ANNUAL REPORT ON FORM 10-K
GREAT NORTHERN IRON ORE PROPERTIES
DECEMBER 31, 1998
<PAGE>
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, 1998 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 651 / 224-2385
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which 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, 1999 - 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, 1998 are incorporated by reference into Part II.
<PAGE>
PART I
Item 1. BUSINESS
The Registrant ("Trust") owns in fee, mineral and nonmineral 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, 7,152 acres are under lease and 4,881 acres are unleased.
Registrant cannot estimate at this time any tonnage 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, 1999 was equivalent to 396,000,000 tons of pellets.
Present leases provide for minimum payments (advance royalties)
aggregating approximately $2,360,000 for the year 1999 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.
1
<PAGE>
Item 1. BUSINESS--Continued
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 1998,
1997 and 1996:
TONS SHIPPED
-------------------------------
1998 1997 1996
-------------------------------
United States Steel Corporation (USX) 2,833,531 2,376,940 2,739,614
Hibbing Taconite Company 2,739,779 2,607,332 1,890,509
National Steel Corporation 656,164 349,842 1,349,404
LTV Steel Mining Company 154,752 29,120 --
-------------------------------
6,384,226 5,363,234 5,979,527
===============================
At December 31, 1998, 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.
2
<PAGE>
Item 1. BUSINESS--Continued
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 1999 to
certificate holders of record with holdings on any of the four
quarterly record dates during 1998. This information included a:
Substitute Form 1099-MISC - This form reported one's 1998 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 1998.
Tax Return Guide - This guide instructed the certificate holders as to
the preparation of their income tax returns with respect to income
allocated from the Trust and various deductions allowable.
3
<PAGE>
Item 1. BUSINESS--Continued
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 400 100 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>
4
<PAGE>
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 April 1, 1998, certificate holders of record as of
March 31, 1998 and the reversioner were notified of a hearing on April
29, 1998 in Ramsey County Courthouse, Saint Paul, Minnesota, for the
purpose of settling and allowing the Trust accounts for the year 1997.
By Court Order signed and dated May 1, 1998, 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.
5
<PAGE>
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, 1998 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, 1998 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, 1998 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,
1998, are incorporated herein by reference:
Balance Sheets--December 31, 1998 and 1997.
Statements of Income--Years ended December 31, 1998, 1997 and 1996.
Statements of Beneficiaries' Equity--Years ended December 31, 1998,
1997 and 1996.
Statements of Cash Flows--Years ended December 31, 1998, 1997 and
1996.
Notes to Financial Statements--December 31, 1998.
Quarterly Results of Operations on page 4 of the annual report to
certificate holders for the year ended December 31, 1998 are
incorporated herein by reference.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
6
<PAGE>
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 80 27 years
Joseph S. Micallef* Trustee 65 22
Roger W. Staehle Trustee 65 17
Robert A. Stein Trustee 60 17
Thomas A. Janochoski Vice President and Secretary 40 7
Principal occupations of Trustees and officers during the last five
years:
HARRY L. HOLTZ
President and Chief Executive Officer, Great Northern Iron Ore
Properties until December 31, 1998.
JOSEPH S. MICALLEF
Consultant and Director, Fiduciary Counselling, Inc., St. Paul,
Minnesota until December 31, 1998;
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.
*Mr. Joseph S. Micallef has been elected by the Board of Trustees to
succeed Mr. Harry L. Holtz as President and Chief Executive Officer
effective January 1, 1999.
7
<PAGE>
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT--Continued
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 1998 $90,000 $35,000
1997 80,000 35,000
1996 80,000 35,000
The Trust Agreement (as modified by Court Orders) provides for 1997
and 1996 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. By Court Order effective
January 1, 1998, annual compensation to the President of the Trustees
is $90,000 and, in addition, a sum equal to one percent of the excess
of gross income of the Trust over $5,000,000 for that year until his
annual compensation shall reach $125,000. 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) provides for 1997
and 1996 annual compensation to each Trustee (other than the
President) of $30,000, without any additional amounts payable for
committee participation or special assignments. By Court Order
effective January 1, 1998, annual compensation to each Trustee (other
than the President) is $40,000, 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.
8
<PAGE>
Item 11. EXECUTIVE COMPENSATION--Continued
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 for 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. There were no entities
holding more than 5% of the Certificates of Beneficial Interest
outstanding, of record and/or beneficially, as of December 31,
1998.
(b) There were no securities owned by the Trustees or officers as of
December 31, 1998.
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
9
<PAGE>
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K--Continued
(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.
