**Exhibit 13**

ANNUAL REPORTOF THE TRUSTEES OFMESABI TRUSTFor The Year Ended January 31,2007

ADDRESS

Mesabi Trust

c/o Deutsche Bank Trust Company Americas

Trust & Securities Services – GDS

60 Wall Street, 27th Floor

New York, NY 10005

(615)835-2749 (telephone)

REGISTARAND TRANSFER AGENT 

DeutscheBank Trust Company Americas

LEGALCOUNSEL

OppenheimerWolff & Donnelly LLP, General Counsel

REGISTRANTINFORMATION

Mesabi Trust does notmaintain a website and therefore does not make available through a website theannual, quarterly, or other reports it files with the Securities and ExchangeCommission.  Mesabi Trust will provide,however, upon the written request of any Unitholder addressed to the Trusteesat the above address and without charge to such Unitholder, (i) a paper copy ofMesabi Trust’s Annual Report on Form 10-K for the fiscal year endedJanuary 31, 2007 as filed with the Securities and Exchange Commissionpursuant to the Securities Exchange Act of 1934, as amended, and (ii) theTrustees Code of Ethics.

SpecialNote Regarding Forward-Looking Statements

Certain statements contained in this document areconsidered “forward-looking statements” within the meaning of the PrivateSecurities Litigation Reform Act of 1995. All such forward-looking statements, including those statementsestimating calendar year 2007 production or shipments, are based on input fromthe lessee/operator (and its parent corporation) of the mine located on thelands owned and held in trust for the benefit of the holders of units ofbeneficial interest of Mesabi Trust. These statements may be identified by the use of forward-looking words,such as “may,” “will,” “could,” “project,” “believe,” “anticipate,” “expect,” “estimate,”“continue,” “potential,” “plan,” “forecast” and other similar words.  Such forward-looking statements areinherently subject to known and unknown risks and uncertainties.  Actual results and future developments coulddiffer materially from the results or developments expressed in or implied bythese forward-looking statements. Factors that may cause actual results to differ materially from thosecontemplated by such forward-looking statements include, but are not limitedto, those described under the caption “Risk Factors” in this annualreport.  Mesabi Trust undertakes noobligation to make any revisions to the forward-looking statements contained inthis filing or to update them to reflect circumstances occurring after the dateof this filing.

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**OVERVIEW**

MesabiTrust (“Mesabi Trust” or the “Trust”), formed pursuant to an Agreement of Trustdated July 18, 1961 (the “Agreement of Trust”), is a trust organized under thelaws of the State of New York.  MesabiTrust holds all of the interests formerly owned by Mesabi Iron Company (“MIC”),including all right, title and interest in the Amendment of Assignment,Assumption and Further Assignment of Peters Lease (the “Amended Assignment ofPeters Lease”), the Amendment of Assignment, Assumption and Further Assignmentof Cloquet Lease (the “Amended Assignment of Cloquet Lease” and together withthe Amended Assignment of Peters Lease, the “Amended Assignment Agreements”),the beneficial interest in the Mesabi Land Trust (as such term is definedbelow) and all other assets and property identified in the Agreement of Trust.  The Amended Assignment of Peters Lease relatesto an Indenture made as of April 30, 1915 among East Mesaba Iron Company (“EastMesaba”), Dunka River Iron Company (“Dunka River”) and Claude W. Peters (the “PetersLease”) and the Amended Assignment of Cloquet Lease relates to an Indenturemade May 1, 1916 between Cloquet Lumber Company and Claude W. Peters (the “CloquetLease”).

TheAgreement of Trust specifically prohibits the Trustees from entering into orengaging in any business.  Thisprohibition seemingly applies even to business activities the Trustees deemnecessary or proper for the preservation and protection of the Trust Estate (assuch term is defined below). Accordingly, the Trustees’ activities in connection with theadministration of Trust assets are limited to collecting income, payingexpenses and liabilities, distributing net income to the holders of Units ofBeneficial Interest in the Trust (“Unitholders”) after the payment of, orprovision for, such expenses and liabilities, and protecting and conserving theassets held.  Because the Units of theTrust are registered pursuant to Section 12(b) of the Securities Exchange Actof 1934 and are listed on the New York Stock Exchange, the Trustees are also responsiblefor ensuring that the Trust maintains compliance with all applicable laws,rules and regulations.  Deutsche BankTrust Company Americas, the Corporate Trustee, performs certain administrativefunctions for the Trust.

TheTrustees do not intend to expand their responsibilities beyond those permittedor required by the Agreement of Trust, the Amendment to the Agreement of Trustdated October 25, 1982 (the “Amendment”), and those required under applicablelaw.  The Trust has no employees, but itengages independent consultants to assist the Trustees in, among other things,monitoring the amount and sales prices of iron ore products shipped from SilverBay, Minnesota, based on information supplied to the Trustees by NorthshoreMining Company (“Northshore”), the lessee/operator of the Mesabi Trust lands,and its parent company Cleveland-Cliffs Inc (“CCI”).  References to Northshore in this annualreport, unless the context requires otherwise, are applicable to CCI as well.

The information regarding amounts and sales prices of shipped iron ore productsis used to compute the royalties payable to the Trust by Northshore.  The Trustees request material information,from time to time, for use in the Trust’s periodic reports and as part of theirevaluation of the Trust’s disclosure controls and procedures.  The Trustees rely on Northshore to provideaccurate and timely information for use in the Trust’s periodic and annualreports filed with the Securities and Exchange Commission.

Pursuant to a ruling from the Internal Revenue Service, which ruling wasbased on the terms of the Agreement of Trust including the prohibition againstentering into any business, the Trust is not taxable as a corporation forFederal income tax purposes.  Instead,the Unitholders are considered “owners” of the Trust and the Trust’s income istaxable directly to the Unitholders.  Inaccordance with the Agreement of Trust, the Trust will terminate twenty-oneyears after the death of the survivor of twenty-five persons named in anexhibit to the Agreement of Trust, the youngest of whom is believed to beforty-six years old.

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**RISK FACTORS**

The results of operations and financial condition of the Trust aresubject to various risks. Some of these risks are described below, and youshould take such risks into account in evaluating the Trust or any investmentdecision involving the Trust.  Thissection does not describe all risks that may be applicable to the Trust and itis intended only as a summary of certain material risk factors.  More detailed information concerning the riskfactors described below is contained in other sections of this Annual Report.

***The Trustees have no control over theoperations and activities of CCI or Northshore.***

Except within the framework of the AmendedAssignment Agreements, neither the Trust nor the Trustees have any control overthe operations and activities of CCI or its wholly-owned subsidiary,Northshore.  Accordingly, the income ofthe Trust is highly dependent upon the activities and operations of Northshore,and the terms and conditions of the Amended Assignment Agreements.  Northshore alone controls: (i) historicaloperating data, including iron ore production volumes, marketing of iron oreproducts, operating and capital expenditures as they relate to Northshore,environmental and other liabilities and the effects of regulatory changes; (ii)plans for Northshore’s future operating and capital expenditures; (iii)geological data relating to iron ore reserves; and (iv) projected production ofiron ore products.  Any substantialalteration of CCI’s business or the operations, production and shipments ofNorthshore could have a materially adverse impact on the income of the Trust.

***The Trust does not control the portion ofNorthshore’s shipments that will come from ore mined from Mesabi Trust lands.***

The Trustees do not exert any influence over miningoperational decisions and Northshore alone determines whether to mine fromlands owned by the Trust or state-owned lands, based on its current productionestimates and engineering plan. Northshore’s mining operations (the Peter Mitchell Mine) includemineral-producing land owned by the Trust and the State of Minnesota.  Ore mined from state-owned lands byNorthshore is processed, along with ore mined from Trust-owned lands, inNorthshore-owned crushing, concentrating and pelletizing facilities and isseparately accounted for on a periodic basis. Northshore also has the ability to process and ship iron ore productsfrom lands other than Mesabi Trust lands. In certain circumstances, the Trust may be entitled to royalties onthose other shipments, but not in all cases. In general, the Trust will receive higher royalties (assuming all otherfactors are equal) if a higher percentage of shipments are from Mesabi Trustlands.  The percentages of shipments thatcame from Mesabi Trust lands were 90.9%, 90.1%, 92.0%, 95.5%, and 97.5% incalendar years 2006, 2005, 2004, 2003, and 2002, respectively.  If Northshore decides to materially reducethe percentage of ore mined, or pellets shipped, from Mesabi Trust lands, the incomeof the Trust could be materially adversely affected.

***The royalties payable to the Trust could beadversely affected by the failure of the Trust’s independent experts tocompetently perform.***

As permitted by the terms of the Agreement of Trustand the Amendment, the Trustees are entitled to, and in fact do rely, uponcertain experts to assist the Trustees in carrying out and fulfilling theirobligations as Trustees.  Independentconsultants perform services, render advice and produce reports with respect tomonthly production and shipments, which include figures on crude oreproduction, iron ore pellet production, iron ore pellet shipments, anddiscussions concerning the condition and accuracy of the scales used to weighiron ore pellets produced at Northshore’s facilities.  The Trustees have also retained an accountingfirm to provide non-audit services,

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includingreviews of financial data related to shipping and sales reports provided byNorthshore and a review of the schedule of leasehold royalties payable to theTrust.  The Trustees believe that theindependent experts are qualified to perform the services and functionsassigned to them.   Nevertheless, anynegligence or the failure of any such independent expert to competently performcould have a materially adverse impact on the income of the Trust.

***The Trust relieson CCI’s estimate of recoverable reserves and if those estimates are inaccuratethe total royalty stream to the Trust and distributions payable to eachUnitholder may be adversely affected.***

The Trustees do notparticipate in preparing the ore reserve estimate reported by CCI.  CCI regularly evaluates its iron ore reservesbased on revenues and costs and updates them as required in accordance withSecurities Act Industry Guide 7, promulgated by the U.S. Securities andExchange Commission.  The Trusteesrecently engaged an independent firm of geological experts to evaluate theprocess CCI uses to estimate the mineral reserves at the Peter Mitchell Mine.  Still, there are numerous uncertaintiesinherent in estimating quantities of reserves of mineral producing lands andsuch estimates necessarily depend upon a number of variable factors andassumptions, such as production capacity, effects of regulations bygovernmental agencies, future prices for iron ore, future industry conditionsand operating costs, severance and excise taxes, development costs and costs ofextraction and reclamation costs, all of which may in fact vary considerablyfrom actual results.  For these reasons,estimates of the economically recoverable quantities of mineralized depositsattributable to the lands owned by Mesabi Trust and the classifications of suchreserves based on the risk of recovery prepared by different engineers or bythe same engineers at different times may vary substantially as the criteriachange.  CCI’s estimate of the orereserves could be affected by future industry conditions, geological conditionsand ongoing mine planning at the Peter Mitchell Mine.  Actual reserves and therefore actualroyalties will likely vary from estimates, and if such variances are material,the value of the Trust’s Units could decline.

***Price adjustmentprovisions in CCI’s North American supply agreements can cause significantfluctuations in the royalties paid to the Trust.***

Inprior filings with the Securities and Exchange Commission, CCI reported thatmore than 97 percent of its North American revenues are derived from sales ofiron ore pellets to the North American integrated steel industry, consisting often current or potential customers. According to CCI’s prior filings with the Securities and ExchangeCommission, sales volume under these agreements is largely dependent oncustomer requirements, and in many cases, CCI is the sole supplier of iron orepellets to its customers.  Contractualdisputes with any of CCI’s significant customers could result in lower salesvolume or lower sales prices, which could adversely affect the royaltiesreceived by the Trust.

CCIhas also reported that its North American term supply agreements contain anumber of price adjustment provisions, or price escalators, includingadjustments based on general industrial inflation rates, the price of steel andthe international price of iron ore pellets, among other factors, that allowCCI to adjust the prices under those agreements generally on an interim andannual basis.  Factors that could resultin price adjustment include measures of general industrial inflation, steelprices and international pellet prices. CCI’s price adjustment provisions are weighted and some are subject toannual collars, which limit CCI’s ability to raise prices to matchinternational levels and fully capitalize on strong demand for iron ore.  These price adjustments can be positive ornegative, and can result in significant variations in royalties received byMesabi Trust (and, in turn, the resulting amount available for distribution toUnitholders) from quarter to quarter and year to year.  Many portions of the CCI Pellet Agreements includingthe sales prices, price adjustments and price

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adjustment formulas havereceived confidential treatment in accordance with the rules of the Securitiesand Exchange Commission and the Trustees have not been able to review theagreements in their entirety.  These variations,which can be positive or negative, cannot be estimated by the Trust and couldhave a material adverse effect on the income of the Trust.

***The operationsat Northshore are largely dependent on a single-source energy supplier.***

The operations at Northshoreare largely dependent on Silver Bay Power Company, a 115 megawatt power plant,for its electrical supply.  Silver BayPower Company, which is wholly owned by Northshore, has an interconnectionagreement with Minnesota Power, Inc. for backup power, and sells 40 megawatts ofexcess power capacity to Northern States Power Company under a contract thatextends to 2011.  A significantinterruption in service from Silver Bay Power Company due to vandalism,terrorism, weather conditions, natural disasters, or any other cause couldcause a decrease in production capacity or require a temporary shutdown ofNorthshore’s operations.  In addition,one natural gas pipeline serves all of CCI’s Minnesota mines, and a pipelinefailure could idle or substantially impair the operations at Northshore.  Any substantial interruption of, or materialreduction in, Northshore’s operations could have a material adverse effect onthe income of the Trust.

***Equipment failures and other unexpectedevents at Northshore may lead to production curtailments or shutdowns.***

Interruptions in productioncapabilities at the mine operated by Northshore may have an adverse impact onthe royalties payable to the Trust.  Inaddition to equipment failures, the Northshore facilities are also subject tothe risk of loss due to unanticipated events such as fires, explosions orextreme weather conditions. The manufacturing processes that take place inNorthshore’s mining operations, as well as in its crushing, concentrating andpelletizing facilities, depend on critical pieces of equipment, such asdrilling and blasting equipment, crushers, grinding mills, pebble mills,thickeners, separators, filters, mixers, furnaces, kilns and rolling equipment,as well as electrical equipment, such as transformers. It is possible that thisequipment may, on occasion, be out of service because of unanticipated failuresor unforeseeable acts of vandalism or terrorism. In addition, because theNorthshore mine and processing facilities have been in operation for severaldecades, some of the equipment is aged. Because the Trustees have no control over the operations or maintenanceof the equipment at Northshore, a shutdown or reduction in capacity may comewith little or no advance warning.  Theremediation of any interruption in production capability at Northshore couldrequire CCI to make large capital expenditures which may take place over anextended period of time.  A shutdown orreduction in operations at Northshore would materially adversely affect theroyalties paid to the Trust.

