<PAGE>

                                  ANNUAL REPORT
                               OF THE TRUSTEES OF
                                  MESABI TRUST

                       For the Year Ended January 31, 1999


ADDRESS

Mesabi Trust
c/o Bankers Trust Company
Corporate Trust and Agency Group
P.O. Box 318
Church Street Station
New York, NY 10015
Telephone - (212) 250-6519

COUNSEL

Oppenheimer Wolff & Donnelly LLP, General Counsel

TRANSFER AGENT

Bankers Trust Company

REGISTRAR

Bankers Trust Company

           Mesabi Trust will provide, upon the written request of any
certificate holder addressed to the Trustees at the above address and without
charge to such certificate holder, a copy of Mesabi Trust's Annual Report on
Form 10-K for the fiscal year ended January 31, 1999 as filed with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended.


FORWARD-LOOKING INFORMATION

           Certain statements contained in this document are forward-looking,
including specifically those statements estimating 1999 production or shipments.
All such forward-looking statements are based on input from the lessee/operator.
The Trust has no control over the operations and activities of the
lessee/operator except within the framework of current agreements. Actual
results could differ materially from those indicated in such statements. For
important factors that could cause actual results to differ materially, see
"Important Factors Affecting Mesabi Trust," below.

                                       1

<PAGE>

                                           SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>

YEARS ENDED JANUARY 31            1999              1998              1997             1996              1995
----------------------            ----              ----              ----             ----              ----
<S>                           <C>               <C>               <C>               <C>              <C>
Royalty and interest income   $ 5,988,143       $ 6,860,369       $ 6,001,143       $ 4,061,228      $ 3,485,351

Trust expenses                    353,386           362,373           381,534           387,180          426,655
                              -----------       -----------       -----------       -----------      -----------
Net income(a)                 $ 5,634,757       $ 6,497,996       $ 5,619,609       $ 3,674,048      $ 3,058,696
                              -----------       -----------       -----------       -----------      -----------
Net income per Unit(b)        $       .43       $       .50       $       .43       $       .28      $       .23
                              -----------       -----------       -----------       -----------      -----------
Distributions declared
  per unit(b)(c)              $       .43       $       .49       $       .42       $      .275      $       .24
                              -----------       -----------       -----------       -----------      -----------

AT JANUARY 31
Total Assets                  $ 2,790,042       $ 4,286,758       $ 2,603,167       $ 2,286,131      $ 1,991,142
                              -----------       -----------       -----------       -----------      -----------

</TABLE>

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

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

(c)      During the fiscal year ended January 31, 1999, the Trustees distributed
         $.54 per Unit (including $.265 per Unit declared in fiscal 1998 and
         distributed in February 1998) and declared an additional distribution
         of $.155 per Unit, payable in February 1999. During the fiscal year
         ended January 31, 1998, the Trustees distributed $.37 per Unit
         (including $.145 per Unit declared in fiscal 1997 and distributed in
         February 1997) and declared an additional distribution of $.265 per
         Unit, payable in February 1998. During the fiscal year ended January
         31, 1997, the Trustees distributed $.395 per Unit (including $.12 per
         Unit declared in fiscal 1995 and distributed in February 1996) and
         declared an additional distribution of $.145 per Unit, payable in
         February 1997. During the fiscal year ended January 31, 1996, the
         Trustees distributed $.255 per Unit (including $.10 per Unit declared
         in fiscal 1995 and distributed in February 1995) and declared an
         additional distribution of $.12 per Unit, payable in February 1996. See
         "Reserves and Distributions" on pages 13 and 14 of this Annual Report.

                 TRUSTEES' DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

GENERAL

           Mesabi Trust ("Mesabi Trust" or the "Trust"), formed pursuant to an
Agreement of Trust dated July 18, 1961 (the "Agreement of Trust"), is a trust
organized under the laws of the State of New York. Mesabi Trust holds all of the
interests formerly owned by Mesabi Iron Company, including all right, title and
interest in the Amended Assignment of Peters Lease, the Amended Assignment of
Cloquet Lease, the beneficial interest in the Mesabi Land Trust and all other
assets and property identified in the Agreement of Trust. The Amended Assignment
of Peters Lease relates to an Indenture made as of April 30, 1915 among East
Mesaba Iron Company, Dunka River Iron Company and Claude W. Peters (the "Peters
Lease") and the Amended Assignment of Cloquet Lease relates to an Indenture made
May 1, 1916 between Cloquet Lumber Company and Claude W. Peters (the "Cloquet
Lease").

           The Trust will terminate twenty-one (21) years after the death of the
survivor of twenty-five (25) persons named in an exhibit to the Agreement of
Trust. The youngest person on this exhibit is now 38 years old.

           The Agreement of Trust specifically prohibits the Trustees from
entering into or engaging in any business. This prohibition applies even to
business activities the Trustees deem necessary or proper


                                       2
<PAGE>

for the preservation and protection of the Trust Estate. Accordingly, the
Trustees' activities in connection with the administration of Trust assets
are limited to collecting income, paying expenses and liabilities,
distributing net income and protecting and conserving the assets held.

           Pursuant to a ruling from the Internal Revenue Service, which ruling
was based on the terms of the Agreement of Trust including the prohibition
against entering into any business, the Trust is not taxable as a corporation
for Federal income tax purposes. Instead, the holders of the Units of Beneficial
Interest (the "Unitholders") are considered as "owners" of the Trust and the
Trust's income is taxable directly to the Unitholders.

           Leasehold royalty income constitutes the principal source of the
Trust's revenue. Royalty rates are determined in accordance with the terms of
Mesabi Trust's leases and assignments of leases. Three types of royalties
comprise the Trust's leasehold royalty income:

         -     Overriding royalties, which constitute the majority of Mesabi
               Trust's royalty income, are determined by both the volume and
               selling price of iron ore products shipped.

