax-Free Fund for Large-Cap Small-Cap Montana North Dakota Value Fund Value Fund ----------------------------------------------------------------------------------- 2008 2007 2008 2007 2008 2007 2008 2007 ----------------------------------------------------------------------------------- Distributions paid from: Tax-exempt income $418,684 $402,239 $218,705 $228,446 $0 $0 $0 $0 Ordinary income $0 $0 $0 $0 $84,399 $136,817 $18,088 $6,208 Long-term capital gain $0 $0 $0 $0 $0 $379,746 $0 $238,500
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 01/01/08 from 01/01/08 from 01/01/08 from 01/01/08 through 12/31/08 through 12/31/08 through 12/31/08 through 12/31/08 ---------------------------------------------------------------------------- Shares sold 257,609 67,322 59,650 49,049 Shares issued in reinvestment of distributions 31,476 16,264 38,738 16,309 Shares redeemed (122,496) (95,134) (42,804) (32,787) ---------------------------------------------------------------------------- Net Increase (Decrease) 166,589 (11,548) 55,584 32,571 ----------------------------------------------------------------------------
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 $52,090 of investment advisory fees for the year ended December 31, 2008. On December 31, 2008, the Tax-Free Fund for Montana had a payable to VFM for investment advisory fees of $4,755. The Tax-Free Fund for North Dakota recognized $26,753 of investment advisory fees after a partial waiver for the year ended December 31, 2008. On December 31, 2008, the Tax-Free Fund for North Dakota had a payable to VFM for investment advisory fees of $2,301. The Large-Cap Fund recognized $32,108 of investment advisory fees after a partial waiver for the year ended December 31, 2008. On December 31, 2008, the Large-Cap Fund had a payable to VFM for investment advisory fees of $2,022. The Small-Cap Fund recognized $38,007 of investment advisory fees after a partial waiver for the year ended December 31, 2008. On December 31, 2008, the Small-Cap Fund had a payable to VFM for investment advisory fees of $2,635. 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 andportfolio 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 $25 million and 0.35% to the Large-Cap Funds daily net assets in excess of $25 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 up to $5 million, 0.45% from $5 million to $15 million, 0.50% from $15 million to $25 million, 0.55% from $25 million to $35 million and 0.60% in excess of $35 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, 2008 the Tax-Free Fund for North Dakota recognized $5 transfer-agent services and the Large-Cap Fund recognized $11 for accounting services. After 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 each Fund to pay distribution and service fees of up to 0.25% of average daily net assets per year to Viking Fund Distributors, LLC (VFD) for distributing each Funds shares and for servicing shareholder accounts. On For the year ended December 31, 2008 the Tax-Free Fund for Montana recognized $19,113, the Tax-Free Fund for North Dakota recognized $3,637, Large-Cap Fund recognized $7,535 and Small-Cap Fund recognized $4,086 of 12b-1 fees each after a partial waiver. On December 31, 2008, the Tax-Free Fund for Montana, Tax-Free Fund for North Dakota, and Large-Cap Fund had payables to VFD for 12b-1 fees of $1,772, $255, and $139 respectively. For the year ending December 31, 2008 , the net amounts of sales charges deducted from the proceeds of sale of capital shares which were retained by VFD as principal underwriter were $17,434, $764, $1,687 and $1,578 for the Tax-Free Fund for Montana, Tax-Free Fund for North Dakota, Large-Cap Fund and Small-Cap Fund, respectively. On December 31, 2008 the Tax-Free Fund for Montana, Large-Cap Fund and Small-Cap Fund had payables to VFD for underwriting fees of $3,844, $116, and $144, 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. The contractual agreement was amended on December 5, 2007 so that the Large-Cap Funds total operating expenses during this period will not exceed 1.20% of average net assets on an annual basis and the Small-Cap Funds total operating expenses during this period will not exceed 1.50% of average net assets on an annual basis. An officer and trustee of the Funds is also an officer and governor 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, 2008, the Funds most recently completed year end, Tax-Free Fund for Montana and Tax-Free Fund for North Dakota had capital losses of $219,541 and $125,862 respectively, which may be carried over to offset future capital gains. Such losses start to expire in 2009. The Large-Cap Fund and Small-Cap Fund had capital losses of $1,125,552 and $786,503 respectively, which may be carried over to offset future capital gains. Such losses start to expire in 2016.