10
<PAGE>
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/ Joseph S. Micallef February 22, 1999
------------------------------------------ -----------------
Joseph S. Micallef, Chief Executive Date
Officer, Trustee and President of the
Trustees as of January 1, 1999
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/ Harry L. Holtz February 19, 1999
------------------------------------------ -----------------
Harry L. Holtz, Chief Executive Officer, Date
Trustee and President of the Trustees
through December 31, 1998
/s/ Roger W. Staehle February 18, 1999
------------------------------------------ -----------------
Roger W. Staehle, Trustee Date
/s/ Robert A. Stein February 11, 1999
------------------------------------------ -----------------
Robert A. Stein, Trustee Date
/s/ Thomas A. Janochoski February 22, 1999
------------------------------------------ -----------------
Thomas A. Janochoski, Vice President Date
and Secretary, Chief Financial Officer
11
<PAGE>
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, 1998
GREAT NORTHERN IRON ORE PROPERTIES
W-1290 First National Bank Building
332 Minnesota Street
Saint Paul, Minnesota 55101-1361
<PAGE>
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, 1998, are incorporated by reference in Item 8:
Balance Sheets--December 31, 1998 and 1997
Statements of Income--Years ended December 31, 1998, 1997 and 1996
Statements of Beneficiaries' Equity--Years ended December 31, 1998, 1997 and
1996
Statements of Cash Flows--Years ended December 31, 1998, 1997 and 1996
Notes to Financial Statements--December 31, l998
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.
F-1
EXHIBIT 13
GREAT NORTHERN IRON
ORE PROPERTIES
------------
NINETY-SECOND
ANNUAL REPORT OF THE TRUSTEES
TO CERTIFICATE HOLDERS
FOR
YEAR ENDED DECEMBER 31, 1998
<PAGE>
GREAT NORTHERN IRON ORE PROPERTIES
W-1290 First National Bank Building
332 Minnesota Street
Saint Paul, Minnesota 55101-1361
(651) 224-2385
Fax (651) 224-2387
-------------
TRUSTEES OFFICERS
HARRY L. HOLTZ HARRY L. HOLTZ
President of the Trustees(2) Chief Executive Officer(2)
JOSEPH S. MICALLEF(1)(3) THOMAS A. JANOCHOSKI
Consultant and Director Vice President and Secretary
Fiduciary Counselling, Inc.(2) Chief Financial Officer
ROGER W. STAEHLE(1) ROGER P. JOHNSON
Adjunct Professor Manager of Mines
University of Minnesota Chief Engineer
ROBERT A. STEIN(1)
Executive Director
American Bar Association
(1) Audit Committee
(2) Through December 31, 1998
(3) President of the Trustees and Chief Executive Officer
effective January 1, 1999
-------------
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
<PAGE>
GREAT NORTHERN IRON ORE PROPERTIES
SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Shipments from our mines (tons) ......... 6,384,226 5,363,234 5,979,527 5,997,347 4,209,551
Royalty income .......................... $11,234,050 $ 9,416,979 $ 9,978,603 $ 9,160,966 $ 7,113,730
Other income ............................ 548,707 613,164 551,597 495,338 460,891
Net income .............................. 10,152,100 8,488,075 8,988,486 8,149,287 6,203,645
Total assets ............................ 17,341,024 16,179,624 17,066,649 16,335,426 15,304,722
Average shares outstanding .............. 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000
Basic earnings per share, based on
weighted-average shares outstanding
during the year ....................... $ 6.77 $ 5.66 $ 5.99 $ 5.43 $ 4.14
Declared distributions per share ........ $ 6.30(1) $ 6.00(2) $ 5.80(3) $ 5.00(4) $ 4.00(5)
</TABLE>
----------------
(1) $1.20 pd 4/30/98; $1.50 pd 7/31/98; $1.80 pd 10/30/98; $1.80 pd 1/29/99
(2) $1.50 pd 4/30/97; $1.50 pd 7/31/97; $1.50 pd 10/31/97; $1.50 pd 1/30/98
(3) $1.35 pd 4/30/96; $1.15 pd 7/31/96; $1.60 pd 10/31/96; $1.70 pd 1/31/97
(4) $1.15 pd 4/28/95; $1.15 pd 7/31/95; $1.30 pd 10/31/95; $1.40 pd 1/31/96
(5) $ .80 pd 4/29/94; $ .90 pd 7/29/94; $1.15 pd 10/31/94; $1.15 pd 1/31/95
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations: "Royalty income" for 1998 was greater than that of 1997
primarily due to increased taconite production from Trust lands. "Royalty
income" for 1997 was less than that of 1996 primarily due to less taconite
production from Trust lands offset in part by a higher average earned royalty
rate attained and increased net advance royalties. "Other income" for 1998 was
less than that of 1997 mainly due to the sale of stockpile material in 1997.
"Other income" for 1997 exceeded that of 1996 for essentially the same reason.
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
<PAGE>
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 1998, 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 $2,203,051 on
December 31, 1998. 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.
Strong taconite production, particularly in the second half of 1998,
resulted in another good year for the Trust. Most 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.
As previously reported, Joseph S. Micallef will succeed Harry L. Holtz as
President and Chief Executive Officer effective January 1, 1999.