         -     Fee royalties, historically a smaller component of the Trust's
               royalty income, are payable to Mesabi Land Trust, a Minnesota
               land trust of which Mesabi Trust is the sole beneficiary
               ("Mesabi Land Trust"), and are based on the amount of crude
               ore mined. Currently, the fee royalty on crude ore is based on
               an agreed price per ton, subject to certain indexing. Crude
               ore is used to produce iron ore pellets and other products.

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

           Until August 17, 1989, the overriding royalty was based on the
quantity and iron content of pellets shipped by Reserve Mining Company
("Reserve") from Mesabi Trust lands, although Mesabi Trust did not receive any
royalty income from May 1986 until July 1990 because Reserve filed a Chapter 11
bankruptcy petition suspended its operations.

           On August 17, 1989, Cyprus Northshore Mining Corporation ("Cyprus
NMC") purchased substantially all of Reserve's assets, including Reserve's
interest in the Mesabi Trust lands. In connection with the purchase, Mesabi
Trust, Reserve's Chapter 11 trustee and Cyprus NMC entered into the Amendment of
Assignment, Assumption and Further Assignment of Peters Lease (the "Amended
Assignment of Peters Lease"), the Amendment of Assignment, Assumption and
Further Assignment of Cloquet Lease (the "Amended Assignment of Cloquet Lease")
and the Assumption and Assignment of Mesabi Lease (together with the Amended
Assignment of Peters Lease and the Amended Assignment of Cloquet Lease
Assignment, the "Amended Assignment Agreements"). The Amended Assignment
Agreements modified the method of calculating overriding royalties payable to
Mesabi Trust and transferred Reserve's interest in the Mesabi Trust lands to
Cyprus NMC.

           In 1994, Cyprus NMC was sold by its parent corporation to
Cleveland-Cliffs Inc. ("CCI") and renamed Northshore Mining Corporation
("Northshore"). CCI operates Northshore as a wholly-owned subsidiary.

           Fee royalties payable to Mesabi Land Trust, a Minnesota land trust of
which Mesabi Trust is the sole beneficiary ("Mesabi Land Trust"), are based on
the amount of crude ore mined. Crude ore is used to produce iron ore pellets and
other products. Under the Amended Assignment Agreements, overriding royalties
are determined by both the volume and selling price of iron ore products sold.


                                       3
<PAGE>

           With respect to the volume component of royalty calculation,
Northshore is obligated to pay Mesabi Trust base overriding royalties in varying
amounts. The volume component of overriding royalties constitutes a percentage
of the gross proceeds of iron ore products produced at Mesabi Trust lands (and
to a limited extent other lands) and shipped from Silver Bay, Minnesota. The
percentage ranges from 2-1/2% of the gross proceeds (for the first one million
tons of iron ore products so shipped annually) to 6% of the gross proceeds (for
all iron ore products in excess of 4 million tons so shipped annually).

           With respect to the selling price component of overriding royalty
calculation, Northshore is obligated to pay to Mesabi Trust royalty bonuses. The
royalty bonus is a percentage of the gross proceeds of product shipped from
Silver Bay, and sold at prices above a threshold price. The threshold price is
adjusted on an annual basis for inflation and deflation (but not below $30). The
threshold price was $37.29 for calendar year 1997, was $38.21 for calendar year
1998 and is $38.22 for calendar year 1999. The royalty bonus percentage ranges
from 1/2 of 1% of the gross proceeds (on all tonnage shipped for sale at prices
between the threshold price and $2.00 above the threshold price) to 3% of the
gross proceeds (on all tonnage shipped for sale at prices $10.00 or more above
the threshold price). No royalty bonus has been paid to date.

           Generally, Northshore's obligation to pay base overriding royalties
and royalty bonuses with respect to the sale of iron ore products accrues upon
the shipment of those products from Silver Bay. However, regardless of whether
any shipment has occurred, Northshore is obligated to pay to Mesabi Trust a
minimum advance royalty. Each year, the amount of the minimum advance royalty is
adjusted for inflation and deflation (but not below $500,000 per annum). Advance
royalties payable were $621,606 for calendar year 1997, were $636,935 for
calendar year 1998 and are $637,044 for calendar year 1999. Until overriding
royalties (and royalty bonuses, if any) for a particular year equal or exceed
the minimum advance royalty for the year, Northshore must make quarterly
payments of up to 25% of the minimum advance royalty for the year. Because
advance minimum royalties are essentially prepayments of base overriding and
bonus royalties earned EACH year, any advance minimum royalties paid in a fiscal
quarter are recouped by credits against base overriding and bonus royalties
earned in later fiscal quarters during the year. Historically, advance minimum
royalties have been paid in the first fiscal quarter and recouped in the second
fiscal quarter.

           Northshore is obligated to make quarterly royalty payments in
January, April, July and October of each year. In the case of base overriding
royalties and royalty bonuses, these quarterly royalty payments are to be made
whether or not the related proceeds of sale have been received by Northshore by
the time such payments become due.

           Under the relevant documents, Northshore may mine and ship iron ore
products from lands other than Mesabi Trust lands. To encourage the use of iron
ore products from Mesabi Trust lands, Mesabi Trust receives royalties on stated
percentages of iron ore shipped from Silver Bay, whether or not the iron ore
products are from Mesabi Trust lands. Mesabi Trust receives royalties at the
greater of (i) the aggregate quantity of iron ore products shipped that were
from Mesabi Trust lands, and (ii) a portion of the aggregate quantity of all
iron ore products shipped that were from any lands, such portion being 90% of
the first four million tons shipped during such year, 85% of the next two
million tons shipped during such year, and 25% of all tonnage shipped during
such year in excess of six million tons.

