VIKING MUTUAL FUNDS
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Viking Tax-Free Fund for Montana
Viking Tax-Free Fund for North Dakota
Viking Large-Cap Value Fund
1999 ANNUAL REPORT
SHAREHOLDER LETTER
Dear Fellow Shareholder:
It is a pleasure to bring you the Viking Mutual Funds annual report for the
period since inception (August 3, 1999) through December 31, 1999.
Throughout the period under review, the U.S. economy continued its strong
advance. Fueled by 30-year low unemployment rates, near record levels of
consumer confidence, robust housing and manufacturing sectors, a resurgent
global economy and the wealth effect from the stock market's bull run, this
blistering economy has resulted in interest rate hikes by the Fed as
preventive medicine in an attempt to diminish the risk of inflation going
forward.
Certainly, inflation appears so far to be under wraps. But monetary
policy-makers, especially Fed chief Alan Greenspan, have repeatedly stressed
their concern that despite impressive gains in productivity, a dwindling pool
of available workers will eventually force wages higher. Companies will
likely have to raise prices to pay for those higher wages and that spells
inflation. With labor markets stretched taut and consumers snapping up
goods with a vengeance, the Fed will likely tighten credit further in 2000.
Uncertainty regarding interest rates added volatility to the markets. The
strong gains of the U.S. equity market indices masked the story of what really
went on in the markets. Outside of the indices, most stocks were actually
down on the year. Of all stocks traded on the New York Stock Exchange, 63%
were down for the year. Even on the NASDAQ, with an abundance of high
growth technology and Internet companies, 52% of the companies declined for
the year. Indeed, the market gains were achieved by the strong advances in
a minority of stocks in high growth technology, Internet and IPOs.
Generally rising interest rates during the period under review presented
challenges for the bond markets as bond prices fall when interest rates rise.
The benchmark 30-year Treasury bond yield has increased dramatically from a low
around 4.70% in the fall of 1998 to near 6.50% at December 31, 1999.
Municipal yields increased throughout the period as well although they
weathered the turbulence in the fixed income arena better than Treasuries.
Municipal bonds are currently looking extraordinarily attractive relative to
Treasury bonds with the municipal yield to Treasury yield ratio in excess of
90%. Additionally, as rates rise, mutual funds purchasing new municipal bonds
will generally pay higher dividends.
In this type of market environment, it is even more important than ever 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 fund's portfolios and financial statements are presented within for
your review.
We thank you for your patience during these turbulent times in the market
and appreciate your continued confidence in Viking Mutual Funds. 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 -4.47% for the
period since inception (August 3, 1999) through December 31, 1999 (at net
asset value with distributions reinvested).
In an attempt to cool down the blistering economy and diminish the risk of
higher inflation going forward, the Fed raised interest rates by a quarter
of a percentage point two times between the fund's inception and December 31,
1999. Anticipation of these rate hikes led to higher municipal yields and a
resulting decrease in the fund's share price.
Still, there was little evidence that interest rates had risen enough to bring
the growth of demand into line with that of potential supply resulting in
widespread anticipation of additional rate hikes in 2000. Fears of these
additional rate hikes have also been priced into the municipal market. In
addition, the stock market's bull run of annual double-digit gains has weighed
on the demand for municipals.
During the period, the Fund invested in a number of high quality Montana
municipal bonds having various maturities. Purchases throughout the period
included State of Montana G.O., Montana Health Facilities Authority for
Providence Services and Montana State University issues. Purchasing varying
maturities resulted in a duration at December 31, 1999 of 7.48 years providing
some measure of preservation of capital in the turbulent, rising interest rate
environment. Average credit quality at the end of the period was a lofty
AAA-.
Going forward, the fund will continue to invest in high quality issues
throughout the state. The highest level of current income exempt from federal
and Montana income taxes consistent with preservation of capital remains the
investment objective of the fund.
With yields having moved sharply higher in the last year and additional rate
hikes already priced into the municipal market now may be a good time to take
advantage of the recent run up in interest rates as a buying opportunity.
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 -3.56% for
the period since inception (August 3, 1999) through December 31, 1999 (at net
asset value with distributions reinvested).
In an attempt to cool down the blistering economy and diminish the risk of
higher inflation going forward, the Fed raised interest rates by a quarter
of a percentage point two times between the fund's inception and December
31, 1999. Anticipation of these rate hikes led to higher municipal yields
and a resulting decrease in the fund's share price.
Still, there was little evidence that interest rates had risen enough to
bring the growth of demand into line with that of potential supply
resulting in widespread anticipation of additional rate hikes in 2000.
