ANNUAL REPORT ON FORM 10-K
GREAT NORTHERN IRON ORE PROPERTIES
DECEMBER 31, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission File Number 1-701
----------------- -----
GREAT NORTHERN IRON ORE PROPERTIES
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-0788355
- ------------------------------- --------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
W-1290 First National Bank Building
332 Minnesota Street
Saint Paul, Minnesota 55101-1361
- -------------------------------------------- -------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 612 / 224-2385
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on Which
Title of Each Class Registered
------------------- ------------------------------
Trustees' Certificates of Beneficial Interest New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act--None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months and (2) has been subject to such filing requirements
for the past 90 days. Yes __X__ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. __X__
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of January 31, 1997 - None
The number of shares of beneficial interest outstanding as of the close of the
period covered by this report:
Trustees' Certificates of Beneficial Interest--1,500,000
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to certificate holders for the year ended December
31, 1996 are incorporated by reference into Part II.
PART I
Item 1. BUSINESS
The Registrant ("Trust") owns in fee, mineral and non-mineral lands on
the Mesabi Iron Range of Minnesota. Income is derived through royalties
on iron ore minerals (principally taconite) taken from these properties
by lessees. The Registrant is presently involved solely with the
leasing and care of these properties. There have been no significant
changes in these functions since the beginning of the fiscal year.
The raw materials essential to the business of the Registrant are the
minerals contained in properties owned and leased by the Registrant.
Since the Registrant leases its properties to mining interests which
control the amount of ore production, the Registrant itself has no
control over the tonnage mined from its properties but is solely
involved with administering the leases on the properties. Since
operating companies insist on freedom to move from property to property
as mining requirements dictate, such changes in production cannot be
reduced to financial forecasts.
Registrant owns mineral interests in 12,033 acres on the Mesabi Iron
Formation, including approximately 7,443 acres which are wholly owned,
1,080 acres in which Registrant is a tenant in common with a 91%
interest, 3,350 acres in tenancy in common with a 50% interest and 160
acres in tenancy in common with other fractional interests. Of said
total, 7,112 acres are under lease and 4,921 acres are unleased.
Registrant cannot estimate at this time any tonnages for nonmagnetic
taconite because of lack of drilling, testing and of any established
commercial treatment method for Mesabi Iron Range nonmagnetic taconite.
To give a better perspective on magnetic taconite, Registrant's
engineers estimate that the magnetic taconite under lease as of January
1, 1997 was equivalent to 403,300,000 tons of pellets.
Present leases provide for minimum payments (advance royalties)
aggregating approximately $1,688,000 for the year 1997 even if no
taconite is mined. All of this amount is attributable to long-term
taconite leases.
None of the Registrant's leases provide for any right of renewal by the
lessees upon expiration, even though unmined minerals might remain. Any
extension of any such terminating lease would have to be negotiated in
the same manner as unleased properties.
All leases granted by the Registrant, except some covering remnants of
natural ore, have provisions for escalation of royalty rates. Most of
the taconite royalty rates are escalated on the basis of the price of
pellets, the iron content, the Producers Price Index (PPI) (All
Commodities), the PPI (Iron and Steel subgroup) or certain combinations
of the above.
Firm data on competitive conditions in the iron ore industry are not
available. Iron ore is also available from a number of other sources.
The Registrant's non-taconite shipments have ceased as a source of
income because the ore deposits have, for practical purposes, been
exhausted. The mining of taconite by lessees is the most important part
of the Registrant's business. Future development depends, to a large
part, on the demand for taconite from the Registrant's properties by
mining companies.
The Registrant's royalty income is dependent on the number of tons of
taconite shipped from its properties by the lessees, royalty rates,
advance royalties collected and liquidation of advance royalties
collected. Following is a summary of shipments by lessee during 1996,
1995 and 1994:
TONS SHIPPED
-------------------------------------------
1996 1995 1994
-------------------------------------------
United States Steel
Corporation (USX) 2,739,614 1,637,165 1,118,136
Hibbing Taconite Company 1,890,509 3,381,057 2,953,027
National Steel Corporation 1,349,404 979,125 115,581
LTV Steel Mining Company - - 22,807
-------------------------------------------
5,979,527 5,997,347 4,209,551
===========================================
At December 31, 1996, the Registrant employed 11 persons. The
Registrant has been engaged in only one line of business, namely the
leasing and maintenance of its mineral properties. The business of the
Registrant is not seasonal, but income depends upon production by
mining companies which lease its properties. The Registrant has no
operations in foreign countries and has no customers or lessees in
foreign countries.
As previously reported, Section 646 of the Tax Reform Act of 1986, as
amended, provided a special elective provision under which the Trust
was allowed to convert from taxation as a corporation to that of a
grantor trust. Pursuant to an Order of the Ramsey County District
Court, the Trustees filed the Section 646 election with the Internal
Revenue Service on December 30, 1988. On January 1, 1989, the Trust
became exempt from federal and Minnesota corporate income taxes. For
years 1989 and thereafter, certificate holders are taxed on their
allocable share of the Trust's income whether or not the income is
distributed. For certificate holder tax purposes, the Trust's income is
determined on an annual basis, one-fourth then being allocated to each
quarterly record date.
The Trustees provided annual tax information in January 1997 to
certificate holders of record with holdings on any of the four
quarterly record dates during 1996. This information included a:
Substitute Form 1099-MISC - This form reported one's 1996 allocable
share of income from the Trust, distributions declared and any taxes
withheld. (Foreign certificate holders received a Form 1042S.)
Trust Supplemental Statement - This statement reported the number of
units (shares) held on any of the four quarterly record dates in 1996.
Tax Return Guide - This guide instructed the certificate holder as to
the preparation of their income tax returns with respect to income
allocated from the Trust and various deductions allowable.
The following is a listing of the Registrant's current leases:
<TABLE>
<CAPTION>
LESSEE
NUMBER OF GNIOP TERMINATION
LEASE LEASED ACRES INTEREST COUNTY LOCATION TERM PROVISION
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bennett Annex 237 100% St. Louis 1/1/1965 to 12/31/2039 1 year
Carmi-Campbell 1,597 100 St. Louis 7/1/1959 to 12/31/2010 1 year
Enterprise-Mississippi
(incl. Stevenson, Sect.
18 mines) 776 100 St. Louis and Itasca 1/1/1961 to 12/31/2010 6 months
Hanna Taconite #1 40 100 Itasca 4/1/1962 to 12/31/2010 6 months
Gray Annex 40 50 St. Louis 1/1/1974 to 1/1/2049 1 year
Ontario 1,397 50 St. Louis and Itasca 7/1/1978 to 12/31/2016 1 year
Ontario 360 100 St. Louis and Itasca 7/1/1978 to 12/31/2016 1 year
Ontario #3 80 25 St. Louis 1/2/1993 to 12/31/2016 1 year
Mahoning 980 100 St. Louis and Itasca 1/1/1979 to 12/31/2026 1 year
Russell Annex 120 50 Itasca 1/1/1966 to 12/31/2040 1 year
South Stevenson 180 100 St. Louis 4/1/1966 to 4/1/2041 1 year
Minntac 1,725 100 St. Louis 1/1/1959 to 12/31/2057 6 months
Wentworth 160 100 St. Louis 7/1/1965 to 6/30/2040 1 year
Atkins 160 91 St. Louis 8/1/1984 to 7/31/2009 6 months
</TABLE>
Item 2. PROPERTIES
The Registrant owns in fee, mineral and nonmineral lands on the Mesabi
Iron Range of Minnesota, most of which are leased to mining companies
who extract taconite. Taconite deposits are substantial.
Item 3. LEGAL PROCEEDINGS
In proceedings commenced in 1972, the Minnesota Supreme Court
determined that while by the terms of the Trust, the Trustees are given
discretionary powers to convert Trust assets to cash and to distribute
the proceeds to certificate holders, they are limited in their exercise
of those powers by the legal duty imposed by well established law of
trusts to serve the interests of both term beneficiaries and the
reversionary beneficiary with impartiality. Thus, the Trustees have no
duty to exercise the powers of sale and distribution unless required to
do so to serve both term and reversionary interests; and if the need
arises, the Trustees may petition the District Court of Ramsey County,
Minnesota, for further instructions defining what is required in a
particular case to balance the interests of certificate holders and
reversioner. Also, the Court, in effect, held that the Trust is a
conventional trust, rather than a business trust, and must operate
within the framework of well established trust law.
By a letter dated March 22, 1996, certificate holders of record as of
March 6, 1996 and the reversioner were notified of a hearing on April
16, 1996 in Ramsey County Courthouse, Saint Paul, Minnesota, for the
purpose of settling and allowing the Trust accounts for the year 1995.
By Court Order signed and dated April 16, 1996, the said accounts were
settled and allowed in all respects. By previous Orders, the Court
settled and allowed the accounts of the Trustees for preceding years of
the Trust.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF CERTIFICATE HOLDERS
None.
PART II
Item 5. MARKET FOR THE REGISTRANT'S SHARES OF BENEFICIAL INTEREST AND RELATED
SECURITY HOLDER MATTERS
Shares of Beneficial Interest, Market Prices and Distributions on pages
3 and 4 of the annual report to certificate holders for the year ended
December 31, 1996 are incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
Selected Financial Data on page 2 of the annual report to certificate
holders for the year ended December 31, 1996 is incorporated herein by
reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations on page 2 of the annual report to certificate holders for
the year ended December 31, 1996 are incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Registrant, included in the
annual report to certificate holders for the year ended December 31,
1996, are incorporated herein by reference:
Balance Sheets--December 31, 1996 and 1995.
Statements of Income--Years ended December 31, 1996, 1995 and 1994.
Statements of Beneficiaries' Equity--Years ended December 31, 1996,
1995 and 1994.
Statements of Cash Flows--Years ended December 31, 1996, 1995 and
1994.