Mr. Micallef has been a Trustee since 1976 and has chaired many of the
Trust's committees during his tenure. His business and trust background
includes over 25 years experience as President and Chief Executive Officer of
Fiduciary Counselling, Inc. whose principal business is providing accounting,
tax, financial and investment services to trusts, individuals and other
entities. He remains active in the community, serving on a number of corporate
and charitable boards as a director or trustee. Mr. Micallef is also a member
of the Minnesota Bar. He graduated with a B.A. from the University of St.
Thomas in 1958 and with a J.D. from William Mitchell College of Law in 1962.
Mr. Holtz became a Trustee in 1971 and was appointed President and Chief
Executive Officer in 1982. He served for 39 years with First Trust Company of
Saint Paul, the last 22 of which he was President and Chief Executive Officer
and finally Chairman of the Board. At the request of the other three Trustees,
Mr. Holtz has agreed to stay on as a Trustee for an indefinite period.
The Trustees declared four quarterly distributions in 1998 totaling $6.30
per share. The first, in the amount of $1.20 per share, was paid on April 30,
1998, to certificate holders of record on March 31, 1998; the second, in the
amount of $1.50 per share, was paid on July 31, 1998, to certificate holders of
record on June 30, 1998; the third, in the amount of $1.80 per share, was paid
on October 30, 1998, to certificate holders of record on September 30, 1998; and
the fourth, in the amount of $1.80 per share, was paid on January 29, 1999, to
certificate holders of record on December 31, 1998.
The Trustees declared four quarterly distributions in 1997 totaling $6.00
per share. The first, in the amount of $1.50 per share, was paid on April 30,
1997, to
3
<PAGE>
certificate holders of record on March 31, 1997; the second, in the amount of
$1.50 per share, was paid on July 31, 1997, to certificate holders of record on
June 30, 1997; the third, in the amount of $1.50 per share, was paid on October
31, 1997, to certificate holders of record on September 30, 1997; and the
fourth, in the amount of $1.50 per share, was paid on January 30, 1998, to
certificate holders of record on December 31, 1997.
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 1999 to certificate holders of record on March 31, 1999.
Shares of beneficial interest in the Trust are traded on the New York Stock
Exchange under the ticker symbol "GNI." There were 2,474 certificate holders of
record on December 31, 1998. The high and low prices for the quarterly periods
commencing January 1, 1997 through December 31, 1998 were as follows:
1998 1997
------------------- -------------------
QUARTER HIGH LOW HIGH LOW
- ------- ------- ------- ------- -------
First ........................... $65 1/2 $50 $59 1/2 $51
Second .......................... 59 1/2 50 1/4 61 3/4 54 3/4
Third ........................... 60 1/2 53 1/4 67 58
Fourth .......................... 59 51 67 3/4 63
The following is a summary of quarterly results of operations (unaudited)
for the years ended December 31, 1998 and 1997 (in thousands of dollars, except
per share amounts):
QUARTER ENDED
------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- ------- -------
1998
Royalty income .............. $ 2,017 $ 2,826 $ 3,756 $ 2,635
Interest and other income ... 149 137 131 132
------- ------- ------- -------
Gross income ................ 2,166 2,963 3,887 2,767
Expenses .................... 434 428 411 358
------- ------- ------- -------
Net income .................. $ 1,732 $ 2,535 $ 3,476 $ 2,409
======= ======= ======= =======
Basic earnings per share .... $ 1.15 $ 1.69 $ 2.32 $ 1.61
======= ======= ======= =======
1997
Royalty income .............. $ 2,269 $ 2,294 $ 2,806 $ 2,048
Interest and other income ... 184 139 131 159
------- ------- ------- -------
Gross income ................ 2,453 2,433 2,937 2,207
Expenses .................... 420 360 385 377
------- ------- ------- -------
Net income .................. $ 2,033 $ 2,073 $ 2,552 $ 1,830
======= ======= ======= =======
Basic earnings per share .... $ 1.36 $ 1.38 $ 1.70 $ 1.22
======= ======= ======= =======
4
<PAGE>
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, that being April 6, 2015. The termination
of the Trust on April 6, 2015 means that there will be no trading of the Trust's
1,500,000 certificates of beneficial interest (shares) on the New York Stock
Exchange beyond that date. At the end of the Trust, 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 reversionary beneficiary (formerly Lake Superior
Company, Limited), or its successors or assigns (Glacier Park Company, a wholly
owned subsidiary of Burlington Resources, Inc.). By the terms of a District
Court Order dated November 29, 1982, the reversioner is required to pay to a
Principal Charges account (as explained in Note D of the Financial Statements)
the cost of acquiring homes and land parcels on the iron formation that are in
the way of mining by U.S. Steel Corporation under its 1959 lease with the
Trustees. This account balance, which may increase or decrease, will be added to
the cash distributable to the then certificate holders at the termination 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. 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 1999 to all "record date"
certificate holders shown on our stock transfer agent's records during 1998.
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 and a Tax Return Guide for any recent year.