Fears of these additional rate hikes have also been priced into the municipal
market. In addition, the stock market's bull run of annual double-digit
gains has weighed on the demand for municipals.
During the period, the Fund invested in a number of high quality North
Dakota municipal bonds having various maturities. Purchases throughout the
period included Fargo G.O. on, Bismarck Public School District and
Grand Forks Sales Tax Revenue issues. Purchasing varying maturities resulted
in a duration at December 31, 1999 of 6.51 years providing some measure of
preservation of capital in the turbulent, rising interest rate environment.
Average credit quality at the end of the period was a lofty AA+.
Going forward, the fund will continue to invest in high quality issues
throughout the state. The highest level of current income exempt from federal
and North Dakota income taxes consistent with preservation of capital remains
the investment objective of the fund.
With yields having moved sharply higher in the last year and additional rate
hikes already priced into the municipal market now may be a good time to take
advantage of the recent run up in interest rates as a buying opportunity.
Viking Large-Cap Value Fund
By J. Peter Skirkanich, Investment Committee Chairman
Shannon D. Radke, President
Viking Large-Cap Value Fund provided a slightly negative return of -0.77 %
for the period since inception (August 3, 1999) to December 31, 1999 (at net
asset value with distributions reinvested). Although this return was
negative, it compared favorably with the -2.09% return of the Russel 1000
Value Index.
Although the major stock indices ended the past year at or near all time
highs, the strong gains of some indices masked the real story of risk in the
broad market. Of all stocks traded on the New York Stock Exchange, 63% were
down for the year. Even on the NASDAQ, with an abundance of high growth
technology and Internet companies, 52% of the companies declined for the year.
Further, the most astonishing statistic of the year was that for 1999 all
NASDAQ stocks with no earnings as a group showed a positive return, while
all stocks with earnings as a group posted a negative return. The prevalence
of risk in the market is further illustrated by the Value Line Composite
(geometric), which lost 1.4% before dividends, as well as the historically
more conservative S&P Electric Utilities Index losing more than 23% for the
year. You could almost envision the New Era growth investors lecturing value
investors by quoting Mark Twain, " You can't depend on your eyes when your
imagination is out of focus." However, we are not about to adopt
Price/Fantasy ratios in lieu of Price/Earnings ratios in our analysis.
The fund's top sector weightings at year-end included computer related,
chemical and electronics. The top five holdings were Emerson Electric Co.,
Hewlett-Packard Co., Albertson's Inc., Crown, Cork & Seal, Co., and Dana Corp.
Our investments in the auto parts sector have been disappointing, yet we
remain enthusiastic. At less than 10 times earnings the group is ridiculously
undervalued (i.e. Dana sells at 7 X earnings). Likewise, our investments in
financial services companies were battered as rising rates took its toll on
stock prices. Allstate, BankOne, First Union, Chubb and others made investors
vary of most financial stocks. This has made it possible to accumulate high
quality companies such as Washinton Mutual and US Bancorp at attractive prices.
Industrial output and manufacturing activity surged during the period, as the
rebound in Asian and European economies accelerated, thus increasing the
demand for exports and complementing the improved domestic environment for
materials and commodity producers. We expect these strong trends to continue
which would benefit the earnings outlook for our investments in companies such
as Emerson Electric, Kennametal, Ingersoll-Rand and Parker Hannifin, as well
as our chemical holdings.
The fundamental outlook for our computer-related holdings remains very strong.
Accelerating demand for faster chips, better graphics and greater bandwidth
continues to drive secular growth for necessary technologies.
With the markets at all-time highs and speculative excesses rampant, now more
than ever a prudent and disciplined investment process is necessary. The U.S.
economy is strong, the worldwide economy is continuing to improve and the
valuations for most stocks are not excessive. Indeed many are downright
cheap. We are confident that valuation does matter and that our investments
in proven companies with strong profit potential will result in premium
returns over the long haul with substantially less volatility.
Long term total return and capital preservation remains the investment
objective of the fund.