***If steelmakers use methods other than blastfurnace production to produce steel, shut down or reduce production using blastfurnaces, the demand for iron ore pellets may decrease.***

Demand for iron ore pelletsis determined by the operating rates for the blast furnaces of steel companies.However, not all finished steel is produced by blast furnaces; finished steelalso may be produced by other methods that do not require iron ore pellets. Forexample, steel “mini-mills,” which are steel recyclers, generally produce steelby using scrap steel, not iron ore pellets, in their electric furnaces.  Steel producers also can produce steel usingimported iron ore or semi-finished steel products, which eliminates the needfor domestic iron ore. Environmental restrictions on the use of blast furnacesalso may reduce the use of their blast furnaces in steel production.  Because the maintenance of blast furnaces canrequire substantial capital expenditures, manufacturers may choose not to maintaintheir blast furnaces, and some of them may not have the resources necessary toadequately maintain their blast furnaces. If steel manufacturers significantlyalter the methods they

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use to produce steel or otherwise substantiallyreduce their use of iron ore pellets, demand for iron ore pellets willdecrease, which could adversely affect the royalties paid to the Trust.

***Risk factors affectingCCI, and the operations of Northshore, could have a material adverse effect onthe income of the Trust.***

Because substantially all ofthe Trust’s revenue is derived from iron ore product shipped by Northshore fromSilver Bay, Northshore’s processing and shipping activities directly impact theTrust’s revenues in each quarter and for each year.  A number of factors affect CCI’s operations,including Northshore’s shipment volume. These factors which were described in CCI’s Form 10-K filed March 21,2006, include, among others, economic conditions in the iron ore industry,extensive governmental regulation relating to environmental matters and thecosts and risks related thereto, availability of substitute materials, pricingby domestic and international competitors, long-term customer contracts orarrangements by Northshore or its competitors, price adjustment provisions inCCI’s North American term supply agreements, availability of ore boats,production at Northshore’s mining operations, natural disasters, shippingconditions in the Great Lakes and production at Northshore’spelletizing/processing facility. Specifically, if any portion of Northshore’s pelletizing lines becomesidle for any reason, production, shipments and, consequently, the royaltiespaid to the Trust could be adversely impacted.

**OVERVIEW OF TRUST’S ROYALTYSTRUCTURE**

Leaseholdroyalty income constitutes 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, as well as royaltybonuses, comprise the Trust’s royalty income:

·                  Base overriding royalties.  Historically base overridingroyalties have constituted the majority of Mesabi Trust’s royalty income.  Base overriding royalties are determined byboth the volume and selling price of iron ore products shipped.  Northshore is obligated to pay Mesabi Trustbase overriding royalties in varying amounts, based on the volume of iron oreproducts shipped.  Base overridingroyalties are calculated as a percentage of the gross proceeds of iron oreproducts produced at Mesabi Trust lands (and to a limited extent other lands)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.

·                  Royalty bonuses.  The Trust earns royalty bonuses when iron oreproducts shipped from Silver Bay are sold at prices above a threshold price perton.  The royalty bonus is based on apercentage of the gross proceeds of product shipped from Silver Bay and sold atprices above a threshold price.  Thethreshold price is adjusted (but not below $30.00 per ton) on an annual basisfor inflation and deflation (the “Adjusted Threshold Price”).  The Adjusted Threshold Price was $42.89 perton per for calendar year 2005, $44.60 per ton for calendar year 2006 and willbe $45.98 per ton for calendar year 2007. The royalty bonus percentage ranges from 1/2 of 1% of the gross proceeds(on all tonnage shipped for sale at prices between the Adjusted Threshold Priceand $2.00 above the Adjusted Threshold Price) to 3% of the gross proceeds (onall tonnage shipped for sale at prices $10.00 or more above the AdjustedThreshold Price).  During the calendarquarter ended December 31, 2006, Northshore paid a royalty bonus of $1,621,534to the Trust; a total of $9,850,893 in royalty bonuses was paid by Northshoreduring fiscal year 2007.  Royalty bonusesare subject to price adjustments under the CCI Pellet Agreements

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(described elsewhere in this Annual Report);such adjustments may be positive or negative. (See the section entitled “Comparison of Fiscal Years ended January 31,2007 and January 31, 2006 – Royalty Income” on page 10 of this Annual Reportfor more information.)

·                  Fee royalties.  Historically fee royalties have constituted asmaller component of the Trust’s royalty income, are payable to Mesabi LandTrust, a Minnesota land trust of which Mesabi Trust is the sole beneficiary andfor which US Bank N.A. acts as trustee, and are based on the amount of crudeore mined.  Currently, the fee royalty oncrude ore is based on an agreed price per ton, subject to certainindexing.  Crude ore is the source ofiron oxides used to make iron ore pellets and other products.

·                  Minimum advance royalties.  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 (but not below$500,000 per annum) for inflation and deflation.  The minimum advance royalty was $714,988 forcalendar year 2005, $743,420 for calendar year 2006 and is $766,510 forcalendar year 2007.  Until overridingroyalties (and royalty bonuses, if any) for a particular year equal or exceedthe minimum advance royalty for the year, Northshore must make quarterlypayments of up to 25% of the minimum advance royalty for the year.  Because minimum advance royalties areessentially prepayments of base overriding royalties and royalty bonuses earnedeach year, any minimum advance royalties paid in a fiscal quarter are recoupedby credits against base overriding royalties and royalty bonuses earned inlater fiscal quarters during the year.

Thecurrent royalty rate schedule became effective on August 17, 1989 pursuant tothe Amended Assignment Agreements, which the Trust entered into with CyprusNorthshore Mining Corporation (“Cyprus NMC”). Pursuant to the Amended Assignment Agreements, overriding royalties aredetermined by both the volume and selling price of iron ore productsshipped.  In 1994, Cyprus NMC was sold byits parent corporation to Cleveland-Cliffs Inc (“CCI”) and renamed NorthshoreMining Company.  CCI now operatesNorthshore as a wholly owned subsidiary.

Underthe relevant documents, Northshore may mine and ship iron ore products fromlands other than Mesabi Trust lands.  Northshorealone determines whether to mine off Trust lands or off such other lands, basedon its current mining and engineering plan. The Trustees do not exert any control over mining operational decisionsand have no contractual or other right to do so.  Under the Amended Assignment Agreements, toencourage the use of iron ore products from Mesabi Trust lands, Mesabi Trustreceives 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 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, 85% of the next twomillion tons shipped during such year, and 25% of all tonnage shipped duringsuch year in excess of six million tons.

Royaltyincome constitutes the principal source of the Trust’s revenue, which comprised99.6%, 99.8% and 99.7% of the total revenue of the Trust in fiscal years 2007,2006, and 2005, respectively (years ending January 31).  A more complete discussion of royalty ratesand the manner

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in which they are determinedis set forth under the headings “Leasehold Royalties” and “Land Trust and FeeRoyalties,” beginning on pages 22 and 25, respectively, of this Annual Report.

Duringthe course of its fiscal year some portion of royalties expected to be paid toMesabi Trust is based in part on estimated prices for iron ore products soldunder term contracts between Northshore, CCI and certain of their customers(the “CCI Pellet Agreements”).  MesabiTrust is not party to the CCI Pellet Agreements and CCI has not provided copiesof the unredacted versions of these agreements. The Trustees have been informedthat the estimated prices under these agreements are subject to interim andfinal pricing adjustments, which can be positive or negative, and which adjustmentsare dependent in part on multiple price and inflation index factors that arenot known until after the end of a contract year. This can result insignificant variations in royalties received by Mesabi Trust (and in turn theresulting amount available for distribution to Unitholders by the Trust) fromquarter to quarter and on a comparative historical basis, and these variations,which can be positive or negative, cannot be predicted by Mesabi Trust.  In either case, these price adjustments willimpact future royalties received by the Trust that become available fordistribution to Unitholders.

As described elsewhere in this Annual Report, theroyalty percentage paid to the Trust increases as the aggregate tonnage of ironore products shipped, attributable to the Trust, in any calendar year increasespast each of the first four one-million ton volume thresholds.  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, as totalshipments for the year exceed increasing levels of royalty percentages and passeach of the first four one-million ton volume thresholds.

As also described elsewhere in this Annual Report,the Trust receives a royalty bonus equal to a percentage of the gross proceedsof iron ore products (mined from Mesabi Trust lands) shipped from Silver Bayand sold at prices above the Adjusted Threshold Price ($44.60 per ton forcalendar year 2006 and $45.98 per ton for calendar year 2007).  Although Northshore was able to sell someproduct at prices higher than the Adjusted Threshold Price in calendar 2006,the Trustees are unable to project whether Northshore will continue to be ableto sell pellets at prices above the Adjusted Threshold Price, entitling theTrust to any future bonus royalty payments. 

Inaccordance with the CCI Pellet Agreements, the Trust received positive andnegative bonus royalty adjustments during fiscal year 2007.  These adjustments are attributable toshipments of iron ore pellets by Northshore/CCI to customers from Silver Bay,Minnesota during calendar 2005 and calendar 2006.  Overall, the pricing adjustments resulted inincreased royalty revenue to the Mesabi Trust, which is reflected in the AccruedIncome Receivable on the Mesabi Trust’s balance sheet as of January 31,2007.  The Trustees are not able topredict whether pricing adjustments in the future, if any, will be upward ordownward.

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**SELECTEDFINANCIAL DATA**
| **Years ended on  January 31** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005**   | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|------------|------------|----------|------------|----------|------------|
| Royalty and  interest income                  |       | $        | 17,902,988 |     | $          | 21,579,833 |       | $        | 13,575,548 |     | $          | 7,270,517 |   | $ | 5,100,759 |   |
| Trust expenses                                |       | 756,322  |       | 844,956  |       | 557,961    |       | 499,177  |       | 406,228  |       |
| Net income(a)                                 |       | $        | 17,146,666 |     | $          | 20,734,877 |       | $        | 13,017,587 |     | $          | 6,771,340 |   | $ | 4,694,531 |   |
| Net income per  Unit(b)                       |       | $        | 1.31       |     | $          | 1.58       |       | $        | 0.99       |     | $          | 0.52 |   | $ | 0.36 |   |
| Distributions  declared Per unit(b)(c)        |       | $        | 1.60       |     | $          | 1.53       |       | $        | 0.77       |     | $          | 0.49 |   | $ | 0.36 |   |
|                                          |       |     |       |     |       |       |       |     |       |     |       |
| At January 31                                 |       |     |       |     |       |       |       |     |       |     |       |
| Total Assets                                  |       | $        | 5,414,552  |     | $          | 11,328,959 |       | $        | 8,252,335  |     | $          | 5,390,081 |   | $ | 3,594,102 |   |

 

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(a)                                  The Trust, as a grantor trust, is exempt fromfederal and state income taxes.

(b)                                 Based on 13,120,010 Units of BeneficialInterest outstanding during all years.

(c)                                  During the Trust’s fiscal year ended January31, 2007, the Trustees distributed $1.755 per Unit (including $.47 per Unitdeclared in fiscal 2006 but distributed in fiscal 2007 (February 2006)) and infiscal 2007 declared an additional distribution of $.315 per Unit payable inFebruary 2007, the next fiscal year.  Duringthe Trust’s fiscal year ended January 31, 2006, the Trustees distributed $1.355per Unit (including $.295 per Unit declared in fiscal 2005 but distributed infiscal 2006 (February 2005)) and in fiscal 2006 declared an additionaldistribution of $.47 per Unit payable in February 2006, the next fiscalyear.  During the Trust’s fiscal yearended January 31, 2005, the Trustees distributed $.775 per Unit (including $.30per Unit declared in fiscal 2004 but distributed in fiscal 2005 (February2004)) and declared an additional distribution of $.295 per Unit, payable inFebruary 2005, the next fiscal year. During the Trust’s fiscal year ended January 31, 2004, the Trusteesdistributed $.38 per Unit (including $.19 per Unit declared in fiscal 2003 butdistributed in fiscal 2004 (February 2003)) and declared an additionaldistribution of $.30 per Unit payable in February 2004, the next fiscalyear.  During the Trust’s fiscal yearended January 31, 2003, the Trustees distributed $.25 per Unit (including $.08per Unit declared in fiscal 2002 but distributed in fiscal 2003 (February2002)) and declared an additional distribution of $.19 per Unit, payable inFebruary 2003, the next fiscal year. During the Trust’s fiscal year ended January 31, 2002, the Trusteesdistributed $.305 per Unit (including $.13 per Unit declared in fiscal 2001 butdistributed in fiscal 2002 (February 2001)) and declared an additionaldistribution of $.08 per Unit payable in February 2002, the next fiscal year.

**TRUSTEES’ DISCUSSION AND ANALYSIS OF FINANCIAL**

**CONDITION AND RESULTS OFOPERATIONS**

**Resultsof Operations**

The table below shows thetotal production and total shipments of iron ore pellets derived from MesabiTrust lands during fiscal year 2007. During the fiscal year ended January 31, 2007, production totaledapproximately 4.58 million tons, and actual shipments totaled approximately3.68 million tons.  Overall, shipmentsdecreased nearly 12.4% in fiscal year 2007 as compared to fiscal year 2006.  More specifically, shipments decreased approximately6.3% from February 2006 through December 2006 as compared to February 2005through December 2005.  Approximately6.1% of the decrease in shipments for fiscal 2007 is the result of there notbeing any shipments from Silver Bay, Minnesota in January 2007.  
| Fiscal Year Ended | ** ** | **Pellets Produced from  Trust Lands  (tons)** | ** ** | **Pellets Shipped from  Trust Lands  (tons)** | ** ** |
|-----------------------------|------------|---------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| January 31, 2007            |       | 4,575,655                                                     |       | 3,684,763                                                    |       |
| January 31, 2006            |       | 4,468,263                                                     |       | 4,207,240                                                    |       |
| January 31, 2005            |       | 4,597,956                                                     |       | 4,557,842                                                    |       |

 

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The table above, which isbased on information provided to the Trust by Northshore, demonstrates thatproduction at Northshore that is attributable to Trust lands has remainedrelatively constant over the prior three fiscal years.  Shipments attributable to Mesabi Trust lands,however, have continued to decline since reaching a high of approximately 4.6million tons in fiscal year 2005.  Asdescribed above under the heading “Risk Factors,” Mesabi Trust has no controlover the production or shipments of iron ore by CCI.  Therefore, the Trustees cannot predictwhether the shipments attributable to the Trust lands will increase or decreaseduring fiscal 2008.