           Northshore has advised the trustees that total calendar year 1998
shipments may be approximately 4.2 million tons. However, it is not known what
percentage of these estimated shipments will be from Mesabi Trust lands. During
calendar years 1998, 1997, 1996, 1995 and 1994, the percentage of shipments of
iron ore products from Mesabi Trust lands was approximately 99.3%, 98.3%,


                                       4
<PAGE>

98.4%, 90.6% and 88.3%, respectively, of total shipments. Northshore has not
advised the Trust what the percentage of iron ore products it anticipates
shipping from Mesabi Trust lands.

           In its Annual Report for the year ended December 31, 1998 ("CCI's
Annual Report"), CCI, parent company of Northshore, the lessee/operator of
Mesabi Trust iron ore interests, stated that it is continuing to evaluate
whether to build a facility to produce pig iron at CCI's Northshore Mine in
Minnesota that would annually produce 700,000 metric tons of premium grade pig
iron. In CCI's Annual Report, it was stated that good progress has been made in
a number of areas on the project, but that a decision relative to proceeding
with this project has been delayed by uncertainty about market conditions and
timing of state environmental permitting. Because of the preliminary nature of
this information, the Mesabi Trustees are unable to determine at this time how
the addition of a pig iron facility (if the project proceeds) would impact
overall revenues of Mesabi Trust. As indicated elsewhere in this report, the
Trust's revenues are currently derived almost entirely from iron ore pellet
production and sales.

IMPORTANT FACTORS AFFECTING MESABI TRUST

           The Agreement of Trust specifically prohibits the Trustees from
entering into or engaging in any business. This prohibition applies even to
business activities the Trustees deem necessary or proper for the preservation
and protection of the Trust Estate. Accordingly, the Trustees' activities in
connection with the administration of Trust assets are limited to collecting
income, paying expenses and liabilities, distributing net income and protecting
and conserving the assets held.

           Accordingly, the income of the Trust is highly dependent upon the
activities and operations of Northshore, and the terms and conditions of the
Amended Assignment Agreements. The Trust and the Trustees have no control over
the operations and activities of Northshore, except within the framework of the
Amended Assignment Agreements.

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

1.      SHIPPING CONDITIONS IN THE GREAT LAKES. Shipping activity by Northshore
        is dependent upon when the Great Lakes shipping lanes freeze for the
        winter months (typically in January) and when they re-open in the spring
        (typically late-March or April). Base overriding royalties to Mesabi
        Trust are based on shipments made in a calendar quarter. Because there
        typically is little or no shipping activity in the first calendar
        quarter, the Trust typically receives only the minimum royalty for that
        period.

2.      OPERATIONS OF NORTHSHORE. Because the primary portion of the Trust's
        revenues derive from iron ore product shipped by Northshore from Silver
        Bay, Northshore's processing and shipping activities directly impact the
        Trust's revenues in each quarter and for each year. In turn, a myriad of
        factors affect Northshore shipment volume. These factors include
        economic conditions in the iron ore industry, pricing by competitors,
        long-term customer contracts or arrangements by Northshore or its
        competitors, availability of ore boats, production at Northshore's
        mining operations, and production at the pelletizing/processing
        facility. If any pelletizing line becomes idle for any reason,
        production and shipments (and, consequently, Trust income) could be
        adversely impacted.


                                       5
<PAGE>

3.      INCREASING ROYALTIES. As described elsewhere in this Report, the royalty
        percentage paid to the Trust increases as the aggregate tonnage of iron
        ore products shipped, attributable to the Trust, in any calendar year
        increases. Assuming a consistent sales price per ton throughout a
        calendar year, shipments of iron ore product attributable to the Trust
        later in the year generate a higher royalty to the Trust.

4.      PERCENTAGE OF MESABI TRUST ORE. As described elsewhere in this Report,
        Northshore has the ability to process and ship iron ore product from
        lands other than Mesabi Trust lands. In certain circumstances, the Trust
        may be entitled to royalties on those other shipments, but not in all
        cases. In general, the Trust will receive higher royalties (assuming all
        other factors are equal) if a higher percentage of shipments are from
        Mesabi Trust lands. The percentages of shipments that came from Mesabi
        Trust lands were 99.3%, 98.3%, 98.4%, 90.6% and 88.3% in calendar years
        1998, 1997, 1996, 1995 and 1994, respectively.

COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 1999 AND JANUARY 31, 1998

           Mesabi Trust's gross income for the fiscal year ended January 31,
1999 was $5,988,143, a decrease of $872,226 (or approximately 12.7%) from the
gross income of $6,860,369 for the fiscal year ended January 31, 1998. The
decrease in gross income primarily was due to decreased pellet shipments plus a
lower average sales price per ton. Mesabi Trust's expenses of $353,386 for the
fiscal year ended January 31, 1999 decreased $8,987 (or approximately 0.02%)
from expenses of $362,373 for the fiscal year ended January 31, 1998. Total
expenses, by category, for each of the last three fiscal years is set forth
under "Income and Expense" on pages 12 and 13 of this report. Decreased income
and decreased expenses resulted in net income of $5,634,757 for the fiscal year
ended January 31, 1999, a decrease of $863,239 from the net income of $6,497,996
for the fiscal year ended January 31, 1998.

           Mesabi Trust's Unallocated Reserve aggregated $712,952 at January 31,
1999, as compared with an Unallocated Reserve of $719,799 at January 31, 1998.
During the fiscal year ended January 31, 1999, the Trustees distributed $.54 per
Unit of Beneficial Interest. These distributions to Unitholders totaled
$7,084,805.

COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 1998 AND JANUARY 31, 1997

           Mesabi Trust's gross income for the fiscal year ended January 31,
1998 was $6,860,369, an increase of $859,226 (or approximately 14.3%) from the
gross income of $6,001,143 for the fiscal year ended January 31, 1997. The
increase in gross income primarily was due to increased pellet shipments plus a
higher average sales price per ton. Mesabi Trust's expenses of $362,373 for the
fiscal year ended January 31, 1998 decreased $19,161 (or approximately 5.0%)
from expenses of $381,534 for the fiscal year ended January 31, 1997. Total
expenses, by category, for each of the last three fiscal years is set forth
under "Income and Expense" on pages 12 and 13 of this report. Increased income
and decreased expenses resulted in net income of $6,497,996 for the fiscal year
ended January 31, 1998, an increase of $878,387 from the net income of
$5,619,609 for the fiscal year ended January 31, 1997.