VIKING MUTUAL FUNDS
Statement of Investments, December 31, 1999
Viking Tax-Free Fund for Montana
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
MONTANA MUNICIPAL BONDS 71.5%
<S> <C> <C>
Montana St. Long Range Building
Pg - Ser D G.O. 5.25% 08/01/16 $ 10,000 $ 9,370
Forsyth MT Pollution Control Rev Ref Puget
Sound Power & Light (AMBAC) 6.80% 03/01/22 5,000 5,218
Forsyth MT PCR Ref Montana Power
(AMBAC) 6.125% 05/01/23 5,000 4,983
Montana St. Health Facilities Authority Rev
Providence Services (MBIA) 5.375% 12/01/25 25,000 22,486
MT St. Board Housing Single Family Mortgage Ser A-2
5.65% 12/01/20 5,000 4,566
MT Higher Education Student Assistance Corporation
Student Loan Rev 6.15% 12/01/06 5,000 5,082
Montana St. University Revs Ref & Improvement
Higher Education Facilities D (MBIA) 5.375% 11/15/21 25,000 22,949
Puerto Rico Highway & Transportation Authority Highway
Rev Ref Ser W (FSA) 5.25% 07/01/20 5,000 4,494
Puerto Rico Electric Power Authority Power Re
Ser AA (MBIA) 5.00% 07/01/07 5,000 4,959
Puerto Rico Public Finance Corporation Commonwealth
Approp - Ser A (AMBAC) 5.375% 06/01/15 10,000 9,566
University of Montana University Revs Facilities Acq & Impt
Ser C (MBIA) 5.20% 11/15/09 10,000 9,952
---------
Total Municipal Bonds (cost $109,581) 103,625
SHORT-TERM INVESTMENTS 6.9%
Franklin Puerto Rico Tax-Free Fund 5,000
Goldman-Sachs Financial Square Tax-Free Money Market 5,000
----------
Total Short-Term Investments (cost $10,000) 10,000
----------
TOTAL MARKET VALUE OF SECURITIES OWNED 78.4%
(COST $119,581) 113,625
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 21.6% 31,334
----------
NET ASSETS APPLICABLE TO 15,410 SHARES
($0.001 PAR VALUE) OUTSTANDING 100.0% $ 144,959
==========
</TABLE>
Summary of Abbreviations:
AMBAC - Insured by the AMBAC Indemnity Corporation
FSA - Insured by Financial Security Assurance
MBIA - Insured by the Municipal Bond Insurance Association
The accompanying notes are an integral part of these financial statements.
VIKING MUTUAL FUNDS
Statement of Investments, December 31, 1999
Viking Tax-Free Fund for North Dakota
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------
NORTH DAKOTA MUNICIPAL BONDS 76.5%
<S> <C> <C>
Bismarck ND Public School District
No. 1 G.O. (FGIC) 4.50% 05/01/18 $ 25,000 $ 20,371
Fargo ND Ref & Impt - Ser A
4.80% 05/01/08 5,000 4,841
Grand Forks ND G.O. Tax Increment
Ser B 5.80% 12/01/14 5,000 4,997
Grand Forks ND Park District Ref Impt
(AMBAC) 5.50% 05/01/24 5,000 4,568
ND St HFA Rev Ref Housing Finance Program
Home Mortgage Ser D 5.80% 07/01/14 5,000 4,888
Ward County ND Health Care Facilities Rev
Trinity Obligated Group - B 7.50% 07/01/21 20,000 20,567
*Grand Forks ND Sales Tax Rev Aurora
Project Ser A (MBIA) 5.625% 12/15/29 25,000 22,770
*ND State Student Loan Rev Ser A (AMBAC)
7.00% 07/01/05 5,000 5,054
NDSU Ag & Applied Science University Rev Ref
Housing & Auxiliary Facilities 6.40% 04/01/10 5,000 5,070
Oliver County ND Solid Waste Rev Ref Square
Butte Elec - B (AMBAC) 5.45% 01/01/24 5,000 4,477
---------
Total Municipal Bonds (cost $101,776) 97,603
SHORT-TERM INVESTMENTS 7.5%
Franklin Puerto Rico Tax-Free Fund 4,419
Goldman-Sachs Financial Square Tax-Free Money Market 5,150
---------
Total Short-Term Investments (cost $9,619) 9,569
---------
TOTAL MARKET VALUE OF SECURITIES OWNED 84.0%
(COST $111,396) 107,172
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 16.0% 20,359
NET ASSETS APPLICABLE TO 13,472 SHARES ---------
($0.001 PAR VALUE) OUTSTANDING 100.0% $ 127,531
=========
</TABLE>
Summary of Abbreviations:
AMBAC - Insured by the AMBAC Indemnity Corporation
FGIC - Insured by the Financial Guaranty Insurance Company
MBIA - Insured by the Municipal Bond Insurance Association
*Indicates bonds are segregated by the custodian to cover when-issued or
delayed-delivery purchases.