Notes to Financial Statements--December 31, 1996.
Quarterly Results of Operations on page 4 of the annual report to
certificate holders for the year ended December 31, 1996 are
incorporated herein by reference.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Registrant, being a trust, has no directors as such. The management
of the Trust is vested in the following trustees and officers whose
terms of office are not fixed for a specified time:
YEARS OF
NAME AND POSITION AGE SERVICE
----------------------------------------------------------------------
Harry L. Holtz President of the Trustees 78 25 years
Joseph S. Micallef Trustee 63 20
Roger W. Staehle Trustee 63 15
Robert A. Stein Trustee 58 15
Thomas A. Janochoski Vice President and Secretary 38 5
Principal occupations of Trustees and officers during the last five
years:
HARRY L. HOLTZ
President and Chief Executive Officer, Great Northern Iron Ore
Properties.
JOSEPH S. MICALLEF
Consultant and Director, Fiduciary Counselling, Inc., St. Paul,
Minnesota; Advisory Director, First Trust National Association until
February 27, 1996; President and Chief Executive Officer, Fiduciary
Counselling, Inc., St. Paul, Minnesota until December 31, 1995.
ROGER W. STAEHLE
Adjunct Professor, Institute of Technology, University of Minnesota;
Industrial Consultant.
ROBERT A. STEIN
Executive Director and Chief Operating Officer, American Bar
Association; Dean of the Law School, University of Minnesota until
December 31, 1994.
THOMAS A. JANOCHOSKI
Vice President and Secretary, Chief Financial Officer, Great Northern
Iron Ore Properties.
Executive employees in addition to those listed above include Roger P.
Johnson, Manager of Mines and Chief Engineer.
There are no family relationships among any of the above persons.
Item 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-----------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
--------------------------------------------------------------------
Harry L. Holtz, CEO and President
of the Trustees 1996 $80,000 $35,000
1995 80,000 35,000
1994 80,000 25,746
The Trust Agreement (as modified by Court Orders) currently provides
for annual compensation to the President of the Trustees of $80,000
and, in addition, a sum equal to one percent of the excess of the gross
income of the Trust over $5,000,000 for that year until his annual
compensation shall reach $115,000. No other executive's compensation
exceeds $100,000. The Trustees, including the President, are not
eligible to receive retirement benefits based on their services as
Trustees. There are no options, SARs, long-term performance-based
incentive plans or retirement benefits applicable to the CEO or the
Trustees and, accordingly, disclosure tables with respect to such
benefits have been omitted.
COMPENSATION OF TRUSTEES
The Trust Agreement (as modified by Court Orders) currently provides
for annual compensation to each Trustee (other than the President) of
$30,000, without any additional amounts payable for committee
participation or special assignments. There are no other arrangements
pursuant to which any Trustee was compensated for any services provided
as a Trustee during the year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Because the compensation of the Trustees and the Chief Executive
Officer is established by the Trust Agreement (as modified by Court
Orders), there is no compensation committee of the Trustees and there
is no Trustee compensation committee report on executive compensation.
The Board of Trustees, as a whole, determines the compensation of
executive officers other than the President and Chief Executive
Officer.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) The only authorized securities of the Registrant are Trustees'
Certificates of Beneficial Interest and the holders of these
securities do not have voting rights. Entities holding more
than 5% of the Certificates of Beneficial Interest
outstanding, of record and/or beneficially, include:
NAME SECURITIES HELD % OF CLASS
-------------------------------------------------------------
First Bank System, Inc. 77,816 5.19%
(b) There were no securities owned by the Trustees or officers as
of December 31, 1996.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2)--The response to this portion of Item 14 is
submitted as a separate section of this report.
(3) Listing of Exhibits:
Exhibit 13--Annual Report to Certificate Holders
Exhibit 23--Consent of Independent Auditors
Exhibit 27--Financial Data Schedule (only filed
electronically via EDGAR)
Exhibit 99--Tax Return Guide
(b) Report on Form 8-K--None.
(c) Exhibits--The response to this portion of Item 14 is submitted
as a separate section of this report.
(d) Financial Statement Schedules--The response to this portion of
Item 14 is submitted as a separate section of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GREAT NORTHERN IRON ORE PROPERTIES
----------------------------------
(Registrant)
/s/ Harry L. Holtz February 17, 1997
---------------------------------------- -----------------
Harry L. Holtz, Chief Executive Officer, Date
Trustee and President of the Trustees
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Joseph S. Micallef February 17, 1997
---------------------------------------- -----------------
Joseph S. Micallef, Trustee Date
/s/ Roger W. Staehle February 17, 1997
---------------------------------------- -----------------
Roger W. Staehle, Trustee Date
/s/ Robert A. Stein February 17, 1997
---------------------------------------- -----------------
Robert A. Stein, Trustee Date
/s/ Thomas A. Janochoski February 17, 1997
---------------------------------------- -----------------
Thomas A. Janochoski, Date
Vice President and Secretary,
Chief Financial Officer
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) and (2) and ITEM 14(d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1996
GREAT NORTHERN IRON ORE PROPERTIES
W-1290 First National Bank Building
332 Minnesota Street
Saint Paul, Minnesota 55101-1361
FORM 10-K--Item 14(a)(1) and (2)
GREAT NORTHERN IRON ORE PROPERTIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following financial statements of Great Northern Iron Ore Properties,
included in the annual report of the Registrant to its certificate holders for
the year ended December 31, 1996, are incorporated by reference in Item 8:
Balance Sheets--December 31, 1996 and 1995
Statements of Beneficiaries' Equity--Years ended December 31, 1996, 1995
and 1994
Statements of Income--Years ended December 31, 1996, 1995 and 1994
Statements of Cash Flows--Years ended December 31, 1996, l995 and l994
Notes to Financial Statements--December 31, l996
All Item 14(d) schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have been
omitted.
GREAT NORTHERN IRON
ORE PROPERTIES
NINETIETH
ANNUAL REPORT OF THE TRUSTEES
TO CERTIFICATE HOLDERS
FOR
YEAR ENDED DECEMBER 31, 1996
GREAT NORTHERN IRON ORE PROPERTIES
W-1290 First National Bank Building
332 Minnesota Street
Saint Paul, Minnesota 55101-1361
(612) 224-2385
Fax (612) 224-2387
TRUSTEES OFFICERS
Harry L. Holtz Harry L. Holtz
President of the Trustees Chief Executive Officer
Joseph S. Micallef* Thomas A. Janochoski
Consultant and Director Vice President and Secretary
Fiduciary Counselling, Inc. Chief Financial Officer
Roger W. Staehle* Roger P. Johnson
Adjunct Professor Manager of Mines
University of Minnesota Chief Engineer
Robert A. Stein*
Executive Director
American Bar Association
*Audit Committee
SHAREHOLDER RELATIONS DEPARTMENT, TRANSFER OFFICE
AND REGISTRAR
Norwest Shareowner Services
P.O. Box 64854
Saint Paul, Minnesota 55164-0854
Toll-free: 1-800-468-9716
MESABI IRON RANGE OFFICE
801 East Howard Street
Hibbing, Minnesota 55746-0429
(218) 262-3886
Fax (218) 262-4295
GREAT NORTHERN IRON ORE PROPERTIES
SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Shipments from our mines (tons) .............................. 5,979,527 5,997,347 4,209,551 4,140,260 5,721,426
Royalty income ............................................... $ 9,978,603 $ 9,160,966 $ 7,113,730 $ 6,467,389 $ 9,295,830
Other income ................................................. 551,597 495,338 460,891 398,810 530,143
Net income ................................................... 8,988,486 8,149,287 6,203,645 5,485,051 8,380,697
Total assets ................................................. 17,066,649 16,335,426 15,304,722 14,489,943 15,373,081
Average shares outstanding ................................... 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000
Net income per share, based on average shares outstanding
during year ................................................. $5.99 $5.43 $4.14 $3.66 $5.59
Declared distributions per share ............................. $5.80(1) $5.00(2) $4.00(3) $3.65(4) $5.75(5)
</TABLE>
------------------------------
(1) $1.35 pd 4/30/96; $1.15 pd 7/31/96; $1.60 pd 10/31/96; $1.70 pd 1/31/97
(2) $1.15 pd 4/28/95; $1.15 pd 7/31/95; $1.30 pd 10/31/95; $1.40 pd 1/31/96
(3) $ .80 pd 4/29/94; $ .90 pd 7/29/94; $1.15 pd 10/31/94; $1.15 pd 1/31/95
(4) $1.10 pd 4/30/93; $1.10 pd 7/30/93; $ .70 pd 10/29/93; $ .75 pd 1/31/94
(5) $1.55 pd 4/30/92; $1.45 pd 7/31/92; $1.40 pd 10/30/92; $1.35 pd 1/29/93
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations: "Royalty income" for 1996 was greater than that of 1995
primarily due to a higher average earned royalty rate attained. "Royalty income"
for 1995 was greater than that of 1994 primarily due to overall improved
taconite production. "Other income" for 1996 exceeded that of 1995, which also
exceeded that of 1994, due mainly to increased interest income resulting from
continually improved yields on our funds available for investment. Please refer
to Note A of the Financial Statements which provides general information about
Great Northern Iron Ore Properties.
Liquidity: In the interest of preservation of principal of Court-approved
reserves and guided by the restrictive provisions of Section 646 of the Tax
Reform Act of 1986, as amended, monies are invested primarily in U.S. Treasury
securities with maturity dates not to exceed three years and, along with cash
flows from operations, are deemed adequate to meet currently foreseeable
liquidity needs.
2
To Certificate Holders:
The Trustees of Great Northern Iron Ore Properties ("Trust") own fee title to
certain mineral and nonmineral lands situated on the Mesabi Iron Range of
Minnesota. Many of these properties are leased to companies that mine the ores.
The Trust has no subsidiaries.