The table below shows thechange in the percentages of production and shipments from lands owned byMesabi Trust versus the percentages of production and shipments from landsowned by the State of Minnesota for the most recent three fiscal years.  
| **Fiscal Year  Ended** | ** ** | **Percentage of  Pellets Produced  From Trust  Lands** | ** ** | **Percentage of  Pellets Produced  From State  Lands** | ** ** | **Percentage of  Pellets  Shipped  From Trust  Lands** | ** ** | **Percentage of  Pellets  Shipped  From State  Lands** | ** ** |
|-----------------------------|------------|-----------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| January 31, 2007            |       | 89.2%                                                                 |       | 10.8%                                                                 |       | 91.4%                                                            |       | 8.6%                                                             |       |
| January 31, 2006            |       | 90.0%                                                                 |       | 10.0%                                                                 |       | 90.2%                                                            |       | 9.8%                                                             |       |
| January 31, 2005            |       | 90.4%                                                                 |       | 9.6%                                                                  |       | 90.6%                                                            |       | 9.4%                                                             |       |

Asis the case with the volume of shipments from Silver Bay, Minnesota, theTrustees cannot predict what percentage of production or shipments will beattributable to Mesabi Trust lands in fiscal 2008.  However, pursuant to the Amendment, MesabiTrust will be credited with not less than 90% of the iron ore pellets shippedfrom Silver Bay, Minnesota in any calendar year.

**Comparison of Financial Results for Fiscal Years ended January 31, 2007and January 31, 2006**

***Royalty Income***
|                                          | ** ** | **Fiscal Years Ended on January 31,** | ** ** | **% increase** | ** ** |
|------------------------------------------|------------|----------------------------------------------------------------|------------|---------------------|------------|
| ** **                               | ** ** | **2007**                                                       | ** ** | **2006**            | ** ** | **(decrease)** | ** ** |
| Base overriding  royalties               |       | $                                                              | 9,877,120  |                | $          | 12,133,160 |   | (18.59 | )% |
| Bonus royalties                          |       | 7,530,423                                                      |       | 9,017,924           |       | (16.49 | )% |
| Minimum advance  royalty paid (recouped) |       | —                                                         |       | —              |       | — |   |
| Fee royalties                            |       | 426,313                                                        |       | 376,138             |       | 13.34 | % |
| Total royalty  income                    |       | $                                                              | 17,833,856 |                | $          | 21,527,222 |   | (17.16 | )% |

Totalroyalty income decreased 17.16% in fiscal 2007 as a result of the decrease inshipments.  Although the market price foriron ore pellet prices was generally higher in 2007 as compared to 2006, thelower volume of shipments had a negative impact on both the base overridingroyalty and the bonus royalty.  Baseoverriding royalties decreased 18.59% because of the lower volume of shipmentsfrom Silver Bay.  The lower volume of shipmentshad a significant impact on the base overriding royalty because the Trust wasnot credited with any shipments at the highest royalty rate of 6%, which onlyapplies to shipments in excess of 4.0 million tons in any calendar year.  Comparatively, the Trust received the 6%royalty on 308,633 tons of shipments for the fiscal year ended January 31,2006.

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The bonus royalty decreased16.49% because of two contributing factors. First, the decrease in shipments resulted in fewer tons being shipped atprices above the adjusted threshold price. Second, because the market price for iron ore stabilized in 2007, theTrust received fewer positive pricing adjustments to the bonus royalty paymentsin fiscal 2007 as compared to fiscal 2006. Specifically, in accordance with the CCI Pellet Agreements, certainnegative adjustments to the bonus royalty were made in the fourth fiscalquarter based on changes in the prices CCI charges its customers for iron orepellets shipped during calendar years ended December 31, 2005 and December 31,2006.

The contract pricingadjustments under the CCI Pellet Agreements are included as revenue in fiscal2007, the period for which the pricing adjustments were determined.  Because the Trust is not a party to theunderlying CCI Pellet Agreements, the Trustees cannot predict with certaintywhether any pricing adjustments under these agreements will or will not occurin the future, or if there are pricing adjustments, whether they will bepositive or negative. In either case, these price adjustments will impactfuture royalties received by the Trust that become available for distributionto Unitholders.

***Gross Income,Expenses and Net Income***
|              | ** ** | **Fiscal Years Ended on January 31,** | ** ** | **% increase** | ** ** |
|--------------|------------|----------------------------------------------------------------|------------|---------------------|------------|
| ** **   | ** ** | **2007**                                                       | ** ** | **2006**            | ** ** | **(decrease)** | ** ** |
| Gross Income |       | $                                                              | 17,902,988 |                | $          | 21,579,833 |   | (17.04 | )% |
| Expenses     |       | 756,322                                                        |       | 844,956             |       | (10.49 | )% |
| Net Income   |       | $                                                              | 17,146,666 |                | $          | 20,734,877 |   | (17.31 | )% |

Netincome for fiscal 2007 decreased 17.31% as compared to fiscal 2006 primarilydue to the decrease in total royalty income, which was partially offset by adecrease in expenses.  Fiscal 2007expenses were lower than fiscal 2006, as a result of a decrease in legal andaccounting fees.  Trust expenses arediscussed in further detail under the heading “Trust Expenses” beginning onpage 25 of this Annual Report.

***Cash Distributions and******Unallocated Reserve*
|                            | ** ** | **Fiscal Years Ended on January 31,** | ** ** | **% increase** | ** ** |
|----------------------------|------------|----------------------------------------------------------------|------------|---------------------|------------|
| ** **                 | ** ** | **2007**                                                       | ** ** | **2006**            | ** ** | **(decrease)** | ** ** |
| Total Cash  Distributions  |       | $                                                              | 23,025,618 |                | $          | 17,777,614 |   | 29.52 | % |
| Distributions per Unit     |       | $                                                              | 1.755      |                | $          | 1.355 |   | 29.52 | % |
| Accrued Income  Receivable |       | $                                                              | 409,764    |                | $          | 4,277,766 |   | (90.42 | )% |
| Unallocated Reserve        |       | $                                                              | 1,139,674  |                | $          | 4,985,024 |   | (77.14 | )% |

 

Althoughthe Trust’s total royalty income and net income for fiscal 2007 each decreasedapproximately 17%, total distributions paid to Unitholders in fiscal 2007increased 29.52% over fiscal 2006. The increase in total cash distributions anddistributions per unit is primarily due to $4.277 million that was reflected onthe Trust’s balance sheet as accrued income receivable and included in theTrust’s net income as of the fiscal year ended January 31, 2006.  Because income payable to the Trust isaccounted for on an accrual basis before the royalties are actually received bythe Trust, royalty income payable with respect to the Trust’s fourth quarter offiscal 2006 was actually distributed to Unitholders in the first quarter offiscal 2007.  Accordingly, the total

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distributions paid toUnitholders in fiscal 2007 exceeded both the total royalty income and netincome of the Trust during the same period.

The Trust’s Unallocated Reserve, which is comprised of accrued incomereceivable and cash reserve for unexpected losses, decreased 77.14% or$3,845,350, as of the end of fiscal year ended January 31, 2007 as compared tothe fiscal year ended January 31, 2006.  Theaccrued income receivable portion of the Unallocated Reserve decreased 90.42%from $4,277,766 in fiscal 2006 to $409,764 in fiscal 2007.  At the same time, the Trust’s reserve forunexpected losses, which is unallocated cash and U.S. Government securities,increased 3.2% from $707,258 in fiscal 2006 to $729,910 in fiscal 2007.

  The decrease in the Trust’sUnallocated Reserve was caused by a significant drop in the amount of accruedincome receivable with respect to the fourth quarter of fiscal 2007 as comparedto the fourth quarter of fiscal 2006. The decrease in the accrued income receivable is the result of fewercontract pricing adjustments from pellets sold under the CCI Pellet Agreementsin calendar 2006 and calendar 2005 that were finalized during the first threemonths of calendar 2007 and no shipments in January 2007.  The Trustees cannot predict the pricingadjustments under the CCI Pellet Agreements or the impact such adjustments willhave on the Trust’s accrued income receivable. Accordingly, the Trustees cannot predict whether the Trust’s accruedincome receivable will increase or decrease in fiscal 2008 or the impact suchpricing adjustments will have on the future distributions paid to the Trust’sUnitholders.

See the discussion under the heading “Unallocated Reserve” on page 26of this Annual Report for more information on the Trust’s policy formaintaining a cash reserve for unexpected losses.

**Comparison of Financial Results for Fiscal Years ended January 31, 2006and January 31, 2005**

***Royalty Income***
|                                          | ** ** | **Fiscal Years Ended on January 31** | ** ** | **% increase** | ** ** |
|------------------------------------------|------------|---------------------------------------------------------------|------------|---------------------|------------|
| ** **                               | ** ** | **2006**                                                      | ** ** | **2005**            | ** ** | **(decrease)** | ** ** |
| Base overriding  royalties               |       | $                                                             | 12,133,160 |                | $          | 9,819,464 |   | 23.56 | % |
| Bonus royalties                          |       | 9,017,924                                                     |       | 3,354,650           |       | 168.82 | % |
| Minimum advance royalty  paid (recouped) |       | —                                                        |       | —              |       | — |   |
| Fee royalties                            |       | 376,138                                                       |       | 361,191             |       | 4.14 | % |
| Total royalty income                     |       | $                                                             | 21,527,222 |                | $          | 13,535,305 |   | 59.04 | % |

 

Royaltiesincreased in fiscal 2006 primarily due to increased pellet prices, an increasedspread between pellet prices and the Adjusted Threshold Price (resulting in significantlyhigher bonus royalties) and increased royalty revenue recognized during fiscal2006 resulting from contract pricing adjustments of pellets shipped during 2004and 2005 pursuant to the CCI Pellet Agreements. Mesabi Trust is not a party to the CCI Pellet Agreements.  These contract pricing adjustments and theresulting royalty revenue increases (including increased revenue from bonusroyalties) were calculated by Northshore/CCI during the first three months of2006 and communicated in the final royalty payment letter to the Trust in earlyApril 2006. The increased royalty revenue was included in Accrued IncomeReceivable on the Trust’s balance sheet at January 31, 2006 (a total ofapproximately $4,278,000).

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***Revenues,Expenses and Net Income***
|              | ** ** | **Fiscal Years Ended on January 31,** | ** ** | **% increase** | ** ** |
|--------------|------------|----------------------------------------------------------------|------------|---------------------|------------|
| ** **   | ** ** | **2006**                                                       | ** ** | **2005**            | ** ** | **(decrease)** | ** ** |
| Gross Income |       | $                                                              | 21,579,833 |                | $          | 13,575,548 |   | 58.96 | % |
| Expenses     |       | 844,596                                                        |       | 557,961             |       | 51.44 | % |
| Net Income   |       | $                                                              | 20,734,877 |                | $          | 13,017,587 |   | 59.28 | % |

Grossincome for fiscal 2006 increased over that of fiscal 2005 primarily due toincreased royalty income, as discussed above under the heading “Royalty Income.”  Fiscal 2006 expenses were higher than thosefor fiscal 2005, mainly due to increases in legal and accounting fees as wellas certain non-recurring legal and administrative expenses in connection withthe Trust’s election of a successor trustee at a Special Meeting of Unitholdersheld on January 17, 2006.  Trust expensesare discussed in further detail under “Trust Expenses” beginning on page 25 ofthis Annual Report.   Overall, net incomefor fiscal 2006 increased due to the increase in gross income at a greater ratethan the increase in expenses.

***CashDistributions and******Unallocated Reserve*
|                           | ** ** | **Fiscal Years Ended on January 31,** | ** ** | **% increase** | ** ** |
|---------------------------|------------|----------------------------------------------------------------|------------|---------------------|------------|
| ** **                | ** ** | **2006**                                                       | ** ** | **2005**            | ** ** | **(decrease)** | ** ** |
| Total Cash  Distributions |       | $                                                              | 17,777,614 |                | $          | 10,168,008 |   | 74.84 | % |
| Distributions per Unit    |       | $                                                              | 1.355      |                | $          | 0.775 |   | 74.84 | % |
| Unallocated reserve       |       | $                                                              | 4,985,024  |                | $          | 4,323,763 |   | 15.29 | % |

 

Totaldistributions paid to Unitholders in fiscal 2006 equaled $17,777,614, comparedto total distributions of $10,168,008 in fiscal 2005. The increase of$7,609,606 was primarily due to increased pellet prices (including contractprice adjustments and bonus royalties) resulting from increased market demand.

For fiscal year ended January 31, 2006 the Unallocated Reserve of$4,985,024 was comprised of $4,277,766 of accrued income receivable and$707,258 of unallocated cash and U.S. Government securities.  Comparatively, as of the fiscal year endedJanuary 31, 2005 the Unallocated Reserve was $4,323,763, comprised $3,519,923of accrued income receivable and $803,840 of unallocated cash and U.S.Government securities.** **See the discussion under theheading “Unallocated Reserve” on page 26 of this Annual Report for moreinformation on the Trust’s policy for maintaining a cash reserve for unexpectedlosses.

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**Liquidity and Capital Resources**

TheTrust’s operations are limited to the collection of leasehold royalty income,payment of expenses and liabilities, distribution of net income to the Trust’sUnitholders and protection and conservation of Trust assets.  The Trust’s current assets are investedsolely in U.S. government securities in a manner that, combined with cash flowsfrom royalties received, is deemed adequate by the Trustees to meet currentlyforeseeable liquidity needs.  See thediscussion of the Trustees’ management of liquidity set forth under the heading“Unallocated Reserve” beginning on page 26****of this AnnualReport.

**Recent Developments**

***2007 Estimates***. Neither CCI nor Northshore has provided the Trust with an estimate fortotal calendar year 2007 shipments. During calendar years 2006, 2005, 2004, and 2003, the percentage ofshipments of iron ore products from Mesabi Trust lands was approximately 90.9%,90.1%, 92.0%, 95.5%, and 97.5%, respectively, of total shipments.  Northshore has not advised the Trustees as tothe percentage of iron ore products from Mesabi Trust lands it anticipatesshipping in calendar year 2007.  See thedescription of the uncertainty of market conditions in the iron ore and steelindustry under the heading “Risk Factors” above.