The accompanying notes are an integral part of these financial statements.
VIKING MUTUAL FUNDS
Statement of Investments, December 31, 1999
Viking Large-Cap Value Fund
SHARES VALUE
-----------------------
Consumer Non-Durables 21.7%
Air Products & Chemicals 300 $ 10,069
Albertson's Inc. 700 22,575
Bestfoods 300 15,769
ConAgra 600 13,613
Crown Cork & Seal 1000 22,375
Genuine Parts 500 12,406
Hercules 700 19,513
Universal Foods 600 12,225
----------
128,545
----------
Cyclical 17.9%
Akzo Nobel NV ADR 300 14,925
Alcoa, Inc. 100 8,300
DuPont (El) DeNemours 200 13,175
Emerson Electric 400 22,950
Ingersoll-Rand 200 11,012
Kennametel 300 10,087
Kimberly-Clark 200 13,087
Rohm & Haas 300 12,206
----------
105,742
----------
Energy 8.2%
Conoco Inc. Cl. A 800 19,800
El Paso Energy 500 19,406
Phillips Petroleum 200 9,400
----------
48,606
----------
Financial 11.5%
Everest Reinsurance Holdings 600 13,387
Fleet Financial Group 200 6,962
Hartford Financial Services Group 200 9,475
KeyCorp 400 8,850
National City 300 7,106
Travelers Prop Casualty 'A' 200 6,850
Union Planters 200 7,888
Washington Mutual 300 7,763
----------
68,281
----------
Health 3.2%
Abbott Laboratories 200 7,262
Tenet Healthcare 500 11,750
----------
19,012
----------
Technology 17.2%
Computer Assoc. Intl. 200 13,988
Hewlett-Packard Co. 200 22,750
Intel 200 16,463
Keane 300 9,638
Parker-Hannifin 200 10,263
Thomas & Betts 600 19,125
3Com 200 9,400
----------
101,627
----------
Transportation 10.0%
CNF Transportation 500 17,250
Dana 700 20,956
TRW 400 20,775
----------
58,981
----------
Utilities 9.1%
Cable & Wireless ADR 300 15,881
SBC Communications 200 9,750
Texas Utilities 400 14,225
US West Inc. 100 7,200
Waste Management, Inc. 400 6,875
----------
53,931
----------
Total Common Stocks (Cost $585,028) 584,725
SHORT-TERM INVESTMENTS 1.0%
Financial Square Prime Obligation Fund 6,000
Total Short-Term Investments ----------
(Cost $6,000) 6,000
----------
TOTAL MARKET VALUE OF
SECURITIES OWNED 99.9%
(COST: $591,028) 590,725
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES 0.1% 558
----------
NET ASSETS APPLICABLE TO 59,741
SHARES ($0.001 PAR VALUE)
OUTSTANDING 100.0% $ 591,283
==========
The accompanying notes are an integral part of these financial statements.
VIKING MUTUAL FUNDS
Financial Statements
<TABLE>
Statements of Assets and Liabilities
December 31, 1999
<CAPTION>
Tax-Free Fund Tax-Free Fund Large-Cap
for Montana for North Dakota Value Fund
----------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments in securities
Cost $ 119,581 $ 111,396 $ 591,028
----------------------------------------------------------
Value 113,625 107,172 590,725
Cash 30,735 19,123 1,496
Prepaid assets 2,981 2,560 2,558
Interest & dividends receivable 1,084 1,638 868
Other assets 3,154 3,576 3,503
----------------------------------------------------------
Total assets 151,579 134,069 599,150
----------------------------------------------------------
LIABILITIES
Distributions payable 503 409 1,406
Other accounts payable and
accrued expenses 6,117 6,129 6,461
----------------------------------------------------------
Total liabilities 6,620 6,538 7,867
----------------------------------------------------------
NET ASSETS 144,959 127,531 591,283
----------------------------------------------------------
COMPONENETS OF NET ASSETS AT DECEMBER 31, 1999
Capital shares, $0.001 par value, unlimited shares authorized 151,629 131,787 591,586
Net unrealized depreciation (5,956) (4,223) (303)
Accumulated net realized gain (loss) on investments (714) (33) -
----------------------------------------------------------
NET ASSETS $ 144,959 $ 127,531 $ 591,283
----------------------------------------------------------
NET ASSET VALUE AND OFFERING PRICE PER SHARE
Net assets, at value $ 144,959 $ 127,531 $ 591,283
----------------------------------------------------------
Shares outstanding 15,410 13,472 59,741
----------------------------------------------------------
Net assets value per share $ 9.41 $ 9.47 $ 9.90
----------------------------------------------------------
Maximum offering price per share
(net asset value per share divided by 95.50%,
95.50%, and 94.75%, respectively) $ 9.85 $ 9.92 $ 10.45
----------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
VIKING MUTUAL FUNDS
Financial Statements
<TABLE>
Statements of Operations
For the period from inception (August 3, 1999) through December 31, 1999
<CAPTION>
Tax-Free Fund Tax-Free Fund Large-Cap
for Montana for North Dakota Value Fund
