**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**Washington, DC 20549

**FORM 10-Q**

**(MarkOne)**

**ý****                                 QUARTERLYREPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For The Quarterly Period Ended July31, 2002, or**

**o****                                 TRANSITIONREPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**Forthe transition period from                                 to                                       **

**CommissionFile Number:  1-4488**

 

| **MESABI  TRUST**                                                                                                                                                       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (Exact name of  registrant as specified in its charter)                                                                                                                 |
|                                                                                                                                                                    |
| **New York**                                                                                                                                                            |   | **13-6022277** |
| (State or other  jurisdiction of incorporation or organization)                                                                                                         |   | (I.R.S. Employer  Identification No.) |
|                                                                                                                                                                    |   |   |
| **c/o Deutsche Bank Trust Company  Americas****Corporate  Trust & Agency Services — GDS**

**P.O. Box 318**

**Church Street Station**

**New York, New York** |   | **10008-0318** |
|  (Address of principal executive offices)                                                                                                                          |   |  (Zip code) |
|                                                                                                                                                                    |   |   |
| **(615)  835-2749**                                                                                                                                                     |
| (Registrant’s telephone  number, including area code)                                                                                                              |

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.              Yes   ý     No    o

As of August 30, 2002,there were 13,120,010 Units of Beneficial Interest in Mesabi Trust outstanding.

 

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**PARTI - FINANCIAL INFORMATION**

# **Item1.**                     Financial Statements  (Note 1)

 
|                                     |   | **THREE  MONTHS ENDED** |     | **SIX MONTHS  ENDED** |   |
|------------------------------------------|--------|-------------------------|----------|-----------------------|--------|
|                                     |   | **JULY 31**             |     | **JULY 31**           |   |
|                                     |   | **2002**                |     | **2001**              |   | **2002** |   | **2001** |   |
| A.  Condensed  Statements of Income |   |                    |     |                  |   |   |   |   |   |
|                                     |   |                    |     |                  |   |   |   |   |   |
| Revenues:                                |   |                    |     |                  |   |   |   |   |   |
|                                     |   |                    |     |                  |   |   |   |   |   |
| Royalty income                           |   | $                       | 738,788  |                  | $      | 1,029,181 |   | $ | 994,992 |   | $ | 1,505,273 |   |
| Interest income                          |   | 14,602                  |     | 11,513                |   | 24,916 |   | 24,543 |   |
|                                     |   | $                       | 753,390  |                  | $      | 1,040,694 |   | $ | 1,019,908 |   | $ | 1,529,816 |   |
|                                     |   |                    |     |                  |   |   |   |   |   |
| Expenses                                 |   | 126,692                 |     | 60,982                |   | 198,082 |   | 127,547 |   |
|                                     |   |                    |     |                  |   |   |   |   |   |
| Net income                               |   | $                       | 626,698  |                  | $      | 979,712 |   | $ | 821,826 |   | $ | 1,402,269 |   |
|                                     |   |                    |     |                  |   |   |   |   |   |
| Number of units outstanding              |   | 13,120,010              |     | 13,120,010            |   | 13,120,010 |   | 13,120,010 |   |
|                                     |   |                    |     |                  |   |   |   |   |   |
| Net income per unit   (Note 2)      |   | $                       | 0.047767 |                  | $      | 0.074673 |   | $ | 0.062639 |   | $ | 0.106880 |   |
|                                     |   |                    |     |                  |   |   |   |   |   |
| Distributions declared per unit          |   | $                       | 0.050    |                  | $      | 0.070 |   | $ | 0.050 |   | $ | 0.070 |   |
|                                     |   |                    |     |                  |   |   |   |   |   |
|                                          |        |                         |          |                       |        |  |  |  |  |  |  |  |  |  |

 

 

 

See Notes to FinancialStatements.

