<PAGE>
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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: Commission File No.:
JANUARY 31, 1998 1-4488
------------------------
MESABI TRUST
(Exact name of registrant as specified in its charter)
NEW YORK 13-6022277
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
C/O BANKERS TRUST COMPANY
CORPORATE TRUST AND AGENCY GROUP
P.O. BOX 318
CHURCH STREET STATION
NEW YORK, NEW YORK
10008-0318
(Address of principal executive offices)
Registrant's telephone number, including area code:
(212) 250-6519
Securities registered pursuant to Section 12(b) of the Act: UNITS OF BENEFICIAL
INTEREST IN MESABI TRUST
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 12 months (or for such shorter period that the
Registrant was required to file such reports), 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/
As of April 20, 1998, the aggregate market value of the Units of Beneficial
Interest held by non-affiliates of the registrant, based on the closing price as
reported on the New York Stock Exchange, aggregated approximately $55,760,043*.
As of April 20, 1998, 13,120,010 Units of Beneficial Interest were outstanding.
- ---------------------
* Includes approximately $64,175 representing the market value, as of
April 20, 1998, of 15,100 Units the beneficial ownership of which is
disclaimed by affiliates (see Item 12 herein).
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<PAGE>
Certain items in Parts I and II incorporate information by reference
from the Annual Report of the Trustees of Mesabi Trust to the Holders of
Certificates of Beneficial Interest for the fiscal year ended January 31, 1998,
which is annexed hereto and filed herewith as Exhibit 13.1.
PART I
ITEM 1. BUSINESS.
(a) GENERAL DEVELOPMENT OF BUSINESS.
The information under the headings "Mesabi Trust," "The Trust Estate,"
"Leasehold Royalties" and "Land Trust and Fee Royalties" set forth on pages 7
through 11 of the Annual Report of the Trustees of Mesabi Trust for the fiscal
year ended January 31, 1998 (the "Annual Report") is incorporated herein by
reference. Certain capitalized terms used below in this Part I are defined in
the Annual Report.
Mesabi Trust ("Mesabi Trust" or the "Trust"), formed pursuant to an
Agreement of Trust dated July 18, 1961 (the "Agreement of Trust"), is a trust
organized under the laws of the State of New York. Mesabi Trust holds all of
the interests formerly owned by Mesabi Iron Company, including all right, title
and interest in the Amended Assignment of Peters Lease, the Amended Assignment
of Cloquet Lease, the beneficial interest in the Mesabi Land Trust and all other
assets and property identified in the Agreement of Trust. The Amended
Assignment of Peters Lease relates to an Indenture made as of April 30, 1915
among East Mesaba [sic] Iron Company, Dunka River Iron Company and Claude W.
Peters (the "Peters Lease") and the Amended Assignment of Cloquet Lease relates
to an Indenture made May 1, 1916 between Cloquet Lumber Company and Claude W.
Peters (the "Cloquet Lease").
The Trust will terminate twenty-one (21) years after the death of the
survivor of twenty-five (25) persons named in an exhibit to the Agreement of
Trust. The youngest person on this exhibit is now 37 years old.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Substantially all of the Trust's revenue, operating profits and
assets relate to one business segment--iron ore mining.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
The Agreement of Trust specifically prohibits the Trustees from
entering into or engaging in any business. This prohibition applies even to
business activities the Trustees deem necessary or proper for the preservation
and protection of the Trust Estate. Accordingly, the Trustees' activities in
connection with the administration of Trust assets are limited to collecting
income, paying expenses and liabilities, distributing net income and protecting
and conserving the assets held.
Pursuant to a ruling from the Internal Revenue Service, which ruling
was based on the terms of the Agreement of Trust including the prohibition
against entering into any business, the Trust is not taxable as a corporation
for Federal income tax purposes. Instead, the holders of the Units of
Beneficial Interest (the "Unitholders") are considered as "owners" of the Trust
and the Trust's income is taxable directly to the Unitholders.
Leasehold royalty income constitutes the principal source of the
Trust's revenue. Royalty rates are determined in accordance with the terms of
Mesabi Trust's leases and assignments of leases. Until
<PAGE>
August 17, 1989, the overriding royalty was based on the quantity and iron
content of pellets shipped by Reserve Mining Company ("Reserve") from Mesabi
Trust lands, although Mesabi Trust did not receive any royalty income from
May 1986 until July 1990 because Reserve filed a Chapter 11 bankruptcy petition
suspended its operations. On August 17, 1989, Cyprus Northshore Mining
Corporation ("Cyprus NMC") purchased substantially all of Reserve's assets,
including Reserve's interest in the Mesabi Trust lands. At the same time,
Mesabi Trust entered into certain agreements with Reserve's Chapter 11 Trustee
and Cyprus NMC (the "Amended Assignment Agreements"). The Amended Assignment
Agreements modified the method of calculating overriding royalties payable to
Mesabi Trust and transferred Reserve's interest in the Mesabi Trust lands to
Cyprus NMC. Pursuant to the Amended Assignment Agreements, overriding royalties
are determined by both the volume and selling price of iron ore products
shipped. In 1994, Cyprus NMC was sold by its parent corporation to
Cleveland-Cliffs Inc. ("CCI") and renamed Northshore Mining Corporation
("Northshore"). CCI now operates Northshore as a wholly-owned subsidiary.
In its recently released annual report, CCI, parent company of
Northshore, the lessee/operator of Mesabi Trust iron ore interests, stated that
it is continuing to evaluate whether to build a facility to produce pig iron in
the United States using a coal-based process. CCI also stated that if
engineering, marketing and economic evaluations prove positive, the plant will
be located at its Northshore facility in Minnesota presumably using Mesabi Trust
ore. In the same annual report, it was stated that a decision relative to
proceeding with this project is expected to be made around the middle of 1998.
Because of the preliminary nature of this information, the Mesabi Trustees are
unable to determine at this time how the addition of a pig iron facility (if the
project proceeds) would impact overall revenues of Mesabi Trust. As indicated
elsewhere in this report, the Trust's revenues are currently derived almost
entirely from iron ore pellet production and sales.
Mesabi Trust has no employees, but it engages independent consultants
to assist the Trustees in monitoring, among other things, the amount and sales
prices of minerals shipped by Northshore from Silver Bay, Minnesota. As noted
above, the information regarding amounts and sales prices of shipped minerals is
used to compute the royalties payable to Mesabi Trust by Northshore. Bankers
Trust Company, one of the Trustees, also performs certain administrative
functions for Mesabi Trust.
ITEM 2. PROPERTIES.
The information under the heading "The Trust Estate" set forth on page
7 of the Annual Report of the Trustees of Mesabi Trust for the fiscal year ended
January 31, 1998 is incorporated herein by reference.
The Peters Lease provides that each leasehold estate will continue
until the reserves of iron ore, taconite and other minerals or materials on the
land subject to the Peters Lease are exhausted. The Mesabi Lease terminates
when the Peters Lease terminates. The Cloquet Lease, executed in 1916,
terminates in the year 2040. If Northshore decides to terminate or surrender
one or more of these leases, it must first give Mesabi Trust at least six
months' notice of its intention to do so and, at Mesabi Trust's request,
reassign all of such leases to Mesabi Trust. If any such reassignment occurs,
Northshore must transfer the lease interests to Mesabi Trust free and clear of
liens, except public highways. In return, Mesabi Trust must assume Northshore's
future obligations as lessee under the reassigned leases.
The Trustees have neither made nor caused to be made any surveys or
test drillings to ascertain the iron ore reserves on any land subject to the
Peters Lease or the Cloquet Lease. However, initial surveys and test drillings
made by Mesabi Iron Company many years ago indicated that these lands
2
<PAGE>
contained accessible reserves of at least 1-1/2 billion tons of mineable raw
material, capable of yielding approximately 500 million tons of concentrated
product. In its recently released annual report, CCI estimated that there
currently remains enough ore reserve in the Peters and Cloquet Lease Lands to
produce concentrated product for 83 years of mining at current extraction
rates. Little or no commercial ore deposits exist in the Mesabi Lease Lands.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information set forth in the section titled "Certificates of
Beneficial Interest" on page 13 of the Annual Report of the Trustees of Mesabi
Trust for the fiscal year ended January 31, 1998 is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information set forth in the sections titled "Selected Financial
Data" and "Reserves and Distributions" on pages 2 and 12-13, respectively, of
the Annual Report of the Trustees of Mesabi Trust for the fiscal year ended
January 31, 1998 is incorporated herein by reference.