During 1996, the major source of income to the Trust was royalty derived from
taconite production and minimum royalties. Accumulated advance royalties
received and taken into income on ore not yet mined amounted to $918,962 on
December 31, 1996. These advance royalties collected involve no liabilities on
the part of the Trust except to permit the mining of the ore from leases on
which the advance royalties have been paid.
Continued good taconite production and an overall higher average earned royalty
rate attained in 1996 resulted in another favorable year for the Trust. All of
the Trust's primary lessees continued to operate at or near capacity during the
year. A Summary of Shipments is tabulated on the last page of this report.
The Trustees declared four quarterly distributions in 1996 totaling $5.80 per
share. The first, in the amount of $1.35 per share, was paid on April 30, 1996,
to certificate holders of record on March 29, 1996; the second, in the amount of
$1.15 per share, was paid on July 31, 1996, to certificate holders of record on
June 28, 1996; the third, in the amount of $1.60 per share, was paid on October
31, 1996, to certificate holders of record on September 30, 1996; and the
fourth, in the amount of $1.70 per share, was paid on January 31, 1997, to
certificate holders of record on December 31, 1996.
The Trustees declared four quarterly distributions in 1995 totaling $5.00 per
share. The first, in the amount of $1.15 per share, was paid on April 28, 1995,
to certificate holders of record on March 31, 1995; the second, in the amount of
$1.15 per share, was paid on July 31, 1995, to certificate holders of record on
June 30, 1995; the third, in the amount of $1.30 per share, was paid on October
31, 1995, to certificate holders of record on September 29, 1995; and the
fourth, in the amount of $1.40 per share, was paid on January 31, 1996, to
certificate holders of record on December 29, 1995. Earnings exceeded
distributions in 1995 due mainly to significant nondistributable surface land
purchases required during the year. See Notes C and D.
The Trustees intend to continue quarterly distributions and set the record date
as of the last business day of each quarter. The next distribution will be paid
in late April 1997 to certificate holders of record on March 31, 1997.
3
Shares of beneficial interest in the Trust are traded on the New York Stock
Exchange under the ticker symbol "GNI." There were 2,842 certificate holders of
record on December 31, 1996. The high and low prices for the quarterly periods
commencing January 1, 1995 through December 31, 1996 were as follows:
1996 1995
------------------ ------------------
QUARTER HIGH LOW HIGH LOW
- ------- ------- ------- ------- -------
First $49-5/8 $44 $45-1/2 $41-1/2
Second 51 46-5/8 44-1/2 39-7/8
Third 51-1/2 46 49-1/4 42-1/4
Fourth 55-1/2 47 48-1/2 44-1/2
The following is a summary of quarterly results of operations (unaudited) for
the years ended December 31, 1996 and 1995 (in thousands of dollars, except per
share amounts):
QUARTER ENDED
-------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
1996
Royalty income ............ $2,477 $1,543 $3,159 $2,800
Interest and other income . 135 144 133 139
------ ------ ------ ------
Gross income .............. 2,612 1,687 3,292 2,939
Expenses .................. 438 360 374 370
------ ------ ------ ------
Net income ................ $2,174 $1,327 $2,918 $2,569
====== ====== ====== ======
Net income per share ...... $1.45 $ .88 $1.95 $1.71
===== ===== ===== =====
1995
Royalty income ............ $1,935 $2,264 $2,647 $2,315
Interest and other income . 132 111 122 130
------ ------ ------ ------
Gross income .............. 2,067 2,375 2,769 2,445
Expenses .................. 384 384 362 377
------ ------ ------ ------
Net income ................ $1,683 $1,991 $2,407 $2,068
====== ====== ====== ======
Net income per share ...... $1.12 $1.33 $1.60 $1.38
===== ===== ===== =====
The terms of the Great Northern Iron Ore Properties Trust Agreement, created
December 7, 1906, state that the Trust shall continue for twenty years after the
death of the last surviving of eighteen named in the Trust Agreement. The last
survivor of these eighteen named in the Trust Agreement died April 6, 1995.
According to the terms of the Trust Agreement, the Trust now terminates twenty
(20) years from April 6, 1995. At that time, all monies remaining in the hands
of the Trustees (after paying and providing for all expenses and obligations of
the Trust) shall be distributed ratably among the certificate holders, while all
property other than monies shall be conveyed and transferred to the reversioner.
4
As previously reported, Section 646 of the Tax Reform Act of 1986, as amended,
provided a special elective provision under which the Trust was allowed to
convert from taxation as a corporation to that of a grantor trust. Pursuant to
an Order of the Ramsey County District Court, the Trustees filed the Section 646
election with the Internal Revenue Service on December 30, 1988. For years 1989
and thereafter, certificate holders are taxed on their allocable share of the
Trust's income whether or not the income is distributed.
A Tax Return Guide was mailed in January 1997 to all "record date" certificate
holders shown on our stock transfer agent's records during 1996. This guide was
intended to assist the investor in addressing many of the issues that arise in
reporting the Trust operations for federal and state income tax purposes due to
Section 646.
We will, upon request, be happy to furnish certificate holders an Annual Report
on Form 10-K for any recent year.
Respectfully submitted,
Harry L. Holtz Roger W. Staehle
Joseph S. Micallef Robert A. Stein
Saint Paul, Minnesota
March 14, 1997
5
GREAT NORTHERN IRON ORE PROPERTIES
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---- ---- ----
INCOME
Royalties .................... $ 9,978,603 $ 9,160,966 $ 7,113,730
Interest earned .............. 527,456 455,939 383,967
Rent and other ............... 24,141 39,399 76,924
----------- ----------- -----------
10,530,200 9,656,304 7,574,621
EXPENSES
Royalties .................... 4,623 4,623 4,623
Real estate and payroll
taxes ....................... 129,977 135,363 127,482
Inspection and care of
property .................... 384,362 387,140 355,043
Administrative and general ... 853,126 847,187 768,039
Provision for depreciation and
amortization ................ 169,626 132,704 115,789
----------- ----------- -----------
1,541,714 1,507,017 1,370,976
----------- ----------- -----------
NET INCOME ..................... $ 8,988,486 $ 8,149,287 $ 6,203,645
=========== =========== ===========
NET INCOME PER SHARE ........... $ 5.99 $ 5.43 $ 4.14
=========== =========== ===========
STATEMENTS OF BENEFICIARIES' EQUITY
YEAR ENDED DECEMBER 31
-------------------------------------
1996 1995 1994
----------- ----------- -----------
Balance at beginning of year ......... $14,042,907 $13,393,620 $13,189,975
Net income for the year .............. 8,988,486 8,149,287 6,203,645
----------- ----------- -----------
23,031,393 21,542,907 19,393,620
Deduct declaration of distributions
on shares of beneficial interest, per
share: 1996 - $5.80; 1995 - $5.00;
1994 - $4.00 ........................ 8,700,000 7,500,000 6,000,000
----------- ----------- -----------
Balance at end of year ............... $14,331,393 $14,042,907 $13,393,620
=========== =========== ===========
See accompanying notes.
6
GREAT NORTHERN IRON ORE PROPERTIES
BALANCE SHEETS
ASSETS
DECEMBER 31
------------------------
1996 1995
----------- -----------
CURRENT ASSETS
Cash and cash equivalents ....................... $ 448,008 $ 262,525
United States Treasury securities (NOTE B) ...... 3,394,514 4,603,942
Royalties receivable ............................ 2,649,880 2,314,340
Prepaid expenses ................................ 3,180 4,394
----------- -----------
TOTAL CURRENT ASSETS .............................. 6,495,582 7,185,201
NONCURRENT ASSETS
United States Treasury Notes (NOTE B) ........... 5,124,451 3,773,396
Prepaid pension expense (NOTE E) ................ 254,726 255,317
----------- -----------
5,379,177 4,028,713
PROPERTIES
Mineral lands (NOTES B AND C) ................... 37,838,536 37,625,536
Less allowances for depletion and amortization .. 32,737,201 32,587,321
----------- -----------
5,101,335 5,038,215
Building and equipment - at cost, less
allowances for accumulated depreciation
(1996 - $127,730; 1995 - $128,734) ............. 90,555 83,297
----------- -----------
5,191,890 5,121,512
----------- -----------
$17,066,649 $16,335,426
=========== ===========
LIABILITIES AND BENEFICIARIES' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses ........... $ 105,256 $ 112,519
Distributions ................................... 2,630,000 2,180,000
----------- -----------
TOTAL CURRENT LIABILITIES ......................... 2,735,256 2,292,519
BENEFICIARIES' EQUITY, including certificate
holders' equity, represented by 1,500,000 shares
of beneficial interest authorized and outstanding,
and reversionary interest (NOTES A AND D) ........ 14,331,393 14,042,907
----------- -----------
$17,066,649 $16,335,426
=========== ===========
See accompanying notes.
7
<TABLE>
<CAPTION>
GREAT NORTHERN IRON ORE PROPERTIES
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Cash received from royalties and rents .. $ 9,454,204 $ 8,280,147 $ 6,574,142
Cash paid to suppliers and employees .... (1,377,546) (1,357,293) (1,270,552)
Interest received ....................... 573,954 471,125 380,860
----------- ----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES ................. 8,650,612 7,393,979 5,684,450
INVESTING ACTIVITIES
U.S. Treasury securities purchased ...... (4,699,297) (3,025,000) (5,943,604)
U.S. Treasury securities matured ........ 4,511,172 2,950,000 5,627,745
Net expenditures for building
and equipment .......................... (27,004) (33,316) (41,736)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES . (215,129) (108,316) (357,595)
FINANCING ACTIVITIES
Distributions paid ...................... (8,250,000) (7,135,000) (5,407,000)
----------- ----------- -----------
NET CASH USED IN FINANCING ACTIVITIES . (8,250,000) (7,135,000) (5,407,000)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ..................... 185,483 150,663 (80,145)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR ..................... 262,525 111,862 192,007
----------- ----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR ........................... $ 448,008 $ 262,525 $ 111,862
=========== =========== ===========
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
Net income .............................. $ 8,988,486 $ 8,149,287 $ 6,203,645
Adjustments to reconcile net income to
net
cash provided by operating activities:
Depreciation and amortization ......... 169,626 132,704 115,789
Net (increase) decrease in assets:
Accrued interest .................... 46,498 15,186 (3,107)
Royalties receivable ................ (335,540) (361,718) (503,012)
Prepaid expenses .................... 1,805 603 (33,499)
Surface lands ....................... (213,000) (558,500) (113,500)
Net increase (decrease) in liabilities:
Accrued liabilities ................. (7,263) 16,417 18,134
----------- ----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES .............. $ 8,650,612 $ 7,393,979 $ 5,684,450
=========== =========== ===========
</TABLE>
See accompanying notes.