 

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B.  Condensed Balance Sheets

 

 
| Assets:                                                                    |   | **July 31,  2002** |      | **January  31, 2002** |   |
|----------------------------------------------------------------------------|--------|--------------------|-----------|-----------------------|--------|
|                                                                       |   |               |      |                  |   |
| Cash                                                                       |   | $                  | 604,517   |                  | $      | 1,223,246 |   |
|                                                                       |   |               |      |                  |   |
| U.S. Government securities, at amortized cost (which  approximates market) |   | 1,041,009          |      | 892,916               |   |
|                                                                       |   |               |      |                  |   |
| Accrued income                                                             |   | 322,690            |      | 98,224                |   |
| Prepaid insurance                                                          |   | 0                  |      | 4,347                 |   |
|                                                                       |   | $                  | 1,968,216 |                  | $      | 2,218,733 |   |
|                                                                       |   |               |      |                  |   |
| Fixed property, including intangibles, at nominal  values:                 |   |               |      |                  |   |
|                                                                       |   |               |      |                  |   |
| 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 |   |
|                                                                       |   |               |      |                  |   |
|                                                                       |   | $                  | 1,968,219 |                  | $      | 2,218,736 |   |
|                                                                       |   |               |      |                  |   |
| Liabilities, Unallocated Reserve and Trust Corpus:                         |   |               |      |                  |   |
|                                                                       |   |               |      |                  |   |
| Liabilities:                                                               |   |               |      |                  |   |
| Distribution payable                                                       |   | $                  | 656,001   |                  | $      | 1,049,601 |   |
| Accrued expenses                                                           |   | 51,668             |      | 74,411                |   |
|                                                                       |   | $                  | 707,669   |                  | $      | 1,124,012 |   |
|                                                                       |   |               |      |                  |   |
| Unallocated reserve (Note 3)                                               |   | 1,260,547          |      | 1,094,721             |   |
| Trust Corpus                                                               |   | 3                  |      | 3                     |   |
|                                                                       |   | $                  | 1,968,219 |                  | $      | 2,218,736 |   |

 

See Notes to FinancialStatements.

 

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C.  Condensed Statements of Cash Flows
|                                                                        |   | **SIX MONTHS  ENDED** |       |
|-----------------------------------------------------------------------------|--------|-----------------------|------------|
|                                                                        |   | **JULY 31,**          |       |
|                                                                        |   | **2002**              |       | **2001** |   |
| Cash flows from operating activities:                                       |   |                  |       |   |   |
| Royalties received                                                          |   | $                     | 769,790    |   | $ | 1,119,898 |   |
| Interest received                                                           |   | 25,652                |       | 21,538 |   |
| Expenses paid                                                               |   | (216,478              | )          | (168,332 | ) |
| Net cash provided by Operating activities                                   |   | $                     | 578,694    |   | $ | 973,104 |   |
|                                                                        |   |                  |       |   |   |
| Cash flows from investing activities:                                       |   |                  |       |   |   |
| Maturities of U.S. Government Securities                                    |   | $                     | 384,571    |   | $ | 2,494,820 |   |
| Purchases of U.S. Government securities                                     |   | (532,664              | )          | (2,823,054 | ) |
|                                                                        |   |                  |       |   |   |
| Net cash (used for) provided by investing activities                        |   | $                     | (148,093   | ) | $ | (328,234 | ) |
|                                                                        |   |                  |       |   |   |
| Cash flows from financing activities:                                       |   |                  |       |   |   |
| Net cash used in financing activities, distributions  to Unitholders        |   | $                     | (1,049,601 | ) | $ | (1,705,601 | ) |
|                                                                        |   |                  |       |   |   |
| Net decrease in cash                                                        |   | $                     | (618,729   | ) | $ | (1,060,731 | ) |
| Cash, beginning of year                                                     |   | 1,223,246             |       | 1,947,696 |   |
| Cash, end of quarter                                                        |   | $                     | 604,517    |   | $ | 886,965 |   |
|                                                                        |   |                  |       |   |   |
| Reconciliation of net income to net cash provided by  operating activities: |   |                  |       |   |   |
| Net income                                                                  |   | $                     | 821,826    |   | $ | 1,402,269 |   |
| (Increase) in accrued income                                                |   | (224,467              | )          | (388,380 | ) |
| Decrease in prepaid insurance                                               |   | 4,347                 |       | 4,347 |   |
| (Decrease) in accrued expenses                                              |   | (22,742               | )          | (45,132 | ) |
| Net cash provided by operating activities                                   |   | $                     | 578,694    |   | $ | 973,104 |   |

 

See Notes to FinancialStatements.