           Mesabi Trust's Unallocated Reserve aggregated $719,799 at January 31,
1998, as compared with an Unallocated Reserve of $650,608 at January 31, 1997.
During the fiscal year ended January 31, 1998, the Trustees distributed $.37 per
Unit of Beneficial Interest. These distributions to Unitholders totaled
$4,854,404.


                                       6
<PAGE>

IMPACT OF YEAR 2000

           Computer programs have historically been written to abbreviate dates
by using two digits instead of four digits to identify a particular year. The
so-called "Year 2000 problem" is the inability of computer software or hardware
to recognize or properly process dates ending in "00" and dates after the Year
2000. Significant attention is being focused as the Year 2000 approaches on
updating or replacing such software and hardware in order to avoid system
failures, miscalculations or business interruptions that might otherwise result.
The Trustees of Mesabi Trust are taking steps we believe are necessary to insure
that this potential problem does not adversely affect the Trust. We are
continuing our as-yet incomplete assessment of the impact of the Year 2000
problem.

           Because it is a trust entity and has no operations of its own, Mesabi
Trust believes that the costs and efforts it may incur to address the Year 2000
problem will not be material. The Year 2000 problem may, however, adversely
impact Mesabi Trust indirectly by affecting the businesses and operations of
parties with which the Trustees interact in the normal course of administering
the Trust (which activities, as noted elsewhere in this report, are limited to
collecting income, paying expenses and liabilities, distributing net income and
protecting and conserving the assets held). There can be no assurance that
Mesabi Trust will be able to effectively address Year 2000 issues in a
cost-efficient manner and without interruption, or that Year 2000 problems
encountered by parties with which the Trustees interact in the normal course of
administering the Trust will not adversely affect the Trust.

           Mesabi Trust's state of readiness for the Year 2000, our estimated
costs associated with Year 2000 issues, the risks we face associated with Year
2000 issues and our Year 2000 contingency plans are summarized below.

           STATE OF READINESS -- Mesabi Trust has no internal computer programs
or systems. Externally, Mesabi Trust has implemented a three-phase process to
assess Year 2000 compliance of systems used by parties with which the Trustees
interact in the normal course of administering the Trust, and remediate any
material non-compliance. The phases are (1) to identify the parties with which
the Trustees interact in the course of operating the Trust and determine whether
they are significant to the operation and performance of the Trust (so-called
"core parties"); (2) to contact the core parties by, among other methods,
sending them letters and questionnaires designed to solicit information relating
to the Year 2000 problem; and (3) to evaluate the responses received from the
core parties. We have completed the first two phases of this external process.
We have received and evaluated responses to our inquiries from most of the core
parties and do not believe such responding core parties face Year 2000
compliance problems that would have a material effect on the Trust. We plan to
follow up during 1999 with those core parties who have not yet responded to our
inquiries as well as those who have indicated that their compliance efforts are
not yet entirely complete.

           COSTS ASSOCIATED WITH YEAR 2000 ISSUES -- We estimate that the future
costs associated with implementing all phases of our Year 2000 assessment and
resolving any Year 2000 problems will be between $5,000 and $20,000. We believe
that these costs, assuming this estimate is accurate, would not have a material
effect on the Trust's performance. We estimate our costs to date associated with
Year 2000 issues to be less than $5,000. We anticipate that cash flow from Trust
income will be used to pay the costs to address Year 2000 issues. All Year 2000
costs are expensed as incurred.

           RISKS ASSOCIATED WITH YEAR 2000 ISSUES -- We are unaware of any
material risk to Mesabi Trust associated with Year 2000 issues at the present
time. We believe that the reasonably likely worst case Year 2000 scenario is a
decrease in the efficiency with which the Trust collects income and pays
expenses and liabilities, and a decrease in the efficiency with which the Trust
receives payments from


                                       7
<PAGE>

Northshore. A decrease in efficiency would not necessarily result in a decrease
in the performance of the Trust, however, because we believe that alternative
collection methods could be arranged within a relatively short period of time.
Any disruption, however, could result in delayed or lost revenue.

           CONTINGENCY PLANS -- The Trustees' contingency plan, if one or more
of the core parties suffers a significant Year 2000 problem, is to identify
alternative vendors and service providers where practicable in an effort to
decrease the impact on Mesabi Trust. The Trustees have not yet identified such
alternative vendors and service providers. Because there is no practical
alternative to Northshore's role as lessee/operator of Mesabi Trust iron ore
interests, the contingency plan if royalty payments by Northshore are adversely
affected by a Year 2000 problem would likely include delays of distributions to
Unit holders.



                                       8
<PAGE>

                                TO THE HOLDERS OF
                     CERTIFICATES OF BENEFICIAL INTEREST IN
                                  MESABI TRUST

MESABI TRUST

         Mesabi Trust was created in 1961 upon the liquidation of Mesabi Iron
Company. The sole purpose of the Trust, as set forth in the Agreement of Trust
dated as of July 18, 1961 (the "Agreement of Trust"), is to conserve and protect
the Trust Estate and to collect and distribute the income and proceeds therefrom
to the Trust's Certificate Holders after the payment of, or provision for,
expenses and liabilities. The Agreement of Trust prohibits the Trust from
engaging in any business.