----------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $ 1,601 $ 1,344 $ -
Dividends 62 66 3,467
----------------------------------------------------------
Total investment income 1,663 1,410 3,467
----------------------------------------------------------
EXPENSES
Investment advisory fees 216 143 1,138
Administrative fees 43 29 163
Distribution fees 108 72 650
Transfer agent fees 17 37 287
Accounting fees 22 14 81
Professional fees 6,552 6,552 6,552
Insurance 1,633 1,654 2,217
Trustee fees 703 703 703
Registration fees 411 310 1,050
Custodian fees 245 245 245
Other 22 27 133
----------------------------------------------------------
Total expenses 9,972 9,786 13,219
Less expenses waived or reimbursed (9,972) (9,786) (11,025)
----------------------------------------------------------
Net expenses - - 2,194
----------------------------------------------------------
NET INVESTMENT INCOME 1,663 1,410 1,273
----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) on investments (714) (33) 133
Net change in unrealized appreciation
(depreciation) of investments (5,956) (4,223) (303)
----------------------------------------------------------
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS (6,670) (4,256) (170)
----------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (5,007) $ (2,846) $ 1,103
----------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
VIKING MUTUAL FUNDS
Financial Statements
<TABLE>
Statements of Changes in Net Assets
For the period from (August 3, 1999) through December 31, 1999
<CAPTION>
Tax-Free Fund Tax-Free Fund Large-Cap
for Montana for North Dakota Value Fund
----------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 1,663 $ 1,410 $ 1,273
Net realized gain (loss) on investments (714) (33) 133
Net change in urealized appreciation (depreciation)
of investments (5,956) (4,223) (303)
----------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (5,007) (2,846) 1,103
----------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income (1,663) (1,410) (1,273)
Net realized gains - - (133)
----------------------------------------------------------
Total distibutions to shareholders (1,663) (1,410) (1,406)
----------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 164,110 261,217 592,886
Proceeds from reinvestment of distributions 572 1,001 -
Cost of shares repurchased (13,053) (130,431) (1,300)
----------------------------------------------------------
Increase in net assets derived from capital share transactions 151,629 131,787 591,586
----------------------------------------------------------
NET INCREASE IN NET ASSETS 144,959 127,531 591,283
----------------------------------------------------------
NET ASSETS:
Beginning of period - - -
----------------------------------------------------------
End of period $ 144,959 $ 127,531 $ 591,283
----------------------------------------------------------
</TABLE>
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 the period
were as follows:
Tax-Free Fund
for Montana
----------------
For the Period
from 8/3/991
through 12/31/99
----------------
Net asset value, beginning of period $ 10.00
----------------
Income (loss) from investment operations
Net investment income 0.15
Net realized and unrealized gain (loss) on investments (0.59)
----------------
Total from investment operations (0.44)
----------------
Less distributions from
Net investment income (0.15)
Net realized gains -
----------------
Total distributions (0.15)
----------------
Net asset value, end of period $ 9.41
================
Total return2 (4.47)%
Ratios/supplemental data:
Net assets, end of period (000's) $ 145
Ratio of net expenses to average net assets 0.00%3,4
Ratio of net investment income to average net assets 4.15%3
Portfolio turnover rate 4.36%
1Commencement of operations.
2Total return assumes reinvestment of distributions at net asset value, does
not reflect the impact of a sales charge and is not annualized.
3Annualized.
4Viking Fund Management, LLC, the Fund's investment manager, has contractually
agreed to waive its fees or reimburse the Fund for its expenses through
August 1, 2009 so that the Fund's total operating expenses during the period
will not exceed 0.85% of its average net assets on an annual basis. For the
period above, Viking Fund Management, LLC waived fees and reimbursed expenses
totaling $9,972. If the fees had not been waived or expenses had not been
reimbursed, the annualized ratio of total expenses to average net assets
would have been 24.90%.