 

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**MESABITRUST**

**NOTESTO FINANCIAL STATEMENTS**

Note 1.                             The financial statements included hereinhave been prepared without audit (except for the balance sheet at January 31,2002) in accordance with the instructions to Form 10-Q pursuant to the rulesand regulations of the Securities and Exchange Commission.  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance with generallyaccepted accounting principles have been condensed or omitted pursuant to suchrules and regulations.  In the opinionof the Trustees, all adjustments, consisting only of normal recurringadjustments, necessary for a fair statement of (a) the results of operationsfor the six months ended July 31, 2002 and 2001, (b) the financial positions atJuly 31, 2002 and January 31, 2002, and (c) the cash flows for the six monthsended July 31, 2002 and 2001, have been made.

Note 2.                             Earnings per unit are based on weightedaverage number of units outstanding during the period (13,120,010 units).

Note 3.                             The Trustees have determined to maintainan Unallocated Reserve of at least $1,000,000 in liquid assets.  The actual amount of the Unallocated Reservemay vary from quarter to quarter depending upon conditions in the industry andthe judgment of the trustees.  TheUnallocated Reserve consists of these liquid assets and accrued revenue(primarily royalties not yet received). At July 31, 2002, the Unallocated Reserve was represented by $937,857 inunallocated cash and U.S. Government securities, and $322,690 of accruedrevenue primarily representing royalties not yet received by the Trust butanticipated to be received in October 2002 from Northshore as part of theroyalty due with respect to the second fiscal quarter, based upon reportedlessee shipping activity for the month of July 2002.

 

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**Item 2.          Trustees’ Discussion and Analysis ofFinancial Condition and Results of Operations.**

**Forward-LookingInformation**

Certain statementscontained in this document are forward-looking, including specifically thosestatements estimating calendar year 2002 and 2003 production or shipments andcomments related to the construction and opening of additional plants in 2002through 2004.  All such forward-lookingstatements are based on input from the lessee/operator.  The Trust has no control over the operationsor activities of the lessee/operator except within the framework of currentagreements.  This document alsocontains  forward-looking statementsbased on the general political climate as it currently exists concerning thepossible current and future effects of United States government tariffs.  Actual results could differ materially fromthose indicated in such statements. Important factors that could cause actual results to differ materiallyinclude those listed below under the heading “Important Factors AffectingMesabi Trust”.

**Background**

Leasehold royalty incomeconstitutes the principal source of the Trust’s revenue.  Royalty rates are determined in accordancewith the terms of Mesabi Trust’s leases and assignments of leases.  Three types of royalties comprise theTrust’s leasehold royalty income:

•                  Overriding royalties, which historically constitute the majority ofMesabi Trust’s royalty income, are determined by both the volume and sellingprice of iron ore products shipped.

•                  Fee royalties, which historically constitute a smaller component of theTrust’s royalty income, are payable to Mesabi Land Trust, a Minnesota landtrust of which Mesabi Trust is the sole beneficiary (“Mesabi Land Trust”), andare based on the amount of crude ore mined. Currently, the fee royalty on crude ore is based on an agreed price perton, subject to certain indexing.  Crudeore is used to produce iron ore pellets and other products.

•                  Minimum advance royalties, the third type of royalty, are discussed below.