At December 31, 2008, the net unrealized appreciation based on the cost of investments for federal income tax purposes was as follows:
Tax-Free Fund Tax-Free Fund Large-Cap Small-Cap for Montana for North Dakota Value Fund Value Fund ------------------------------------------------------------------------------------ Investments at cost $11,167,713 $5,405,924 $3,553,015 $3,019,784 ------------------------------------------------------------------------------------ Unrealized appreciation 106,641 21,241 260,047 376,044 Unrealized depreciation (875,417) (419,930) (494,303) (265,902) ------------------------------------------------------------------------------------ Net unrealized appreciation (depreciation) $(768,776) $(398,689) $(234,256) $110,142 ------------------------------------------------------------------------------------
7. INVESTMENT TRANSACTIONS Purchases and sales of securities (excluding short-term securities) for the year ended December 31, 2008 were as follows:
Tax-Free Fund Tax-Free Fund Large-Cap Small-Cap for Montana for North Dakota Value Fund Value Fund ------------------------------------------------------------------------------------ Purchases $2,771,905 $1,625,139 $3,155,949 $2,995,105 Sales $1,450,951 $2,071,855 $2,661,162 $2,548,096
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. In accordance with the provisions of SFAS No. 157, the Funds adopted this standard effective January 1, 2008. The implementation of the standard did not impact the amounts reported in the financial statements, however, the additional disclosure isrequired about the inputs used to develop the measurements of fair value. Various inputs are used in determining the value of the Funds investments. These inputs are summarized in the three broad levels listed below: * Level 1 - quoted prices in active markets for identical securities * Level 2 - other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) * Level 3 - significant unobservable inputs (including the Funds own assumptions in determining the fair value of investments) The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. The following is a summary of the inputs used to value the Funds net assets as of December 31, 2008:
Investments in Securities Tax-Free Fund Tax-Free Fund Large-Cap Small-Cap Valuation Inputs for Montana for North Dakota Value Fund Value Fund ------------------ ------------------------------------------------------------------------------------- Level 1 Quoted Prices $270,000 $160,000 $3,318,759 $3,129,926 Level 2 Other Significant Observable Inputs 10,128,937 4,847,235 - - Level 3 Significant Unobservable Inputs - - - - ------------------------------------------------------------------------------------ Total $10,398,937 $5,007,235 $3,318,759 $3,129,926
In March of 2008, FASB issued Statement of Financial Acounting Standards No. 161, Disclosures about Derivative Instruements and Hedging Actvities (SFAS 161). SFAS 161 requires enhanced disclosures to provide information about the reasons the Fund invests in derivative instruments, the accounting treatment and the effect of derivatives have on financial performance. SFAS 161 is effective for fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. VIKING MUTUAL FUNDS Miscellaneous Information (Unaudited) December 31, 2008 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 is intended to help you understand your ongoing costs (in dollars) of investing in a Viking Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The table is based on an investment of $1,000 at the beginning of the period and held for the six months indicated.
Beginning Account Ending Account Expenses Paid During Value 07/01/08 Value 12/31/08 Period1 07/01/08-12/31/08 Viking Tax-Free Fund for Montana Actual $1,000.00 $ 958.22 $4.18 Hypothetical (5% return before expenses) $1,000.00 $1,020.86 $4.32 Viking Tax-Free Fund for North Dakota Actual $1,000.00 $ 952.29 $4.17 Hypothetical (5% return before expenses) $1,000.00 $1,020.86 $4.32 Viking Large-Cap Value Fund Actual $1,000.00 $ 689.97 $5.10 Hypothetical (5% return before expenses) $1,000.00 $1,019.10 $6.09 Viking Small-Cap Value Fund Actual $1,000.00 $ 773.46 $6.69 Hypothetical (5% return before expenses) $1,000.00 $1,017.60 $7.61
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 liabilitiesof Viking Mutual Funds (the trust), including the schedules of investments, as of December 31, 2008, 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, 2008, 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 presentfairly, in all material respects, the financial position of the Viking Mutual Funds as of December 31, 2008, 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 20, 2009 VIKING MUTUAL FUNDS Trustee Information (Unaudited) December 31, 2008
NAME AND PRINCIPAL OCCUPATION(S) ADDRESS AGE POSITION(S) HELD DURING PAST 5 YEARS ----------------------------------------------------------------------------------------------------------------------- Shannon D. Radke 42 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 71 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 (1973-2006); Speaker of the North Dakota House of Representatives (1997). Peter C. Zimmerman 42 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 $20,900 for the year ended December 31, 2008, and $20,020 for the year ended December 31, 2007. (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 $2,360 for the year ended December 31, 2008, and $2,300 for the year ended December 31, 2007. 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 $1,200 for the year ended December 31, 2008, and $900 for the year ended December 31, 2007. (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, 2008, and December 31, 2007, were $4,760 and $4,575. (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 6, 2009 /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 6, 2009 /s/ Shannon D. Radke -------------------------------- Shannon D. Radke President Date: March 6, 2009 /s/ Shannon D. Radke -------------------------------- Shannon D. Radke Treasurer