8
GREAT NORTHERN IRON ORE PROPERTIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE A - BUSINESS AND TERMINATION OF THE TRUST
AND LEGAL PROCEEDINGS
The Trust is presently involved solely with the leasing and maintenance of
mineral lands owned by the Trust on the Mesabi Iron Range of Minnesota. Royalty
income is derived from taconite production and minimums. Royalty income (which
is not in direct ratio to tonnage shipped) from significant operating lessees
was as follows: 1996 - $4,713,000, $3,454,000 and $1,759,000; 1995 - $5,279,000,
$2,862,000 and $968,000; and 1994 - $4,949,000 and $1,840,000.
The Trust Agreement, dated December 7, 1906, provides that upon expiration of
twenty years next following the death of the last survivor of the persons by
whose lives the term of the Trust is determined, unless sooner terminated, all
monies remaining in the hands of the Trustees (after paying and providing for
all expenses and obligations of the Trust) shall be distributed ratably among
the certificate holders (term beneficiaries), while all property other than
monies shall be conveyed and transferred to the Lake Superior Company, Limited
(reversionary beneficiary), or its successors or assigns (Glacier Park Company,
a wholly owned subsidiary of Burlington Resources, Inc.). The last survivor of
the persons named in the Trust Agreement died April 6, 1995. According to the
terms of the Trust Agreement, the Trust now terminates twenty (20) years from
April 6, 1995.
In proceedings commenced in 1972, the Minnesota Supreme Court determined that
while by the terms of the Trust, the Trustees are given discretionary powers to
convert Trust assets to cash and to distribute the proceeds to certificate
holders, they are limited in their exercise of those powers by the legal duty
imposed by well established law of trusts to serve the interests of both term
beneficiaries and the reversionary beneficiary with impartiality. Thus, the
Trustees have no duty to exercise the powers of sale and distribution unless
required to do so to serve both term and reversionary interests; and if the need
arises, the Trustees may petition the District Court of Ramsey County,
Minnesota, for further instructions defining what is required in a particular
case to balance the interests of certificate holders and reversioner. Also, the
Court, in effect, held that the Trust is a conventional trust, rather than a
business trust, and must operate within the framework of well established trust
law.
By a letter dated March 22, 1996, certificate holders of record as of March 6,
1996 and the reversioner were notified of a hearing on April 16, 1996 in Ramsey
County Courthouse, Saint Paul, Minnesota, for the purpose of settling and
allowing the Trust accounts for the year 1995. By Court Order signed and dated
April 16, 1996, the said accounts were settled and allowed in all respects. By
9
previous Orders, the Court settled and allowed the accounts of the Trustees for
preceding years of the Trust.
As previously reported, Section 646 of the Tax Reform Act of 1986, as amended,
provided a special elective provision under which the Trust was allowed to
convert from taxation as a corporation to that of a grantor trust. Pursuant to
an Order of the Ramsey County District Court, the Trustees filed the Section 646
election with the Internal Revenue Service on December 30, 1988. On January 1,
1989, the Trust became exempt from federal and Minnesota corporate income taxes.
For years 1989 and thereafter, certificate holders are taxed on their allocable
share of the Trust's income whether or not the income is distributed. For
certificate holder tax purposes, the Trust's income is determined on an annual
basis, one-fourth then being allocated to each quarterly record date.
The Trustees provided annual income tax information in January 1997 to
certificate holders of record with holdings on any of the four quarterly record
dates during 1996. This information included a:
SUBSTITUTE FORM 1099 - MISC - This form reported one's 1996 allocable
share of income from the Trust, distributions declared and any taxes
withheld. (Foreign certificate holders received a Form 1042S.)
TRUST SUPPLEMENTAL STATEMENT - This statement reported the number of
units (shares) held on any of the four quarterly record dates in 1996.
TAX RETURN GUIDE - This guide instructed the certificate holder as to
the preparation of their income tax returns with respect to income
allocated from the Trust and various deductions allowable.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS: For purposes of the statements of cash flows, the
Trust considers all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
SECURITIES: United States Treasury securities are classified as
"held-to-maturity" securities and are carried at cost, adjusted for
amortization of premium and accrued interest. Securities listed as noncurrent
assets will mature in 1998 and 1999. Following is an analysis of the
securities as of December 31:
10
CURRENT NONCURRENT
------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
Aggregate fair
value .......... $ 3,332,883 $ 4,548,742 $ 5,061,750 $ 3,755,554
Gross unrealized
holding gains .. (2,628) (22,367) (11,123) (51,809)
Gross unrealized
holding losses.. 4,124 5,645 8,281 --
----------- ----------- ----------- -----------
Amortized cost
basis .......... 3,334,379 4,532,020 5,058,908 3,703,745
Accrued interest 60,135 71,922 65,543 69,651
----------- ----------- ----------- -----------
$ 3,394,514 $ 4,603,942 $ 5,124,451 $ 3,773,396
=========== =========== =========== ===========
MINERAL LANDS: Mineral lands, including surface lands, are carried at amounts
which represent, principally, either cost at acquisition or values on March 1,
1913. The value of the merchantable ore deposits was established on March 1,
1913 for federal income tax purposes. No value has been estimated or recorded
for taconite deposits held on March 1, 1913, since they were not then thought to
be merchantable. The cost of surface lands acquired to facilitate mining
operations was amortized (noncash expense) in the amounts of $149,880, $117,669
and $102,684 for the years 1996, 1995 and 1994, respectively (see Note C).
ROYALTY INCOME: Royalties from mineral leases are taken into income as earned.
Accumulated advance royalties received and taken into income on ore not yet
mined amounted to $918,962 on December 31, 1996 and $600,027 on December 31,
1995. The advance royalties collected involve no liabilities on the part of the
Trust except to permit the mining of the ore from leases on which the advance
royalties have been paid.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from the estimates.
NET INCOME PER SHARE: Net income per share is determined by dividing net
income for the year by the 1,500,000 shares of beneficial interest
outstanding.
NOTE C - LAND ACQUISITION
A mining agreement dated January 1, 1959 with United States Steel Corporation
provides that one-half of annual earned royalty income, after satisfaction of
minimum royalty payments, shall be applied to reimburse the lessee for its cost
of acquisition of surface lands overlying the leased mineral deposits, which
surface lands are then conveyed to the Trustees (see Note B). There are surface
lands yet to be purchased, the costs of which are yet unknown and will not be
known until the actual purchases are made.
11
NOTE D - PRINCIPAL CHARGES ACCOUNT
Pursuant to the Court Order of November 29, 1982, the Trustees were directed to
create and maintain an account designated as "Principal Charges." This account
constitutes a first and prior lien between the certificate holders and the
reversioner, and reflects an allocation of beneficiaries' equity between the
certificate holders and the reversioner. The balance in this account consists of
attorneys' fees and expenses of counsel for adverse parties pursuant to Court
Order in connection with litigation commenced in 1972 relating to the Trustees'
powers and duties under the Trust Instrument and the cost of surface lands
acquired in accordance with provisions of a lease with United States Steel
Corporation, net of an allowance to amortize the cost of the land based on
actual shipments of taconite and net of a credit for disposition of tangible
assets. Following is an analysis of this account as of December 31:
1996 1995
----------- -----------
Attorneys' fees and expenses $ 1,024,834 $ 1,024,834
Cost of surface lands ...... 4,964,794 4,751,794
Shipment credits
(cumulative) .............. (470,811) (395,159)
Asset disposition credits .. (18,500) (18,500)
----------- -----------
Principal Charges account .. $ 5,500,317 $ 5,362,969
=========== ===========
Upon termination of the Trust, the Trustees shall either sell tangible assets or
obtain a loan with tangible assets as security to provide monies for
distribution to the certificate holders in the amount of the Principal Charges
account balance.
NOTE E - PENSION PLAN
The Trust has a noncontributory defined benefit plan which covers all employees.
The Trustees are not eligible for pension benefits under the plan based on
services as Trustees. A pension benefit under the plan is based on an employee's
years of service, compensation and the type of benefit payment option selected.
Plan assets, as managed by the pension plan trustee, are comprised mostly of
fixed income and common stock investments. The Trust's funding policy is to make
annual contributions of not less than the minimum required by Internal Revenue
Service regulations.
12
A summary of the components of net periodic pension cost (benefit), a noncash
item, for 1996, 1995 and 1994 is as follows:
1996 1995 1994
--------- --------- ---------
Service cost - benefits earned
during the year ................. $ 63,717 $ 41,691 $ 47,488
Interest cost on projected benefit
obligation ...................... 195,071 182,570 163,112
Actual return on plan assets ..... (350,351) (702,080) 38,791
Net amortization and deferral .... 92,154 484,929 (279,749)
--------- --------- ---------
Net pension cost (benefit) ....... $ 591 $ 7,110 $ (30,358)
========= ========= =========
Assumptions used in accounting for the defined benefit plan were:
1996 1995
---- ----
Weighted average discount rate .. 7.50% 7.00%
Rate of increase in compensation
levels ......................... 3.50% 3.50%
The expected long-term rate of return on assets was 8.00% in each of the three
years presented.