With respect to thevolume component of royalty calculation, Northshore Mining Company(“Northshore”) is obligated to pay Mesabi Trust base overriding royalties invarying amounts.  The volume componentof overriding royalties constitutes a percentage of the gross proceeds of ironore products produced at Mesabi Trust lands (and to a limited extent otherlands) and shipped from Silver Bay, Minnesota. The percentage ranges from 2-1/2% of the gross proceeds for the firstone million tons of iron ore products so shipped annually to 6% of the grossproceeds for all iron ore products in excess of 4 million tons so shippedannually.

With respect to theselling price component of the overriding royalty calculation, Northshore isobligated to pay to Mesabi Trust royalty bonuses.  The royalty bonus is a percentage of the gross proceeds ofproduct shipped from Silver Bay and sold at prices above a thresholdprice.  The threshold price is adjustedon an annual basis for inflation and deflation (but not below $30) (the“Adjusted Threshold Price”).  TheAdjusted Threshold Price was $38.82 per ton for calendar year 2000, $39.82 perton for calendar year 2001, and will be $40.61 per ton for calendar year 2002.  The royalty bonus percentage ranges from 1/2of 1% of the gross proceeds (on all tonnage shipped for sale at prices betweenthe Adjusted Threshold Price and $2.00 above the Adjusted Threshold Price) to3% of the gross proceeds on all tonnage shipped for sale at prices $10.00 ormore above the Adjusted Threshold Price. No royalty bonus has been paid to the Trust for several years.

 

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Generally, Northshore’sobligation to pay base overriding royalties and royalty bonuses with respect tothe sale of iron ore products accrues upon the shipment of those products fromSilver Bay.   However, regardless ofwhether any shipment has occurred, Northshore is obligated to pay to MesabiTrust a minimum advance royalty.  Eachyear, the amount of the minimum advance royalty is adjusted for inflation anddeflation (but not below $500,000 per annum). Advance royalties payable were $647,282****for calendar year 2000, were$663,682 for calendar year 2001 and are $676,814 for calendar year 2002.  Until overriding royalties (and royalty bonuses,if any) for a particular year equal or exceed the minimum advance royalty forthe year, Northshore must make quarterly payments of up to 25% of the minimumadvance royalty for the year.  Becauseadvance minimum royalties are essentially prepayments of base overriding andbonus royalties earned each year, any advance minimum royalties paid in afiscal quarter are recouped by credits against base overriding and bonusroyalties earned in later fiscal quarters during the year.  Historically, advance minimum royalties havebeen paid in the first fiscal quarter and recouped in the second fiscalquarter.

Northshore is obligatedto make quarterly royalty payments in January, April, July and October of eachyear.  In the case of base overridingroyalties and royalty bonuses, these quarterly royalty payments are to be madewhether or not the related proceeds of sale have been received by Northshore bythe time such payments become due.

Under the relevantdocuments, Northshore may mine and ship iron ore products from lands other thanMesabi Trust lands.  To encourage theuse of iron ore products from Mesabi Trust lands, Mesabi Trust receivesroyalties on stated percentages of iron ore shipped from Silver Bay, whether ornot the iron ore products are from Mesabi Trust lands.  Mesabi Trust receives royalties at thegreater of (i) the aggregate quantity of iron ore products shipped that werefrom Mesabi Trust lands, and (ii) a portion of the aggregate quantity of alliron ore products shipped that were from any lands, such portion being 90% ofthe first four million tons shipped during such year, 90% of the next twomillion tons shipped during such year, and 25% of all tonnage shipped duringsuch year in excess of six million tons.

Mesabi Trust has noemployees, but it engages independent consultants to assist the Trustees inmonitoring, among other things, the amount and sales prices of iron oreproducts shipped by Northshore from Silver Bay, Minnesota.  As noted above, the information regardingamounts and sales prices of shipped iron ore products is used to compute theroyalties payable to Mesabi Trust by Northshore.  Deutsche Bank Trust Company Americas, the Corporate Trustee, alsoperforms certain administrative functions for Mesabi Trust.