ITEM 7. TRUSTEES' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
The information set forth in the sections titled "Trustees'
Discussion and Analysis of Financial Condition and Results of Operations,"
"Income and Expense" and "Reserves and Distributions" on pages 2-6, 11-12 and
12-13, respectively, of the Annual Report of the Trustees of Mesabi Trust for
the fiscal year ended January 31, 1998 is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements, including the independent auditor's report
thereon, filed as a part of this report, are presented on pages F-1 through F-9
and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
3
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
There are no directors or executive officers of the registrant. The
Agreement of Trust provides for a Corporate Trustee and four Individual Trustees
(collectively, the "Trustees"). Generally, Trustees continue in office until
their resignation or removal. Any Trustee may be removed at any time, with or
without cause, by the holders of two-thirds in interest of the Trust
Certificates then outstanding. In the case of an Individual Trustee, a
successor is also appointed if the Individual Trustee dies, becomes incapable of
acting or is adjudged bankrupt or insolvent. In the case of the Corporate
Trustee, a successor is also appointed if a receiver of the Corporate Trustee or
of its property is appointed, or if any public officer takes charge or control
of the Corporate Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation.
The present Trustees of Mesabi Trust and their respective ages, terms
in office as Trustees, and business experience during the past five years are
set forth in the following table:
<TABLE>
<CAPTION>
Trustee Business Experience
Name Age Since During Past Five Years
----- ---- -------- -----------------------
<S> <C> <C> <C>
Bankers Trust Company N/A 1961 Trust Company
David J. Hoffman 62 1977 Mining geologist; Until January 1988,
President of Towne Mines Exploration
Company, Inc., a privately-held mining
corporation.
Richard G. Lareau 69 1990 Partner in the law firm of Oppenheimer
Wolff & Donnelly LLP; Director of
Ceridian Corporation, Merrill
Corporation, Nash Finch Company and
Northern Technologies International
Corporation.
Ira A. Marshall, Jr. 75 1976 Private investor and self-employed
petroleum engineer; Until February
1986, Director and Vice President of
New American Fund, Inc., a closed-end
investment trust.
Norman F. Sprague III 50 1981 Private investor; Orthopedic surgeon.
</TABLE>
4
<PAGE>
Item 11. TRUSTEES' COMPENSATION.
The Agreement of Trust was amended October 25, 1982 (the "Amendment").
Pursuant to the Amendment, each Individual Trustee receives at least $20,000 in
annual compensation for services as Trustee. Each year, annual Trustee
compensation is adjusted up or down (but not below $20,000) in accordance with
changes from the November 1981 level of 295.5 (the "1981 Escalation Level") in
the All Commodities Producer Price Index (with 1967 = 100 as a base). The All
Commodities Producer Price Index is published by the U.S. Department of Labor.
The adjustment is made at the end of each fiscal year and is calculated on the
basis of the proportion between (a) the level of such index for the November
preceding the end of such fiscal year and (b) the 1981 Escalation Level.
Also pursuant to the Amendment, Bankers Trust Company, as the Corporate
Trustee, receives annual compensation in an amount equal to the greater of (i)
$20,000, or such other amount determined in accordance with the adjustments
described in the preceding paragraph, or (ii) one quarter of one percent (1/4 of
1%) of the Trust Moneys, exclusive of proceeds of sale of any part of the Trust
Estate (as such terms are defined in the Trust Agreement), received by the
Trustees and distributed to Trust Certificate Holders.
Additionally, each year the Corporate Trustee receives $62,500 (or more,
if unanimously approved by the Individual Trustees) to cover clerical and
administrative services to Mesabi Trust other than services customarily
performed by a registrar or transfer agent.
The following table sets forth the cash compensation paid to the Trustees
through January 31, 1998, for services in all capacities as Trustees to Mesabi
Trust during the fiscal year ended January 31, 1998.
CASH COMPENSATION TABLE
<TABLE>
<CAPTION>
(A) (B) (C)
Name Capacity in Which Served Cash Compensation
----- ------------------------ -----------------
<S> <C> <C>
Bankers Trust Company Corporate Trustee $88,386*
David J. Hoffman Individual Trustee $25,888
Richard G. Lareau Individual Trustee $25,888
Ira A. Marshall, Jr. Individual Trustee $25,888
Norman F. Sprague III Individual Trustee $25,888
</TABLE>
* Does not include $25,018 of fees and disbursements paid to Bankers Trust
Company as registrar and transfer agent of the Units.
5
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND TRUSTEES.
The following table sets forth information concerning each person known to
Mesabi Trust to own beneficially more than 5% of the Trust's Units outstanding
as of February 23, 1998. Such information has been obtained from Mesabi Trust's
records and a review of statements filed with Mesabi Trust pursuant to Section
13(d) of the Securities Exchange Act of 1934 through March 20, 1998.
<TABLE>
<CAPTION>
Name and Address Amount of Beneficial Percent of
of Beneficial Owner(s) Ownership of Units Class
----------------------- -------------------- ----------
<S> <C> <C>
Norwest Corporation,
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-1026
and
Norwest Bank Colorado, National Association
1740 Broadway
Denver, CO 80274-8620
1,434,333(1) 10.9%
Long-Term Investment Trust
(F.R.A., AT&T Master Pension
Trust),
The Northern Trust Company, as
Trustee of the Long-Term
Investment Trust
50 LaSalle Street
Chicago, IL 60675 1,305,000(2) 9.95%
Appaloosa Management L.P.,
a Delaware Limited Partnership
and
David A. Tepper
26 Main Street
Chatham, New Jersey 07928 713,600(3) 5.54%
</TABLE>
(1) According to Amendment No. 17 to the Statement on Schedule 13G of
Norwest Corporation and Norwest Bank Colorado, National Association,
each of which is a subsidiary of Norwest Corporation, dated
January 22, 1998, Norwest Corporation, indirectly through its
subsidiaries (i) has sole voting power with respect to 1,431,833
Units, (ii) shares voting power with respect to 1,000 Units, (iii) has
sole dispositive power as to 1,430,333 Units, and (iv) shares
dispositive power with respect to 3,000 Units. Norwest Bank Colorado,
National Association, has sole voting power with respect to 1,405,000
units, shared voting power with respect to 1,000 units and sole
dispositive power with respect to 1,405,000 of such Units. Includes
1,305,000 units held for the ATT, MCO Long-Term Investment Trust with
respect to a portion of whose assets Norwest Bank Colorado, Inc. acts
as investment advisor. See footnote (2) below.
(2) According to a Schedule 13G dated February 13, 1997, filed on behalf
of this person, such person has sole power to vote or to direct the
vote, and sole power to dispose or to
6
<PAGE>
direct the disposition of, all such Units. As noted in footnote (1)
above, these Units are also reflected in the amounts shown for Norwest
Corporation and its subsidiaries.
(3) According to a Schedule 13D dated March 20, 1998, filed by such
persons, which indicates that each of such persons has sole voting
power and sole dispositive power with respect to such shares.
Appaloosa Management L.P. is general partner of Appaloosa Investment
Limited Partnership I. The general partner of Appaloosa Management
L.P. is Appaloosa Partners, Inc., of which David Tepper is the sole
shareholder and President. Appaloosa Management L.P. acts as an
investment advisor to Palomino Fund Ltd. ("PLF"). Of the 713,600
Units reported, 385,488 are owned by Appaloosa Investment Limited
Partnership I and 328,112 are owned by PLF.
7
<PAGE>
The table below sets forth information as to the Units of Beneficial
Interest in Mesabi Trust beneficially owned as of February 23, 1998 by the
Trustees individually and as a group.
<TABLE>
<CAPTION>
Amount of Beneficial Percent of
Name Ownership of Units Class
---- --------------------- ------------
<S> <C> <C>
Bankers Trust Company 0 (1) 0
David J. Hoffman 38,100 (2) Less than 1%
Richard G. Lareau 8,000 Less than 1%
Ira A. Marshall, Jr. 104,000 (3) Less than 1%
Norman F. Sprague III 12,700 Less than 1%
All Trustees as a group 162,800 1.2%
</TABLE>
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(1) Bankers Trust Company holds, on behalf of various customers, Units in its
Fiduciary Department in so-called "directed" accounts. Bankers Trust
Company has no voting or investment power over, and thus no beneficial
interest in, such Units.
(2) Includes 15,100 Units owned by Mr. Hoffman's wife, over which Mr. Hoffman
does not have any investment or voting power and as to which Mr. Hoffman
disclaims any beneficial ownership.
(3) These Units consist of (a) 101,000 Units owned indirectly by Mr. Marshall
through a family trust of which Mr. Marshall is the sole trustee and (b)
3,000 Units over which Mr. Marshall has full voting and investment power.
8
<PAGE>
ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS.
Mr. Richard G. Lareau, who became a Trustee on March 7, 1990, is a senior
partner in the law firm of Oppenheimer Wolff & Donnelly LLP of Minneapolis,
Minnesota. That firm has been retained by Mesabi Trust since 1961 to act with
respect to matters of Minnesota law, and was retained in 1991 by the Trustees
other than Mr. Lareau to act as general corporate counsel.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS:
The following Financial Statements are incorporated in this reporting
reference from the pages noted in our Annual Agreement of Trustees for the
Year Ended January 31, 1998:
Independent Auditor's Report - page F-1
Balance Sheets as of January 31, 1998 and 1997 - page F-2
Statements of Income for the years ended January 31, 1998, 1997 and 1996 -
page F-3
Statements of Unallocated Reserve and Trust Corpus for the years ended
January 31, 1998, 1997 and 1996 - page F-4
Statements of Cash Flows for the years ended January 31, 1998, 1997 and 1996
- page F-5
Notes to Financial Statements - pages F-6 through F-9
2. FINANCIAL STATEMENT SCHEDULES:
None required.