THE TRUST ESTATE

         The principal assets of Mesabi Trust consist of two different
interests in certain properties in the Mesabi Iron Range: (i) Mesabi Trust's
interest as assignor in the Amended Assignment of Peters and the Amended
Assignment of Cloquet Lease, which together cover properties aggregating
approximately 9,750 contiguous acres in St. Louis County, Minnesota (the "Peters
Lease Lands" and the "Cloquet Lease Lands," respectively, and collectively, the
"Peters and Cloquet Lease Lands"), and (ii) Mesabi Trust's ownership of the
entire beneficial interest in Mesabi Land Trust, which has a 20% interest as fee
owner in the Peters Lease Lands and a 100% fee ownership in certain
non-mineral-bearing lands adjacent to the Peters and Cloquet Lease Lands (the
"Mesabi Lease Lands").

         The Peters and Cloquet Lease Lands are located at the eastern end of
the Mesabi Iron Range and contain low-grade iron ore known as taconite,
approximately three tons of which must be beneficiated to produce one ton of
high-grade pellets. The Trustees have not had any surveys or test drillings
performed to ascertain the iron ore reserves on the Peters and Cloquet Lease
Lands. However, initial surveys and test drillings made by Mesabi Iron Company
many years ago indicated that these lands contained accessible taconite reserves
capable of yielding approximately 500 million tons of high grade iron ore
pellets. In CCI's Annual Report, CCI estimated that there currently remains
enough ore reserve in the Peters and Cloquet Lease Lands to produce concentrated
product for 83 years of mining at current extraction rates. The Mesabi Lease
Lands provide an area for location of service roads, supporting plants and
equipment and dump sites for overburden.

         Under the Amended Assignment Agreements, Northshore produces iron ore
from the Peters and Cloquet Lease Lands for the manufacture of pellets to be
sold to various users, and Mesabi Trust receives royalties on the crude ore
extracted from such Lands and the pellets produced from such crude ore.

LEASEHOLD ROYALTIES

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

         Base overriding royalties are calculated on the basis of an
escalating scale of percentages of gross sales proceeds of iron ore shipped. The
applicable percentage is determined by reference to the tonnage of pellets
previously shipped in the then current calendar year, as follows:


                                       9
<PAGE>

<TABLE>
<CAPTION>
                                                                       Applicable royalty
                     Tons of iron ore products                     (expressed as a percentage
                        shipped in calendar                          of gross sales proceeds
                                year                                  within each tranche)
                     -------------------------                     --------------------------
         <S>                                                       <C>
         one million or less                                                 2-1/2%
         more than one but not more than two million                         3-1/2%
         more than two but not more than three million                       5%
         more than three but not more than four million                      5-1/2%
         more than four million                                              6%
</TABLE>

         For example, assume that no shipments of iron ore products were made
during the first calendar quarter of 1999 and further assume that pellets were
shipped from Silver Bay, Minnesota in the second and third calendar quarters of
1999 in the following tonnage quantities and rendering the following gross
proceeds:

<TABLE>
<CAPTION>
                                         Tonnage         Gross Proceeds
                                         -------         --------------
         <S>                            <C>                <C>
         2nd Quarter:                     500,000          $14,000,000
         3rd Quarter:                     500,000          $14,000,000
                                        1,000,000          $27,000,000
                                        1,000,000          $26,000,000
                                        1,000,000          $25,000,000
                                        1,500,000          $37,500,000
</TABLE>


In this example, the base overriding royalties payable in respect of the second
and third calendar quarters of 1999 would be as follows:

<TABLE>
<CAPTION>
         <S>                   <C>                         <C>
         2nd Quarter:          $14,000,000 x 2-1/2%         ($ 350,000)
         3rd Quarter:          $14,000,000 x 2-1/2%         ($ 350,000)
                               $27,000,000 x 3-1/2%         ($ 945,000)
                               $26,000,000 x 5%            ($1,300,000)
                               $25,000,000 x 5-1/2%        ($1,375,000)
                               $37,500,000 x 6%            ($2,250,000)
</TABLE>


Based on the same example, the percentage applicable for all iron ore products
shipped in the fourth calendar quarter of 1999 would be 6%, because more than
four million tons were shipped during the first three quarters.

The above figures are provided only to illustrate the method for calculating
base overriding royalties and do NOT indicate the amount of base overriding
royalties the Trustees expect Mesabi Trust to earn calendar 1999 or any other
calendar or fiscal year. Accordingly, the foregoing example illustrating the
calculation of base overriding royalties should not be considered a prediction
of the amount of base overriding royalties Mesabi Trust will receive.

           Royalty bonuses are payable on all iron ore products sold at prices
above a threshold price (the "Adjusted Threshold Price"). The Adjusted Threshold
Price was $37.29 per ton for calendar year 1997,


                                      10
<PAGE>

was $38.21 per ton for calendar year 1998 and will be $38.22 per ton for
calendar year 1999. The Adjusted Threshold Price is subject to adjustment
(but not below $30 per ton) for inflation and deflation and is determined
each year on the basis of the change in a broad based index of inflation and
deflation published quarterly by the U.S. Department of Commerce.

           The amount of royalty bonuses payable for any period is calculated on
the basis of an escalating scale of percentages of the gross sales proceeds to
Northshore of pellets sold at prices above the Adjusted Threshold Price. The
applicable percentage is determined by reference to the amount by which the
sales prices for a particular quantity of pellets exceeds the Adjusted Threshold
Price, as follows:

<TABLE>
<CAPTION>
                    Amount by which
                  sales price per ton
                    exceeds Adjusted                         Applicable
                    Threshold Price                          Percentage
                  -------------------                        ----------
                  <S>                                        <C>
                  $2 or less                                 1/2 of 1%
                  more than $2 but not more than $4          1%
                  more than $4 but not more than $6          1-1/2%
                  more than $6 but not more than $8          2%
                  more than $8 but not more than $10         2-1/2%
                  more than $10                              3%
</TABLE>