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 the period
were as follows:
Tax-Free Fund
for North Dakota
----------------
For the Period
from 8/3/991
through 12/31/99
----------------
Net asset value, beginning of period $ 10.00
----------------
Income (loss) from investment operations
Net investment income 0.18
Net realized and unrealized gain (loss) on investments (0.53)
----------------
Total from investment operations (0.35)
----------------
Less distributions from
Net investment income (0.18)
Net realized gains -
---------------
Total distributions (0.18)
---------------
Net asset value, end of period $ 9.47
===============
Total return2 (3.56)%
Ratios/supplemental data:
Net assets, end of period (000's) $ 128
Ratio of net expenses to average net assets 0.00%3,4
Ratio of net investment income to average net assets 4.28%3
Portfolio turnover rate 0.00%
1Commencement of operations.
2Total return assumes reinvestment of distributions at net asset value,
does not reflect the impact of a sales charge and is not annualized.
3Annualized.
4Viking Fund Management, LLC, the Fund's investment manager, has contractually
agreed to waive its fees or reimburse the Fund for its expenses through
August 1, 2009 so that the Fund's total operating expenses during this period
will not exceed 0.85% of its average net assets on an annual basis. For the
period above, Viking Fund Management, LLC waived fees and reimbursed expenses
totaling $9,786. If the fees had not been waived or expenses had not been
reimbursed, the annualized ratio of total expenses to average net assets
would have been 29.72%.
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 the period
were as follows:
Viking Large-Cap
Value Fund
----------------
For the Period
from 8/3/991
through 12/31/99
-----------------
Net asset value, beginning of period $ 10.00
-----------------
Income (loss) from investment operations
Net investment income 0.02
Net realized and unrealized gain (loss) on investments (0.10)
-----------------
Total from investment operations (0.08)
-----------------
Less distributions from
Net investment income (0.02)
Net realized gains -
-----------------
Total distributions (0.02)
-----------------
Net asset value, end of period $ 9.90
=================
Total return2 (0.76)%
Ratios/supplemental data:
Net assets, end of period (000's) $ 591
Ratio of net expenses to average net assets 1.35%3,4
Ratio of net investment income to average net assets 0.83%3
Portfolio turnover rate 6.30%
1Commencement of operations.
2Total return assumes reinvestment of distributions at net asset value,
does not reflect the impact of a sales charge and is not annualized.
3Annualized.
4Viking Fund Management, LLC, the Fund's investment manager, has
contractually agreed to waive its fees or reimburse the Fund for its
expenses through August 1, 2009 so that the Fund's total operating expenses
during this period will not exceed 1.35% of its average net assets on an
annual basis. For the period above, Viking Fund Management, LLC waived fees
and reimbursed expenses totaling $11,025. If the fees had not been waived
or expenses had not been reimbursed, the annualized ratio of total expenses
to average net assets would have been 8.58%.
The accompanying notes are an integral part of these financial statements.
VIKING MUTUAL FUNDS
Notes to Financial Statements
December 31, 1999
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 three 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"), a diversified Fund, seeks long-term total return and capital
preservation.
2. SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies are in accordance with generally accepted
accounting principles 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.
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 a specific identification
basis. Interest income and estimated expenses are accrued daily. Dividend
income is recognized on the ex-dividend date. Original issue discounts and
market premium are amortized to interest income 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
will declare and pay dividends from net investment income at least annually.
Capital gains, if any, are distributed annually.
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
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
3. CAPITAL STOCK
Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Tax-Free Fund Tax-Free Fund Large-Cap
for Montana for North Dakota Value Fund
-------------------------------------------------------------
For the Period For the Period For the Period
from 8/3/99 from 8/3/99 from 8/3/99
through 12/31/99 through 12/31/99 through 12/31/99
-------------------------------------------------------------
<S> <C> <C> <C>
Shares sold 16,695 26,860 60,386
Shares issued in reinvestment of distributions 59 104 -
Shares redeemed (1,344) (13,492) (645)
-------------------------------------------------------------
Net Increase 15,410 13,472 59,741
-------------------------------------------------------------
</TABLE>
4. 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 and 0.70% to the Large-Cap Fund's daily net
assets. Under a sub-advisory agreement between Fox Asset Management (the
"sub-adviser") and VFM, the sub-adviser provides the Large-Cap Fund with
investment advice and portfolio management subject to the overall supervision
of VFM. As compensation for its services provided to the Large-Cap Fund, VFM
pays the sub-adviser monthly compensation calculated daily by applying the
annual rate of 0.40% to the Large-Cap Fund's daily net assets of up to $100
million and 0.35% to the Large-Cap Fund's daily net assets in excess of $100
million.