Schedules other than those listed above have been omitted because they are
not applicable or the required information is included in the financial
statements or notes thereto.
9
<PAGE>
3. EXHIBITS:
<TABLE>
<CAPTION>
Item No. Item Filing Method
-------- ----- --------------
<S> <C> <C>
3 Agreement of Trust dated as Incorporated by reference from Exhibit 3
of July 18, 1961. . . . . . . to Mesabi Trust's Annual Report on Form
10-K for the fiscal year ended January 31,
1987.
3(a) Amendment to the Agreement of Incorporated by reference from Exhibit
Trust dated as of October 25, 3(a) to Mesabi Trust's Annual Report on
1982. . . . . . . . . . . . . Form 10-K for the fiscal year ended
January 31, 1988.
4 Instruments defining the Incorporated by reference from Exhibit 4
rights of to Mesabi Trust's Annual Report on Form
Trust Certificate Holders . . 10-K for the fiscal year ended January 31,
1987.
10(a) Peters Lease. . . . . . . . . Incorporated by reference from Exhibits
10(a) - 10(d) to Mesabi Trust's Annual
Report on Form 10-K for the fiscal year
ended January 31, 1987.
10(b) Amendment Assignment of Incorporated by reference from Exhibits
Peters Lease. . . . . . . . . 10(a) - 10(d) to Mesabi Trust's Annual
Report on Form 10-K for the fiscal year
ended January 31, 1987.
10(c) Cloquet Lease . . . . . . . . Incorporated by reference from Exhibits
10(a) - 10(d) to Mesabi Trust's Annual
Report on Form 10-K for the fiscal year
ended January 31, 1987.
10(d) Assignment of Cloquet Lease . Incorporated by reference from Exhibits
10(a) - 10(d) to Mesabi Trust's Annual
Report on Form 10-K for the fiscal year
ended January 31, 1987.
10(e) Modification of Lease and Incorporated by reference from Exhibit
Consent to Assignment dated 10(e) to Mesabi Trust's Annual Report on
as of October 22, 1982. . . . Form 10-K for the fiscal year ended
January 31, 1988.
10
<PAGE>
10(f) Amendment of Assignment, Incorporated by reference from Exhibit A
Assumption and Further to Mesabi Trust's Report on Form 8-K dated
Assignment of Peters Lease. . August 17, 1989.
10(g) Amendment of Assignment, Incorporated by reference from Exhibit B
Assumption and Further to Mesabi Trust's Report on Form 8-K dated
Assignments of Cloquet Lease. August 17, 1989.
13.1 Annual Report of the Trustees
of Mesabi Trust for the
fiscal year ended January 31,
1998. . . . . . . . . . . . . Filed herewith.
27.1 Financial Data Schedule . . . Filed herewith.
(b) REPORTS ON FORM 8-K FILED IN
THE FOURTH QUARTER:
None
</TABLE>
11
<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.
Dated: April 23, 1998
MESABI TRUST
By: Bankers Trust Company
Corporate Trustee
By: /s/ Robert Caporale
---------------------------
Robert Caporale
Vice President
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/ Robert Caporale April 23, 1998
- --------------------------
Robert Caporale
Vice President
Bankers Trust Company
/s/ David J. Hoffman April 23, 1998
- --------------------------
David J. Hoffman
Individual Trustee
/s/ Richard G. Lareau April 23, 1998
- --------------------------
Richard G. Lareau
Individual Trustee
/s/ Ira S. Marshall April 15, 1998
- --------------------------
Ira A. Marshall, Jr.
Individual Trustee
/s/ Norman F. Sprague III April 20, 1998
- --------------------------
Norman F. Sprague III
Individual Trustee
12
<PAGE>
ANNUAL REPORT Exhibit 13.1
OF THE TRUSTEES OF
MESABI TRUST
For the Year Ended January 31, 1998
ADDRESS
Mesabi Trust
c/o Bankers Trust Company
Corporate Trust and Agency Group
P.O. Box 318
Church Street Station
New York, NY 10015
Telephone - (212) 250-6519
COUNSEL
Oppenheimer Wolff & Donnelly LLP, General Counsel
TRANSFER AGENT
Bankers Trust Company
REGISTRAR
Bankers Trust Company
Mesabi Trust will provide, upon the written request of any certificate
holder addressed to the Trustees at the above address and without charge to such
certificate holder, a copy of Mesabi Trust's Annual Report on Form 10-K for the
fiscal year ended January 31, 1998 as filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended.
FORWARD-LOOKING INFORMATION
Certain statements contained in this document are forward-looking,
including specifically those statements estimating 1998 production or shipments.
All such forward-looking statements are based on input from the lessee/operator.
The Trust has no control over the operations and activities of the
lessee/operator except within the framework of current agreements. Actual
results could differ materially from those indicated in such statements. For
important factors that could cause actual results to differ materially, see
"Important Factors Affecting Mesabi Trust," below.
1
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended January 31 1998 1997 1996 1995 1994
---------------------- ---- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Royalty and interest income $ 6,860,369 $ 6,001,143 $ 4,061,228 $ 3,485,351 $ 3,644,354
Trust expenses 362,373 381,534 387,180 426,655 400,041
-------------- -------------- -------------- -------------- --------------
Net income(a) $ 6,497,996 $ 5,619,609 $ 3,674,048 $ 3,058,696 $ 3,244,313
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Net income per Unit(b) $ .50 $ .43 $ .28 $ .23 $ .25
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Distributions declared
per unit(b)(c) $ .49 $ .42 $ .275 $ .24 $ .27
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
At January 31
-------------
Total Assets $ 4,286,758 $ 2,603,167 $ 2,286,131 $ 1,991,142 $ 2,032,398
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
-----------------
(a) The Trust, as a grantor trust, is exempt from federal and state income
taxes.
(b) Based on 13,120,010 Units of Beneficial Interest outstanding during all
years.
(c) During the fiscal year ended January 31, 1998, the Trustees distributed
$.37 per Unit (including $.145 per Unit declared in fiscal 1997 and
distributed in February 1997) and declared an additional distribution of
$.265 per Unit, payable in February 1998. During the fiscal year ended
January 31, 1997, the Trustees distributed $.395 per Unit (including $.12
per Unit declared in fiscal 1996 and distributed in February 1996) and
declared an additional distribution of $.145 per Unit, payable in February
1997. During the fiscal year ended January 31, 1996, the Trustees
distributed $.255 per Unit (including $.10 per Unit declared in fiscal 1995
and distributed in February 1995) and declared an additional distribution
of $.12 per Unit, payable in February 1996. During the fiscal year ended
January 31, 1995, the Trustees distributed $.24 per Unit (including $.10
per Unit declared in fiscal 1994 and distributed in February 1994) and
declared an additional distribution of $.10 per Unit, payable in February
1995. See "Reserves and Distributions" on pages 12 and 13 of this Annual
Report.
TRUSTEES' DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Mesabi Trust ("Mesabi Trust" or the "Trust"), formed pursuant to an
Agreement of Trust dated July 18, 1961 (the "Agreement of Trust"), is a trust
organized under the laws of the State of New York. Mesabi Trust holds all of
the interests formerly owned by Mesabi Iron Company, including all right, title
and interest in the Amended Assignment of Peters Lease, the Amended Assignment
of Cloquet Lease, the beneficial interest in the Mesabi Land Trust and all other
assets and property identified in the Agreement of Trust. The Amended
Assignment of Peters Lease relates to an Indenture made as of April 30, 1915
among East Mesaba [sic] Iron Company, Dunka River Iron Company and Claude W.
Peters (the "Peters Lease") and the Amended Assignment of Cloquet Lease relates
to an Indenture made May 1, 1916 between Cloquet Lumber Company and Claude W.
Peters (the "Cloquet Lease").
The Trust will terminate twenty-one (21) years after the death of the
survivor of twenty-five (25) persons named in an exhibit to the Agreement of
Trust. The youngest person on this exhibit is now 37 years old.
2
<PAGE>
The Agreement of Trust specifically prohibits the Trustees from entering
into or engaging in any business. This prohibition applies even to business
activities the Trustees deem necessary or proper for the preservation and
protection of the Trust Estate. Accordingly, the Trustees' activities in
connection with the administration of Trust assets are limited to collecting
income, paying expenses and liabilities, distributing net income and protecting
and conserving the assets held.
Pursuant to a ruling from the Internal Revenue Service, which ruling was
based on the terms of the Agreement of Trust including the prohibition against
entering into any business, the Trust is not taxable as a corporation for
Federal income tax purposes. Instead, the holders of the Units of Beneficial
Interest (the "Unitholders") are considered as "owners" of the Trust and the
Trust's income is taxable directly to the Unitholders.