***Mesabi Nugget Project***. ** **Inits Form 8-K filed November 20, 2006, CCI announced that it and the otherprincipal participants in Mesabi Nugget LLC, namely Kobe Steel, Ltd. (“KobeSteel”) and Steel Dynamics, Inc. (“Steel Dynamics”), suspended efforts tojointly construct and operate a commercial nugget plant that would have used anew iron making technology (Kobe Steel’s Itmk3 process) for converting iron oreinto nearly pure iron nugget form at CCI’s Erie site in Hoyt Lakes,Minnesota.  CCI reported that theparticipants decided to suspend the project because the parties were unable toagree on economic and commercial terms, including the completion ofnon-recourse financing for the project. At the same time, CCI also announced that it and Kobe Steel intend toproceed with the development of a commercial-scale reduced iron plant at theNorthshore site which will convert taconite into nearly pure iron in nuggetform utilizing Kobe Steel’s ITmk3 technology.

Subsequently,on January 24, 2007, Steel Dynamics announced that it had purchased over 3,000acres of land from CCI relating to the plant site where the Mesabi Nugget projectwas previously to be constructed.  Thepreviously issued environmental permits are expected to be used to completeconstruction and operation of the plant. On March 2, 2007, a financial newswire reported that Steel Dynamics andKobe Steel agreed to a new initiative to build and operate a $235 millioniron-making plant in Minnesota.  SteelDynamics has indicated that the proposed nugget plant is contingent uponfinancing terms, land options and securing a long-term supply agreement foriron concentrate to make iron nuggets. The same source reported that Steel Dynamics will have a majority stakeand build and operate the facility at the former LTV Steel Mining Co. site nearAurora, Minnesota and Kobe Steel will provide technical and engineeringservices, technology license and equipment. In a separate article published in the Duluth News Tribune on March 3,2007, it was reported that CCI confirmed that negotiations are under way toagree on a plan for Northshore to supply concentrate to the Steel Dynamics ironnugget plant.  Mesabi Trust has not beenable to confirm the information reported in the sources cited in thisparagraph.

In the March 3,2007 Duluth News Tribune article, it was reported that CCI is moving ahead tobuild its own iron nugget plant at Silver Bay, Minnesota.  CCI is seeking permits to restart the idleiron nugget plant that was operated as a pilot plant in 2003 and 2004.

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Because the Trustees are not provided with anyinformation beyond that which is available to the general public, the Trusteesare unable to make any projections regarding the extent to which the currentplans for the Mesabi Nugget Project or CCI’s plans for its own nugget plant mayimpact future royalties payable to Mesabi Trust.

***Iron Ore Pricing and ContractAdjustments.***   Duringits fiscal year ended January 31, 2007, Mesabi Trust continued to earn bonusroyalties for iron ore shipments from Silver Bay sold at prices above theAdjusted Threshold Price.  (See thediscussion under the heading “Royalty Income” under “Comparison of Fiscal Yearsended January 31, 2007 and January 31, 2006” on page 10 of this AnnualReport.)  In addition, during the courseof its fiscal year some portion of the royalties paid to Mesabi Trust werebased on estimated prices for iron ore products sold under the CCI PelletAgreements. These prices were subject to interim and final pricing adjustments,which can be positive or negative, and which adjustments are dependent in parton multiple price and inflation index factors that are not known until afterthe end of a contract year. This can result in significant variations inroyalties received by Mesabi Trust (and in turn the resulting amount availablefor distribution to Unitholders by the Trust) from quarter to quarter, year to year,and on a comparative historical basis, and these variations can be positive ornegative.  Mesabi Trust is not party tothe CCI Pellet Agreements and CCI has not provided copies of the unredactedversions of these agreements. Accordingly, the Trustees cannot predict the significance suchadjustments may have on Mesabi Trust.

Underthe CCI Pellet Agreements, upward price adjustments were made during the firstthree months of calendar 2007 to iron ore shipped by Northshore to customersfrom Silver Bay during 2005 and 2006 due to adjustments in pricing.  The pricing adjustments in turn resulted inincreased royalty revenue of approximately $410,000 to the Mesabi Trust, whichis reflected as accrued income receivable on Mesabi Trust’s balance sheet as ofJanuary 31, 2007.  The Trustees are notable to predict whether adjustments in the future, if any, will be upward ordownward.

***CCI and Mittal Steel Supply Agreement***.  Inits Form 8-K filed March 19, 2007, CCI reported that it entered into a newsupply agreement with Mittal Steel USA Inc. (“Mittal”) that “covers significantprice and volume matters under three separate pre-existing iron ore pelletsupply agreements with [CCI] for Mittal’s Cleveland and Indiana Harbor West,Indiana Harbor East and Weirton facilities.” CCI also reported that the new supply agreement: (i) replaced the Letterof Agreement dated as of April 12, 2006, between [CCI] and Mittal, (ii)consolidated provisions under other agreements to aggregate Mittal’s purchasesduring the years 2006 through and including 2010, (iii) obligates Mittal topurchase specified minimum tonnages of iron ore, on an aggregate basis, through2010, and (iv) set the minimum annual tonnage requirements at Mittal’sapproximately budgeted usage levels through 2010 with pricing then in effect atthe facility where the pellets are delivered. CCI has not filed a copy of the new supply agreement with the Securitiesand Exchange Commission nor has it provided the Trustees with a copy of theagreement.  Therefore, the Trustees arenot able to predict what impact, if any, the new supply agreement will have onthe royalties payable to Mesabi Trust.

***Production Capacity Expansions***.  Inits Form 8-K filed November 20, 2006, CCI announced that it is moving forwardwith its previously announced plans to restart an idled pellet furnace atNorthshore’s pellet facility located in Silver Bay, Minnesota.  CCI also reported that it has received allenvironmental permits from the State of Minnesota necessary to restart thefurnace that will provide the additional concentrate and pellet capacity at thefacility.  CCI reported that it expectsthat annual production of pellets at the Northshore facility will increase byapproximately 800,000 tons as a result of the restart of the idle furnace atNorthshore.  CCI announced thatproduction from the restart of the idle furnace is scheduled to commence inearly 2008.  The Trustees are unable to

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make any projections regarding the extent to which the restart of theidled furnace at Northshore may impact future royalties payable to MesabiTrust.

***Securities Regulation***.  The Trust is a publicly-traded trust listedon the New York Stock Exchange (“NYSE”) and is therefore subject to extensiveregulation under, among others, the Securities Act of 1933, the SecuritiesExchange Act of 1934, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and therules and regulations of the NYSE. Issuers failing to comply with such authorities risk seriousconsequences, including criminal as well as civil and administrativepenalties.  In most instances, theselaws, rules and regulations do not specifically address their applicability topublicly-traded trusts such as Mesabi Trust. In particular, Sarbanes-Oxley mandated the adoption by the Securitiesand Exchange Commission (the “SEC”) and NYSE of certain rules and regulationsthat are impossible for the Trust to literally satisfy because of its nature asa pass-through trust.  Pursuant to NYSErules the Trust is exempt from many of the corporate governance requirementsthat apply to other publicly traded corporations.   The Trust does not have, nor does theAgreement of Trust provide for, a board of directors, an audit committee orexecutive officers.  The Trustees intendto closely monitor the SEC’s and NYSE’s rulemaking activity and will attempt tocomply with such rules and regulations where applicable.

***Other Information.***  Mesabi Trust has no employees, but it engagesindependent consultants to assist the Trustees in monitoring, among otherthings, the amount and sales prices of iron ore products shipped by Northshorefrom Silver Bay.  As noted above, theinformation regarding amounts and sales prices of shipped iron ore products isused to compute the royalties payable to Mesabi Trust by Northshore.  Deutsche Bank Trust Company Americas, theCorporate Trustee, also performs certain administrative functions for MesabiTrust.

**CriticalAccounting Policies**

This“Trustees’ Discussion and Analysis of Financial Condition and Results ofOperations” is based upon the Trust’s financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States.  The preparation of thesefinancial statements requires the Trustees to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses, andrelated disclosure of contingent assets and liabilities.  These estimates form the basis for makingjudgments about the carrying value of assets and liabilities that are notreadily apparent from other sources.  TheTrustees base their estimates and judgments on historical experience and onvarious other assumptions that the Trustees believe are reasonable under thecircumstances.  However, future eventsare subject to change and the best estimates and judgments may requireadjustment.  For a complete descriptionof the Trust’s significant accounting policies, please see Note 2 to thefinancial statements on pages F-9 through F-11.

Criticalaccounting policies are those that have meaningful impact on the reporting ofthe Trust’s financial condition and results, and that require significantmanagement judgment and estimates.  TheTrustees have determined that there are no critical accounting policies.

**Off-Balance Sheet Arrangements**

TheTrust has no off-balance sheet arrangements.

**ContractualObligations**

**The Trust has no payment obligations under any long-termborrowings, capital lease, operating lease, or purchase agreement.**

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**TO THE HOLDERS OFCERTIFICATES OF BENEFICIAL INTEREST INMESABI TRUST**

**THETRUST ESTATE**

Theprincipal assets of Mesabi Trust consist of two different interests in certainproperties in the Mesabi Iron Range: (i) Mesabi Trust’s interest asassignor in the Amended Assignment of Peters Lease and the Amended Assignmentof Cloquet Lease, which together cover properties aggregating approximately9,750 largely contiguous acres in St. Louis County, Minnesota (the “PetersLease Lands” and the “Cloquet Lease Lands,” respectively), and (ii) MesabiTrust’s ownership of the entire beneficial interest in the Mesabi Land Trust,which has a 20% interest as fee owner in the Peters Lease Lands and a 100% feeownership in certain non-mineral-bearing lands adjacent to the Peters andCloquet Lease Lands (the “Mesabi Lease Lands,” together with the Peters LeaseLands and the Cloquet Lease Lands, the “Trust Estate”).  The map below shows the approximate locationof the Trust Estate.
| o  | *The boxed area indicates the approximate location of Mesabi Trust’s  Trust Estate (not drawn to scale), as defined above under “The Trust Estate,”  which is a small part of the region with an iron ore body known as the Mesabi  Iron Range. The Mesabi Trust does not own any property interests other than  in the Trust Estate.* |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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Underthe Amended Assignment Agreements, Northshore produces iron ore from the TrustEstate for the manufacture of iron ore products to be sold to various customersof CCI.  Mesabi Trust receives royaltieson the crude ore extracted from such Lands and the pellets produced from suchcrude ore, and in each case the royalties are based upon the volume of iron oreproducts shipped and the prices charged to CCI’s customers.

Thelargest component of the Trust Estate is the Peters Lease Lands.  The Peters Lease provides that each leaseholdestate will continue until the reserves of iron ore, taconite and otherminerals or materials on the land subject to the Peters Lease areexhausted.  The Mesabi Lease terminateswhen the Peters Lease terminates.  TheCloquet Lease, executed in 1916, terminates in the year 2040.  If Northshore decides to terminate orsurrender one or more of these leases, it must first give Mesabi Trust at leastsix 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 leaseinterests to Mesabi Trust free and clear of liens, except public highways.  In return, Mesabi Trust must assumeNorthshore’s future obligations as lessee under the reassigned leases.

ThePeters Lease Lands and the Cloquet Lease Lands are located at the northeasternend of the Mesabi Iron Range and contain mineral deposits consisting of asedimentary bed of banded magnetite in silicious gangue, a form of low-gradeiron ore known as taconite, approximately three tons of which must bebeneficiated to produce one ton of high-grade pellets.  The Mesabi Lease Lands contain substantiallyno commercial ore deposits and have been used principally in connection withmining the taconite from other parts of the Trust Estate, such as the provisionof an area for location of service roads, supporting plants and equipment anddump sites for overburden.

Because the Trust is notinvolved with the mining operations at Northshore, the Trust relies on the orereserve estimate reported in CCI’s Form 10-K each year.  In CCI’s last Form 10-Kfiled with the Securities and Exchange Commission, which was for the year endedDecember 31, 2005, CCI estimated that there remains enough ore reserve in themine at Northshore to produce approximately 310 million tons of pellets.  The Trustees recently engaged an independentgeological consulting firm, Scott Wilson Roscoe Postle Associates, Inc. (“ScottWilson RPA”), to confirm that the process used by CCI to estimate the ore reserve in the mine atNorthshore isreasonable.  In its report to theTrustees, Scott Wilson RPA summarized its review and evaluation of CCI’s orereserve estimation process.  Scott WilsonRPA reported to the Trustees that the reserve estimation process used by CCI isreasonable and complies with the reporting standards set forth in SecuritiesAct Industry Guide 7.  Based on thereport of Scott Wilson RPA, the Trustees estimate that at least 90% of the orereserve in the mine at Northshore, as reported by CCI, is attributable to the Trust Estate.

## **HISTORY OF THE TRUST’SACQUISITION OF THE TRUST ESTATE**

Priorto the creation of the Mesabi Trust and the Mesabi Land Trust on July 18, 1961,MIC, the Trust’s predecessor in interest, owned the interests in the Peters,Cloquet and Mesabi Lease Lands.  MICobtained its interests as follows:

PetersLease Lands. MICowned a 20% interest in the fee ownership in the Peters Lease Lands.  Originally, the Peters Lease Lands were ownedby East Mesaba and Dunka River which were wholly owned subsidiaries ofDunka-Mesaba Security Company (“Dunka-Mesaba”). In August 1951, East Mesaba and Dunka River conveyed the Peters LeaseLands to their parent company, Dunka-Mesaba, which in turn conveyed to each ofits stockholders an undivided interest in the Peters Lease Lands in proportionto each stockholder’s ownership in the parent company.  Accordingly, MIC, which had been the owner of20% of the outstanding capital stock of Dunka-Mesaba, acquired

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a 20% undivided interest inthe Peters Lease Lands and the right to receive a 20% fee royalty under thePeters Lease.

Byan instrument dated October 1, 1917, as of April 30, 1915, East Mesaba andDunka River leased their properties to Claude W. Peters.  (This instrument, as modified by instrumentsdated February 3, 1921, July 17, 1939 and July 31, 1951, is known as the “PetersLease.”)  Claude W. Peters acquired thePeters Lease on behalf of MIC and an assignment of the Peters Lease from ClaudeW. Peters to MIC was recorded in 1919. In 1939, MIC assigned the Peters Lease to Reserve Mining Company (“Reserve”)in consideration for which Reserve agreed to pay MIC a percentage of its netprofits.  Later, these payments werechanged to royalty payments.

CloquetLease Lands.  MIC held a leasehold interest in the CloquetLease Lands pursuant to the Indenture of Lease dated May 1, 1916.  In 1939, MIC assigned its interest in theCloquet Lease as lessee to Reserve.