**Current Developments**

***General***.  Northshorehas advised the Trustees that total calendar year 2002 production maybe approximately 3.5 to 4.0 million tons of iron ore pellets.  In its April 24, 2002 press release,Cleveland-Cliffs Inc (CCI), the lessee/operator of the Mesabi Trust Lands,revised and increased this estimate from the previously forecast amount of 3.0million tons.  CCI attributed thisincrease to its recently consummated fifteen-year supply contract withInternational Steel Group Inc. (ISG) to supply iron ore pellets commencing in2002 from its CCI-managed mines in Michigan and Minnesota.

According to CCI’sMay 14, 2002 press release, pellet sales under the supply contract to ISG in2002 are expected to be at least 1.5 million tons, and approximately 5 milliontons annually over the life of the supply contract for each yearthereafter.  On July 24, 2002, CCIannounced that it was raising its overall 2002 pellet sales forecast to a rangeof 14 to 14.5 million tons, which compares to sales of 8.4 million tons in2001.  CCI attributes this increasemainly to higher projected sales to ISG, which is said to be well ahead of itsoriginal start-up plan.  The amount ofsuch sales to be made to ISG from the Northshore facility is not stated ineither release.  In its May 14 pressrelease, CCI stated that sales to ISG 

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at the forecast amountsshould enable it to operate its Michigan and Minnesota facilities at levelsnear to their production capacities beginning in 2003.  Although the Trustees are unable to predictthe level of pellet sales from Northshore in 2002, if this customer contractenables Northshore to operate at its production capacity of 4.2 million tons byfiscal year 2003, such production increases could generate additional royaltyincome for the Trust and its Unitholders.

Northshore has notprovided the Trust with an estimate for total calendar year 2002shipments.  (See description of theuncertainty of market conditions in the iron ore and steel industry under “ImportantFactors Affecting Mesabi Trust” below.) During calendar years 2001, 2000, 1999, 1998 and 1997, the percentage ofshipments of iron ore products from Mesabi Trust lands was approximately 99.2%,99.8%, 98.9%, 99.3% and 98.3%, respectively, of total shipments.  Northshore has not advised the Trustees asto the percentage of iron ore products it anticipates shipping from MesabiTrust lands.

***Mesabi Nugget Project***.  On November14, 2001, CCI announced that it entered into a Memorandum of Understanding withMesabi Nugget LLC and other parties to participate in the Mesabi NuggetProject.  The project’s objective is todevelop a new iron making technology (Kobe Steel’s Itmk3 process) forconverting iron ore into nearly pure iron nugget form.  The project’s initial phase, Phase I, wasrecently completed.  The Board ofDirectors of CCI has approved CCI’s involvement through Phase II of the MesabiNugget Project (and according to an April 4, 2002 press release by CCI, IronUnitsLLC, a subsidiary of CCI, signed an agreement to commit itself through PhaseII), which involves construction of a test plant at Northshore to test the KobeSteel Itmk3 process and its ability to convert iron ore into nearly pure ironnugget form.  Furthermore, as reportedby Skillings Mining Review on March 2, 2002, the Iron Range Resources andRehabilitation Board (IRRRB) and the Minnesota Department of Trade and EconomicDevelopment have each approved loans of $8.0 million to assist in the fundingof Phase II of the Mesabi Nugget Project.

Construction ofthe pilot plant at the Northshore facility is expected to commence in September2002.  According to published reports ofCCI, the pilot plant at Northshore is expected to become operational in the firsthalf of 2003, and if successful, construction of a commercial-sized plant couldcommence in 2004.

Although MesabiTrust is not a direct party to this project and its involvement in this projectwas not solicited, it appears that because the plant will be located at theNorthshore facility, the project will probably involve the use of iron ore fromthe Mesabi Trust lands.  CCI indicatedthat iron nuggets from this new process would be used as an alternative orsupplement to pig iron in the steel making process.  Because the Trust has not received a sufficient amount ofinformation as to the agreements, shipment amounts and royalty payments thatcould result if the Mesabi Nugget Project successfully achievescommercialization, the Trustees are unable to make any projections as to anyfuture royalties that might be payable to the Trust.