The following table sets forth the plan's funded status and amounts recognized
in the balance sheets at December 31:
1996 1995
----------- -----------
Actuarial present value of benefit
obligations:
Vested benefit obligation ................. $ 2,313,406 $ 2,646,090
Nonvested benefit obligation .............. 11,196 12,348
----------- -----------
Accumulated benefit obligation ............ 2,324,602 2,658,438
Effect of estimated future salary increases 245,508 226,951
----------- -----------
Projected benefit obligation .............. 2,570,110 2,885,389
Plan assets at fair value .................. 3,249,027 3,093,404
----------- -----------
Plan assets in excess of projected benefit
obligation ................................ 678,917 208,015
Unrecognized net (gain) loss ............... (375,487) 114,624
Prior service cost ......................... 179,909 207,015
Remaining net obligation at transition ..... (228,613) (274,337)
----------- -----------
Net pension asset in balance sheet ......... $ 254,726 $ 255,317
=========== ===========
13
NOTE F - INCOME TAXES
The Trustees filed an election under Section 646 of the Tax Reform Act of 1986,
as amended. As discussed in Note A, beginning in 1989 the Trust is no longer
subject to federal or Minnesota corporate income taxes provided the requirements
of Section 646 are met. The principal requirements are:
The Trust must be exclusively engaged in the leasing of mineral
properties and activities incidental thereto.
The Trust must not acquire any additional property other than
permissible acquisitions as provided by Section 646.
If these requirements are violated, the Trust will be treated as a corporation
for the taxable year in which the violation occurs and for all subsequent
taxable years. Since the election of Section 646, the Trust has remained in
compliance with these requirements.
NOTE G - LEASE COMMITMENTS
The Trust leases office facilities in Saint Paul, Minnesota. These leases
include various renewal options and exclude any contingent rental provisions.
Rental expense for these operating leases amounted to $42,156, $52,962 and
$51,416 for the years 1996, 1995 and 1994, respectively.
14
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Trustees
Great Northern Iron Ore Properties
We have audited the accompanying balance sheets of Great Northern Iron Ore
Properties as of December 31, 1996 and 1995, and the related statements of
income, beneficiaries' equity and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits 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 are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 referred to above present fairly, in
all material respects, the financial position of Great Northern Iron Ore
Properties at December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
January 31, 1997
15
GREAT NORTHERN IRON ORE PROPERTIES
SUMMARY OF SHIPMENTS
<TABLE>
<CAPTION>
FULL TONS SHIPPED
---------------------------------------------
TOTAL TO
OWNERSHIP JANUARY 1,
NO. MINE INTEREST 1996 1995 1994 1997
--- ---- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1 Mahoning .................... 100% 785,911 945,130 819,159 143,557,579
2 Ontario ..................... do. 757,554 809,320 925,832 8,242,758
3 Ontario ..................... 50% 347,044 1,626,607 1,208,036 14,919,364
4 Section 18 .................. 100% 492 40,073 -- 27,898,431
5 South Stevenson ............. do. 497,647 241,961 -- 5,317,268
6 Stevenson ................... do. 525,754 104,648 311 35,061,066
7 Russell Annex ............... 50% 325,511 592,443 115,270 1,160,985
8 Wentworth ................... 100% -- -- 22,807 5,854,394
9 Minntac ..................... do. 2,739,614 1,637,165 1,118,136 22,266,616
--------- --------- --------- -----------
5,979,527 5,997,347 4,209,551 264,278,461
Shipments from inactive
mines and those
exhausted, surrendered
or sold prior to this year -- -- -- 318,137,777
--------- --------- --------- -----------
TOTAL .................... 5,979,527 5,997,347 4,209,551 582,416,238
========= ========= ========= ===========
</TABLE>
NO. OPERATING INTEREST
--- ------------------
1-3 Hibbing Taconite Company
4-7 National Steel Corporation
8 LTV Steel Mining Company
9 United States Steel Corporation (USX)
16
GREAT NORTHERN IRON ORE PROPERTIES FIRST CLASS
W-1290 FIRST NATIONAL BANK BUILDING U.S. POSTAGE
332 MINNESOTA STREET PAID
SAINT PAUL, MINNESOTA 55101-1361 PERMIT #43
MINNEAPOLIS, MN
FIRST CLASS MAIL
Exhibit 23 - Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Great Northern Iron Ore Properties of our report dated January 31, 1997,
included in the 1996 Annual Report to Certificate Holders of Great Northern Iron
Ore Properties.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
January 31, 1997
GREAT NORTHERN IRON ORE PROPERTIES
W-1290 First National Bank Building
332 Minnesota Street
Saint Paul, MN 55101-1361
(612) 224-2385
FAX (612) 224-2387
1996 TAX RETURN GUIDE
Dear Unit Holder:
This "Tax Return Guide" has been prepared to assist the certificate holder in
reporting the taxable income from Great Northern Iron Ore Properties (the
"Trust") as summarized on the Substitute Form 1099-MISC (or Form 1042S for
foreign investors) and the Trust Supplemental Statement. This information is
being mailed to all certificate holders shown on the record dates during 1996,
as maintained by our transfer agent. If you use a professional tax advisor, it
is essential that they have this Guide to prepare your income tax return.
This Guide is merely intended to assist the investor in addressing many of the
issues that arise in reporting the Trust operations for federal and state income
tax purposes. It is not intended to be all-inclusive or to render specific
professional tax advice. If you are a foreign investor, we recommend you consult
your tax advisor for proper income tax reporting due to the complexity of
taxation of foreign investors. Should you have any questions about the
information in this Guide or need further assistance in income tax return
preparation, please consult your tax advisor.
"Street name" holders may also use this Guide to calculate their allocable share
of Trust income and deductions if they know the number of units (shares) held on
the record dates during the year. Nominees and brokers should refer to the
section in this Guide entitled "Nominee Reporting Requirements" which provides
guidance as to the preparation of Trust income tax information for their
clients. Please contact the Trust office if you need a bulk supply of these
Guides.
Finally, please note that this Guide provides information for both domestic and
foreign investors. Certain sections in this Guide pertain only to a specific
class of investors and are labeled as such. Please read this Guide thoroughly
and complete the worksheets carefully.
Sincerely yours and for the Trustees,
/s/ Harry L. Holtz
- ------------------------------
President of the Trustees
January 1997
page 2
<TABLE>
<CAPTION>
TAX RETURN GUIDE
TABLE OF CONTENTS
Page
<S> <C>
Tax Matters Relating to Great Northern Iron Ore Properties
General Information 3 - 4
Information for Foreign Investors 4 - 5
Trust Income and Allocation 5
Presentation of Tax Data 5
Classification of Trust Income 5
Depletion 6
Basis 6
Certificate Amortization 6
Alternative Minimum Tax 6
Minnesota Taxation and Adjustments 7
Instruction Outline 8 - 9
Worksheet A - Unit Holders with a constant interest throughout the year
Schedule I Individual Taxpayers 10
Schedule II Corporate Taxpayers 10
Worksheet B - Unit Holders that purchased or sold units during the year
Schedule I Individual Taxpayers 11-12
Schedule II Corporate Taxpayers 13-14
Worksheet C - Year End Basis and Certificate Amortization Computations 15
Nominee Reporting Requirements 16
Attachment for Income Tax Return to Reconcile Form 1099-MISC or Form 1042S
Schedule for Individual Foreign Investors - Form 1042S S-F
Schedule for Individual Domestic Investors - Form 1099-MISC S-D
</TABLE>
page 3
TAX MATTERS RELATING TO GREAT NORTHERN IRON ORE PROPERTIES
General Information
Pursuant to an Election filed under Section 646 of the Tax Reform Act of 1986,
as amended, the Trust is taxable as a grantor trust for the years after 1988. As
an investor in a grantor trust, you are required to report your proportionate
share of the Trust's taxable income on your federal and state income tax
returns.
This Tax Return Guide is used to calculate the various components of Trust
income and deductions allocable to you. For the benefit of "street name"
holders, this Guide is universal in that if you know the number of shares
(units) held on the record dates during the year, you can calculate the proper
amount of Trust income and deductions allocable to you, regardless of whether or
not you received a Form 1099-MISC or Form 1042S from your broker.
This Guide is generally designed to instruct unit holders who utilize Individual
Income Tax Return Form 1040 or Corporate Income Tax Return Form 1120, which
represents a vast majority of our certificate holders. Foreign investors
generally would utilize Nonresident Alien Income Tax Return Form 1040NR
(Individuals) or Foreign Corporation Income Tax Return Form 1120F
(Corporations). Please note that the tax return line instructions within this
Guide do not apply to foreign investors. Because the reporting of income or
deductions for foreign investors is dependent upon whether or not they are
effectively connected with a U.S. trade or business, we strongly recommend
foreign investors consult with their tax advisors for proper income tax return
preparation.
The Substitute Form 1099-MISC has been prepared only for domestic certificate
holders of record during the year (not "street name" holders). It is used to
report the income allocable to the domestic investor (as reported to the
Internal Revenue Service and the Minnesota Department of Revenue), distributions
declared (not necessarily received within the year) and any taxes withheld. It
should be emphasized that Box 1 on Substitute Form 1099-MISC contains
distributions declared during the calendar year, not necessarily those actually
received during the year. The following table is provided to help clarify the
timing differences:
Distributions
- --------------------------------------------------------------------------------
Declared Paid Reported on (if applicable)
-------- ---- ---------------------------
12/95 1/96 1995 Form 1099-MISC
3/96 4/96 1996 Form 1099-MISC
6/96 7/96 1996 Form 1099-MISC
9/96 10/96 1996 Form 1099-MISC
12/96 1/97 1996 Form 1099-MISC
- --------------------------------------------------------------------------------
page 4
Regardless of when distributions were declared or paid, taxable income is
determined based upon your allocable share of the income of the Trust, not the
distributions. Distributions need not normally be reported anywhere on your
income tax return. If you are a "street name" holder and received a Form
1099-DIV from your broker, you should have the Form 1099-DIV voided and replaced
with a Form 1099-MISC as prepared by the broker in accordance with the "Nominee
Reporting Requirements" section of this Guide. Should your broker not void the
Form 1099-DIV, it is suggested you list the distributions reported by your
broker as nontaxable distributions on Schedule B, Part II of Form 1040
(Individuals) and report your proportionate share of the Trust's income on your
income tax return as computed by this Guide.