MesabiLease Lands.  MIC held a fee interest in the Mesabi LeaseLands, subject to earlier grants of mineral rights to other parties.  In 1939, MIC leased its interest in theMesabi Lease Lands to Reserve.  One40-acre parcel of the Mesabi Lease Lands was forfeited in the 1980s to theState of Minnesota and subsequently sold to the United States government,excluding the mineral rights granted to other parties.  Further, another 40-acre parcel of the MesabiLease Lands, for which the Trust owns only surface rights, is currently beingexplored for non-ferrous deposits by the holder of the mineral rights to theparcel.  The Trustees do not believe thateither parcel was ever involved in, or otherwise material to, Northshore’smining operations.

Acquisitionof Interests from MIC.  MIC had not engaged in actual miningoperations since 1939, with all of its ownership of land in fee having beenleased out and its leaseholds in land assigned to Reserve in exchange forroyalty payments.  Because MIC’sactivities in connection with the administration of its assets were limited tothe collection of income, the payment of expenses and liabilities, thedistribution of the net income and the protection and conservation of theassets held, in July 1961 its board of directors proposed, and its stockholderssubsequently approved, to adopt a plan of complete liquidation as a result ofwhich MIC’s assets were transferred to and administered by two trust entities.

Tocomply with the law of the State of Minnesota, which requires that a trustholding real property located in that state must be administered underMinnesota law, the Mesabi Land Trust was created under Minnesota law on July18, 1961 pursuant to an Agreement of Trust of even date.  MIC transferred to the Mesabi Land Trust its20% interest as fee owner in the Peters Lease and the Peters Lease Lands andits interest as 100% fee owner in the Mesabi Lease Lands and as lessor of theMesabi Lease (subject to the reservation of mineral rights described above).

Alsopursuant to an Agreement of Trust, the Mesabi Trust was created under New Yorklaw on July 18, 1961.  MIC transferred tothe Mesabi Trust instruments assigning the Amended Assignment of Peters Leaseand the Amended Assignment of Cloquet Lease (covering its interest as assignorof the entire leasehold interest in the Peters Lease Lands and the CloquetLease Lands), together with cash, marketable securities and other assets.  The Mesabi Trust also received all of thebeneficial interest in the Mesabi Land Trust.

Reserve,the original lessee, operated the mine until it closed on July 31, 1986.  Cyprus Minerals Company (“Cyprus”) purchasedsubstantially all of Reserve’s assets on August 17, 1989 and resumed operationsas Cyprus NMC.  On September 30, 1994,CCI purchased all of Cyprus NMC’s capital stock from Cyprus.  CCI renamed the operation Northshore MiningCorporation.

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Since the creation of the Mesabi Land Trust and the Mesabi Trust,although the mining operators have changed and the Peters Lease, the CloquetLease and the Mesabi Lease have been further amended and assigned, the TrustEstate has not changed beyond the forfeiture of one parcel of the Mesabi LeaseLands described above.

The diagram below illustrates the relationships of the various partiesthat own the lands and have interests in the lands the Trust has interests in:

**DESCRIPTION OF THE MINERALPROPERTIES AND NORTHSHORE’S MINING OPERATIONS**

Mine and Rock Formation.  The Mesabi Trust properties, including theore mine, are located in northeastern Minnesota, approximately two miles southof Babbitt, Minnesota.  The ore mine onthe Mesabi Trust properties is called the Peter Mitchell mine, an open pit mineconsisting a 10-mile long segment of a host rock called the Biwabik IronFormation, which is a very hard cherty rock containing magnetite as the oremineral.  The Biwabik Iron Formationextends west and southwest for over 100 miles and constitutes the Mesabi IronRange.  Recoverable iron grades rangefrom 21% in the west end of the mine open pit to 26% in the central portion andeast end, with 22.5% as the cut off grade. The ore body dips south under the hanging wall called the VirginiaFormation.  To date, the Mesabi Trustproperties have been explored for their iron ore potential.  To the knowledge of the Mesabi Trustees, noother minerals have been explored on the Mesabi Trust properties.

MiningProperties.  Asdisclosed elsewhere in this Annual Report, Northshore, a wholly ownedsubsidiary of CCI, currently conducts the mining operation upon the MesabiTrust properties.  The main entrance tothe Northshore mine is accessed by means of a gravel road and is located offCounty Road 70.  Northshore’s processingfacilities are located in Silver Bay, Minnesota, near Lake Superior, onU.S. Highway 61.  Each year, theTrustees visit the Northshore mine in Babbitt, MN and the processing plant inSilver Bay, Minnesota.  During suchvisits, the Trustees inspect the condition of the mining properties as well asmining equipment and facilities.  Basedon the Trustees’ past

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inspection trips, includingthe most recent one in October 2006, the Trustees believe that the miningproperties and facilities are in good operating condition.

Northshore’sMining Operations.  Because theMesabi Trust is not involved in Northshore’s mining operations, the Trustees donot have detailed firsthand information relating to such operations or theequipment and facilities used by Northshore. Therefore, the Trustees rely on information provided by Northshorepersonnel, disclosed by CCI in its periodic reports filed with the SEC orprovided in other reports published by independent organizations, such asSkillings Mining Review, in providing the information relating to Northshore’smining operations, its equipment and facilities.

·                  **Equipment**.  Drilling at the Northshore mine is conductedwith three 120 P&H rotary units with 16-inch diameter holes on 28- to30-foot spacing.  The drilling isfollowed with blasts using heavy ANFO (which stands for ammonium nitrate andfuel oil) and emulsion which break an average of 700,000 to 1,200,000 tons ofcrude taconite.  After blasts, taconiteis then removed by a loading fleet consisting of one P&H 2800 shovel with a28 cubic-yard bucket, three 295-B Bucyrus-Erie shovels with 20 cubic-yardbuckets, one LeTourneau L1850 loader with a 28 cubic yard bucket and a Cat 994loader with a 19 cubic-yard bucket.  Ahaulage fleet of three 250-ton Terex Model 4400 and four 200-ton Model 730Dresser Haulpaks carry crude taconite to the primary and secondary crusherslocated about two miles away.  At thecrushers, taconite is emptied from the end-dump trucks into a 60-inchprimary gyratory unit and four 30-inch by 70-inch secondary crushers forreduction to a nominal 4-6 inch size. Coarse ore is then fed into 80-ton capacity ore cars for transportationto Silver Bay via a 47-mile long, single track railroad owned byNorthshore.  Each train is pulled bythree or four diesel electric locomotives.

·                  **Capital Expenditures**.** **Incalendar year 2006, Northshore approved capital expenditures to modernize andimprove the operations at the Peter Mitchell Mine in Babbitt and Northshore’spelletizing facility in Silver Bay. During their annual inspection trip, the Trustees learned that CCI has:

·                  Initiated a program to replace the fleet of loadingequipment at the PeterMitchell Mine, including the purchase of a 35 cubic yard shovel, a 28 cubic yard LeTourneau loader and two 14cubic yard Caterpillar loaders;

·                  Constructeda mobile equipment wash bay at thePeter Mitchell Mine;

·                  Commenceda program to improve the railroad locomotive fleet for the ore haul between thePeter Mitchell Mine and Northshore’s pelletizing facility;

·                  Commenced a major overhaul to the power plant at Northshore’s pelletizing facility;

·                  Commenced the installation of a pellet screeningconveyor at Northshore’spelletizing facility;

·                  Commenced the installation of new dust collectors atNorthshore’s pelletizing facility; and

·                  Commenced an expansion of the water treatment plantat Northshore’s pelletizing facility.

·                  **Pelletizing Process**.  Upon arrival at thepelletizing facility in Silver Bay , the coarse taconite ore first passesthrough a fine crushing stage where it is reduced in size to approximately0-3/4” and then the non-magnetic material is rejected through a dry cobbermagnetic separation stage.  The magneticmaterial is then fed into one of the twelve active grinding lines.  Each

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line includes one 10-1/2-foot by18-foot rod mill and two 10-foot by 18-foot ball mills.  The final grinding of the crude taconite isreduced to 90% minus 325 mesh.

During the concentrating process, oreconcentrate is separated by a two-stage magnetic separation, which removes lowgrade tailings from the ore concentrate. The tailings are pumped uphill to the Mile Post 7 disposal site.  The concentrate is then fed intohydro-separators followed by a final flotation upgrading accomplished withforty-four 500 cubic foot flotation cells. Next, the concentrate proceeds to a central filtering facility of nine9-foot diameter vacuum filters, during which process the moisture content inthe concentrate is reduced and the final concentrate is ready forpelletizing.  The pelletizing processfirst feeds the ore concentrate, to which bentonite and starch has been addedas a binder, into a balling drum 14 feet long and 7 feet in diameter.  The revolving action of the drum causes theconcentrate to build up into green balls. Next, the green balls with a target size of plus 0-1/4” and minus 0-1/2”in diameter are conveyed to one of three moving grates and enter into anaccompanying high temperature furnace where they are heated to over 2400° F.and are hardened into the final pellet product. From the three furnaces the pellets are conveyed to a dockside storagearea with a 5-million ton storage capacity. Northshore’s sheltered harbor at Silver Bay can handle lake-goingvessels with capacities up to 55,000 tons.

**LEASEHOLD ROYALTIES**

Northshore is obligated to pay to Mesabi Trust base overridingroyalties and royalty bonuses on all pellets (and other iron ore products)produced from the Peters Lease Lands and the Cloquet Lease Lands (“Mesabi Ore”)and shipped from Silver Bay in each calendar year.  The royalties are based on prices per unit ofproduct, volumes of product shipped and where on the escalating scale ofroyalties—2-1/2% on the first million tons to 6% on shipments above fourmillion long tons per calendar year—each shipment falls.

***Base overriding royalties.***  Base overriding royalties are calculated onthe basis of an escalating scale of percentages of gross sales proceeds of ironore shipped.  The applicable percentageis determined by reference to the tonnage of pellets previously shipped in thethen current calendar year, as follows:
| Tons of iron ore products  shipped in calendar year | ** ** | **Applicable royalty  (expressed as a percentage  of gross sales proceeds  within each tranche)** |
|----------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                   |       |                                                                                                                                           |
| 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%                                                                                                                                             |

 

***Royalty bonuses.***  Royalty bonuses are payable on all iron oreproducts produced from Mesabi Ore shipped from Silver Bay during a calendarquarter and sold at prices above the Adjusted Threshold Price.  The Adjusted Threshold Price was $42.89 forcalendar year 2005, $44.60 for calendar year 2006, and will be $45.98 forcalendar year 2007.  The AdjustedThreshold Price is subject to adjustment (but not below $30 per ton) forinflation and deflation and is determined each year on the basis of the changein the Gross Domestic Product Implicit Price Deflator, a broad based index ofinflation and deflation published quarterly by the U.S. Department of Commerce.

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Theamount of royalty bonuses payable for any calendar quarter is calculated on thebasis of an escalating scale of percentages of the gross sales proceeds toNorthshore of pellets produced from Mesabi Ore that are sold at prices abovethe Adjusted Threshold Price.  Theapplicable percentage is determined by reference to the amount by which thesales prices for a particular quantity of pellets exceeds the AdjustedThreshold Price, as follows:
| Amount by which sales price per ton exceeds Adjusted Threshold Price | ** ** | **Applicable**Percentage |
|---------------------------------------------------------------------------------------------------------|------------|--------------------------|
|                                                                                                    |       |                     |
| $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%                       |

 

***Leasehold royalty example.***  To illustrate the calculation of baseoverriding royalties and royalty bonuses, assume that no shipments of iron oreproducts were made during the first calendar quarter of 2007, and furtherassume that pellets were shipped from Silver Bay in the second and thirdcalendar quarters of 2007 in the following tonnage quantities and rendering thefollowing gross proceeds:
|              | ** ** | **Tonnage** | ** ** | **Sales Price per Ton** | ** ** | **Gross Proceeds** | ** ** |
|--------------|------------|-------------|------------|----------------------------------------|------------|-------------------------|------------|
| 2ndQuarter:  |       | 500,000     |       | $                                      | 42.00      |                    | $          | 21,000,000 |   |
| 3rd Quarter: |       | 500,000     |       | $                                      | 44.00      |                    | $          | 22,000,000 |   |
|         |       | 1,000,000   |       | $                                      | 46.00      |                    | $          | 46,000,000 |   |
|         |       | 1,000,000   |       | $                                      | 48.00      |                    | $          | 48,000,000 |   |
|         |       | 1,000,000   |       | $                                      | 50.00      |                    | $          | 50,000,000 |   |
|         |       | 1,500,000   |       | $                                      | 42.00      |                    | $          | 63,000,000 |   |

Inthis example, the base overriding royalties payable in respect of the secondand third calendar quarters of 2007 would be as follows:
| 2ndQuarter:  |   | $21,000,000 x 2-1/2% |   | = |   | $ | 525,000   |   |
|--------------|--------|----------------------|--------|---|--------|---|-----------|--------|
| 3rd Quarter: |   | $22,000,000 x 2-1/2% |   | = |   | $ | 550,000   |   |
|         |   | $46,000,000 x 3-1/2% |   | = |   | $ | 1,610,000 |   |
|         |   | $48,000,000 x 5%     |   | = |   | $ | 2,400,000 |   |
|         |   | $50,000,000 x 5-1/2% |   | = |   | $ | 2,750,000 |   |
|         |   | $63,000,000 x 6%     |   | = |   | $ | 3,780,000 |   |

 

Based on the same example,the base overriding royalty percentage applicable for all iron ore productsshipped in the fourth calendar quarter of 2007 would be 6%, because more thanfour million tons were shipped during the first three quarters.

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Further,the royalty bonuses payable in respect of the second and third calendarquarters of 2007 would be as follows (with reference to the Adjusted ThresholdPrice (“ATP”) of $45.98):
| 2ndQuarter:  |   | $42.00/ton falls below ATP: no bonus payable  |   | = |   | None |    |
|--------------|--------|-----------------------------------------------|--------|---|--------|------|---------|
| 3rd Quarter: |   | $44.00/ton falls below ATP: no bonus payable  |   | = |   | None |    |
|         |   | $46,000,000 x 0-1/2%                          |   | = |   | $    | 230,000 |   |
|         |   | $48,000,000 x 1%                              |   | = |   | $    | 480,000 |   |
|         |   | $50,000,000 x 1-1/2%                          |   | = |   | $    | 750,000 |   |
|         |   | $42.00/ton falls  below ATP: no bonus payable |   | = |   | None |    |

Theabove figures are provided only to illustrate the method for calculating baseoverriding royalties and royalty bonuses and do not indicate the amount of baseoverriding royalties or royalty bonuses the Trustees expect Mesabi Trust toearn in calendar 2007 or any other calendar or fiscal year.  Accordingly, the foregoing exampleillustrating the calculation of base overriding royalties and royalty bonusesshould not be considered a prediction of the amount of base overridingroyalties or royalty bonuses Mesabi Trust will receive.