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.
The Funds have a distribution plan, sometimes known as a Rule 12b-1 plan, that
allows the Tax-Free Funds to pay distribution and service fees of up to 0.25%
of average daily net assets per year and the Large-Cap Fund to pay
distribution and service fees of up to 0.40% of average daily net assets per
year to Viking Fund Distributors, LLC ("VFD") for distributing each Fund's
shares and for servicing shareholder accounts.
For the period ending December 31, 1999, the net amounts of sales charges
deducted from the proceeds of sale of capital shares which were retained by
VFD as principal underwriter were $0, $1,693 and $7,017 for the Tax-Free Fund
for Montana, Tax-Free Fund for North Dakota and Large-Cap Fund, respectively.
VFM has contractually agreed to waive its fees or reimburse the Fund's for
their expenses through August 1, 2009 so that the Tax-Free Fund's total
operating expenses during this period will not exceed 0.85% of average net
assets on an annual basis and the Large-Cap Fund's total operating expenses
during this period will not exceed 1.35% of average net assets on an annual
basis.
On December 31, 1999, the Tax-Free Fund for Montana, Tax-Free Fund for North
Dakota and Large-Cap Fund had receivables from VFM for reimbursement of
certain expenses of $3,136, $3,561 and $3,503, respectively. The Funds had
no payables to affiliates on that date. Certain officers and trustees of the
Funds are also officers and governors of VFM and VFD.
5. INCOME TAXES
No provision has been made for income taxes because each Fund's policy is
to qualify as a regulated investment company under the Internal Revenue Code
and to distribute substantially all of its taxable income. At December 31,
1999, the Tax-Free Fund for Montana and Tax-Free Fund for North Dakota had
capital losses of $714 and $33, respectively, which may be carried over to
offset future capital gains. Such losses expire in 2007.
At December 31, 1999, the net unrealized appreciation (depreciation) based on
the cost of investments for federal income tax purposes was as follows:
<TABLE>
<CAPTION>
Tax-Free Fund Tax-Free Fund Large-Cap
for Montana for North Dakota Value Fund
---------------------------------------------------------------
<S> <C> <C> <C>
Investments at cost $ 119,581 $ 111,396 $ 591,028
---------------------------------------------------------------
Unrealized appreciation - - 38,864
Unrealized depreciation (5,956) (4,223) (39,167)
---------------------------------------------------------------
Net unrealized appreciation (depreciation) $ (5,956) $ (4,223) $ (303)
---------------------------------------------------------------
</TABLE>
6. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended December 31, 1999 were as follows:
Tax-Free Fund Tax-Free Fund Large-Cap
for Montana for North Dakota Value Fund
-----------------------------------------------------------
Purchases $ 116,274 $ 103,762 $ 608,176
Sales $ 4,196 $ - $ 23,280
7. CREDIT AND MARKET RISK
The Tax-Free Funds concentrate their investments in securities mainly issued
by each specific state's municipalities. The value of these investments may
be adversely affected by new legislation within the state, regional or local
economic conditions, and differing levels of supply and demand for municipal
bonds. Many municipalities insure repayment for their obligations. Although
bond insurance reduces the risk of loss due to default by an issuer, such
bonds remain subject to the risk that market value may fluctuate for other
reasons and there is no assurance that the insurance company will meet its
obligations. These securities have been identified in the Statement of
Investments.
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Trustees
Viking Mutual Funds
We have audited the accompanying statement of assets and liabilities of Viking
Mutual Funds (the Trust), including the schedule of investments as of December
31, 1999, the related statement of operations, statement of changes in net
assets and the financial highlights for the period since inception (August 3,
1999) to December 31, 1999. These financial statements and financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures include confirmation of securities owned as of
December 31, 1999, 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Viking Mutual Funds as of December 31, 1999, the results of its operations,
changes in its net assets and the financial highlights for the period since
inception (August 3, 1999) to December 31, 1999, in conformity with
generally accepted accounting principles.
/s/Brady Martz
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota
February 3, 2000
VIKING MUTUAL FUNDS
[LOGO]
TRUSTEES
Bruce C. Adams
Shirley R. Martz
Mike Timm
Shannon D. Radke
Douglas P. Miller
INVESTMENT MANAGER
Viking Fund Management, LLC
1400 14th Avenue SW
Minot, ND 58701
SUB-ADVISOR
(For Viking Large-Cap Value Fund)
Fox Asset Management, Inc.