The Form 1042S has been prepared only for foreign certificate holders of record
during the year (not "street name" holders). It is used to report the income
allocable to the foreign investor (as reported to the Internal Revenue Service
and the Minnesota Department of Revenue) and any taxes withheld. Regardless of
when distributions were declared or paid, taxable income is determined based
upon your allocable share of the income of the Trust, not the distributions.
Distributions need not normally be reported anywhere on your income tax return.
The Trust Supplemental Statement shows only the shares (units) held on the
various record dates during the year. It accompanies the Substitute Form
1099-MISC or Form 1042S and may be helpful as a reference in completing this
Guide.
If you utilize professional assistance in preparing your income tax return, it
is essential that you provide your preparer with this Tax Return Guide, your
Substitute Form 1099-MISC or Form 1042S (if applicable) and your Trust
Supplemental Statement (if applicable).
Information for Foreign Investors
Nonresident alien individuals or foreign corporations are generally subject to
federal income tax at the rate of 30% (or lower treaty rate) on certain items of
gross income, including royalties, from sources within the United States. All of
the income of the Trust for this year was from sources within the United States.
The income reported on Form 1042S includes interest income, rental income and
gain from the sale of domestic iron ore. The enclosed worksheets will assist you
in the proper breakdown and reporting of the income. Because the taxation of
foreign investors is a complex area, we recommend you consult your tax advisor.
The income tax withheld from your distributions is also shown on Form 1042S. You
must file a United States federal income tax return if the tax was underwithheld
or to claim a refund for any overwithheld tax.
If a nonresident alien individual or foreign corporation is engaged in a trade
or business in the United States and the income from the Trust is effectively
connected therewith, in general, the Trust income is taxable at the graduated
tax rates applicable to individuals or corporations. Furthermore, a unit holder
may elect to treat the income (which constitutes income from real property) as
effectively connected with the conduct of a trade or business in the United
States under Sections 871(d) or 882(d) of the Internal Revenue Code, or pursuant
to any similar provisions of applicable treaties. A unit holder whose Trust
income is effectively connected with a United States trade or business or who
elects to treat it as such is entitled to claim a depletion deduction, to the
extent allowed by law, and a certificate amortization deduction with respect to
such income. A United States federal income tax return must be filed to claim
these deductions.
page 5
A unit holder whose Trust income is effectively connected with a United States
trade or business, or who elects to treat it as such, is entitled to claim
exemption from the 30% (or lower treaty rate) withholding tax. Such exemption is
claimed for a calendar year by filing, in duplicate, with the Trust, Form 4224
"Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States" (or a substitute statement
containing the information required by Income Tax Regulation Section 1.1441-4).
The exemption statement must be received by the Trust sufficiently in advance of
the distribution to which it is intended to apply. A separate Form 4224 (or
substitute statement) must be filed with the Trust for each calendar year in
order to claim an exemption from withholding for that year's income.
Under the Foreign Investment in Real Property Tax Act (FIRPTA), the units are
treated as United States real property interests. Thus, gain or loss from the
sale or exchange of the units will be regarded as arising from the sale or
exchange of property effectively connected with the conduct of a United States
trade or business. Therefore, any sale of units during the year must be reported
in the United States and the appropriate taxes paid, if any. The gain or loss on
the sale of a unit is calculated by deducting the adjusted basis of the unit
from the unit selling price. The format of Worksheet C may be used to calculate
your adjusted basis. Include only those record dates before the sale date and
ignore the certificate amortization calculation.
Trust Income and Allocation
The Trust determines and reports its taxable income on a calendar basis
utilizing the accrual method of accounting. Shareholders (unit holders) of
record at the end of each quarter are allocated a share of the Trust's quarterly
income. There were four equal income allocations during the year to holders of
record as of the last business day of each calendar quarter. If you are an
investor with a taxable year other than a calendar year, you should report your
share of income for those record dates which coincide with your taxable year
using Worksheet B.
Presentation of Tax Data
Worksheets are provided to assist the investor in calculating their allocable
share of Trust income and deductions. You should prepare either Worksheet A if
you held the same number of units on each of the four quarterly record dates
during the year OR Worksheet B if you purchased or sold any units during the
year. If you own units in several blocks or the number of units which you own
changed during the year, you need to reproduce the necessary copies of these
worksheets and complete a separate worksheet for each block of units acquired on
a different date, at a different price or held for a different time period in
order to maintain your basis individually.
Classification of Trust Income
By a provision of the Internal Revenue Code, the iron ore royalty income earned
by the Trust is treated as gain from the sale or exchange of assets used in a
trade or business under Code Section 1231, thereby qualifying for capital gain
treatment. With respect to the Tax Reform Act of 1986, the Trustees believe that
the Trust income is portfolio income. Accordingly, such portfolio income may not
be used to offset a unit holder's losses from other passive activities.
page 6
Depletion
There was no income derived from ore properties having a cost basis during the
year. Consequently, a cost depletion deduction is not allowable.
A percentage depletion deduction is only allowable under Section 631 for any tax
year in which the capital gain tax rate equals or exceeds the maximum ordinary
income tax rate. Accordingly, the percentage depletion deduction is not
available for individuals since the maximum ordinary income tax rate exceeds the
capital gain tax rate. The percentage depletion deduction continues to remain
available to domestic corporate taxpayers. It also remains available to foreign
corporate taxpayers if the income from the Trust is effectively connected with
your trade or business in the United States or if you elect to treat the income
as effectively connected. The corporate tax worksheets provide the factor to
calculate the percentage depletion deduction which is already reduced 20% as
provided by Section 291.
Basis
Basis is increased by your allocable share of Trust income and is reduced by
distributions and certificate amortization (if any). Investors should use the
format of Worksheet C to compute their year end basis annually. Basis should
never be less than zero. To the extent that distributions exceed your basis, the
excess distribution should be treated as capital gain. Certificate amortization
would no longer be available. This computation worksheet is also included to
assist the investor in computing gain or loss upon the sale of any portion of
the investor's interest. If you sold some or all of your shares prior to the end
of the year, you should to use the format of Worksheet C to calculate your
adjusted basis through the date of certificate disposition, ignoring the
certificate amortization deduction calculation as it becomes irrelevant for the
shares sold.
Certificate Amortization
Certificate holders were previously informed that amortizing the cost of Trust
certificates is allowable beginning October 2, 1978, or date of purchase,
whichever is later. Certificate amortization is a deduction for income tax
purposes for domestic investors. If you are a foreign investor and the income
from the Trust is effectively connected with your trade or business in the
United States or if you elect to treat the income as effectively connected, you
are also entitled to a certificate amortization deduction. The rate of
amortization is based on the expected life of the Trust. Certificate
amortization is calculated on one's basis (vs. a per unit amount) using the
percentage provided in Basis Worksheet C. If you did not hold any units at the
end of the year, ignore the certificate amortization deduction calculation.
Alternative Minimum Tax
Alternative minimum tax (AMT) is only applicable to our corporate investors
since the percentage depletion deduction is not available for individuals. The
entire corporate percentage depletion deduction is considered a tax preference
item and should be included on the AMT return form. Please follow the form's
instructions to determine if an additional tax liability is generated.
page 7
Minnesota Taxation and Adjustments
Unit holders who meet Minnesota's minimum filing requirements will have to
report their allocable share of the Trust's income to the State of Minnesota.
Minnesota resident's federal income will include their share of the Trust's
income. Nonresident unit holders will have to file a Minnesota income tax return
to report Minnesota source income if their total Minnesota source income,
including their allocable share of the Trust's income, was at least $6,550
(minimum threshold for a single taxpayer under age 65).
Individual taxpayers are allowed a subtraction for their allocable share of the
Trust's U.S. interest income on their Minnesota income tax return. Use the
worksheets to calculate this amount and include with any other subtractions on
the Minnesota Individual Income Tax Return.
Corporate taxpayers are not allowed a percentage depletion deduction for
Minnesota. Therefore, the calculated percentage depletion deduction (if claimed
on the federal return) must be shown as an addition to Minnesota income.
If you are not required to file a Minnesota income tax return, you may ignore
the "Minnesota Adjustment" lines in the worksheets. However, to the extent that
other states have similar adjustments as explained above, the worksheets may be
helpful in calculating these amounts.
page 8
INSTRUCTION OUTLINE
Your Substitute Form 1099-MISC or Form 1042S (if applicable) provides your
aggregate share of the Trust's taxable income before deductions for the calendar
year. For tax reporting purposes, the income should be separated into its
various components. If you are a "street name" holder and did not receive a Form
1099-MISC or Form 1042S, you should request such a form from your broker (not
Great Northern Iron Ore Properties); however this Guide can be used to calculate
your allocable share of income without having these forms if you know the number
of shares held on the various record dates. The worksheets which follow will
assist you in completing your income tax return with respect to the Trust's
income and deductions.
Please note that if you own units in several blocks or the number of units which
you own changed during the year, you need to reproduce the necessary copies of
these worksheets and complete a separate worksheet for each block of units
acquired on a different date, at a different price or held for a different time
period in order to maintain your basis individually.