***Bonuses on other ore.***  Northshore also must pay base overridingroyalties and royalty bonuses on pellets produced from lands other than MesabiLease Lands (“Other Ore”) to the extent necessary to assure payment of baseoverriding royalties and royalty bonuses on at least 90% of the first fourmillion tons of pellets shipped from Silver Bay in each calendar year, at least85% of the next two million tons of pellets shipped therefrom in each calendaryear, and at least 25% of all tonnage of pellets shipped therefrom in eachcalendar year in excess of six million tons. Base overriding royalties and royalty bonuses payable on Other Ore canbe recouped by Northshore out of base overriding royalties and royalty bonusespaid on Mesabi Ore.  The amount of OtherOre royalties and Other Ore royalty bonuses which can be recouped on anypayment date cannot, however, exceed 20% of the amount of Mesabi Ore royaltiesand royalty bonuses which are otherwise payable on that payment date.

***Advance royalties.***  Northshore is obligated to pay Mesabi Trustadvance royalties in equal quarterly installments.  The advance royalty was $714,988 for calendaryear 2005, $743,420 for calendar year 2006 and is $766,510 for 2007.  The amount of advance royalties payable issubject to adjustment (but not below $500,000 per annum) for inflation anddeflation and is determined each year in the same manner as the AdjustedThreshold Price.  All payments of advanceroyalties are credited against payments of base overriding royalties androyalty bonuses payable on Mesabi Ore until fully recouped by Northshore.  The amount of advance royalties payable in respectof each calendar quarter constitutes the minimum overriding royalty amountpayable by Northshore in respect of that calendar quarter.

***Other leasehold royalty information.***  Base overriding royalties and royalty bonusesare payable quarterly and accrue upon shipment, whether or not the actual salesproceeds for any shipment are received by Northshore.  The amount of base overriding royalties androyalty bonuses payable with respect to the first three quarters in anycalendar year are determined on the basis of tonnage shipped during each suchcalendar quarter and the actual sales proceeds of such shipments, with anadjustment made to the royalties payable with respect to the last quarter inany calendar year to account for adjustments.

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**LANDTRUST AND FEE ROYALTIES**

Mesabi Land Trust holds a20% interest as fee owner in the Peters Lease Lands and a 100% interest as feeowner in the Mesabi Lease Lands as lessor of the Mesabi Lease.  Mesabi Trust holds the entire beneficialinterest in Mesabi Land Trust and is entitled to receive the net income ofMesabi Land Trust after payment of expenses. Northshore is not obligated to pay royalties or rental to Mesabi LandTrust as fee owner of the non-mineral bearing Mesabi Lease Lands, aconsideration having been paid in that respect at the inception of the MesabiLease.

Northshoreis required to pay a base royalty to the fee owners in an amount which, at itsoption, is either (a) 11-2/3¢ per gross ton of crude ore it mines from thePeters Lease Lands, or (b) $.0056 for each 1% of metallic iron ore naturalcontained in each gross ton of pellets it produces from the Peters Lease Landsand ships.  The base fee royalty rate isadjusted up or down each quarter (but not below the base royalty specifiedabove) by adding or subtracting an amount to be determined by reference tochanges in Lower Lake Mesabi Range pellet prices and the All CommoditiesProducer Price Index.  The adjustmentfactor is computed by multiplying the base fee royalty rate specified above bya 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 taconitepellets delivered by rail or vessel at Lower Lake Erie ports exceeds 80.5¢ (theprice per iron unit in effect in January 1982), plus (b) one-half of thepercentage change, if any, by which the All Commodities Producer Price Indexexceeds 295.8 (the level of the Index for December 1981).  Fee royalties aggregating $426,313 with respectto crude ore mined by Northshore were earned by Mesabi Land Trust during thefiscal year ended January 31, 2007.

**TRUSTEXPENSES**

TotalTrust expenses for the fiscal year ended January 31, 2007 were $756,322,representing a decrease of 10.5% from the $844,956 of Trust expenses in fiscal2006.  Total Trust expenses by categoryfor fiscal 2007, 2006 and 2005 are set forth in the table below. 
| ** **                                                                                                                                     | ** ** | **Fiscal Year ended on January 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                                                                     | ** ** | **2007**                                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                                                                                                           |       |                                                          |       |   |   |   |   |
| Compensation of  Trustees                                                                                                                      |       | $                                                             | 167,216    |   | $ | 178,697 |   | $ | 146,839 |   |
| Fees and Disbursements:                                                                                                                        |       |                                                          |       |   |   |   |   |
| Corporate  Trustee’s administrative fees                                                                                                  |       | 62,500                                                        |       | 62,500 |   | 62,500 |   |
| Accounting                                                                                                                                     |       | 71,465                                                        |       | 108,675 |   | 49,880 |   |
| Inspection  trips, travel and other expenses of Trustees                                                                                       |       | 37,217                                                        |       | 33,069 |   | 31,122 |   |
| Legal                                                                                                                                          |       | 244,070                                                       |       | 265,248 |   | 158,314 |   |
| Mining  consultant and field representatives                                                                                                   |       | 56,650                                                        |       | 35,398 |   | 19,616 |   |
| Stock exchange  listing fee                                                                                                                    |       | 38,000                                                        |       | 35,000 |   | 35,000 |   |
| Printing and  filing of annual, quarterly and current reports, proxy statements and letters  to Unitholders; other Unitholder meeting expenses |       | 51,854                                                        |       | 75,105 |   | 9,875 |   |
| Transfer Agent  and Registrar                                                                                                                  |       | 12,738                                                        |       | 15,030 |   | 13,856 |   |
| Transfer Agent  miscellaneous disbursements                                                                                                    |       | 14,612                                                        |       | 36,234 |   | 30,959 |   |
|                                                                                                                                           |       | $                                                             | 756,322    |   | $ | 844,956 |   | $ | 557,961 |   |

 

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**UNALLOCATED RESERVE**

TheTrustees have determined that a portion of the Unallocated Reserve, usuallywithin the range of $500,000 to $1,000,000 or such other amount as the Trusteesmay deem prudent, should be maintained as a reserve for unexpected losses.  Although the actual amount of the UnallocatedReserve will fluctuate from time to time and may increase or decrease from itscurrent level, it is currently intended that future distributions will behighly dependent upon royalty income as it is received and the level of Trustexpenses.  The amount of future royaltyincome available for distribution will be subject to the volume of iron oreproduct shipments and the dollar level of sales by Northshore.  Shipping activity is greatly reduced duringthe winter months and economic conditions, particularly those affecting thesteel industry, may adversely affect the amount and timing of such futureshipments and sales.  See discussionunder the heading “Risk Factors” beginning on page 3 of this Annual Report.

The Trustees will continueto monitor the economic circumstances of the Trust to strike a responsiblebalance between distributions to Unitholders and the need to maintain adequatereserves at a prudent level, given the unpredictable nature of the iron oreindustry, the Trust’s dependence on the actions of the lessee/operator, and thefact that the Trust essentially has no other liquid assets.

**CERTIFICATESOF BENEFICIAL INTEREST**

TheMesabi Trust’s Certificates of Beneficial Interest are traded on the New YorkStock Exchange.  Distributions toUnitholders during the fiscal year ended January 31, 2007 totaled $23,025,618as compared to $17,777,614 during the fiscal year ended January 31, 2006.  Unitholders received distributions of $1.755per Unit for the fiscal year ended January 31, 2007, compared with distributionsof $1.355 and $0.775 per Unit for the fiscal years ended January 31, 2006 and2005, respectively.

During the past two fiscalyears, the market ranges of the certificates for each quarterly period and thedistributions declared for such quarterly periods were as follows:
| **Fiscal Quarter Ended** | ** ** | **High** | ** ** | **Low** | ** ** | **Amount  Declared** | ** ** | **Per Unit** | ** ** |
|------------------------------------|------------|----------|------------|---------|------------|----------------------|------------|-------------------|------------|
| April 30, 2006                     |       | $        | 25.84      |    | $          | 19.25                |       | $                 | 3,936,003  |   | $ | 0.30 |   |
| July 31, 2006                      |       | $        | 21.76      |    | $          | 17.75                |       | 5,248,004         |       | 0.40 |   |
| October 31, 2006                   |       | $        | 24.43      |    | $          | 18.00                |       | 7,675,206         |       | 0.585 |   |
| January 31, 2007                   |       | $        | 28.93      |    | $          | 21.17                |       | 4,132,803         |       | 0.315 |   |
|                               |       |     |       |    |       | $                    | 20,992,016 |              | $          | 1.60 |   |

 
| **Fiscal Quarter Ended** | ** ** | **High** | ** ** | **Low** | ** ** | **Amount  Declared** | ** ** | **Per Unit** | ** ** |
|------------------------------------|------------|----------|------------|---------|------------|----------------------|------------|-------------------|------------|
| April 30, 2005                     |       | $        | 21.84      |    | $          | 13.81                |       | $                 | 4,329,603  |   | $ | 0.33 |   |
| July 31, 2005                      |       | $        | 17.03      |    | $          | 13.29                |       | 4,854,404         |       | 0.37 |   |
| October 31, 2005                   |       | $        | 19.93      |    | $          | 15.36                |       | 4,723,204         |       | 0.36 |   |
| January 31, 2006                   |       | $        | 21.85      |    | $          | 15.95                |       | 6,166,405         |       | 0.47 |   |
|                               |       |     |       |    |       | $                    | 20,073,616 |              | $          | 1.53 |   |

 

Asof the close of business on March 30, 2007, the beneficial interest in MesabiTrust was represented by 13,120,010 Units registered in the names ofapproximately 1,484****individualsholding of record approximately 1,064,073 Units, and in the names ofapproximately 129 brokers, nominees, or fiduciaries holding of recordapproximately 12,055,937 Units.

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**THETRUSTEES**

Thename and address of each Trustee and the principal occupation of eachindividual Trustee are as follows:
| Name and Address of Trustee                                                                                                                        | ** ** | **Principal Occupation**                                                             |
|----------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------|
|                                                                                                                                               |       |                                                                                 |
| Deutsche Bank Trust Company Americas  Corporate Trustee  60 Wall Street  27th Floor  New York, New York 10005                                 |       | New York banking corporation                                                         |
|                                                                                                                                               |       |                                                                                 |
| James A. Ehrenberg  Individual Trustee  295 Kopp Drive  West St. Paul, Minnesota 55118                                                             |       | Until April 2005, Senior Vice  President, Corporate Trust Services,  U.S. Bank, N.A. |
|                                                                                                                                               |       |                                                                                 |
| David J. Hoffman  Individual Trustee  150 Forrest View Drive  Sedona, Arizona 86336                                                                |       | Mining geologist                                                                     |
|                                                                                                                                               |       |                                                                                 |
| Richard G. Lareau  Individual Trustee  Oppenheimer Wolff & Donnelly LLP  3400 Plaza VII  45 South Seventh Street  Minneapolis, Minnesota 55402 |       | Partner in the law firm of  Oppenheimer Wolff & Donnelly  LLP                    |
|                                                                                                                                               |       |                                                                                 |
| Norman F. Sprague III  Individual Trustee  11726 San Vicente Blvd.  Suite 625  Los Angeles, California 90049                                       |       | Private investor; orthopedic surgeon                                       |

 
| New York, New York  April 13, 2007 |   | Respectfully submitted,

 

DEUTSCHE BANK  TRUST  COMPANY AMERICAS

 

JAMES A. EHRENBERG  DAVID J. HOFFMAN  RICHARD G. LAREAU  NORMAN F. SPRAGUE III |
|------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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INDEX TO FINANCIALSTATEMENTS

 
| Trustees’ Report on Internal Control over  Financial Reporting                                      |   | Page F-2         |
|----------------------------------------------------------------------------------------------------------|--------|------------------|
|                                                                                                     |   |             |
| Report of Independent Registered Public Accounting  Firm                                                 |   | Pages F-3 - F-4  |
|                                                                                                     |   |             |
| Balance Sheets as of January 31, 2007 and 2006                                                           |   | Page F-5         |
|                                                                                                     |   |             |
| Statements of Income for the years ended January 31,  2007, 2006, and 2005                               |   | Page F-6         |
|                                                                                                     |   |             |
| Statements of Unallocated Reserve and Trust Corpus  for the years ended January 31, 2007, 2006, and 2005 |   | Page F-7         |
|                                                                                                     |   |             |
| Statements of Cash Flows for the years ended January  31, 2007, 2006, and 2005                           |   | Page F-8         |
|                                                                                                     |   |             |
| Notes to Financial Statements                                                                            |   | Pages F-9 - F-14 |

 

F-1

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**TRUSTEES’ REPORT ON INTERNAL CONTROL OVER FINANCIALREPORTING**

The Mesabi Trustees areresponsible for establishing and maintaining adequate internal control overfinancial reporting for Mesabi Trust. The Trust’s internal control system was designed to provide reasonableassurance to the Trustees regarding the preparation and fair presentation ofpublished financial statements.

All internal controlsystems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined tobe effective can provide only reasonable assurance with respect to financialstatement preparation and presentation.

The Mesabi Trustees assessedthe effectiveness of the Trust’s internal control over financial reporting asof January 31, 2007.  In making thisassessment, they used the criteria set forth by the Committee of SponsoringOrganizations of the Treadway Commission in Internal Control – IntegratedFramework.  Based on their assessment,the Trustees believe that, as of January 31, 2007, the Trust’s internal controlover financial reporting is effective, based on those criteria.

Gordon, Hughes and Banks,LLP, the Trust’s independent registered public accounting firm, has issued anaudit report on its assessment of the Trust’s internal control over financialreporting.  This report appearsimmediately below.

F-2

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Trustees

MESABI TRUST

NewYork, New York

Wehave audited the accompanying balance sheets of MESABI TRUST (the “Trust”) asof January 31, 2007 and 2006, and the related statements of income, unallocatedreserve and trust corpus, and cash flows for each of the years in the three-yearperiod ended January 31, 2007.  We alsohave audited the Trustees’ assessment, included in the accompanying Trustees’Report on Internal Control over Financial Reporting, that the Trust maintainedeffective internal control over financial reporting as of January 31, 2007,based on criteria established in Internal Control—Integrated Framework issuedby the Committee of Sponsoring Organizations of the Treadway Commission(COSO).  The Trustees are responsible forthese financial statements, for maintaining effective internal control overfinancial reporting, and for their assessment of the effectiveness of the Trust’sinternal control over financial reporting. Our responsibility is to express an opinion on these financialstatements, an opinion on the Trustees’ assessment, and an opinion on theeffectiveness of the Trust’s internal control over financial reporting based onour audits.