***Other Information***.  On March 5,2002, President Bush released a three-year tariff schedule to be imposed on asignificant number of imported steel products. The tariffs, which range from eight to thirty percent, took effect onMarch 20, 2002.  Although these tariffmeasures may have a favorable impact on the amount of the Trust’s royaltyincome, it is uncertain how much, if at all, they and certain exemptions tosuch tariffs  have affected or willaffect the Trust during fiscal year 2003. ** **PresidentBush has warned the nation’s steelmakers that he would cut short the three-yeartariffs if he determined that the steel industry was not wisely using them toimprove its competitive position in the world marketplace.  Consequently, the Trustees are unable todetermine at this time whether the tariffs will ultimately have any materialimpact on iron ore pellet prices during fiscal year 2003.

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CCI has not reported anyupdate on its several years old announcement that it was evaluating whether tobuild a facility at Northshore’s Silver Bay location to produce premium gradepig iron through a direct reduced iron process.

**Important FactorsAffecting Mesabi Trust**

The Agreement of Trustspecifically prohibits the Trustees from entering into or engaging in anybusiness.  This prohibition seeminglyapplies even to business activities the Trustees deem necessary or proper forthe preservation and protection of the Trust Estate.  Accordingly, the Trustees’ activities in connection with theadministration of Trust assets are limited to collecting income, payingexpenses and liabilities, distributing net income and protecting and conservingthe assets held.

Accordingly, the incomeof the Trust is highly dependent upon the activities and operations ofNorthshore, and the terms and conditions of the Amended AssignmentAgreements.  The Trust and the Trusteeshave no control over the operations and activities of Northshore, except withinthe framework of the Amended Assignment Agreements.

Due to winter weather,and the increasing royalty percentages based on tonnage shipped in a calendaryear, results for a particular calendar quarter are typically not indicative ofresults for future quarters or the year as a whole.  Factors which can impact the results of the Trust in any quarteror year include:

1.                             Shipping Conditions in the Great Lakes. Shipping activity by Northshore is dependent upon when the Great Lakesshipping lanes freeze for the winter months (typically in January) and whenthey re-open in the spring (typically late-March or April).  Base overriding royalties to Mesabi Trustare based on shipments made in a calendar quarter.  Because there typically is little or no shipping activity in thefirst calendar quarter, the Trust typically receives only the minimum royaltyfor that period.

2.                             Operations of Northshore. Because the primary portion of the Trust’s revenues derive from iron oreproduct shipped by Northshore from Silver Bay, Northshore’s processing andshipping activities directly impact the Trust’s revenues in each quarter andfor each year.  In turn, a myriad offactors affect Northshore shipment volume. These factors include economic conditions in the iron ore industry,pricing by domestic and international competitors, long-term customer contractsor arrangements by Northshore or its competitors, availability of ore boats,production at Northshore’s mining operations, and production at thepelletizing/processing facility.  If anypelletizing 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 tothe 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 tonthroughout a calendar year, shipments of iron ore product attributable to theTrust 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 toprocess and ship iron ore products from lands other than Mesabi Trustlands.  In certain circumstances, theTrust may be entitled to royalties on those other shipments, but not in allcases.  In general, the Trust willreceive higher royalties (assuming all other factors are equal) if a higherpercentage of shipments are from Mesabi Trust lands.  The percentages of shipments that came 

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fromMesabi Trust lands were 99.2%, 99.8%, 98.9%, 99.3% and 98.3% in calendar years2001, 2000, 1999, 1998 and 1997, respectively.