STEP 1 Before you begin, you will likely need a minimum of the following
federal income tax return forms:
Individual Domestic Investors
Form 1040-U.S. Individual Income Tax Return
Schedule B (Form 1040)-Interest and Dividend Income
Schedule D (Form 1040)-Capital Gains and Losses
Schedule E (Form 1040)-Supplemental Income and Loss
Form 4797-Sales of Business Property
Corporate Domestic Investors
Form 1120-U.S. Corporate Income Tax Return
Schedule D (Form 1120)-Capital Gains and Losses
Form 4797-Sales of Business Property
Form 4626-Alternative Minimum Tax-Corporations
Individual Foreign Investors
Form 1040NR-Nonresident Alien Income Tax Return
Corporate Foreign Investors
Form 1120F-Foreign Corporation Income Tax Return
Various state income tax return forms may also be required depending on
the investor's tax status and domicile.
STEP 2 Determine which worksheet to use. Investors who held a constant number
of units throughout the year should use Worksheet A. All others should
use Worksheet B.
STEP 3 Complete Worksheet A or B (but not both). The Trust Supplemental
Statement received (if applicable) will provide the shares (units) held
on the various record dates during the year. The worksheet is designed
to reconcile to your Form 1099- MISC or Form 1042S for calendar year
taxpayers.
page 9
STEP 4 If you held units of interest at the end of the year, complete
Worksheet C. If you did not hold units of interest at the end of the
year, you need not complete Worksheet C as your basis should be zero
and certificate amortization is irrelevant. However, you may wish to
use the format of Worksheet C to calculate your basis through the date
of certificate disposition.
STEP 5 If you are a domestic investor, enter the amounts calculated on
Worksheet A or Worksheet B onto the appropriate income tax return lines
as indicated on the worksheets. If you are a foreign investor,
reporting of the calculated amounts is dependent upon whether the
income is effectively or not effectively connected with a U.S. trade or
business. As this determination is dependent upon your specific
activities in the U.S., we recommend you consult your tax advisor for
proper reporting before entering the amounts calculated on Worksheet A
or Worksheet B onto your income tax return.
STEP 6 Individual domestic investors should complete Schedule S-D with the
amounts calculated from Worksheet A or Worksheet B (lines 1, 2 & 3).
This schedule provides a reconciliation of the reported income to Form
1099-MISC (which was sent to the Internal Revenue Service and the
Minnesota Department of Revenue).
Individual foreign investors should complete Schedule S-F with the
amounts calculated from Worksheet A or Worksheet B (lines 1, 2, & 3).
This schedule provides a reconciliation of the reported income to Form
1042S (which was sent to the Internal Revenue Service and the Minnesota
Department of Revenue). Foreign investors must also indicate where the
income was listed on their income tax return as determined in Step 5
above.
STEP 7 Attach either Schedule S-D or S-F, as appropriate, to your income tax
return.
STEP 8 Retain this Guide, Substitute Form 1099-MISC or Form 1042S (if
applicable) and the Trust Supplemental Statement (if applicable) with
your permanent records as it contains basis and other important
information which may be needed in future years.
page 10
WORKSHEET A
CALCULATION OF TAXABLE INCOME FOR UNIT HOLDERS
HOLDING A CONSTANT NUMBER OF UNITS THROUGHOUT THE YEAR
*Please note that the income tax return lines referenced below pertain only to
domestic investors. If you are a foreign investor, the reporting of this income
is dependent upon whether the income is effectively or not effectively connected
with a U.S. trade or business. As this determination is dependent upon your
specific activities in the U.S., we recommend you consult your tax advisor for
the proper reporting of this income before entering the amounts calculated onto
your income tax return Form 1040NR (Individuals) or Form 1120F (Corporations).
<TABLE>
<CAPTION>
SCHEDULE I: INDIVIDUAL TAXPAYERS: YEAR: 1996
Income or Deduction Per Unit No. of Units Total Where to Report on Form 1040*
------------------- -------- ------------ ----- -----------------------------
<S> <C> <C> <C> <C>
1) Interest Income 0.342420 X = $ Schedule B, Part I, Line 1
------------- -------------
2) Rental Income 0.016092 X = $ Schedule E, Part I, Line 3
------------- -------------
3) Gain from Sale of Iron Form 4797, Part I, Line 2,
Ore, Section 1231 5.644564 X = $ Column d
------------- -------------
Proof Reconciliation:
Sum of lines 1, 2 & 3
should equal Form 1099-MISC Box 2
or Form 1042S (if applicable): $
=============
4) Certificate Amortization Deduction Schedule D, Part II, Line 9,
as calculated from Worksheet C: $ Columns e and f (negative)
-------------
MINNESOTA ADJUSTMENT: (For filing a State of
Subtract U.S. Interest 0.318416 X = $ ( )Line 6 Minnesota Tax Return)
------------- -------------
SCHEDULE II: CORPORATE TAXPAYERS:
Income or Deduction Per Unit No. of Units Total Where to Report on Form 1120*
------------------- -------- ------------ ----- -----------------------------
1) Interest Income 0.342420 X = $ Line 5
------------- -------------
2) Rental Income 0.016092 X = $ Line 6
------------- -------------
3) Gain from Sale of Iron Form 4797, Part I, Line 2,
Ore, Section 1231 5.644564 X = $ Column d
------------- -------------
Proof Reconciliation:
Sum of lines 1, 2 & 3
should equal Form 1099-MISC Box 2
or Form 1042S (if applicable): $
=============
Form 4797, Part I, Line 2,
4) Percentage Depletion Deduction 0.798288 X = $ Column f
------------- -------------
5) AMT Preference Item:
Percentage Depletion 0.798288 X = $ Form 4626, Line 2(m)
------------- -------------
6) Certificate Amortization Deduction Schedule D, Part II, Line 6
as calculated from Worksheet C: $ Columns e and f (negative)
-------------
MINNESOTA ADJUSTMENT: (For filing a State of
Add Percentage Depletion 0.798288 X = $ Line 2 Minnesota Tax Return)
------------- -------------
</TABLE>
page 11
WORKSHEET B
CALCULATION OF TAXABLE INCOME FOR UNIT HOLDERS
THAT PURCHASED OR DISPOSED OF UNITS DURING THE YEAR
*Please note that the income tax return lines referenced below pertain only to
domestic investors. If you are a foreign investor, the reporting of this income
is dependent upon whether the income is effectively or not effectively connected
with a U.S. trade or business. As this determination is dependent upon your
specific activities in the U.S., we recommend you consult your tax advisor for
the proper reporting of this income before entering the amounts calculated onto
your income tax return Form 1040NR (Individuals) or Form 1120F (Corporations).
<TABLE>
<CAPTION>
SCHEDULE I: INDIVIDUAL TAXPAYERS: YEAR: 1996
FIRST QUARTER - MARCH 29, 1996
Income or Deduction Per Unit No. of Units Total Where to Report on Form 1040*
------------------- -------- ------------ ----- -----------------------------
<S> <C> <C> <C> <C>
1) Interest Income 0.085605 X = $
------------- -------------
2) Rental Income 0.004023 X = $
------------- -------------
3) Gain from Sale of Iron NOTE:
Ore, Section 1231 1.411141 X = $ SEE GRAND TOTAL
------------- ------------- RECONCILIATION
NEXT PAGE
MINNESOTA ADJUSTMENT:
Subtract U.S. Interest 0.079604 X = $ ( )
------------- -------------
SECOND QUARTER - JUNE 28, 1996
Income or Deduction Per Unit No. of Units Total Where to Report on Form 1040*
------------------- -------- ------------ ----- -----------------------------
1) Interest Income 0.085605 X = $
------------- -------------
2) Rental Income 0.004023 X = $
------------- -------------
3) Gain from Sale of Iron NOTE:
Ore, Section 1231 1.411141 X = $ SEE GRAND TOTAL
------------- ------------- RECONCILIATION
NEXT PAGE
MINNESOTA ADJUSTMENT:
Subtract U.S. Interest 0.079604 X = $ ( )
------------- -------------
page 12
(Individual continued)
THIRD QUARTER - SEPTEMBER 30, 1996
Income or Deduction Per Unit No. of Units Total Where to Report on Form 1040*
------------------- -------- ------------ ----- -----------------------------
1) Interest Income 0.085605 X = $
------------- -------------
2) Rental Income 0.004023 X = $
------------- -------------
3) Gain from Sale of Iron NOTE:
Ore, Section 1231 1.411141 X = $ SEE GRAND TOTAL
------------- ------------- RECONCILIATION
BELOW
MINNESOTA ADJUSTMENT:
Subtract U.S. Interest 0.079604 X = $ ( )
------------- -------------
FOURTH QUARTER - DECEMBER 31, 1996
Income or Deduction Per Unit No. of Units Total Where to Report on Form 1040*
------------------- -------- ------------ ----- -----------------------------
1) Interest Income 0.085605 X = $
------------- -------------
2) Rental Income 0.004023 X = $
------------- -------------
3) Gain from Sale of Iron NOTE:
Ore, Section 1231 1.411141 X = $ SEE GRAND TOTAL
------------- ------------- RECONCILIATION
BELOW
MINNESOTA ADJUSTMENT:
Subtract U.S. Interest 0.079604 X = $ ( )
------------- -------------
</TABLE>
GRAND TOTAL RECONCILIATION OF ABOVE RECORD DATES FOR WORKSHEET B
(SUM OF RESPECTIVE TOTAL LINES ABOVE):
<TABLE>
<CAPTION>
Total Where to Report on Form 1040*
----- -----------------------------
<S> <C> <C>
1) Interest Income $ Schedule B, Part I, Line 1
------------
2) Rental Income $ Schedule E, Part I, Line 3
------------
3) Gain from Sale of Iron Form 4797, Part I, Line 2,
Ore, Section 1231 $ Column d
------------
Proof Reconciliation: Sum of lines 1, 2 & 3 should equal