Respectfully submitted,
Harry L. Holtz Joseph S. Micallef
Roger W. Staehle Robert A. Stein
Saint Paul, Minnesota
March 12, 1999
5
<PAGE>
GREAT NORTHERN IRON ORE PROPERTIES
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
INCOME
Royalties ........................... $11,234,050 $ 9,416,979 $ 9,978,603
Interest earned ..................... 489,581 524,229 527,456
Rent and other ...................... 59,126 88,935 24,141
----------- ----------- -----------
11,782,757 10,030,143 10,530,200
EXPENSES
Royalties ........................... 4,623 4,623 4,623
Real estate and payroll taxes ....... 126,484 122,577 129,977
Inspection and care of property ..... 369,338 367,954 384,362
Administrative and general .......... 928,707 863,881 853,126
Provision for depreciation and
amortization ....................... 201,505 183,033 169,626
----------- ----------- -----------
l,630,657 1,542,068 1,541,714
----------- ----------- -----------
NET INCOME ............................ $10,152,100 $ 8,488,075 $ 8,988,486
=========== =========== ===========
BASIC EARNINGS PER SHARE .............. $ 6.77 $ 5.66 $ 5.99
=========== =========== ===========
</TABLE>
STATEMENTS OF BENEFICIARIES' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year .......... $13,819,468 $14,331,393 $14,042,907
Net income for the year ............... 10,152,100 8,488,075 8,988,486
----------- ----------- -----------
23,971,568 22,819,468 23,031,393
Deduct declaration of distributions
on shares of beneficial interest, per
share: 1998 - $6.30; 1997 - $6.00;
1996 - $5.80 ......................... 9,450,000 9,000,000 8,700,000
----------- ----------- -----------
Balance at end of year ................ $14,521,568 $13,819,468 $14,331,393
=========== =========== ===========
</TABLE>
See accompanying notes.
6
<PAGE>
GREAT NORTHERN IRON ORE PROPERTIES
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents .......................... $ 941,071 $ 496,447
United States Treasury securities (NOTE B) ......... 4,227,268 3,378,688
Royalties receivable ............................... 2,485,333 1,897,554
Prepaid expenses ................................... 3,755 4,938
----------- -----------
TOTAL CURRENT ASSETS ................................. 7,657,427 5,777,627
NONCURRENT ASSETS
United States Treasury Notes (NOTE B) .............. 4,083,331 4,862,604
Prepaid pension expense (NOTE E) ................... 317,518 270,570
----------- -----------
4,400,849 5,133,174
PROPERTIES
Mineral lands (NOTES B AND C) ...................... 38,246,311 38,055,311
Less allowances for depletion and amortization ..... 33,072,841 32,898,721
----------- -----------
5,173,470 5,156,590
Building and equipment - at cost, less
allowances for accumulated depreciation
(1998 - $166,137; 1997 - $147,299) ................ 109,278 112,233
----------- -----------
5,282,748 5,268,823
----------- -----------
$17,341,024 $16,179,624
=========== ===========
LIABILITIES AND BENEFICIARIES' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses .............. $ 119,456 $ 110,156
Distributions ...................................... 2,700,000 2,250,000
----------- -----------
TOTAL CURRENT LIABILITIES ............................ 2,819,456 2,360,156
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) ........... 14,521,568 13,819,468
----------- -----------
$17,341,024 $16,179,624
=========== ===========
</TABLE>
See accompanying notes.
7
<PAGE>
GREAT NORTHERN IRON ORE PROPERTIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Cash received from royalties and rents ...... $ 10,514,397 $ 10,041,465 $ 9,454,204
Cash paid to suppliers and employees ........ (1,465,617) (1,371,737) (1,377,546)
Interest received ........................... 470,274 526,902 573,954
------------ ------------ ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES ..................... 9,519,054 9,196,630 8,650,612
INVESTING ACTIVITIES
U.S. Treasury securities purchased .......... (3,400,000) (3,050,000) (4,699,297)
U.S. Treasury securities matured ............ 3,350,000 3,325,000 4,511,172
Net expenditures for equipment .............. (24,430) (43,191) (27,004)
------------ ------------ ------------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES ..................... (74,430) 231,809 (215,129)
FINANCING ACTIVITIES
Distributions paid .......................... (9,000,000) (9,380,000) (8,250,000)
------------ ------------ ------------
NET CASH USED IN FINANCING ACTIVITIES ..... (9,000,000) (9,380,000) (8,250,000)
------------ ------------ ------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS ......................... 444,624 48,439 185,483
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR ......................... 496,447 448,008 262,525
------------ ------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR ............................... $ 941,071 $ 496,447 $ 448,008
============ ============ ============
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
Net income .................................. $ 10,152,100 $ 8,488,075 $ 8,988,486
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ............. 201,505 183,033 169,626
Net (increase) decrease in assets:
Accrued interest ........................ (19,307) 2,673 46,498
Royalties receivable .................... (587,779) 752,326 (335,540)
Prepaid expenses ........................ (45,765) (17,602) 1,805
Surface lands ........................... (191,000) (216,775) (213,000)
Net increase (decrease) in liabilities:
Accrued liabilities ..................... 9,300 4,900 (7,263)
------------ ------------ ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES .................. $ 9,519,054 $ 9,196,630 $ 8,650,612
============ ============ ============
</TABLE>
See accompanying notes.