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement and whether effective internal control over financialreporting was maintained in all material respects.  Our audit of financial statements includedexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used and significantestimates made by the Trustees, and evaluating the overall financial statementpresentation.  Our audit of internalcontrol over financial reporting included obtaining an understanding ofinternal control over financial reporting, evaluating the Trustees’ assessment,testing and evaluating the design and operating effectiveness of internalcontrol, and performing such other procedures as we considered necessary in thecircumstances.  We believe that ouraudits provide a reasonable basis for our opinion.

Anorganization’s internal control over financial reporting is a process designedto provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles.  An organization’s internal control overfinancial reporting includes those policies and procedures that 1) pertain tothe maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the organization; 2)provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of theorganization are being made only in accordance with authorizations of theTrustees of the organization; and, 3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or dispositionof the organization’s assets that could have a material effect on the financialstatements.

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements.  Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

Inour opinion, the financial statements referred to above present fairly, in allmaterial respects, the financial position of MESABI TRUST as of January 31,2007 and 2006, and the results of its operations and its cash flows for each ofthe years in the three-year period ended January 31, 2007 in conformity withaccounting principles generally accepted in the United States of America.  Also, in our opinion, the Trustees’assessment that MESABI

F-3

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TRUSTmaintained effective internal control over financial reporting as of January31, 2007 is fairly stated, in all material respects, based on criteria establishedin Internal Control—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO).  Furthermore, in our opinion, MESABI TRUSTmaintained, in all material respects, effective internal control over financialreporting as of January 31, 2007, based on criteria established in InternalControl—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO).

Gordon, Hughes & Banks, LLP

Greenwood Village, Colorado

April6, 2007

F-4

----

**MESABI TRUST**

**BALANCE SHEETS**

**JANUARY 31, 2007 AND 2006**
| ** **                                                                 | ** ** | **2007**      | ** **    | **2006**   | ** ** |
|----------------------------------------------------------------------------|------------|---------------|---------------|------------|------------|
|                                                                       |       |          |          |       |       |
| **ASSETS**                                                                 | ** ** | ** **    | ** **    | ** ** | ** ** |
|                                                                       |       |          |          |       |       |
| CASH                                                                       | ** ** | **$**         | **4,258,201** |       | $          | 6,377,990 |   |
| U.S. GOVERNMENT  SECURITIES, at amortized cost (which approximates market) | ** ** | **727,883**   |          | 648,193    |       |
| ACCRUED INCOME RECEIVABLE                                                  | ** ** | **409,764**   |          | 4,277,766  |       |
| PREPAID EXPENSE                                                            | ** ** | **18,701**    |          | 25,007     |       |
|                                                                       | ** ** | **5,414,549** |          | 11,328,956 |       |
|                                                                       |       |          |          |       |       |
| FIXED PROPERTY,  including intangibles, at nominal values                  |       |          |          |       |       |
| Assignments of  leased property                                            |       |          |          |       |       |
| Amended  assignment of Peters Lease                                        | ** ** | **1**         |          | 1          |       |
| Assignment of  Cloquet Leases                                              | ** ** | **1**         |          | 1          |       |
| Certificate of  beneficial interest for 13,120,010 units of Land Trust     | ** ** | **1**         |          | 1          |       |
|                                                                       |       | **3**         |          | 3          |       |
|                                                                       |       |          |          |       |       |
|                                                                       | ** ** | **$**         | **5,414,552** |       | $          | 11,328,959 |   |
|                                                                       |       |          |          |       |       |
| **LIABILITIES, UNALLOCATED  RESERVE AND TRUST CORPUS**                     | ** ** | ** **    | ** **    | ** ** | ** ** |
|                                                                       |       |          |          |       |       |
| DISTRIBUTION PAYABLE                                                       | ** ** | **$**         | **4,132,803** |       | $          | 6,166,405 |   |
| ACCRUED EXPENSES                                                           | ** ** | **142,072**   |          | 177,527    |       |
|                                                                       | ** ** | **4,274,875** |          | 6,343,932  |       |
|                                                                       |       |          |          |       |       |
| UNALLOCATED RESERVE                                                        | ** ** | **1,139,674** |          | 4,985,024  |       |
|                                                                       |       |          |          |       |       |
| TRUST CORPUS                                                               | ** ** | **3**         |          | 3          |       |
|                                                                       |       |          |          |       |       |
|                                                                       | ** ** | **$**         | **5,414,552** |       | $          | 11,328,959 |   |

 

See Notes to Financial Statements

F-5

----

**MESABI TRUST**

**STATEMENTS OF INCOME**

**YEARS ENDED JANUARY 31, 2007, 2006 AND 2005**

** **
| ** **                                       | ** ** | **2007**       | ** **     | **2006**   | ** ** | **2005**   | ** ** |
|--------------------------------------------------|------------|----------------|----------------|------------|------------|------------|------------|
|                                             |       |           |           |       |       |       |       |
| REVENUES                                         |       |           |           |       |       |       |       |
| Royalties under  amended lease agreements        | ** ** | **$**          | **17,407,543** |       | $          | 21,151,084 |       | $ | 13,174,114 |   |
| Royalties under  Peters Lease fee                | ** ** | **426,313**    |           | 376,138    |       | 361,191    |       |
| Interest                                         | ** ** | **69,132**     |           | 52,611     |       | 40,243     |       |
|                                             |       |           |           |       |       |       |       |
| Total revenues                                   | ** ** | **17,902,988** |           | 21,579,833 |       | 13,575,548 |       |
|                                             |       |           |           |       |       |       |       |
| EXPENSES                                         |       |           |           |       |       |       |       |
| Compensation of  Trustees                        | ** ** | **167,216**    |           | 178,697    |       | 146,839    |       |
| Corporate  Trustee’s administrative fees    | ** ** | **62,500**     |           | 62,500     |       | 62,500     |       |
| Professional  fees and expenses:                 |       |           |           |       |       |       |       |
| Legal and  accounting                            | ** ** | **315,535**    |           | 373,923    |       | 208,193    |       |
| Mining  consultant and field representatives     | ** ** | **56,650**     |           | 35,398     |       | 19,616     |       |
| Transfer agent’s  and registrar’s fees | ** ** | **12,738**     |           | 15,030     |       | 13,856     |       |
| Other Trust  expenses                            | ** ** | **141,683**    |           | 179,408    |       | 106,957    |       |
|                                             |       |           |           |       |       |       |       |
| Total expenses                                   | ** ** | **756,322**    |           | 844,956    |       | 557,961    |       |
|                                             |       |           |           |       |       |       |       |
| NET INCOME                                       | ** ** | **$**          | **17,146,666** |       | $          | 20,734,877 |       | $ | 13,017,587 |   |
|                                             |       |           |           |       |       |       |       |
|                                             |       |           |           |       |       |       |       |
| WEIGHTED AVERAGE NUMBER  OF UNITS OUTSTANDING    | ** ** | **13,120,010** |           | 13,120,010 |       | 13,120,010 |       |
|                                             |       |           |           |       |       |       |       |
| NET INCOME PER UNIT                              | ** ** | **$**          | **1.31**       |       | $          | 1.58       |       | $ | 0.99 |   |

 

See Notes to Financial Statements

F-6

----

**MESABI TRUST**

**STATEMENTS OF UNALLOCATED RESERVE AND TRUST CORPUS**

**YEARS ENDED JANUARY 31, 2007,2006 AND 2005**

** **
| ** **                                                                      | ** ** | **Unallocated Reserve** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------------------|------------|------------------------------|------------|------------|------------|
| ** **                                                                      | ** ** | **Number of  Units**    | ** ** | **Amount** | ** ** | **Trust  Corpus** | ** ** |
|                                                                            |       |                         |       |       |       |   |   |
| BALANCE, JANUARY 31,  2004                                                      |       | 13,120,010                   |       | $          | 1,408,584  |   | $ | 3 |   |
|                                                                            |       |                         |       |       |       |   |   |
| Net income                                                                      |       | —                       |       | 13,017,587 |       | — |   |
| Distribution  paid May 20, 2004, $.05 per unit                                  |       | —                       |       | (656,000   | )          | — |   |
| Distribution  paid August 20, 2004, $.175 per unit                              |       | —                       |       | (2,296,002 | )          | — |   |
| Distribution  paid November 22, 2004, $.25 per unit                             |       | —                       |       | (3,280,003 | )          | — |   |
| Distribution  declared January 20, 2005, paid February 22, 2005, $.295 per unit |       | —                       |       | (3,870,403 | )          | — |   |
|                                                                            |       |                         |       |       |       |   |   |
| BALANCE, JANUARY 31,  2005                                                      |       | 13,120,010                   |       | 4,323,763  |       | 3 |   |
|                                                                            |       |                         |       |       |       |   |   |
| Net income                                                                      |       | —                       |       | 20,734,877 |       | — |   |
| Distribution  paid May 20, 2005, $.33 per unit                                  |       | —                       |       | (4,329,603 | )          | — |   |
| Distribution  paid August 20, 2005, $.37 per unit                               |       | —                       |       | (4,854,404 | )          | — |   |
| Distribution  paid November 20, 2005, $.36 per unit                             |       | —                       |       | (4,723,204 | )          | — |   |
| Distribution  declared January 13, 2006, paid February 20, 2006, $.47 per unit  |       | —                       |       | (6,166,405 | )          | — |   |
|                                                                            |       |                         |       |       |       |   |   |
| BALANCE, JANUARY 31,  2006                                                      |       | 13,120,010                   |       | 4,985,024  |       | 3 |   |
|                                                                            |       |                         |       |       |       |   |   |
| Net income                                                                      |       | —                       |       | 17,146,666 |       | — |   |
| Distribution  paid May 20, 2006, $.30 per unit                                  |       | —                       |       | (3,936,003 | )          | — |   |
| Distribution  paid August 20, 2006, $.40 per unit                               |       | —                       |       | (5,248,004 | )          | — |   |
| Distribution  paid November 20, 2006, $.585 per unit                            |       | —                       |       | (7,675,206 | )          | — |   |
| Distribution  declared January 12, 2007, paid February 20, 2007, $.315 per unit |       | —                       |       | (4,132,803 | )          | — |   |
|                                                                            |       |                         |       |       |       |   |   |
| BALANCE, JANUARY 31, 2007                                                       |       | 13,120,010                   |       | $          | 1,139,674  |   | $ | 3 |   |

 

See Notes to Financial Statements

F-7

----

**MESABI TRUST**

**STATEMENTS OF CASH FLOWS**

**YEARS ENDED JANUARY 31, 2007,2006 AND 2005**

 
| ** **                                                          | ** ** | **2007**        | ** **     | **2006**    | ** ** | **2005**    | ** ** |
|---------------------------------------------------------------------|------------|-----------------|----------------|-------------|------------|-------------|------------|
|                                                                |       |            |           |        |       |        |       |
| OPERATING ACTIVITIES                                                |       |            |           |        |       |        |       |
| Royalties  received                                                 | ** ** | **$**           | **21,702,292** |        | $          | 20,765,979  |       | $ | 10,461,572 |   |
| Interest  received                                                  | ** ** | **68,697**      |           | 56,010      |       | 43,834      |       |
| Expenses paid                                                       | ** ** | **(785,470**    | **)**          | (737,255    | )          | (543,073    | )          |
|                                                                |       |            |           |        |       |        |       |
| NET CASH FROM OPERATING  ACTIVITIES                                 | ** ** | **20,985,519**  |           | 20,084,734  |       | 9,962,333   |       |
|                                                                |       |            |           |        |       |        |       |
| INVESTING ACTIVITIES                                                |       |            |           |        |       |        |       |
| Maturities of  U.S. Government securities                           | ** ** | **23,881,252**  |           | 18,664,390  |       | 11,074,154  |       |
| Purchases of  U.S. Government securities                            | ** ** | **(23,960,942** | **)**          | (18,564,390 | )          | (6,996,301  | )          |
|                                                                |       |            |           |        |       |        |       |
| NET CASH FROM (USED FOR)  INVESTING ACTIVITIES                      | ** ** | **(79,690**     | **)**          | 100,000     |       | 4,077,853   |       |
|                                                                |       |            |           |        |       |        |       |
| FINANCING ACTIVITY                                                  |       |            |           |        |       |        |       |
| Distributions to  unitholders                                       | ** ** | **(23,025,618** | **)**          | (17,777,614 | )          | (10,168,008 | )          |
|                                                                |       |            |           |        |       |        |       |
| NET CHANGE IN CASH                                                  | ** ** | **(2,119,789**  | **)**          | 2,407,120   |       | 3,872,178   |       |
|                                                                |       |            |           |        |       |        |       |
| CASH, BEGINNING OF YEAR                                             | ** ** | **6,377,990**   |           | 3,970,870   |       | 98,692      |       |
|                                                                |       |            |           |        |       |        |       |
| CASH, END OF YEAR                                                   | ** ** | **$**           | **4,258,201**  |        | $          | 6,377,990   |       | $ | 3,970,870 |   |
|                                                                |       |            |           |        |       |        |       |
|                                                                |       |            |           |        |       |        |       |
| RECONCILIATION OF NET  INCOME TO NET CASH FROM OPERATING ACTIVITIES |       |            |           |        |       |        |       |
| Net income                                                          | ** ** | **$**           | **17,146,666** |        | $          | 20,734,877  |       | $ | 13,017,587 |   |
| Decrease  (increase) in accrued income receivable                   | ** ** | **3,868,002**   |           | (757,843    | )          | (3,070,143  | )          |
| Decrease  (increase) in prepaid expense                             | ** ** | **6,306**       |           | (11,661     | )          | 2,214       |       |
| Increase  (decrease) in accrued expenses                            | ** ** | **(35,455**     | **)**          | 119,361     |       | 12,675      |       |
|                                                                |       |            |           |        |       |        |       |
| NET CASH FROM OPERATING ACTIVITIES                                  | ** ** | **$**           | **20,985,519** |        | $          | 20,084,734  |       | $ | 9,962,333 |   |

 

See Notes to Financial Statements

F-8

----

**MESABI TRUST**

**NOTES TO FINANCIAL STATEMENTS**

**JANUARY 31, 2007, AND 2006**

**NOTE 1 -               NATURE OFBUSINESS AND ORGANIZATION**

*Nature of Business*

MesabiTrust was created in 1961 upon the liquidation of Mesabi Iron Company. The solepurpose of the Trust, as set forth in the Agreement of Trust dated as of July18, 1961, is to conserve and protect the Trust Estate and to collect anddistribute the income and proceeds therefrom to the Trust’s certificate holdersafter the payment of, or provision for, expenses and liabilities. The Agreementof Trust prohibits the Trust from engaging in any business.  In accordance with the Agreement of Trust,the Trust will terminate twenty-one years after the death of the survivor oftwenty-five persons named in an exhibit to the Agreement of Trust, the youngestof whom is believed to be forty-six years old.