Leasehold royalty income constitutes the principal source of the Trust's
revenue. Royalty rates are determined in accordance with the terms of Mesabi
Trust's leases and assignments of leases. Until August 17, 1989, the overriding
royalty was based on the quantity and iron content of pellets shipped by Reserve
Mining Company ("Reserve") from Mesabi Trust lands, although Mesabi Trust did
not receive any royalty income from May 1986 until July 1990 because Reserve
filed a Chapter 11 bankruptcy petition suspended its operations.
On August 17, 1989, Cyprus Northshore Mining Corporation ("Cyprus NMC")
purchased substantially all of Reserve's assets, including Reserve's interest in
the Mesabi Trust lands. In connection with the purchase, Mesabi Trust,
Reserve's Chapter 11 trustee and Cyprus NMC entered into the Amendment of
Assignment, Assumption and Further Assignment of Peters Lease (the "Amended
Assignment of Peters Lease"), the Amendment of Assignment, Assumption and
Further Assignment of Cloquet Lease (the "Amended Assignment of Cloquet Lease")
and the Assumption and Assignment of Mesabi Lease (together with the Amended
Assignment of Peters Lease and the Amended Assignment of Cloquet Lease
Assignment, the "Amended Assignment Agreements"). The Amended Assignment
Agreements modified the method of calculating overriding royalties payable to
Mesabi Trust and transferred Reserve's interest in the Mesabi Trust lands to
Cyprus NMC.
In 1994, Cyprus NMC was sold by its parent corporation to Cleveland-Cliffs
Inc. ("CCI") and renamed Northshore Mining Corporation ("Northshore"). CCI
operates Northshore as a wholly-owned subsidiary.
Fee royalties payable to Mesabi Land Trust, a Minnesota land trust of
which Mesabi Trust is the sole beneficiary ("Mesabi Land Trust"), are based on
the amount of crude ore mined. Crude ore is used to produce iron ore pellets
and other products. Under the Amended Assignment Agreements, overriding
royalties are determined by both the volume and selling price of iron ore
products sold.
With respect to the volume component of royalty calculation, Northshore is
obligated to pay Mesabi Trust base overriding royalties in varying amounts. The
volume royalties constitute a percentage of the gross proceeds of iron ore
products produced at Mesabi Trust lands (and to a limited extent other lands)
and shipped from Silver Bay, Minnesota. The royalty percentage ranges from 2-
1/2% of the gross proceeds (for the first one million tons of iron ore products
so shipped annually) to 6% of the gross proceeds (for all iron ore products in
excess of 4 million tons so shipped annually).
With respect to the selling price component of royalty calculation,
Northshore is obligated to pay to Mesabi Trust royalty bonuses. The bonus
royalty is a percentage of the gross proceeds of product shipped from Silver
Bay, and sold at prices above a threshold price. The threshold price is
adjusted on
3
<PAGE>
an annual basis for inflation and deflation (but not below $30). The threshold
price was $36.62 for calendar year 1996, was $37.29 for calendar year 1997 and
is $38.21 for calendar year 1998. The bonus royalty percentage ranges from 1/2
of 1% of the gross proceeds (on all tonnage shipped for sale at prices between
the threshold price and $2.00 above the threshold price) to 3% of the gross
proceeds (on all tonnage shipped for sale at prices $10.00 or more above the
threshold price). No royalty bonus has been paid under the Amended Assignment
Agreements for several years.
Generally, Northshore's obligation to pay base overriding royalties and
royalty bonuses with respect to the sale of iron ore products accrues upon the
shipment of those products from Silver Bay. However, Northshore also is
obligated to pay to Mesabi Trust a minimum advance royalty in equal quarterly
installments. Royalty advances are credited against certain base overriding
royalties and royalty bonuses. The amount of advance royalties payable is
subject to adjustment for inflation and deflation (but not below $500,000 per
annum). Advance royalties payable were $610,335 for calendar year 1996, were
$621,606 for calendar year 1997 and are $636,935 for calendar year 1998.
Northshore is obligated to make quarterly royalty payments in January, April,
July and October of each year. In the case of base overriding royalties and
royalty bonuses, these quarterly royalty payments are to be made whether or not
the related proceeds of sale have been received by Northshore by the time such
payments become due.
Under the relevant documents, Northshore may mine and ship iron ore
products from lands other than Mesabi Trust lands. To encourage the use of
iron ore products from Mesabi Trust lands, Mesabi Trust receives royalties on
stated percentages of iron ore shipped from Silver Bay, whether or not the iron
ore products are from Mesabi Trust lands. Mesabi Trust receives royalties at
the greater of (i) the aggregate quantity of iron ore products shipped that were
from Mesabi Trust lands, and (ii) a portion of the aggregate quantity of all
iron ore products shipped that were from any lands, such portion being 90% of
the first four million tons shipped during such year, 85% of the next two
million tons shipped during such year, and 25% of all tonnage shipped during
such year in excess of six million tons.
Northshore has advised the trustees that total calendar year 1998
shipments may be approximately 4.2 million tons. However, it is not known what
percentage of these estimated shipments will be from Mesabi Trust lands. During
calendar years 1997, 1996, 1995 and 1994, the percentage of shipments of iron
ore products from Mesabi Trust lands was approximately 98.3%, 98.4%, 90.6% and
88.3%, respectively, of total shipments. Northshore has not advised the Trust
what the percentage of iron ore products it anticipates shipping from Mesabi
Trust lands.
In its recently released annual report, CCI, parent company of Northshore,
the lessee/operator of Mesabi Trust iron ore interests, stated that it is
continuing to evaluate whether to build a facility to produce pig iron in the
United States using a coal-based process. CCI also stated that if engineering,
marketing and economic evaluations prove positive, the plant will be located at
its Northshore facility in Minnesota presumably using Mesabi Trust ore. In the
same annual report, it was stated that a decision relative to proceeding with
this project is expected to be made around the middle of this year. Because of
the preliminary nature of this information, the Trustees are unable to determine
at this time how the addition of a pig iron facility (if the project proceeds)
would impact overall revenues of Mesabi Trust. As indicated elsewhere in this
report, the Trust's revenues are currently derived almost entirely from iron ore
pellet production and sales.
4
<PAGE>
IMPORTANT FACTORS AFFECTING MESABI TRUST
The Agreement of Trust specifically prohibits the Trustees from entering
into or engaging in any business. This prohibition applies even to business
activities the Trustees deem necessary or proper for the preservation and
protection of the Trust Estate. Accordingly, the Trustees' activities in
connection with the administration of Trust assets are limited to collecting
income, paying expenses and liabilities, distributing net income and protecting
and conserving the assets held.
Accordingly, the income of the Trust is highly dependent upon the
activities and operations of Northshore, and the terms and conditions of the
Amended Assignment Agreements. The Trust and the Trustees have no control over
the operations and activities of Northshore, except within the framework of the
Amended Assignment Agreements.
Due to winter weather, and the increasing royalty percentages based on
tonnage shipped in a calendar year, results for a particular calendar quarter
are typically not indicative of results for future quarters or the year as a
whole. Factors which can impact the results of the Trust in any quarter or year
include:
1. SHIPPING CONDITIONS IN THE GREAT LAKES. Shipping activity by Northshore is
dependent upon when the Great Lakes shipping lanes freeze for the winter
months (typically in January) and when they re-open in the spring
(typically late-March or April). Base overriding royalties to Mesabi Trust
are based on shipments made in a calendar quarter. Because there typically
is little or no shipping activity in the first calendar quarter, the Trust
typically receives only the minimum royalty for that period.
2. OPERATIONS OF NORTHSHORE. Because the primary portion of the Trust's
revenues derive from iron ore product shipped by Northshore from Silver
Bay, Northshore's processing and shipping activities directly impact the
Trust's revenues in each quarter and for each year. In turn, a myriad of
factors affect Northshore shipment volume. These factors include economic
conditions in the iron ore industry, pricing by competitors, long-term
customer contracts or arrangements by Northshore or its competitors,
availability of ore boats, production at Northshore's mining operations,
and production at the pelletizing/processing facility. If any pelletizing
line becomes idle for any reason, production and shipments (and,
consequently, Trust income) could be adversely impacted.
3. INCREASING ROYALTIES. As described elsewhere in this Report, the royalty
percentage paid to the Trust increases as the aggregate tonnage of iron ore
products shipped, attributable to the Trust, in any calendar year
increases. Assuming a consistent sales price per ton throughout a calendar
year, shipments of iron ore product attributable to the Trust later in the
year generate a higher royalty to the Trust.
4. PERCENTAGE OF MESABI TRUST ORE. As described elsewhere in this Report,
Northshore has the ability to process and ship iron ore product from lands
other than Mesabi Trust lands. In certain circumstances, the Trust may be
entitled to royalties on those other shipments, but not in all cases. In
general, the Trust will receive higher royalties (assuming all other
factors are equal) if a higher percentage of shipments are from Mesabi
Trust lands. The percentages of shipments that came from Mesabi Trust
lands were 98.3%, 98.4%, 90.6% and 88.3% in calendar years 1997, 1996, 1995
and 1994, respectively.