           For example, assume an Adjusted Threshold Price of $38.22 is assumed
for calendar year 1999 and that two million tons of iron ore products were
shipped in the second calendar quarter of 1999 at the following prices:

                    1,000,000 tons @ $29.00/ton
                      300,000 tons @ $31.00/ton
                      300,000 tons @ $34.00/ton
                      100,000 tons @ $36.00/ton
                      100,000 tons @ $38.00/ton
                      100,000 tons @ $40.00/ton
                       50,000 tons @ $42.00/ton
                       50,000 tons @ $46.00/ton

In this example, the following royalty bonuses would be payable on shipments of
iron ore products on the second calendar quarter of 1999 as follows:

<TABLE>
<CAPTION>
                     <S>                               <C>
                    1,000,000 tons @ $29.00/ton        No bonus
                      300,000 tons @ $31.00/ton        No bonus
                      300,000 tons @ $34.00/ton        No bonus
                      100,000 tons @ $36.00/ton        No bonus
                      100,000 tons @ $38.00/ton        No bonus
                      100,000 tons @ $40.00/ton        1/2%
                       50,000 tons @ $42.00/ton        1%
                       50,000 tons @ $46.00/ton        2%
</TABLE>


                                      11
<PAGE>

           The above figures are provided only to illustrate the method for
calculating royalty bonuses and do NOT indicate the amount of royalty bonuses,
if any, the Trustees expect Mesabi Trust to earn in calendar 1999 or any other
calendar or fiscal year. Accordingly, the foregoing example illustrating the
calculation of royalty bonuses should not be considered a prediction of the
amount, if any, of royalty bonuses Mesabi Trust will receive. In fact, no
royalty bonus has been paid to the Trust for several years.

           Northshore also must pay base overriding royalties and royalty
bonuses on pellets produced from lands other than Mesabi Lease Lands ("Other
Ore") to the extent necessary to assure payment of base overriding royalties and
royalty bonuses on at least 90% of the first four million tons of pellets
shipped from Silver Bay in each calendar year, at least 85% of the next two
million tons of pellets shipped therefrom in each calendar year, and at least
25% of all tonnage of pellets shipped therefrom in each calendar year in excess
of six million tons. Base overriding royalties and royalty bonuses payable on
Other Ore can be recouped by Northshore out of base overriding royalties and
royalty bonuses paid on Mesabi Ore. The amount of Other Ore royalties and Other
Ore royalty bonuses which can be recouped on any payment date cannot, however,
exceed 20% of the amount of Mesabi Ore royalties and royalty bonuses which are
otherwise payable on that payment date.

           Northshore is obligated to pay to Mesabi Trust advance royalties in
equal quarterly installments. The advance royalty was $621,606 per annum for the
calendar year ended December 31, 1997, $636,935 for calendar year 1998 and is
$637,044 for the calendar year 1999. The amount of advance royalties payable is
subject to adjustment (but not below $500,000 per annum) for inflation and
deflation and is determined each year in the same manner as the Adjusted
Threshold Price. All payments of advance royalties are credited against payments
of base overriding royalties and royalty bonuses payable on Mesabi Ore until
fully recouped. The amount of advance royalties payable in respect of each
calendar quarter constitutes the minimum overriding royalty amount payable by
Northshore in respect of that calendar quarter.

           Base overriding royalties and royalty bonuses are payable quarterly
and accrue upon shipment, whether or not the actual sales proceeds for any
shipment are received by Northshore. The amount of base overriding royalties and
royalty bonuses payable with respect to the first three quarters in any calendar
year are determined on the basis of tonnage shipped during each such calendar
quarter and the actual sales proceeds of such shipments, with an adjustment made
to the royalties payable with respect to the last quarter in any calendar year
to account for errors, adjustments and returns.

           In addition, in the event that Northshore commences mining and
production of quarry stone for shipment, Northshore must pay base overriding
royalties on all quarry stone so shipped on the basis of the same scale of
percentages used in calculating base overriding royalties payable on pellets and
other iron ore product. Northshore has not informed Mesabi Trust of any present
intention to commence mining and production of quarry stone.

LAND TRUST AND FEE ROYALTIES

           Mesabi Land Trust holds a 20% interest as fee owner in the Peters
Lease Lands and a 100% interest as fee owner in the Mesabi Lease Lands as lessor
of the Mesabi Lease. Mesabi Trust holds the entire beneficial interest in Mesabi
Land Trust and is entitled to receive the net income of Mesabi Land Trust after
payment of expenses. Northshore is not obligated to pay royalties or rental to
Mesabi Land Trust as fee owner of the non-mineral bearing Mesabi Lease Lands, a
consideration having been paid in that respect at the inception of the Mesabi
Lease.


                                      12
<PAGE>

           Northshore is required to pay a base royalty to the fee owners in an
amount which, at its option, is either (a) 11-2/3 CENTS per gross ton of crude
ore it mines from the Peters Lease Lands or (b) $.0056 for each 1% of metallic
iron ore natural contained in each gross ton of pellets it produces from the
Peters Lease Lands and ships. The base fee royalty rate is adjusted up or down
each quarter (but not below the base royalty specified above) by addition or
subtraction of an amount to be determined by reference to changes in Lower Lake
Mesabi Range pellet prices and the All Commodities Producer Price Index. The
adjustment factor is computed by multiplying the base fee royalty rate specified
above by a percentage that is the sum of (a) one-half of the percentage change,
if any, by which the then prevailing price per iron unit of Mesabi Range
taconite pellets delivered by rail or vessel at Lower Lake Erie ports exceeds
80.5 CENTS (the price per iron unit in effect in January 1982) plus (b) one-half
of the percentage change, if any, by which the All Commodities Producer Price
Index exceeds 295.8 (the level of the Index for December 1981).

           Fee royalties aggregating $331,826 with respect to crude ore mined by
Northshore were earned by Mesabi Land Trust during the fiscal year ended January
31, 1999.