Thelessee/operator of Mesabi Trust’s mineral interests is Northshore MiningCorporation (NMC), a subsidiary of Cleveland-Cliffs Inc (CCI). CCI is among theworld’s largest producers of iron ore products. Prior to September 30, 1994, thelessee/operator had been a subsidiary of Cyprus Amax Minerals Company and wasnamed Cyprus Northshore Mining Corporation (Cyprus NMC).

*Organization*

Thebeneficial interest in Mesabi Trust is represented by 13,120,010 transferableunits distributed on July 27, 1961 to shareholders of Mesabi Iron Company.

TheTrust’s status as a grantor trust was confirmed by letter ruling addressed toMesabi Iron Company from the Internal Revenue Service in 1961. As a grantortrust, Mesabi is exempt from Federal income taxes and its income is taxabledirectly to the Unitholders.

**NOTE 2 -               SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES**

*Cash and Cash Equivalents*

Forpurposes of the statements of cash flows, the Trust considers all highly liquidinvestments with an**original maturityof three months or less to be cash equivalents. The Trust had no cash equivalents as of January 31, 2007 and 2006.

*Investments*

TheTrust invests solely in U.S. Government securities. Management determines theappropriate classifications of the securities at the time they are acquired andevaluates the appropriateness of such classifications as of each balance sheetdate.

TheU.S. Government securities are classified as held-to-maturity securities as theTrust has the positive intent and ability to hold to maturity and are thereforestated at amortized cost.

F-9

----

*Revenue Recognition*

Royaltyincome under the amended lease agreements with NMC (Cyprus NMC throughSeptember 30, 1994) is recognized as it is earned. Under such agreements,royalties are earned upon shipment from Silver Bay, Minnesota (NMC’s location),regardless of whether the actual sales proceeds for any shipment are receivedby NMC.

Theamount of base overriding royalties and royalty bonuses payable with respect tothe first three quarters in any calendar year are determined on the basis oftonnage shipped during each calendar quarter and the actual proceeds of suchshipments, with an adjustment made to the royalties payable with respect to thelast quarter in any calendar year to account for adjustments.

Adjustmentscould result from changes in final reconciliations of tonnage shipped by NMCwith the final amounts received from NMC customers.  Such adjustments have historically hadminimal effect on the amount of royalties reported in the fourth quarter.  Adjustments result from sales of tonnageshipped where the final sales price may be adjusted upward or downward from theoriginal price used by NMC in computing the royalties payable to Mesabi Trust.  Historically, these adjustments have not had amaterial effect on the financial statements. In the fourth quarter of fiscal2006 and 2005, there were substantial adjustments relating to final pricingadjustments by NMC which are reflected in increased Accrued Income Receivableon the Balance Sheets and Revenue on the Statements of Income.  No substantial adjustments related to finalpricing were made in the fourth quarter of fiscal 2007.

Royaltyincome 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 fromPeters Lease lands or upon shipment from Silver Bay of iron ore productproduced from Peters Lease lands.

*FixedProperty, Including Intangibles*

TheTrust’s fixed property, including intangibles, is recorded at nominal valuesand includes the following:

1.                                       The entire beneficial interest as assignor inthe Amended Peters Lease Assignment and the Amended Cloquet Lease Assignmentcovering taconite properties in Minnesota which are leased to NMC (Cyprus NMCthrough September 30, 1994).

2.               The entire beneficial interest in Mesabi LandTrust which owns a 20% fee interest in the lands subject to the Peters Leaseand the entire fee interest in other properties in Minnesota.

*NetIncome Per Unit*

Netincome per unit is computed by dividing net income available to Unitholders bythe weighted average number of units outstanding.

*Concentrationof Credit Risk*

Statementof Financial Accounting Standards (“SFAS”) No. 105, “*Disclosureof Information about Financial Instruments with Off-Balance-Sheet Risk andFinancial Instruments with Concentrations of Credit Risk*” requiresdisclosure of significant concentrations of credit risk regardless of thedegree of such risk. Financial instruments which potentially subject the Trustto concentrations of credit risk consist primarily of

F-10

----

cash.The Trust maintains its cash deposits with a high quality financialinstitution.  Amounts on deposit with thefinancial institution are insured by the Federal Deposit Insurance Corporation(“FDIC”) up to $100,000.  There is aconcentration of credit risk related to amounts that exceed the FDIC insurancecoverage.  The Trust believes that therisk is insignificant.

*AccountingEstimates*

Thepreparation of financial statements in conformity with generally acceptedaccounting principles requires the Trustees to make estimates and assumptionsthat affect the reported amounts of assets and liabilities, the disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.Actual results could differ from those estimates.

*FairValue of Financial Instruments*

Thecarrying amounts of financial instruments including cash, investments, accruedincome receivable, distributions payable and accrued expenses approximated fairvalue as of January 31, 2007 and 2006, because of the relative short maturityof these instruments.

*RecentAccounting Pronouncements*

InSeptember 2006, the Financial Accounting Standards Board (FASB) issued SFAS No.157, “Fair Value Measurements.”  SFAS No.157 defines fair value, establishes a framework for measuring fair value andexpands disclosure of fair value measurements. SFAS No. 157 applies under otheraccounting pronouncements that require or permit fair value measurements andaccordingly, does not require any new fair value measurements. SFAS No. 157 iseffective for financial statements issued for fiscal years beginning afterNovember 15, 2007. The Trust believes the impact of the implementation of SFASNo. 157 will have no effect on the results of operations or financialcondition.

In September 2006, the U.S.Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No.108, “Considering the Effects of Prior Year Misstatements when QuantifyingMisstatements in Current Year Financial Statements” (SAB 108). SAB 108addresses the diversity in practice of quantifying financial statementmisstatements resulting in the potential build up of improper amounts on thebalance sheet. SAB 108 provides interpretive guidance on how the effects of thecarryover or reversal of prior year misstatements should be considered inquantifying a current year misstatement. The SEC staff believes thatregistrants should quantify errors using both a balance sheet and an incomestatement approach and evaluate whether either approach results in quantifyinga misstatement that, when all relevant quantitative and qualitative factors areconsidered, is material. SAB 108 is effective in fiscal year 2007. SAB 108allows a one-time transitional cumulative effect adjustment to beginningretained earnings for errors that were not previously deemed material, but arematerial under the guidance in SAB 108. The adoption of SAB 108 had no impacton the Trust’s financial statements.

In February 2007, the FASBissued SFAS No. 159, “The Fair Value Option for Financial Assets and FinancialLiabilities—Including an amendment of FASB Statement No. 115.”  SFAS No. 159 expands the use of fair valueaccounting but does not affect existing standards which require assets orliabilities to be carried at fair value. Under SFAS No. 159, a company mayelect to use fair value to measure accounts and loans receivable,available-for-sale and held-to-maturity securities, equity method investments,accounts payable, guarantees and issued debt. Other eligible items include firmcommitments. SFAS No. 159 is effective for financial statements issued forfiscal years beginning after November 15, 2007. The Trust is currentlyevaluating the impact of SFAS No. 159, but believes it will have no materialimpact on the results of operations or statement of financial position.

F-11

----

**NOTE 3 -               U. S. GOVERNMENT SECURITIES**

U.S. government securities at January 31, 2007 and2006 are classified as held-to-maturity and mature as follows:
|                                         | ** ** | **2007**     | ** **  | **2006**            | ** ** |
|-----------------------------------------|------------|--------------|-------------|---------------------|------------|
| ** **                              | ** ** | **Carrying** | ** **  | ** **          | ** ** | **Carrying** | ** ** | ** ** | ** ** |
| ** **                              | ** ** | **Value**    | ** **  | **Fair Value** | ** ** | **Value** | ** ** | **Fair Value** | ** ** |
|                                    |       |         |        |                |       |   |   |   |   |
| Due within one  year                    | ** ** | **$**        | **293,009** | ** **          | **$**      | **288,171** |   | $ | 103,969 |   | $ | 100,039 |   |
| Due after one  year through three years | ** ** | **434,874**  |        | **425,839**         | ** ** | 544,224 |   | 529,927 |   |
|                                    | ** ** | **$**        | **727,883** | ** **          | **$**      | **714,010** |   | $ | 648,193 |   | $ | 629,966 |   |

 

**NOTE 4 -               ROYALTYAGREEMENT**

The current royalty rate schedule became effective onAugust 17, 1989, which was established pursuant to certain agreements (the “AmendedAssignment Agreements”) the Trust entered into with Cyprus Northshore MiningCorporation (“Cyprus NMC”).  Pursuant tothe Amended Assignment Agreements, overriding royalties are determined by boththe volume and selling price of iron ore products shipped.

On September 30, 1994, Cyprus Amax Minerals Company soldits iron ore operations, including Cyprus NMC, to Cleveland-Cliffs Inc(CCI).  CCI renamed the operationNorthshore Mining Corporation (NMC).  CCIis 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 baseoverriding royalties, in varying amounts constituting a percentage of the grossproceeds of shipments, from Silver Bay, Minnesota, of iron ore product producedfrom 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 shipmentswithin 30 days following the calendar quarter in which such shipmentsoccur.  NMC (Cyprus NMC through September30, 1994) resumed mining operations and shipping product from Silver Bay in thesecond calendar quarter of 1990, and the first payment of overriding royaltieswas made in July 1990.

NMC (Cyprus NMC through September 30, 1994) also isobligated to pay to Mesabi Trust a minimum advance royalty of $500,000 perannum, subject to adjustment for inflation and deflation (but not below$500,000), which is credited against base overriding royalties and royaltybonuses. NMC (Cyprus NMC through September 30, 1994) is obligated to makequarterly payments of the minimum advance royalty in January, April, July andOctober of each year. For the calendar year ending December 31, 2007, theminimum advance royalty is $766,510. The minimum annual advance royalty was$743,420 and $714,988, for the calendar years ended December 31, 2006 and 2005,respectively.

F-12

----

**NOTE 5 -               UNALLOCATED RESERVE ANDDISTRIBUTIONS**

The Unallocated Reserve aggregated $1,139,674, atJanuary 31, 2007, as compared with an Unallocated Reserve of $4,985,024 atJanuary 31, 2006.  The Trust’s Unallocated Reserve, which iscomprised of accrued income receivable and cash reserve for unexpected losses,decreased 77.14% or $3,845,350, as of the end of fiscal year ended January 31,2007 as compared to the fiscal year ended January 31, 2006.  This decrease is due to a significantreduction in the accrued income receivable portion of the Unallocated Reservewhich decreased 90.42% to $409,764 in fiscal 2007 from $4,277,766 in fiscal2006.  The Trust’s cash reserve forunexpected losses increased 3.2% to $729,910 in fiscal 2007 from $707,258 infiscal 2006.

TheTrustees have determined that the Unallocated Reserve should be maintained at aprudent level, usually within the range of $500,000 to $1,000,000, to meetpresent or future liabilities of the Trust. Accordingly, although the actual amount of the Unallocated Reserve willfluctuate from time to time, and may increase or decrease from its currentlevel, it is currently intended that future distributions will be highlydependent upon royalty income as it is received quarterly and the level ofTrust expenses that the Trustees anticipate occurring in subsequentquarters.  The Trustees determine thelevel of distributions on a quarterly basis after receiving notification fromNMC as to the amount of royalty income that will be received and after determinationof any known or anticipated expenses, liabilities and obligations of the Trust.

During the fiscal years ended January 31, 2007, 2006,and 2005, the Trustees distributed cash payments totaling $23,025,618 ($1.755per Unit), $17,777,614 ($1.355 per Unit), and $10,168,008 ($.775 per Unit),respectively. In addition, in January 2007 the Trustees declared a distributionof $.315 per Unit of beneficial interest, which was paid in February 2007.

F-13

----

**NOTE 6 -               SUMMARY OFQUARTERLY EARNINGS (UNAUDITED)**

The quarterly results of operations for the two yearsended January 31, 2007 and 2006 are presented below:
|                      | ** ** | **2007**    | ** **    |
|----------------------|------------|-------------|---------------|
| ** **           | ** ** | **First**   | ** **    | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
| ** **           | ** ** | **Quarter** | ** **    | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** |
|                 |       |        |          |   |   |   |   |   |   |
| Revenue              | ** ** | **$**       | **1,644,970** | ** ** | **$** | **6,327,114** | ** ** | **$** | **7,180,092** | ** ** | **$** | **2,750,812** | ** ** |
| Expenses             | ** ** | **171,117** | ** **    | **137,759** | ** ** | **134,465** | ** ** | **312,981** | ** ** |
| Net income           | ** ** | **$**       | **1,473,853** | ** ** | **$** | **6,189,355** | ** ** | **$** | **7,045,627** | ** ** | **$** | **2,437,831** | ** ** |
|                 |       |        |          |   |   |   |   |   |   |
| Net income per  unit | ** ** | **$**       | **0.11**      | ** ** | **$** | **0.47** | ** ** | **$** | **0.54** | ** ** | **$** | **0.19** | ** ** |

 
|                     | ** ** | **2006**    | ** ** |
|---------------------|------------|-------------|------------|
| ** **          | ** ** | **First**   | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
| ** **          | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** |
|                |       |        |       |   |   |   |   |   |   |
| Revenue             |       | $           | 2,354,085  |   | $ | 5,553,453 |   | $ | 5,578,773 |   | $ | 8,093,522 |   |
| Expenses            |       | 218,922     |       | 145,972 |   | 124,590 |   | 355,472 |   |
|                |       |        |       |   |   |   |   |   |   |
| Net income          |       | $           | 2,135,163  |   | $ | 5,407,481 |   | $ | 5,454,183 |   | $ | 7,738,050 |   |
|                |       |        |       |   |   |   |   |   |   |
| Net income per unit |       | $           | 0.16       |   | $ | 0.41 |   | $ | 0.42 |   | $ | 0.59 |   |

 

F-14

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