5
<PAGE>
COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 1998 AND JANUARY 31, 1997
Mesabi Trust's gross income for the fiscal year ended January 31, 1998 was
$6,860,369, an increase of $859,226 (or approximately 14.3%) from the gross
income of $6,001,143 for the fiscal year ended January 31, 1997. The increase
in gross income primarily was due to increased pellet shipments plus a higher
average sales price per ton. Mesabi Trust's expenses of $362,373 for the fiscal
year ended January 31, 1998 decreased $19,161 (or approximately 5.0%) from
expenses of $381,534 for the fiscal year ended January 31, 1997. Total
expenses, by category, for each of the last three fiscal years is set forth
under "Income and Expense" on pages 11 and 12 of this report. Increased income
and decreased expenses resulted in net income of $6,497,996 for the fiscal year
ended January 31, 1998, an increase of $878,387 from the net income of
$5,619,609 for the fiscal year ended January 31, 1997.
Mesabi Trust's Unallocated Reserve aggregated $719,799 at January 31,
1998, as compared with an Unallocated Reserve of $650,608 at January 31, 1997.
During the fiscal year ended January 31, 1998, the Trustees distributed $.37 per
Unit of Beneficial Interest. These distributions to Unitholders totaled
$4,854,404.
COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 1997 AND JANUARY 31, 1996
Mesabi Trust's gross income for the fiscal year ended January 31, 1997 was
$6,001,143, an increase of $1,939,915 (or approximately 47.8%) from the gross
income of $4,061,228 for the fiscal year ended January 31, 1996. The increase
in gross income primarily was due to increased pellet shipments and at a higher
average price, a higher percentage of shipments from Mesabi Trust lands,
increased crude ore production (increasing the amount of royalty income) and a
decrease in the deferred income amount as compared to the comparable period.
Mesabi Trust's expenses of $381,534 for the fiscal year ended January 31, 1997
decreased $5,646 (or approximately 1.5%) from expenses of $387,180 for the
fiscal year ended January 31, 1996. Total expenses, by category, for each of
the last three fiscal years is set forth under "Income and Expense" on pages 11
and 12 of this report. Increased income and decreased expenses resulted in net
income of $5,619,609 for the fiscal year ended January 31, 1997, an increase of
$1,945,561 from the net income of $3,674,048 for the fiscal year ended January
31, 1996.
Mesabi Trust's Unallocated Reserve aggregated $650,608 at January 31,
1997, as compared with an Unallocated Reserve of $541,403 at January 31, 1996.
During the fiscal year ended January 31, 1997, the Trustees distributed $.395
per Unit of Beneficial Interest. These distributions to Unitholders totaled
$5,182,404.
6
<PAGE>
TO THE HOLDERS OF
CERTIFICATES OF BENEFICIAL INTEREST IN
MESABI TRUST
MESABI TRUST
Mesabi Trust was created in 1961 upon the liquidation of Mesabi Iron
Company. The sole purpose of the Trust, as set forth in the Agreement of Trust
dated as of July 18, 1961 (the "Agreement of Trust"), is to conserve and protect
the Trust Estate and to collect and distribute the income and proceeds therefrom
to the Trust's Certificate Holders after the payment of, or provision for,
expenses and liabilities. The Agreement of Trust prohibits the Trust from
engaging in any business.
THE TRUST ESTATE
The principal assets of Mesabi Trust consist of two different interests in
certain properties in the Mesabi Iron Range: (i) Mesabi Trust's interest as
assignor in the Amended Assignment of Peters and the Amended Assignment of
Cloquet Lease, which together cover properties aggregating approximately 9,750
contiguous acres in St. Louis County, Minnesota (the "Peters Lease Lands" and
the "Cloquet Lease Lands," respectively, and collectively, the "Peters and
Cloquet Lease Lands"), and (ii) Mesabi Trust's ownership of the entire
beneficial interest in Mesabi Land Trust, which has a 20% interest as fee owner
in the Peters Lease Lands and a 100% fee ownership in certain non-mineral-
bearing lands adjacent to the Peters and Cloquet Lease Lands (the "Mesabi Lease
Lands").
The Peters and Cloquet Lease Lands are located at the eastern end of the
Mesabi Iron Range and contain low-grade iron ore known as taconite,
approximately three tons of which must be beneficiated to produce one ton of
high-grade pellets. The Trustees have not had any surveys or test drillings
performed to ascertain the iron ore reserves on the Peters and Cloquet Lease
Lands. However, initial surveys and test drillings made by Mesabi Iron Company
many years ago indicated that these lands contained accessible taconite reserves
capable of yielding approximately 500 million tons of high grade iron ore
pellets. In its recently released annual report, CCI estimated that there
currently remains enough ore reserve in the Peters and Cloquet Lease Lands to
produce concentrated product for 83 years of mining at current extraction rates.
The Mesabi Lease Lands provide an area for location of service roads, supporting
plants and equipment and dump sites for overburden.
Under the Amended Assignment Agreements, Northshore produces iron ore from
the Peters and Cloquet Lease Lands for the manufacture of pellets to be sold to
various users, and Mesabi Trust receives royalties on the crude ore extracted
from such Lands and the pellets produced from such crude ore.
LEASEHOLD ROYALTIES
Northshore is obligated to pay to Mesabi Trust base overriding royalties
and royalty bonuses on all pellets (and other iron ore products) produced from
the Peters and Cloquet Lease Lands ("Mesabi Ore") and shipped from Silver Bay,
Minnesota in each calendar year. The royalties are based on prices per unit of
product, volumes of product shipped and where on the escalating scale of
royalties -- 2% on the first million tons to 6% on shipments above four million
tons per year -- each shipment falls.
7
<PAGE>
Base overriding royalties are calculated on the basis of an escalating
scale of percentages of gross sales proceeds of iron ore shipped. The
applicable percentage is determined by reference to the tonnage of pellets
previously shipped in the then current calendar year, as follows:
<TABLE>
<CAPTION>
Applicable royalty
Tons of iron ore products (expressed as a percentage
shipped in calendar of gross sales proceeds
year within each tranche)
------------ --------------------------
<S> <C>
one million or less 2-1/2%
more than one but not more than two million 3-1/2%
more than two but not more than three million 5%
more than three but not more than four million 5-1/2%
more than four million 6%
</TABLE>
For example, assume that no shipments of iron ore products were made
during the first calendar quarter of 1998 and further assume that pellets were
shipped from Silver Bay, Minnesota in the second and third calendar quarters of
1998 in the following tonnage quantities and rendering the following gross
proceeds:
<TABLE>
<CAPTION>
Tonnage Gross Proceeds
--------- --------------
<S> <C> <C>
2nd Quarter: 500,000 $14,000,000
3rd Quarter: 500,000 $14,000,000
1,000,000 $27,000,000
1,000,000 $26,000,000
1,000,000 $25,000,000
1,500,000 $37,500,000
</TABLE>
In this example, the base overriding royalties payable in respect of the second
and third calendar quarters of 1998 would be as follows:
<TABLE>
<S> <C>
2nd Quarter: $14,000,000 x 2-1/2% ($ 350,000)
3rd Quarter: $14,000,000 x 2-1/2% ($ 350,000)
$27,000,000 x 3-1/2% ($ 945,000)
$26,000,000 x 5% ($1,300,000)
$25,000,000 x 5-1/2% ($1,375,000)
$37,500,000 x 6% ($2,250,000)
</TABLE>
Based on the same example, the percentage applicable for all iron ore products
shipped in the fourth calendar quarter of 1998 would be 6%, because more than
four million tons were shipped during the first three quarters.
The above figures are provided only to illustrate the method for calculating
base overriding royalties and do NOT indicate the amount of base overriding
royalties the Trustees expect Mesabi Trust to earn calendar 1998 or any other
calendar or fiscal year. Accordingly, the foregoing example illustrating the
calculation
8
<PAGE>
of base overriding royalties should not be considered a prediction of the amount
of base overriding royalties Mesabi Trust will receive.
Royalty bonuses are payable on all iron ore products sold at prices above
a threshold price (the "Adjusted Threshold Price"). The Adjusted Threshold
Price was $36.62 per ton for calendar year 1996, was $37.29 per ton for calendar
year 1997 and will be $38.21 per ton for calendar year 1998. The Adjusted
Threshold Price is subject to adjustment (but not below $30 per ton) for
inflation and deflation and is determined each year on the basis of the change
in a broad based index of inflation and deflation published quarterly by the
U.S. Department of Commerce.