INCOME AND EXPENSE

           Total income for Mesabi Trust for the fiscal year ended January 31,
1999 was $5,988,143, consisting of $48,897 in interest earned on the investment
of the Unallocated Reserve, $331,826 in fee income, $636,935 in minimum advance
royalty income, and $4,970,485 in overriding royalty income compared with
$6,860,369 in total income for the previous fiscal year. Total expenses for the
fiscal year were $353,386, compared with $362,373 in total expenses for the
previous fiscal year. There were distributions paid per Unit of Beneficial
Interest totaling 54 CENTS for the fiscal year ended January 31, 1999, compared
with distributions paid for the fiscal year ended January 31, 1998 of 37 CENTS
per Unit.


                                      13
<PAGE>


           Total expenses by categories were as follows:

<TABLE>
<CAPTION>

                                                                     Fiscal Years ended
                                                                         January 31,
                                                       ----------------------------------------------
                                                           1999              1998             1997
                                                           ----              ----             ----
<S>                                                    <C>               <C>              <C>
Compensation of Trustees                               $    125,083      $    129,438     $   129,742
Fees and Disbursements
  Administrative                                             62,500            62,500          62,500
  Accounting                                                 36,302            35,734          32,815
  Inspection trips, travel and
    other expenses of Trustees                               38,677            31,995          35,164
  Legal                                                      19,707            25,802          24,091
  Mining consultant and field
    representatives                                          16,548            15,695          16,808
  Printing of annual and quarterly
    reports, and letters to
    certificate holders                                      22,421            26,726          33,227
  Securities and Exchange Commission                            ---               ---             250
  Transfer Agent and Registrar                               22,689            24,848          34,017
  Transfer Agent miscellaneous
    disbursements                                             9,458             9,628          12,789
  Other miscellaneous expenses                                    1                 7             131
                                                       ------------      ------------     -----------

                                                       $    353,386      $    362,373     $   381,534
                                                       ------------      ------------     -----------
                                                       ------------      ------------     -----------
</TABLE>

         Pursuant to an Amendment to the Agreement of Trust (the "Amendment")
dated October 25, 1982, each Individual Trustee receives annual compensation for
services as Trustee of $20,000, adjusted up or down (but not below $20,000) in
accordance with changes from the November 1981 level of 295.5 (the "1981
Escalation Level") in the All Commodities Producer Price Index (with 1967 = 100
as a base), which is published by the U.S. Department of Labor. The adjustment
is made at the end of each fiscal year and is calculated on the basis of the
proportion between (a) the level of such index for the November preceding the
end of such fiscal year and (b) the 1981 Escalation Level.

RESERVES AND DISTRIBUTIONS

         Mesabi Trust's Unallocated Reserve aggregated $712,952 at January 31,
1999, compared with an Unallocated Reserve of $719,799 at January 31, 1998. The
Trustees have determined that the Unallocated Reserve should be maintained at a
prudent level. Accordingly, although the actual amount of the Unallocated
Reserve will fluctuate from time to time, and may increase or decrease from its
current level, it is currently intended that future distributions will be highly
dependent upon royalty income as it is received and the level of Trust expenses.
The amount of future royalty income available for distribution will be subject
to the volume of iron ore product shipments and the dollar level of sales by
Northshore. Shipping activity is greatly reduced during the winter months and
economic conditions, particularly those affecting the steel industry, may
adversely affect the amount and timing of such future shipments and sales.

         The Trustees will continue to monitor the economic circumstances of the
Trust to strike a responsible balance between distributions to Unitholders and
the need to maintain adequate reserves at a

                                       14

<PAGE>

prudent level, given the unpredictable nature of the iron ore industry, the
Trust's dependence on the actions of the lessee/operator, and the fact the
Trust essentially has no other liquid assets.

         Payments to Unitholders during the fiscal year ended January 31, 1998
totaled $4,854,404 and payments to Unitholders during the fiscal year ended
January 31, 1999 totaled $7,084,805.

CERTIFICATES OF BENEFICIAL INTEREST

         The Certificates of Beneficial Interest are traded on the New York
Stock Exchange. During the past two fiscal years, the market ranges of the
certificates for each quarterly period and the distributions declared for such
quarterly periods were as follows:

<TABLE>
<CAPTION>

Fiscal Quarter Ended                      High                  Low            Amount Declared         Per Unit
--------------------                      ----                  ---            ---------------         --------
<S>                                      <C>                   <C>             <C>                   <C>
April 30, 1997                           4 3/4                 4  1/4          $            --       $       --
July 31, 1997                            4 5/8                 3  7/8                  852,801            0.065
October 31, 1997                         4 1/16                3 11/16               2,099,201            0.160
January 31, 1998                         4 1/4                 3  5/8                3,476,803            0.265
                                                                               ---------------       ----------

                                                                               $     6,428,805       $    0.490
                                                                               ---------------       ----------
                                                                               ---------------       ----------

Fiscal Quarter Ended                      High                  Low            Amount Declared         Per Unit
--------------------                      ----                  ---            ---------------       ----------
<S>                                      <C>                   <C>             <C>                   <C>
April 30, 1998                           4 3/8                 3  7/8          $            --       $       --
July 31, 1998                            4 3/8                 3 15/16               1,443,201            0.110
October 31, 1998                         4                     3  5/8                2,164,801            0.165
January 31, 1999                         3 5/8                 2  3/4                2,033,602            0.155
                                                                               ---------------       ----------
                                                                               $     5,641,604       $    0.430
                                                                               ---------------       ----------
                                                                               ---------------       ----------
</TABLE>


           As of the close of business on April 26, 1999, the beneficial
interest in Mesabi Trust was represented by 13,120,010 Units registered in the
names of approximately 2,591 individuals holding of record approximately
1,653,664 Units, and in the names of approximately 526 brokers, nominees, or
fiduciaries holding of record approximately 11,466,346 Units.