8
<PAGE>
GREAT NORTHERN IRON ORE PROPERTIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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: 1998 -- $5,426,000 and $4,821,000; 1997 -- $4,954,000 and
$4,069,000; and 1996 -- $4,713,000, $3,454,000 and $1,759,000.
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, that being April 6, 2015. The termination
of the Trust on April 6, 2015 means that there will be no trading of the Trust's
1,500,000 certificates of beneficial interest (shares) on the New York Stock
Exchange beyond that date. At the end of the Trust, 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 reversionary beneficiary (formerly Lake Superior
Company, Limited), or its successors or assigns (Glacier Park Company, a wholly
owned subsidiary of Burlington Resources, Inc.). By the terms of a District
Court Order dated November 29, 1982, the reversioner is required to pay to a
Principal Charges account (see Note D) the cost of acquiring homes and land
parcels on the iron formation that are in the way of mining by U.S. Steel
Corporation under its 1959 lease with the Trustees. This account balance, which
may increase or decrease, will be added to the cash distributable to the then
certificate holders at the termination of the Trust.
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
9
<PAGE>
NOTE A - BUSINESS AND TERMINATION OF THE TRUST
AND LEGAL PROCEEDINGS (CONTINUED)
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 April 1, 1998, certificate holders of record as of March
31, 1998 and the reversioner were notified of a hearing on April 29, 1998 in
Ramsey County Courthouse, Saint Paul, Minnesota, for the purpose of settling and
allowing the Trust accounts for the year 1997. By Court Order signed and dated
May 1, 1998, 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.
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 1999 to
certificate holders of record with holdings on any of the four quarterly record
dates during 1998. This information included a:
SUBSTITUTE FORM 1099-MISC -- This form reported one's 1998 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 1998.
TAX RETURN GUIDE -- This guide instructed the certificate holders as to the
preparation of their income tax returns with respect to income allocated
from the Trust and various deductions allowable.
10
<PAGE>
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 2000. Following is an analysis of the securities as of December 31:
<TABLE>
<CAPTION>
CURRENT NONCURRENT
-------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Aggregate fair value ......... $4,181,609 $3,355,234 $4,060,594 $4,793,656
Gross unrealized
holding gains ............... (19,552) (5,125) (23,094) (18,985)
Gross unrealized
holding losses .............. 1,688 1,438 6,221 --
---------- ---------- ---------- ----------
Amortized cost basis ......... 4,163,745 3,351,547 4,043,721 4,774,671
Accrued interest ............. 63,523 27,141 39,610 87,933
---------- ---------- ---------- ----------
$4,227,268 $3,378,688 $4,083,331 $4,862,604
========== ========== ========== ==========
</TABLE>
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 $174,120,
$161,520 and $149,880 for the years 1998, 1997 and 1996, 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 $2,203,051 on December 31, 1998 and $1,351,481 on December
31, 1997. 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.
BASIC EARNINGS PER SHARE: Basic earnings per share is determined by
dividing net income for the period by the number of weighted-average shares of
beneficial interest outstanding. Weighted-average shares outstanding were
1,500,000 as of December 31, 1998, 1997 and 1996.
11
<PAGE>
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.
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:
1998 1997
---------- ----------
Attorneys' fees and expenses ........... $1,024,834 $1,024,834
Cost of surface lands .................. 5,372,569 5,181,569
Shipment credits (cumulative) .......... (628,698) (543,806)
Asset disposition credits .............. (20,000) (18,500)
---------- ----------
Principal Charges account .............. $5,748,705 $5,644,097
========== ==========
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.