The amount of royalty bonuses payable for any period is calculated on the
basis of an escalating scale of percentages of the gross sales proceeds to
Northshore of pellets sold at prices above the Adjusted Threshold Price. The
applicable percentage is determined by reference to the amount by which the
sales prices for a particular quantity of pellets exceeds the Adjusted Threshold
Price, as follows:
<TABLE>
<CAPTION>
Amount by which
sales price per ton
exceeds Adjusted Applicable
Threshold Price Percentage
---------------- ----------
<S> <C>
$2 or less 1/2 of 1%
more than $2 but not more than $4 1%
more than $4 but not more than $6 1-1/2%
more than $6 but not more than $8 2%
more than $8 but not more than $10 2-1/2%
more than $10 3%
</TABLE>
For example, assume an Adjusted Threshold Price of $38.21 is assumed for
calendar year 1998 and that two million tons of iron ore products were shipped
in the second calendar quarter of 1998 at the following prices:
<TABLE>
<S> <C>
1,000,000 tons @ $29.00/ton
300,000 tons @ $31.00/ton
300,000 tons @ $34.00/ton
100,000 tons @ $36.00/ton
100,000 tons @ $38.00/ton
100,000 tons @ $40.00/ton
50,000 tons @ $42.00/ton
50,000 tons @ $46.00/ton
</TABLE>
9
<PAGE>
In this example, the following royalty bonuses would be payable on shipments of
iron ore products on the second calendar quarter of 1998 as follows:
<TABLE>
<S> <C>
1,000,000 tons @ $29.00/ton No bonus
300,000 tons @ $31.00/ton No bonus
300,000 tons @ $34.00/ton No bonus
100,000 tons @ $36.00/ton No bonus
100,000 tons @ $38.00/ton No bonus
100,000 tons @ $40.00/ton 1/2%
50,000 tons @ $42.00/ton 1%
50,000 tons @ $46.00/ton 2%
</TABLE>
The above figures are provided only to illustrate the method for
calculating royalty bonuses and do NOT indicate the amount of royalty bonuses,
if any, the Trustees expect Mesabi Trust to earn in calendar 1998 or any other
calendar or fiscal year. Accordingly, the foregoing example illustrating the
calculation of royalty bonuses should not be considered a prediction of the
amount, if any, of royalty bonuses Mesabi Trust will receive. In fact, no
royalty bonus has been paid to the Trust for several years.
Northshore also must pay base overriding royalties and royalty bonuses on
pellets produced from lands other than Mesabi Lease Lands ("Other Ore") to the
extent necessary to assure payment of base overriding royalties and royalty
bonuses on at least 90% of the first four million tons of pellets shipped from
Silver Bay in each calendar year, at least 85% of the next two million tons of
pellets shipped therefrom in each calendar year, and at least 25% of all tonnage
of pellets shipped therefrom in each calendar year in excess of six million
tons. Base overriding royalties and royalty bonuses payable on Other Ore can be
recouped by Northshore out of base overriding royalties and royalty bonuses paid
on Mesabi Ore. The amount of Other Ore royalties and Other Ore royalty bonuses
which can be recouped on any payment date cannot, however, exceed 20% of the
amount of Mesabi Ore royalties and royalty bonuses which are otherwise payable
on that payment date.
Northshore is obligated to pay to Mesabi Trust advance royalties in equal
quarterly installments. The advance royalty was $610,335 per annum for the
calendar year ended December 31, 1996, $621,606 for calendar year 1997 and is
$636,935 for the calendar year 1998. The amount of advance royalties payable is
subject to adjustment (but not below $500,000 per annum) for inflation and
deflation and is determined each year in the same manner as the Adjusted
Threshold Price. All payments of advance royalties are credited against
payments of base overriding royalties and royalty bonuses payable on Mesabi Ore
until fully recouped. The amount of advance royalties payable in respect of
each calendar quarter constitutes the minimum overriding royalty amount payable
by Northshore in respect of that calendar quarter.
Base overriding royalties and royalty bonuses are payable quarterly and
accrue upon shipment, whether or not the actual sales proceeds for any shipment
are received by Northshore. The amount of base overriding royalties and royalty
bonuses payable with respect to the first three quarters in any calendar year
are determined on the basis of tonnage shipped during each such calendar quarter
and the actual sales proceeds of such shipments, with an adjustment made to the
royalties payable with respect to the last quarter in any calendar year to
account for errors, adjustments and returns.
In addition, in the event that Northshore commences mining and production
of quarry stone for shipment, Northshore must pay base overriding royalties on
all quarry stone so shipped on the basis of
10
<PAGE>
the same scale of percentages used in calculating base overriding royalties
payable on pellets and other iron ore product. Northshore has not informed
Mesabi Trust of any present intention to commence mining and production of
quarry stone.
LAND TRUST AND FEE ROYALTIES
Mesabi Land Trust holds a 20% interest as fee owner in the Peters Lease
Lands and a 100% interest as fee owner in the Mesabi Lease Lands as lessor of
the Mesabi Lease. Mesabi Trust holds the entire beneficial interest in Mesabi
Land Trust and is entitled to receive the net income of Mesabi Land Trust after
payment of expenses. Northshore is not obligated to pay royalties or rental to
Mesabi Land Trust as fee owner of the non-mineral bearing Mesabi Lease Lands, a
consideration having been paid in that respect at the inception of the Mesabi
Lease.
Northshore is required to pay a base royalty to the fee owners in an
amount which, at its option, is either (a) 11-2/3 CENTS per gross ton of crude
ore it mines from the Peters Lease Lands or (b) $.0056 for each 1% of metallic
iron ore natural contained in each gross ton of pellets it produces from the
Peters Lease Lands and ships. The base fee royalty rate is adjusted up or down
each quarter (but not below the base royalty specified above) by addition or
subtraction of an amount to be determined by reference to changes in Lower Lake
Mesabi Range pellet prices and the All Commodities Producer Price Index. The
adjustment factor is computed by multiplying the base fee royalty rate specified
above by a percentage that is the sum of (a) one-half of the percentage change,
if any, by which the then prevailing price per iron unit of Mesabi Range
taconite pellets delivered by rail or vessel at Lower Lake Erie ports exceeds
80.5 CENTS (the price per iron unit in effect in January 1982) plus (b) one-half
of the percentage change, if any, by which the All Commodities Producer Price
Index exceeds 295.8 (the level of the Index for December 1981).
Fee royalties aggregating $326,378 with respect to crude ore mined by
Northshore were earned by Mesabi Land Trust during the fiscal year ended
January 31, 1998.
INCOME AND EXPENSE
Total income for Mesabi Trust for the fiscal year ended January 31, 1998
was $6,860,369, consisting of $42,416 in interest earned on the investment of
the Unallocated Reserve, $326,378 in fee income, $621,606 in minimum advance
royalty income, and $5,869,969 in overriding royalty income compared with
$6,001,143 in total income for the previous fiscal year. Total expenses for the
fiscal year were $362,373, compared with $381,534 in total expenses for the
previous fiscal year. There were distributions paid per Unit of Beneficial
Interest totaling 37 CENTS for the fiscal year ended January 31, 1998, compared
with distributions paid for the fiscal year ended January 31, 1997 of 39.5 CENTS
per Unit.
11
<PAGE>
Total expenses by categories were as follows:
<TABLE>
<CAPTION>
Fiscal Years ended
January 31,
------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Compensation of Trustees $ 129,438 $129,742 $ 131,906
Fees and Disbursements
Administrative 62,500 62,500 62,500
Accounting 35,734 32,815 29,326
Inspection trips, travel and
other expenses of Trustees 31,995 35,164 36,352
Legal 25,802 24,091 17,630
Mining consultant and field
representatives 15,695 16,808 12,558
Printing of annual and quarterly
reports, and letters to
certificate holders 26,726 33,227 46,676
Securities and Exchange Commission --- 250 250
Transfer Agent and Registrar 24,848 34,017 33,178
Transfer Agent miscellaneous
disbursements 9,628 12,789 13,500
Other miscellaneous expenses 7 131 3,304
---------- ---------- ---------
$ 362,373 $ 381,534 $ 387,180
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
Pursuant to an Amendment to the Agreement of Trust (the "Amendment") dated
October 25, 1982, each Individual Trustee receives annual compensation for
services as Trustee of $20,000, adjusted up or down (but not below $20,000) in
accordance with changes from the November 1981 level of 295.5 (the "1981
Escalation Level") in the All Commodities Producer Price Index (with 1967 = 100
as a base), which is published by the U.S. Department of Labor. The adjustment
is made at the end of each fiscal year and is calculated on the basis of the
proportion between (a) the level of such index for the November preceding the
end of such fiscal year and (b) the 1981 Escalation Level.
RESERVES AND DISTRIBUTIONS
Mesabi Trust's Unallocated Reserve aggregated $719,799 at January 31,
1998, compared with an Unallocated Reserve of $650,608 at January 31, 1997. The
Trustees have determined that the Unallocated Reserve should be maintained at a
prudent level. Accordingly, although the actual amount of the Unallocated
Reserve will fluctuate from time to time, and may increase or decrease from its
current level, it is currently intended that future distributions will be highly
dependent upon royalty income as it is received and the level of Trust expenses.
The amount of future royalty income available for distribution will be subject
to the volume of iron ore product shipments and the dollar level of sales by
Northshore. Shipping activity is greatly reduced during the winter months and
economic conditions, particularly those affecting the steel industry, may
adversely affect the amount and timing of such future shipments and sales.
The Trustees will continue to monitor the economic circumstances of the
Trust to strike a responsible balance between distributions to Unitholders and
the need to maintain adequate reserves at a
12
<PAGE>
prudent level, given the unpredictable nature of the iron ore industry, the
Trust's dependence on the actions of the lessee/operator, and the fact the Trust
essentially has no other liquid assets.