5.                             Uncertainty of Market Conditions in theSteel and Iron Ore Industry.  Steelindustry fundamentals in the North American steel market continued todeteriorate in fiscal year 2001 and beyond. Weak steel demand, steel industry consolidation, price decreasesattributable to slowing economies in the United States and Canada and highvolumes of steel imports caused some level of uncertainty in the North Americansteel industry.  As reported by CCI inJuly 2002, the fundamentals in the United States steel industry have shownimprovement, largely due to reductions in steelmaking capacity and inventoryrestocking.  In addition, backlogs havebeen extended and steel prices have made significant gains.  Overall, there has been a modest increase inthe demand for steel products, but the economic recovery continues to remainsluggish.  It is uncertain whether thisincrease in demand for iron ore will continue and to what extent it will impactroyalties paid to the Trust in fiscal year 2003 and beyond.

**Comparison of threemonths ended July 31, 2002 and July 31, 2001**

Mesabi Trust’s net incomedecreased to $626,698 for the three months ended July 31, 2002, as compared tonet income of $979,712 for the three months ended July 31, 2001.  Mesabi Trust’s gross income for the threemonths ended July 31, 2002 was $753,390, consisting of $0 in minimum advanceroyalty income, $650,216 in overriding royalty income, $88,572 in fee royaltyincome and $14,602 in interest income, as compared to gross income of$1,040,694, consisting of $0 in minimum advance royalty income, $957,653 in overridingroyalty income, $71,528 in fee royalty income and $11,513 in interest income,for the three months ended July 31, 2001. The decrease in royalty income was primarily due to decreased pelletshipments as compared to the comparable prior period.  Mesabi Trust’s expenses for the three months ended July 31, 2002were $126,692, compared to expenses of $60,982 for the three months ended July31, 2001.

**Comparison of six monthsended July 31, 2002 and July 31, 2001**

Mesabi Trust’s net incomedecreased to $821,826 for the six months ended July 31, 2002, as compared tonet income of $1,402,269 for the six months ended July 31, 2001.  Mesabi Trust’s gross income for the sixmonths ended July 31, 2002 was $1,019,908, consisting of $985,392 in overridingroyalty income less $148,539 of recouped minimum advance royalty income,$158,139 in fee royalty income and $24,916 in interest income, as compared togross income of $1,529,816, consisting of $1,469,961 in overriding royaltyincome less $110,614 of recouped minimum advance royalty income, $145,926 infee royalty income and $24,543 in interest income, for the six months endedJuly 31, 2001.  The decrease in royaltyincome was primarily due to decreased pellet shipments as compared to thecomparable prior period.  Mesabi Trust’sexpenses for the six months ended July 31, 2002 were $198,082, compared toexpenses of $127,547 for the six months ended July 31, 2001.

Mesabi Trust’sUnallocated Reserve aggregated $1,260,547 at July 31, 2002, as compared with anUnallocated Reserve of $1,279,787 at July 31, 2001.  The decrease of $19,240 was due to the net effect of: (a) thedecrease in net income of $580,443 during the six months ended July 31, 2002 ascompared with the six months ended July 31, 2001, (b) the January 31, 2002unallocated reserve balance of $1,094,721 was $298,803 higher than the January31, 2001 unallocated reserve balance of $795,918, and (c) a decrease in thetotal declared distributions of $0.02 per Unit of Beneficial Interest which intotal was $262,400 from the six month period ended July 31, 2002 to the sixmonth period ended July 31, 2001.  TheTrustees anticipate that the amount of Unallocated Reserve will fluctuate fromtime to time, depending upon a number of factors, including but not limited tothe income for a particular period, the 

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amount and timingof distributions, uncertainty about future royalty income and the uncertaintyof future expenses.

 

**RoyaltyComparisons**

The following chartsummarizes Mesabi Trust’s royalty income for the six months ended July 31, 2002and July 31, 2001, respectively:
|                                    |   | **Six months  ended July 31,** |    |
|-----------------------------------------|--------|--------------------------------|---------|
|                                    |   | **2002**                       |    | **2001** |   |
|                                    |   |                           |    |   |   |
| Base overriding royalties               |   | $                              | 985,392 |   | $ | 1,469,961 |   |
| Bonus royalties                         |   | 0                              |    | 0 |   |
| Minimum advance royalty paid (recouped) |   | (148,539                       | )       | (110,614 | ) |
| Fee royalties                           |   | 158,139                        |    | 145,926 |   |
| Total royalty income                    |   | $                              | 994,992 |   | $ | 1,505,273 |   |

 

**Item3.  Quantitative and QualitativeDisclosure About Market Risk.**

Not applicable.