12
<PAGE>
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 summary of the components of net periodic
pension cost (benefit), a noncash item, for 1998, 1997 and 1996 is as follows:
1998 1997 1996
--------- ---------- ---------
Service cost ........................ $ 85,758 $ 72,395 $ 63,717
Interest cost ....................... 190,787 185,912 195,071
Expected return on assets ........... (290,575) (252,620) (239,579)
Net amortization .................... (32,918) (21,531) (18,618)
-------- --------- --------
Net pension cost (benefit) .......... $(46,948) $ (15,844) $ 591
======== ========= ========
Weighted-average assumptions used in the measurement of the benefit
obligation as of December 31 were:
1998 1997
---------- ----------
Discount rate ........................................ 6.75% 7.00%
Rate of compensation increase ........................ 3.50% 3.50%
Expected return on plan assets ....................... 8.00% 8.00%
The following table sets forth the change in benefit obligation:
1998 1997
------------- ------------
Obligation at January 1 ......................... $2,813,397 $2,570,110
Service cost .................................... 85,758 72,395
Interest cost ................................... 190,787 185,912
Actuarial loss .................................. 91,701 167,546
Benefit payments ................................ (194,294) (182,566)
---------- ----------
Obligation at December 31 ....................... $2,987,349 $2,813,397
========== ==========
The following table sets forth the change in the fair value of plan assets:
1998 1997
------------ ------------
Fair value of plan assets at January l .......... $3,720,057 $3,249,027
Actual return on plan assets .................... 732,293 653,596
Benefit payments ................................ (194,294) (182,566)
---------- ----------
Fair value of plan assets at December 31 ........ $4,258,056 $3,720,057
========== ==========
13
<PAGE>
NOTE E - PENSION PLAN (CONTINUED)
The following table sets forth the plan's funded status and amounts
recognized in the balance sheets at December 31:
1998 1997
---------- ----------
Benefit obligation ................................ $2,987,349 $2,813,397
Fair value of plan assets ......................... 4,258,056 3,720,057
---------- ----------
Plan assets in excess of benefit obligation ....... 1,270,707 906,660
Unrecognized net gain ............................. (941,721) (606,004)
Unrecognized prior service cost ................... 125,697 152,803
Unrecognized net transition asset ................. (137,165) (182,889)
---------- ----------
Prepaid pension expense ........................... $ 317,518 $ 270,570
========== ==========
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 $44,968, $43,736 and
$42,156 for the years 1998, 1997 and 1996, respectively.
14
<PAGE>
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, 1998 and 1997, and the related statements of
beneficiaries' equity, income and cash flows for each of the three years in the
period ended December 31, 1998. 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, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
January 29, 1999
15
<PAGE>
GREAT NORTHERN IRON ORE PROPERTIES
SUMMARY OF SHIPMENTS
<TABLE>
<CAPTION>
FULL TONS SHIPPED
-------------------------------------------------
TOTAL TO
OWNERSHIP JANUARY 1,
NO. MINE INTEREST 1998 1997 1996 1999
- ------ --------------------------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1. Mahoning .................. 100% 2,623,282 1,981,727 785,911 148,162,588
2. Ontario ................... 100% 63,638 421,251 757,554 8,727,647
3. Ontario ................... 50% 52,859 204,354 347,044 15,176,577
4. Section 18 ................ 100% 130 13,068 492 27,911,629
5. South Stevenson ........... 100% -- -- 497,647 5,317,268
6. Stevenson ................. 100% -- 30,496 525,754 35,091,562
7. Russell Annex ............. 50% 656,034 306,278 325,511 2,123,297
8. Wentworth ................. 100% 154,752 29,120 -- 6,038,266
9. Minntac ................... 100% 2,833,531 2,376,940 2,739,614 27,477,087
--------- --------- --------- -----------
6,384,226 5,363,234 5,979,527 276,025,921
Shipments from inactive
mines and those
exhausted, surrendered
or sold prior to this year -- -- -- 318,137,777
--------- --------- --------- -----------
TOTAL .................... 6,384,226 5,363,234 5,979,527 594,163,698
========= ========= ========= ===========
</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
<PAGE>
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
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 29, 1999,
included in the 1998 Annual Report to Certificate Holders of Great Northern Iron
Ore Properties.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
March 12, 1999
EXHIBIT 99
GREAT NORTHERN IRON ORE PROPERTIES
W-1290 First National Bank Building
332 Minnesota Street
Saint Paul, MN 55101-1361
(651) 224-2385
FAX (651) 224-2387
1998 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 1998,
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/ JOSEPH S. MICALLEF
- ---------------------------
President
January 1999
<PAGE>
page 2
TAX RETURN GUIDE
TABLE OF CONTENTS
Page
----
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
State 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
<PAGE>
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.
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).
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)
-------- ---- ---------------------------
12/97 1/98 1997 Form 1099-MISC
3/98 4/98 1998 Form 1099-MISC
6/98 7/98 1998 Form 1099-MISC
9/98 10/98 1998 Form 1099-MISC
12/98 1/99 1998 Form 1099-MISC
- --------------------------------------------------------------------------------
<PAGE>
page 4
(General Information -- continued)
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.
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>
page 5
(Information for Foreign Investors -- continued)
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 year 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>
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>
page 7
State 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 $6,950
(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 "State of Minnesota Tax Return" line reference numbers 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. Many other
states do allow for the subtraction of U.S. interest income and also allow their
residents a credit for taxes paid to another state.