Form 1099-MISC Box 2 or Form 1042S (if applicable) $
============
4) Certificate Amortization Deduction Schedule D, Part II, Line 9,
as calculated from Worksheet C: $ Columns e and f (negative)
------------
MINNESOTA ADJUSTMENT: (For filing a State of
Subtract U.S. Interest $ ( )Line 6 Minnesota Tax Return)
------------
</TABLE>
page 13
<TABLE>
<CAPTION>
SCHEDULE II: CORPORATE TAXPAYERS: YEAR: 1996
FIRST QUARTER - MARCH 29, 1996
Income or Deduction Per Unit No. of Units Total Where to Report on Form 1120*
------------------- -------- ------------ ----- -----------------------------
<S> <C> <C> <C> <C>
1) Interest Income 0.085605 X = $
------------- -------------
2) Rental Income 0.004023 X = $
------------- -------------
3) Gain from Sale of Iron NOTE:
Ore, Section 1231 1.411141 X = $ SEE GRAND TOTAL
------------- ------------- RECONCILIATION
4) Percentage Depletion Deduction 0.199572 X = $ NEXT PAGE
------------- -------------
5) AMT Preference Item:
Percentage Depletion 0.199572 X = $
------------- -------------
MINNESOTA ADJUSTMENT:
Add Percentage Depletion 0.199572 X = $
------------- -------------
SECOND QUARTER - JUNE 28, 1996
Income or Deduction Per Unit No. of Units Total Where to Report on Form 1120*
------------------- -------- ------------ ----- -----------------------------
1) Interest Income 0.085605 X = $
------------- -------------
2) Rental Income 0.004023 X = $
------------- -------------
3) Gain from Sale of Iron NOTE:
Ore, Section 1231 1.411141 X = $ SEE GRAND TOTAL
------------- ------------- RECONCILIATION
4) Percentage Depletion Deduction 0.199572 X = $ NEXT PAGE
------------- -------------
5) AMT Preference Item:
Percentage Depletion 0.199572 X = $
------------- -------------
MINNESOTA ADJUSTMENT:
Add Percentage Depletion 0.199572 X = $
------------- -------------
page 14
(Corporate continued)
THIRD QUARTER - SEPTEMBER 30, 1996
Income or Deduction Per Unit No. of Units Total Where to Report on Form 1120*
------------------- -------- ------------ ----- -----------------------------
1) Interest Income 0.085605 X = $
------------- -------------
2) Rental Income 0.004023 X = $
------------- -------------
3) Gain from Sale of Iron NOTE:
Ore, Section 1231 1.411141 X = $ SEE GRAND TOTAL
------------- ------------- RECONCILIATION
4) Percentage Depletion Deduction 0.199572 X = $ BELOW
------------- -------------
5) AMT Preference Item:
Percentage Depletion 0.199572 X = $
------------- -------------
MINNESOTA ADJUSTMENT:
Add Percentage Depletion 0.199572 X = $
------------- -------------
FOURTH QUARTER - DECEMBER 31, 1996
Income or Deduction Per Unit No. of Units Total Where to Report on Form 1120*
------------------- -------- ------------ ----- -----------------------------
1) Interest Income 0.085605 X = $
------------- -------------
2) Rental Income 0.004023 X = $
------------- -------------
3) Gain from Sale of Iron NOTE:
Ore, Section 1231 1.411141 X = $ SEE GRAND TOTAL
------------- ------------- RECONCILIATION
4) Percentage Depletion Deduction 0.199572 X = $ BELOW
------------- -------------
5) AMT Preference Item:
Percentage Depletion 0.199572 X = $
------------- -------------
MINNESOTA ADJUSTMENT:
Add Percentage Depletion 0.199572 X = $
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
GRAND TOTAL RECONCILIATION OF ABOVE RECORD DATES FOR WORKSHEET B
(SUM OF RESPECTIVE TOTAL LINES ABOVE):
Total Where to Report on Form 1120*
----- -----------------------------
<S> <C> <C>
1) Interest Income $ Line 5
-------------
2) Rental Income $ Line 6
-------------
3) Gain from Sale of Iron Form 4797, Part I, Line 2,
Ore, Section 1231 $ Column d
-------------
Proof Reconciliation: Sum of lines 1, 2 & 3
should equal Form 1099-MISC Box 2 or Form 1042S (if applicable) $
=============
Form 4797, Part I, Line 2,
4) Percentage Depletion Deduction $ Column f
-------------
5) AMT Preference Item: Percentage Depletion $ Form 4626, Line 2(m)
-------------
Schedule D, Part II, Line 6,
6) Certificate Amortization Deduction from Worksheet C $ Columns e and f (negative)
-------------
MINNESOTA ADJUSTMENT: (For filing a State of
Add Percentage Depletion $ Line 2 Minnesota Tax Return)
-------------
</TABLE>
page 15
<TABLE>
<CAPTION>
WORKSHEET C
YEAR END BASIS AND CERTIFICATE AMORTIZATION COMPUTATIONS
Cost or
Other Basis
Items Affecting Basis Per Unit No. of Units Total
--------------------- -------- ------------ -----
<S> <C> <C> <C> <C>
Basis: Beginning of the year or date of $ X = $
purchase, as applicable ------------ ------------- -------------
(from Form 1099-MISC Box 2 or
Form 1042S or Worksheet A or B
Plus: Income $ as calculated)
-------------
Less: Distributions received pertaining to -
First Quarter - March 29, 1996 1.35 X = $ ( ) (if applicable)
------------- -------------
Second Quarter - June 28, 1996 1.15 X = $ ( ) (if applicable)
------------- -------------
Third Quarter - September 30, 1996 1.60 X = $ ( ) (if applicable)
------------- -------------
Fourth Quarter - December 31, 1996 1.70 X = $ ( ) (if applicable)
------------- -------------
Subtotal: (Beginning Basis plus Income less Distributions): $
-------------
Certificate Amortization % Rate: X 0.052632
(to Worksheet A or B,
Certificate Amortization Deduction (Subtotal times Rate): = $ ( ) as appropriate)
-------------
Adjusted Basis at year end (Subtotal less Certificate
Amortization Deduction): $ (needed for next year)
=============
Units (Shares) held at year end: 1996 (needed for next year)
-------------
Adjusted Basis per Unit (Share) at year end (Adjusted
Basis divided by Units): $ (needed for next year)
=============
</TABLE>
page 16
NOMINEE REPORTING REQUIREMENTS: YEAR: 1996
If your federal ID number is shown on Form 1099-MISC or Form 1042S, and two or
more recipients are shown or the form includes amounts belonging to another
person, you are considered a nominee recipient. You must file Form 1099-MISC or
Form 1042S, as appropriate, for each of the other owners showing the income
allocable to each. File Form(s) 1099-MISC with Form 1096 (Annual Summary and
Transmittal of U.S. Information Returns) at the Internal Revenue Service Center
for your area. On Forms 1099-MISC and 1042S, you should be listed as the payer
and the other owner(s) should be listed as the recipient. A husband or wife is
not required to file a nominee return to show payments for the other. To prepare
a Form 1099-MISC or Form 1042S for each recipient, you must know the number of
units (shares) held by the recipient on each of the Trust's four record dates.
The record dates and income factors needed to calculate income allocable to each
recipient are listed below. You should multiply the units held on each record
date times the applicable income factor, adding the results together and
reporting the grand total on Form 1099-MISC Box 2 or Form 1042S to each
recipient. When completed, all income in the Nominee's Form 1099-MISC or Form
1042S should be accounted for and each recipient should receive a Form 1099-MISC
or Form 1042S, a copy of this Guide and a summary of the recipient's holdings on
each of the record dates below. These same instructions apply to brokerage firms
as to their preparation of a Form 1099-MISC or Form 1042S for their clients
holding interests in the Trust in "street name".
RECORD DATES: INCOME FACTORS: TAXPAYER ID NUMBER:
- ------------- --------------- -------------------
First Quarter - March 29, 1996 1.500769 41-0788355
Second Quarter - June 28, 1996 1.500769
Third Quarter - September 30, 1996 1.500769
Fourth Quarter - December 31, 1996 1.500769
------------
6.003076
============
S-F
NAME SOCIAL SECURITY #
-------------------------------- ----------------------
Attachment - Schedule Reconciling Form 1042S to Individual Income Tax Return
Where found on Form 1040NR
--------------------------
1) Interest Income + $ on
-------------- --------------------------
2) Rental Income + on
-------------- --------------------------
3) Gain from Sale of Iron Ore,
Section 1231 + on
-------------- --------------------------
EQUALS: Form 1042S = $
==============
GREAT NORTHERN IRON ORE PROPERTIES
S-D
NAME SOCIAL SECURITY #
-------------------------------- ----------------------
Attachment - Schedule Reconciling Form 1099-MISC to Individual Income Tax Return
Where found on Form 1040
--------------------------
1) Interest Income + $ Schedule B, Part I, Line 1
--------------
2) Rental Income + Schedule E, Part I, Line 3
--------------
3) Gain from Sale of Iron Ore, Form 4797, Part I, Line 2,
Section 1231 + Column d
--------------
EQUALS: Form 1099-MISC = $
==============
Box 2
GREAT NORTHERN IRON ORE PROPERTIES
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GREAT
NORTHERN IRON ORE PROPERTIES' BALANCE SHEET AS OF DECEMBER 31, 1996 AND INCOME
STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 448,008
<SECURITIES> 8,518,965
<RECEIVABLES> 2,649,880
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,495,582
<PP&E> 38,056,821
<DEPRECIATION> 32,864,931
<TOTAL-ASSETS> 17,066,649
<CURRENT-LIABILITIES> 2,735,256
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 14,331,393
<TOTAL-LIABILITY-AND-EQUITY> 17,066,649
<SALES> 9,978,603
<TOTAL-REVENUES> 10,530,200
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,541,714
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,988,486
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,988,486
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,988,486
<EPS-PRIMARY> 5.99
<EPS-DILUTED> 0
</TABLE>