** **

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**PARTII - OTHER INFORMATION**
| **Item  1.** |   | **Legal  Proceedings.**                                   |
|--------------|--------|-----------------------------------------------------------|
|         |   |                                                      |
|         |   | None.                                                     |
|         |   |                                                      |
| **Item  2.** |   | **Changes  in Securities and Use of Proceeds.**           |
|         |   |                                                      |
|         |   | None.                                                     |
|         |   |                                                      |
| **Item 3.**  |   | **Defaults Upon Senior Securities.**                      |
|         |   |                                                      |
|         |   | None.                                                     |
|         |   |                                                      |
| **Item  4.** |   | **Submission  of Matters to a Vote of Security Holders.** |
|         |   |                                                      |
|         |   | None.                                                     |
|         |   |                                                      |
| **Item  5.** |   | **Other  Information.**                                   |
|         |   |                                                      |
|         |   | None.                                                     |
|         |   |                                                      |
| **Item  6.** |   | **Exhibits  and Reports on Form 8-K.**                    |
|         |   |                                                      |
|         |   | (a)                                                       | Exhibits. |
|         |   |                                                      |   |
|         |   |                                                      | None. |
|         |   |                                                      |   |
|         |   | (b)                                                       | Reports on Form 8-K. |
|         |   |                                                      |   |
|         |   |                                                      | None. |

 

12

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**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|   | MESABI TRUST                                                      |
|--------|-------------------------------------------------------------------|
|   | (Registrant)                                                      |
|   |                                                              |   |
|   | By:                                                               | DEUTSCHE BANK TRUST  COMPANYAMERICAS |
|   |                                                              | Corporate Trustee |
|   | Principal  Administrative Officer and duly authorized signatory:* |

 

 
| Date:  September 16, 2002 | By:    | /s/ Rodney Gaughan           |
|--------------------------------|--------|------------------------------|
|                           |   | Name: Rodney Gaughan         |
|                           |   | Title:   Associate |

 

 

 

We, the Trustees, certifythat:

 

1.       We have reviewed this quarterly report onForm 10-Q of Mesabi Trust;

 

2.       Based on our knowledge, this quarterlyreport does not contain any untrue statement of a material fact or omit tostate a material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report; and

 

3.       Based on our knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this quarterly report.

 
| /s/ Rodney Gaughan                       |   | September 16, 2002 |
|------------------------------------------|--------|--------------------|
| Rodney Gaughan*                          |   |               |
| Acting as Associate of  and on behalf of |   |               |
| Deutsche Bank Trust  Company Americas    |   |               |
|                                     |   |               |
| /s/ David J. Hoffman                     |   | September 16, 2002 |
| David J. Hoffman*                        |   |               |
| Individual Trustee                       |   |               |
|                                     |   |               |
| /s/ Richard G. Lareau                    |   | September 16, 2002 |
| Richard G. Lareau*                       |   |               |
| Individual Trustee                       |   |               |
|                                     |   |               |
| /s/ Norman F. Sprague  III               |   | September 16, 2002 |
| Norman F. Sprague III*                   |   |               |
| Individual Trustee                       |   |               |

 

13

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|                      |   |               |
|---------------------------|--------|--------------------|
| /s/ Ira A. Marshall,  Jr. |   | September 16, 2002 |
| Ira A. Marshall, Jr.*     |   |               |
| Individual Trustee        |   |               |

----

* There are no principalexecutive officers or principal financial officers of the registrant.

 

 

*The written statements of the Trustees required pursuant to18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002, accompanied the filing of this report bycorrespondence to the Securities and Exchange Commission.*

 

14

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