<PAGE>
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>
page 9
(INSTRUCTION OUTLINE -- continued)
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>
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: 1998
Income or Deduction Per Unit No. of Units Total Where to Report on Form 1040*
------------------- -------- ------------ ----- -----------------------------
<S> <C> <C> <C> <C>
1) Interest Income 0.326388 X = $ Schedule B, Part I, Line 1
------------ ------------
2) Rental Income 0.039416 X = $ Schedule E, Part I, Line 3
------------ ------------
3) Gain from Sale of Iron Form 4797, Part I, Line 2,
Ore, Section 1231 6.385160 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 8,
as calculated from Worksheet C: $ Columns e & f (in brackets)
------------
STATE TAX ADJUSTMENT: Form M-1, (For filing a State of
Subtract U.S. Interest 0.305112 X = $( )Line 5(b) Minnesota Tax Return)
------------ ------------
<CAPTION>
SCHEDULE II: CORPORATE TAXPAYERS:
Income or Deduction Per Unit No. of Units Total Where to Report on Form 1120*
------------------- -------- ------------ ----- -----------------------------
1) Interest Income 0.326388 X = $ Line 5
------------ ------------
2) Rental Income 0.039416 X = $ Line 6
------------ ------------
3) Gain from Sale of Iron Form 4797, Part I, Line 2,
Ore, Section 1231 6.385160 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 0.898724 X = $ Column f
------------ ------------
5) AMT Preference Item:
Percentage Depletion 0.898724 X = $ Form 4626, Line 2(m)
------------ ------------
6) Certificate Amortization Deduction Schedule D, Part II, Line 6,
as calculated from Worksheet C: $ Columns e & f (in brackets)
------------
STATE TAX ADJUSTMENT: Form M4-I, (For filing a State of
Add Percentage Depletion 0.898724 X = $ Line 2(j) Minnesota Tax Return)
------------ ------------
</TABLE>
<PAGE>
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: 1998
FIRST QUARTER - MARCH 31, 1998
Income or Deduction Per Unit No. of Units Total Where to Report on Form 1040*
------------------- -------- ------------ ----- -----------------------------
<S> <C> <C> <C> <C>
1) Interest Income 0.081597 X = $
------------ ------------
2) Rental Income 0.009854 X = $
------------ ------------
3) Gain from Sale of Iron NOTE:
Ore, Section 1231 1.596290 X = $ SEE GRAND TOTAL
------------ ------------ RECONCILIATION
NEXT PAGE
STATE TAX ADJUSTMENT:
Subtract U.S. Interest 0.076278 X = $( )
------------ ------------
<CAPTION>
SECOND QUARTER - JUNE 30, 1998
Income or Deduction Per Unit No. of Units Total Where to Report on Form 1040*
------------------- -------- ------------ ----- -----------------------------
1) Interest Income 0.081597 X = $
------------ ------------
2) Rental Income 0.009854 X = $
------------ ------------
3) Gain from Sale of Iron NOTE:
Ore, Section 1231 1.596290 X = $ SEE GRAND TOTAL
------------ ------------ RECONCILIATION
NEXT PAGE
STATE TAX ADJUSTMENT:
Subtract U.S. Interest 0.076278 X = $( )
------------ ------------
</TABLE>
<PAGE>
page 12
(Individual continued)
<TABLE>
<CAPTION>
THIRD QUARTER - SEPTEMBER 30, 1998
Income or Deduction Per Unit No. of Units Total Where to Report on Form 1040*
------------------- -------- ------------ ----- -----------------------------
<S> <C> <C> <C> <C>
1) Interest Income 0.081597 X = $
------------ ------------
2) Rental Income 0.009854 X = $
------------ ------------
3) Gain from Sale of Iron NOTE:
Ore, Section 1231 1.596290 X = $ SEE GRAND TOTAL
------------ ------------ RECONCILIATION
BELOW
STATE TAX ADJUSTMENT:
Subtract U.S. Interest 0.076278 X = $( )
------------ ------------
<CAPTION>
FOURTH QUARTER - DECEMBER 31, 1998
Income or Deduction Per Unit No. of Units Total Where to Report on Form 1040*
------------------- -------- ------------ ----- -----------------------------
1) Interest Income 0.081597 X = $
------------ -----------
2) Rental Income 0.009854 X = $
------------ -----------
3) Gain from Sale of Iron NOTE:
Ore, Section 1231 1.596290 X = $ SEE GRAND TOTAL
------------ ----------- RECONCILIATION
BELOW
STATE TAX ADJUSTMENT:
Subtract U.S. Interest 0.076278 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 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 8,
as calculated from Worksheet C: $ Columns e & f (in brackets)
------------
STATE TAX ADJUSTMENT: Form M-1, (For filing a State of
Subtract U.S. Interest $( )Line 5(b) Minnesota Tax Return)
------------
</TABLE>
<PAGE>
page 13
<TABLE>
<CAPTION>
SCHEDULE II: CORPORATE TAXPAYERS: YEAR: 1998
FIRST QUARTER - MARCH 31, 1998
Income or Deduction Per Unit No. of Units Total Where to Report on Form 1120*
------------------- -------- ------------ ----- -----------------------------
<S> <C> <C> <C> <C>
1) Interest Income 0.081597 X = $
------------ ------------
2) Rental Income 0.009854 X = $