Payments to Unitholders during the fiscal year ended January 31, 1997
totaled $5,182,404 and payments to Unitholders during the fiscal year ended
January 31, 1998 totaled $4,854,404.
CERTIFICATES OF BENEFICIAL INTEREST
The Certificates of Beneficial Interest are traded on the New York Stock
Exchange. During the past two fiscal years, the market ranges of the
certificates for each quarterly period and the distributions declared for such
quarterly periods were as follows:
<TABLE>
<CAPTION>
Fiscal Quarter Ended High Low Amount Declared Per Unit
- -------------------- ---- --- --------------- --------
<S> <C> <C> <C> <C>
April 30, 1996 4 3 7/8 $ --- $ ---
July 31, 1996 4 1/4 4 1,115,201 0.085
October 31, 1996 4 3/8 4 1/4 2,492,802 0.190
January 31, 1997 4 5/8 4 1/2 1,902,401 0.145
----------- ---------
$5,510,404 $ 0.420
----------- ---------
----------- ---------
</TABLE>
<TABLE>
<CAPTION>
Fiscal Quarter Ended High Low Amount Declared Per Unit
- -------------------- ---- --- ---------------- --------
<S> <C> <C> <C> <C>
April 30, 1997 4 3/4 4 1/4 $ -- $ --
July 31, 1997 4 5/8 3 7/8 852,801 0.065
October 31, 1997 4 1/16 3 11/16 2,099,201 0.160
January 31, 1998 4 1/4 3 5/8 3,476,803 0.265
----------- ---------
$ 6,428,805 $ 0.490
----------- ---------
----------- ---------
</TABLE>
As of the close of business on April 20, 1998, the beneficial interest in
Mesabi Trust was represented by 13,120,010 Units registered in the names of
approximately 2,591 individuals holding of record approximately 1,653,664 Units,
and in the names of approximately 526 brokers, nominees, or fiduciaries holding
of record approximately 11,466,346 Units.
13
<PAGE>
THE TRUSTEES
The name and address of each Trustee and the principal occupation of each
individual Trustee are as follows:
<TABLE>
<CAPTION>
Name and Address
of Trustee Principal Occupation
----------------- -----------------------
<S> <C>
Bankers Trust Company
Corporate Trustee
Four Albany Street
New York, New York 10015
David J. Hoffman Mining geologist
Individual Trustee
P.O. Box 10444
Sedona, Arizona 86339
Richard G. Lareau Partner in the law firm of
Individual Trustee Oppenheimer Wolff & Donnelly LLP
Oppenheimer Wolff & Donnelly LLP
3400 Plaza VII
45 South Seventh Street
Minneapolis, Minnesota 55402
Ira A. Marshall, Jr. Private investor; Self-employed
Individual Trustee petroleum engineer
12 Fincher Way
Rancho Mirage, California
Norman F. Sprague III Private investor; Orthopedic surgeon
Individual Trustee
11600 Wilshire Boulevard
Los Angeles, California 90025
Respectfully submitted,
BANKERS TRUST COMPANY
DAVID J. HOFFMAN
RICHARD G. LAREAU
New York, New York IRA A. MARSHALL, JR.
April 23, 1998 NORMAN F. SPRAGUE III
</TABLE>
14
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Trustees
Mesabi Trust
New York, New York
We have audited the accompanying balance sheets of Mesabi Trust as of
January 31, 1998 and 1997, and the related statements of income, unallocated
reserve and trust corpus and cash flows for each of the three years in the
period ended January 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 Mesabi Trust as of
January 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended January 31, 1998, in conformity
with generally accepted accounting principles.
McGLADREY & PULLEN, LLP
/s/ McGladrey & Pullen, LLP
New York, New York
March 24, 1998
F-1
<PAGE>
MESABI TRUST
BALANCE SHEETS
<TABLE>
<CAPTION>
January 31,
------------------------
1998 1997
---- ----
ASSETS
<S> <C> <C>
Cash $ 3,607,221 $ 918
U.S. Government securities,
at amortized cost (which approximates market) 499,073 2,484,984
Accrued income 176,641 113,617
Prepaid insurance 3,820 3,645
----------- -----------
$ 4,286,755 $ 2,603,164
----------- -----------
Fixed property, including
intangibles, at nominal values:
Assignments of leased property:
Amended Assignment of
Peters Lease $ 1 $ 1
Assignment of Cloquet Lease 1 1
Certificate of beneficial
interest for 13,120,010 units
of Land Trust 1 1
----------- -----------
$ 3 $ 3
----------- -----------
$ 4,286,758 $ 2,603,167
----------- -----------
----------- -----------
LIABILITIES, UNALLOCATED RESERVE AND TRUST CORPUS
Liabilities:
Distribution payable $ 3,476,803 $ 1,902,401
Accrued expenses 90,153 50,155
----------- -----------
$ 3,566,956 $ 1,952,556
Unallocated reserve 719,799 650,608
Trust Corpus 3 3
----------- -----------
$ 4,286,758 $ 2,603,167
----------- -----------
----------- -----------
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE>
MESABI TRUST
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended January 31,
------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUE
Royalties under amended
lease agreements $ 6,491,575 $ 5,631,330 $ 3,742,921
Royalties under Peters
Lease fee 326,378 328,783 276,908
Interest 42,416 41,030 41,399
----------- ----------- -----------
Total revenue $ 6,860,369 $ 6,001,143 $ 4,061,228
----------- ----------- -----------
EXPENSES
Compensation of Trustees $ 129,438 $ 129,742 $ 131,906
Corporate Trustee's
administrative fees 62,500 62,500 62,500
Professional fees and expenses:
Legal and accounting 61,536 56,906 46,956
Mining consultant and
field representatives 15,695 16,808 12,558
Transfer agent's and
registrar's fees 24,848 34,017 33,178
Other Trust expenses 68,356 81,561 100,082
----------- ----------- -----------
Total expenses $ 362,373 $ 381,534 $ 387,180
----------- ----------- -----------
Net income $ 6,497,996 $ 5,619,609 $ 3,674,048
----------- ----------- -----------
----------- ----------- -----------
Weighted average number
of units outstanding 13,120,010 13,120,010 13,120,010
----------- ----------- -----------
----------- ----------- -----------
Net income per unit $.50 $.43 $.28
---- ---- ----
---- ---- ----
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
MESABI TRUST
STATEMENTS OF UNALLOCATED RESERVE AND TRUST CORPUS
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Unallocated Reserve
-------------------
Number of Trust
Units Amount Corpus
----- ------ ------
<S> <C> <C> <C>
Balance, February 1, 1995 13,120,010 $ 475,358 $ 3
Net income --- 3,674,048 ---
Distribution paid August 18, 1995,
$.065 per unit --- (852,801) ---
Distribution paid November 20, 1995,
$.09 per unit --- (1,180,801) ---
Distribution declared January 17, 1996,
paid February 20, 1996,
$.12 per unit --- (1,574,401) ---
----------- ----------- -----------
Balance, January 31, 1996 13,120,010 $ 541,403 $ 3
Net income --- 5,619,609 --
Distribution paid August 20, 1996,
$.085 per unit --- (1,115,201) ---
Distribution paid November 20, 1996,
$.19 per unit --- (2,492,802) ---
Distribution declared January 17, 1997,
paid February 20, 1997,
$.145 per unit --- (1,902,401) ---
----------- ----------- -----------
Balance, January 31, 1997 13,120,010 $ 650,608 $ 3
Net income --- 6,497,996 ---
Distribution paid August 20, 1997,
$.065 per unit --- (852,801) ---
Distribution paid November 20, 1997,
$.16 per unit --- (2,099,201) ---
Distribution declared January 16, 1997,
paid February 20, 1998,
$.265 per unit --- (3,476,803) ---
----------- ----------- -----------
Balance, January 31, 1998 13,120,010 $ 719,799 $ 3
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
MESABI TRUST
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended January 31,
--------------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating
activities:
Royalties received $ 6,769,021 $ 5,855,966 $ 4,036,713
Interest received 42,745 44,634 27,151
Expenses paid (336,971) (387,065) (372,767)
----------- ------------ ------------
Net cash provided
by operating activities $ 6,474,795 $ 5,513,535 $ 3,691,097
----------- ------------ ------------
Cash flows from investing
activities:
Maturities of U.S. Government
securities $ 6,439,490 $ 6,833,132 $ 4,883,677
Purchases of U.S.