44 Sycamore Avenue
Little Silver, NJ 07739-1220
DISTRIBUTOR
Viking Fund Distributors, LLC
1400 14th Avenue SW
Minot, ND 58701
CUSTODIAN
First International Bank & Trust
3001 25th Street South
Fargo, ND 58103
TRANSFER AGENT
Viking Fund Management, LLC
P.O. Box 500
Minot, ND 58702
INDEPENDENT AUDITORS
Brady, Martz & Associates, P.C.
207 East Broadway, Suite 200
Bismarck, ND 58501
When used with prospective investors, this report must be preceded by a
current Viking Mutual Funds prospectus, which contains more complete
information including charges and expenses. For a prospectus of Viking
Mutual Funds, contact your financial adviser or Viking Mutual Funds.
Shareholder Services
1-800-933-8413
Dealer Services
1-800-933-8513
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> TAX-FREE FUND FOR MONTANA
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<INVESTMENTS-AT-COST> 119,581
<INVESTMENTS-AT-VALUE> 113,625
<RECEIVABLES> 1,084
<ASSETS-OTHER> 36,870
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 151,579
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,620
<TOTAL-LIABILITIES> 6,620
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 151,629
<SHARES-COMMON-STOCK> 15,410
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (714)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (5,956)
<NET-ASSETS> 144,959
<DIVIDEND-INCOME> 62
<INTEREST-INCOME> 1,601
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 1,663
<REALIZED-GAINS-CURRENT> (714)
<APPREC-INCREASE-CURRENT> (5,956)
<NET-CHANGE-FROM-OPS> (5,007)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,663)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16,695
<NUMBER-OF-SHARES-REDEEMED> 1,344
<SHARES-REINVESTED> 59
<NET-CHANGE-IN-ASSETS> 144,959
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 216
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,972
<AVERAGE-NET-ASSETS> 96,239
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> (0.59)
<PER-SHARE-DIVIDEND> (0.15)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.41
<EXPENSE-RATIO> 0<F1>
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<FN>
<F1>Ratio of net expenses to average net assets, annualized.
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> TAX-FREE FUND FOR NORTH DAKOTA
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<INVESTMENTS-AT-COST> 111,396
<INVESTMENTS-AT-VALUE> 107,172
<RECEIVABLES> 1,638
<ASSETS-OTHER> 25,259
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 134,069
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,538
<TOTAL-LIABILITIES> 6,538
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 131,787
<SHARES-COMMON-STOCK> 13,472
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (33)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (4,223)
<NET-ASSETS> 127,531
<DIVIDEND-INCOME> 66
<INTEREST-INCOME> 1,344
<OTHER-INCOME> 0
<EXPENSES-NET> (9,786)
<NET-INVESTMENT-INCOME> 1,410
<REALIZED-GAINS-CURRENT> (33)
<APPREC-INCREASE-CURRENT> (4,223)
<NET-CHANGE-FROM-OPS> (2,846)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,410)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 26,860
<NUMBER-OF-SHARES-REDEEMED> 13,492
<SHARES-REINVESTED> 104
<NET-CHANGE-IN-ASSETS> 127,531
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 143
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,786
<AVERAGE-NET-ASSETS> 79,037
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> (0.53)
<PER-SHARE-DIVIDEND> (0.18)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.47
<EXPENSE-RATIO> 0<F1>
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<FN>
<F1>Ratio of net expenses to average net assets annualized.
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> LARGE-CAP VALUE FUND
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<INVESTMENTS-AT-COST> 591,028
<INVESTMENTS-AT-VALUE> 590,725
<RECEIVABLES> 868
<ASSETS-OTHER> 7,557
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 599,150
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,867
<TOTAL-LIABILITIES> 7,867
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 591,586
<SHARES-COMMON-STOCK> 59,741
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (303)
<NET-ASSETS> 591,283
<DIVIDEND-INCOME> 3,467
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (2,194)
<NET-INVESTMENT-INCOME> 1,273
<REALIZED-GAINS-CURRENT> 133
<APPREC-INCREASE-CURRENT> (303)
<NET-CHANGE-FROM-OPS> 1,103
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,273)
<DISTRIBUTIONS-OF-GAINS> (133)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 60,386
<NUMBER-OF-SHARES-REDEEMED> 645
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 591,283
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,138
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,219
<AVERAGE-NET-ASSETS> 369,524
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> (0.10)
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.90
<EXPENSE-RATIO> 1.35<F1>
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
<FN>
<F1>Ratio of net expenses to average net assets, annualized.
</FN>
</TABLE>