------------ ------------
3) Gain from Sale of Iron NOTE:
Ore, Section 1231 1.596290 X = $ SEE GRAND TOTAL
------------ ------------ RECONCILIATION
4) Percentage Depletion Deduction 0.224681 X = $ NEXT PAGE
------------ ------------
5) AMT Preference Item:
Percentage Depletion 0.224681 X = $
------------ ------------
STATE TAX ADJUSTMENT:
Add Percentage Depletion 0.224681 X = $
------------ ------------
<CAPTION>
SECOND QUARTER - JUNE 30, 1998
Income or Deduction Per Unit No. of Units Total Where to Report on Form 1120*
------------------- -------- ------------ ----- -----------------------------
1) Interest Income 0.081597 X = $
------------ ------------
2) Rental Income 0.009854 X = $
------------ ------------
3) Gain from Sale of Iron NOTE:
Ore, Section 1231 1.596290 X = $ SEE GRAND TOTAL
------------ ------------ RECONCILIATION
4) Percentage Depletion Deduction 0.224681 X = $ NEXT PAGE
------------ ------------
5) AMT Preference Item:
Percentage Depletion 0.224681 X = $
------------ ------------
STATE TAX ADJUSTMENT:
Add Percentage Depletion 0.224681 X = $
------------ ------------
</TABLE>
<PAGE>
page 14
(Corporate continued)
<TABLE>
<CAPTION>
THIRD QUARTER - SEPTEMBER 30, 1998
Income or Deduction Per Unit No. of Units Total Where to Report on Form 1120*
------------------- -------- ------------ ----- -----------------------------
<S> <C> <C> <C> <C>
1) Interest Income 0.081597 X = $
------------ ------------
2) Rental Income 0.009854 X = $
------------ ------------
3) Gain from Sale of Iron NOTE:
Ore, Section 1231 1.596290 X = $ SEE GRAND TOTAL
------------ ------------ RECONCILIATION
4) Percentage Depletion Deduction 0.224681 X = $ BELOW
------------ ------------
5) AMT Preference Item:
Percentage Depletion 0.224681 X = $
------------ ------------
STATE TAX ADJUSTMENT:
Add Percentage Depletion 0.224681 X = $
------------ ------------
<CAPTION>
FOURTH QUARTER - DECEMBER 31, 1998
Income or Deduction Per Unit No. of Units Total Where to Report on Form 1120*
------------------- -------- ------------ ----- -----------------------------
1) Interest Income 0.081597 X = $
------------ ------------
2) Rental Income 0.009854 X = $
------------ ------------
3) Gain from Sale of Iron NOTE:
Ore, Section 1231 1.596290 X = $ SEE GRAND TOTAL
------------ ------------ RECONCILIATION
4) Percentage Depletion Deduction 0.224681 X = $ BELOW
------------ ------------
5) AMT Preference Item:
Percentage Depletion 0.224681 X = $
------------ ------------
STATE TAX ADJUSTMENT:
Add Percentage Depletion 0.224681 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 & f (in brackets)
------------
STATE TAX ADJUSTMENT: Form M4-I, (For filing a State of
Add Percentage Depletion $ Line 2(j) Minnesota Tax Return)
------------
</TABLE>
<PAGE>
page 15
WORKSHEET C
YEAR END BASIS AND CERTIFICATE AMORTIZATION COMPUTATIONS
<TABLE>
<CAPTION>
Cost or
Other Basis
Items Affecting Basis Per Unit No. of Units Total
--------------------- -------- ------------ -----
<S> <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 31, 1998 1.20 X = $( ) (if applicable)
----------- -----------
Second Quarter - June 30, 1998 1.50 X = $( ) (if applicable)
----------- -----------
Third Quarter - September 30, 1998 1.80 X = $( ) (if applicable)
----------- -----------
Fourth Quarter - December 31, 1998 1.80 X = $( ) (if applicable)
----------- -----------
Subtotal: (Beginning Basis plus Income less Distributions): $
-----------
Certificate Amortization % Rate: X 0.058824
(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: 1998 (needed for next year)
-----------
Adjusted Basis per Unit (Share) at year end (Adjusted Basis divided by Units): $ (needed for next year)
===========
</TABLE>
<PAGE>
page 16
NOMINEE REPORTING REQUIREMENTS: YEAR: 1998
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 31, 1998 1.687741 41-0788355
Second Quarter - June 30, 1998 1.687741
Third Quarter - September 30, 1998 1.687741
Fourth Quarter - December 31, 1998 1.687741
--------
6.750964
========
<PAGE>
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
<PAGE>
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, 1998 AND INCOME
STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 941,071
<SECURITIES> 8,310,599
<RECEIVABLES> 2,485,333
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,657,427
<PP&E> 38,521,726
<DEPRECIATION> 33,238,978
<TOTAL-ASSETS> 17,341,024
<CURRENT-LIABILITIES> 2,819,456
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 14,521,568
<TOTAL-LIABILITY-AND-EQUITY> 17,341,024
<SALES> 11,234,050
<TOTAL-REVENUES> 11,782,757
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,630,657
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,152,100
<INCOME-TAX> 0
<INCOME-CONTINUING> 10,152,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,152,100
<EPS-PRIMARY> 6.77
<EPS-DILUTED> 0
</TABLE>