Government securities (4,453,578) (7,172,528) (6,662,615)
----------- ------------ ------------
Net cash (used in) provided by
investing activities $ 1,985,912 $ (339,396) $ (1,778,938)
----------- ------------ ------------
Cash flows from financing
activities:
Net cash (used in) financing
activities, distributions
to unitholders $(4,854,404) $ (5,182,404) $ (3,345,603)
----------- ------------ ------------
Net increase (decrease) in cash $ 3,606,303 $ (8,265) $ (1,433,444)
Cash, beginning of year 918 9,183 1,442,627
----------- ------------ ------------
Cash, end of year $ 3,607,221 $ 918 $ 9,183
----------- ------------ ------------
----------- ------------ ------------
Reconciliation of net income
to net cash provided by
operating activities:
Net income $ 6,497,996 $ 5,619,609 $ 3,674,048
Decrease (increase) in
accrued income (63,024) 13,802 50,505
Decrease (increase) in prepaid
insurance (175) 293 ---
(Decrease) increase in
accrued expenses 39,998 (5,824) 14,413
(Decrease) increase in deferred
income --- (114,345) (47,869)
----------- ------------ ------------
Net cash provided by
operating activities $ 6,474,795 $ 5,513,535 $ 3,691,097
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
Note 1. Nature of Business, Organization and Significant Accounting Policies
Nature of business:
Mesabi Trust was created in 1961 upon the liquidation of
Mesabi Iron Company. The sole purpose of the Trust, as set
forth in the Agreement of Trust dated as of July 18, 1961,
is to conserve and protect the Trust Estate and to collect
and distribute the income and proceeds therefrom to the
Trust's certificate holders after the payment of, or
provision for, expenses and liabilities. The Agreement of
Trust prohibits the Trust from engaging in any business.
The lessee/operator of Mesabi Trust's mineral interests is
Northshore Mining Corporation (NMC), a subsidiary of
Cleveland-Cliffs Inc. (CCI). CCI is among the world's
largest producers of iron ore products. Prior to September
30, 1994, the lessee/operator had been a subsidiary of
Cyprus Amax Minerals Company and was named Cyprus Northshore
Mining Corporation (Cyprus NMC).
Organization:
The beneficial interest in Mesabi Trust is represented by
13,120,010 transferable units distributed on July 27, 1961
to shareholders of Mesabi Iron Company.
The Trust's status as a grantor trust was confirmed by
letter ruling addressed to Mesabi Iron Company from the
Internal Revenue Service in 1961. As a grantor trust,
Mesabi is exempt from Federal income taxes and its income is
taxable directly to the Unitholders.
A summary of Mesabi Trust's significant accounting policies follows:
Investments:
The Trust invests solely in U.S. Government securities.
Management determines the appropriate classifications of the
securities at the time they are acquired and evaluates the
appropriateness of such classifications as of each balance
sheet date.
The U.S. government securities are classified as
held-to-maturity securities as the Trust has the positive
intent and ability to hold to maturity and are stated at
amortized cost.
F-6
<PAGE>
MESABI TRUST
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of Business, Organization and Significant Accounting Policies
(continued)
Revenue recognition:
Royalty income under the amended lease agreements with NMC
(Cyprus NMC through September 30, 1994) is recognized as it is
earned. Under such agreements, royalties are earned upon
shipment, regardless of whether the actual sales proceeds for any
shipment are received by NMC.
Royalty income under the Peters Lease fee agreement also is
recognized as it is earned. Under such agreement, however,
royalties are earned (at the option of NMC (Cyprus NMC through
September 30, 1994)) either upon mining of crude ore from Peters
Lease lands or upon shipment of iron ore product produced from
Peters Lease lands.
Fixed property, including intangibles:
The Trust's fixed property, including intangibles, is recorded at
nominal values and includes the following:
(1) The entire beneficial interest as assignor in the
Amended Peters Lease Assignment and the Amended Cloquet
Lease Assignment covering taconite properties in
Minnesota which are leased to NMC (Cyprus NMC through
September 30, 1994).
(2) The entire beneficial interest in Mesabi Land Trust
which owns a 20% fee interest in the lands subject to
the Peters Lease and the entire fee interest in other
properties in Minnesota.
Accounting estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Fair value of financial instruments:
The carrying amounts of financial instruments including cash,
U.S. government securities, distributions payable and accrued
expenses approximated fair value as of January 31, 1998 and 1997
because of the relative short maturity of these instruments.
F-7
<PAGE>
MESABI TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 2. U.S. Government Securities
The amortized cost approximates market value as of January 31, 1998
and 1997. The securities are classified as held-to-maturity and
mature as follows:
<TABLE>
<CAPTION>
January 31, 1998 January 31, 1997
---------------- ----------------
<S> <C> <C>
Due within one year $ 198,502 $ 2,274,407
Due after one year through
four years 300,571 210,577
---------- -----------
$ 499,073 $ 2,484,984
---------- -----------
---------- -----------
</TABLE>
Note 3. Unallocated Reserve
Leasehold royalty income constitutes the principal source of revenue
to Mesabi Trust. Prior to August 17, 1989, royalties were based on
the quantity and iron content of pellets shipped by the then lessee,
Reserve Mining Company ("Reserve"), from Mesabi Trust properties.
From May 1986 until July 1990, however, Mesabi Trust did not have any
royalty income, due principally to the filing of a Chapter 11
bankruptcy petition by Reserve and the suspension of Reserve's
operations in 1986.
On August 17, 1989, Cyprus NMC purchased substantially all of
Reserve's assets, including Reserve's interest in the Mesabi Trust
lands, and Mesabi Trust entered into agreements with Reserve's Chapter
11 Trustee and Cyprus NMC, which modified the method of calculating
royalties payable to Mesabi Trust and transferred the interest of
Reserve in the Mesabi Trust lands to Cyprus NMC. Royalties are now
determined by both the volume and selling price of iron ore pellets
and other products sold.
On September 30, 1994, Cyprus Amax Minerals Company sold its iron ore
operations, including Cyprus NMC, to Cleveland-Cliffs Inc. (CCI).
CCI renamed the operation Northshore Mining Corporation (NMC). CCI is
among the world's largest producers of iron ore products.
Pursuant to the amended assignment agreements, NMC (Cyprus NMC through
September 30, 1994) is obligated to pay Mesabi Trust base overriding
royalties, in varying amounts constituting a percentage of the gross
proceeds of shipments, from Silver Bay, Minnesota, of iron ore product
produced from Mesabi Trust lands or, to a limited extent, other lands.
NMC (Cyprus NMC through September 30, 1994) is obligated to make
payments of overriding royalties on product shipments within 30 days
following the calendar quarter in which such shipments occur. NMC
(Cyprus NMC through September 30, 1994) resumed mining operations and
shipping product from Silver Bay in the second calendar quarter of
1990, and the first payment of overriding royalties was made in July
1990.
F-8
<PAGE>
MESABI TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 3. Unallocated Reserve
(continued)
NMC (Cyprus NMC through September 30, 1994) also is obligated to pay
to Mesabi Trust a minimum advance royalty of $500,000 per annum,
subject to adjustment for inflation and deflation (but not below
$500,000), which is credited against base overriding royalties and
royalty bonuses. NMC (Cyprus NMC through September 30, 1994) is
obligated to make quarterly payments of the minimum advance royalty in
January, April, July and October of each year. For the calendar year
ending December 31, 1998, the minimum advance royalty is $636,935.
The minimum annual advance royalty was $621,606; $610,335; and
$596,246 for the calendar years ended December 31, 1997; 1996; and
1995, respectively.
The unallocated reserve aggregated $719,799 at January 31, 1998, as
compared with an unallocated reserve of $650,608 and $541,403 at
January 31, 1997 and 1996, respectively. During the fiscal years
ended January 31, 1998, 1997 and 1996, the Trustees distributed cash
payments totaling $4,854,404 (of $.37 per Unit), $5,182,404 (or $.395
per Unit) and $3,345,603 (or $.255 per Unit), respectively, of
beneficial interest in Mesabi Trust. In addition, in January 1998 the
Trustees declared a distribution of $.265 per unit of beneficial
interest which was paid in February 1998.
Note 4. Summary of Quarterly Earnings (Unaudited)
The quarterly results of operations for the two years ended January 31, 1998
are presented below:
<TABLE>
<CAPTION>
Year ended January 31, 1998
--------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue $ 249,745 $1,259,552 $2,331,438 $3,019,634
Expenses 65,698 80,811 70,289 145,575
---------- ---------- ---------- ----------
Net income $ 184,047 $1,178,741 $2,261,149 $2,874,059
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per unit $ 0.014028 $ 0.089843 $ 0.172344 $ 0.219059
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
<CAPTION>
Year ended January 31, 1997
--------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue $ 384,542 $1,600,470 $2,694,742 $1,321,389
Expenses 74,032 98,606 72,123 136,773
---------- ---------- ---------- ----------
Net income $ 310,510 $1,501,864 $2,622,619 $1,184,616
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per unit $ 0.023667 $ 0.114471 $ 0.199895 $ 0.090291
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
F-9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF EARNINGS AND THE CONSOLIDATED BALANCE SHEET AND
IS QUALIFIED BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 3,607,221
<SECURITIES> 499,073
<RECEIVABLES> 3,820
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,286,755
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,286,755
<CURRENT-LIABILITIES> 3,566,956
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,286,758
<SALES> 6,491,575
<TOTAL-REVENUES> 6,860,369
<CGS> 0
<TOTAL-COSTS> 362,373
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,497,996
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,497,996
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,497,996
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
</TABLE>