                                       15

<PAGE>



THE TRUSTEES


         The name and address of each Trustee and the principal occupation of
each individual Trustee are as follows:

<TABLE>
<CAPTION>

     Name and Address
        of Trustee                                  Principal Occupation
     ----------------                               --------------------
<S>                                                 <C>
Bankers Trust Company                               Trust Company
Corporate Trustee
Four Albany Street
New York, New York 10015

David J. Hoffman                                    Mining geologist
Individual Trustee
P.O. Box 10444
Sedona, Arizona 86339

Richard G. Lareau                                   Partner in the law firm of
Individual Trustee                                  Oppenheimer Wolff & Donnelly LLP
Oppenheimer Wolff & Donnelly LLP
3400 Plaza VII
45 South Seventh Street
Minneapolis, Minnesota 55402

Ira A. Marshall, Jr.                                Private investor; Self-employed
Individual Trustee                                  petroleum engineer
12 Fincher Way
Rancho Mirage, California

Norman F. Sprague III                               Private investor; Orthopedic surgeon
Individual Trustee
11600 Wilshire Boulevard
Los Angeles, California 90025
</TABLE>

                                             Respectfully submitted,

                                             BANKERS TRUST COMPANY
                                             DAVID J. HOFFMAN
                                             RICHARD G. LAREAU
New York, New York                           IRA A. MARSHALL, JR.
April 26, 1999                               NORMAN F. SPRAGUE III

                                       16

<PAGE>

                          INDEPENDENT AUDITOR'S REPORT

To the Trustees
Mesabi Trust
New York, New York

           We have audited the accompanying balance sheets of Mesabi Trust as of
January 31, 1999 and 1998, and the related statements of income, unallocated
reserve and trust corpus and cash flows for each of the three years in the
period ended January 31, 1999. These financial statements are the responsibility
of the Trust's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

           We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

           In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Mesabi Trust as of
January 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended January 31, 1999, in conformity
with generally accepted accounting principles.

                                                  McGLADREY & PULLEN, LLP

                                                  /s/ McGladrey & Pullen, LLP
New York, New York
April 2, 1999

                                       F-1

<PAGE>

                                  MESABI TRUST

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  January 31,
                                                           ------------------------
                                                              1999          1998
                                                           ----------    ----------
                                  ASSETS
<S>                                                        <C>           <C>
Cash                                                       $2,115,273    $3,607,221
U.S. Government securities,
  at amortized cost (which approximates market)               534,914       499,073
Accrued income                                                134,991       176,641
Prepaid insurance                                               4,861         3,820
                                                           ----------    ----------
                                                           $2,790,039    $4,286,755
                                                           ----------    ----------

Fixed property, including
  intangibles, at nominal values:
    Assignments of leased property:
      Amended Assignment of
        Peters Lease                                       $        1    $        1
      Assignment of Cloquet Lease                                   1             1
                                                           ----------    ----------
      Certificate of beneficial
        interest for 13,120,010 units
      of Land Trust                                                 1             1
                                                           ----------    ----------
                                                           $        3    $        3
                                                           ----------    ----------
                                                           $2,790,042    $4,286,758
                                                           ----------    ----------
                                                           ----------    ----------


                LIABILITIES, UNALLOCATED RESERVE AND TRUST CORPUS

Liabilities:
  Distribution payable                                     $ 2,033,602   $3,476,803
  Accrued expenses                                             43,485        90,153
                                                           ----------    ----------
                                                            2,077,087    $3,566,956

Unallocated reserve                                           712,952       719,799

Trust Corpus                                                        3             3
                                                           ----------    ----------
                                                           $2,790,042    $4,286,758
                                                           ----------    ----------
                                                           ----------    ----------
</TABLE>

See Notes to Financial Statements.

                                        F-2
<PAGE>

                                  MESABI TRUST

                              STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                           Years ended January 31,
                                                 -----------------------------------------
                                                     1999          1998            1997
                                                 -----------    -----------    -----------
<S>                                              <C>            <C>            <C>
REVENUE

Royalties under amended
  lease agreements                               $ 5,607,420    $ 6,491,575    $ 5,631,330
Royalties under Peters
  Lease fee                                          331,826        326,378        328,783
Interest                                              48,897         42,416         41,030
                                                 -----------    -----------    -----------

              Total revenue                      $ 5,988,143    $ 6,860,369    $ 6,001,143
                                                 -----------    -----------    -----------


EXPENSES
Compensation of Trustees                         $   125,083    $   129,438    $   129,742
Corporate Trustee's
  administrative fees                                 62,500         62,500         62,500
Professional fees and expenses:
  Legal and accounting                                56,009         61,536         56,906
  Mining consultant and
    field representatives                             16,548         15,695         16,808
Transfer agent's and
  registrar's fees                                    22,689         24,848         34,017
Other Trust expenses                                  70,557         68,356         81,561
                                                 -----------    -----------    -----------

              Total expenses                     $   353,386    $   362,373    $   381,534
                                                 -----------    -----------    -----------

Net income                                       $ 5,634,757    $ 6,497,996    $ 5,619,609
                                                 -----------    -----------    -----------
                                                 -----------    -----------    -----------

Weighted average number
  of units outstanding                            13,120,010     13,120,010     13,120,010
                                                 -----------    -----------    -----------
                                                 -----------    -----------    -----------

Net income per unit                              $       .43    $       .50    $       .43
                                                 -----------    -----------    -----------
                                                 -----------    -----------    -----------
</TABLE>

See Notes to Financial Statements.

                                        F-3
<PAGE>

                                  MESABI TRUST

               STATEMENTS OF UNALLOCATED RESERVE AND TRUST CORPUS
                   YEARS ENDED JANUARY 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                 Unallocated Reserve
                                                       --------------------------------------
                                                       Number of                       Trust
                                                         Units          Amount        Corpus
                                                       ----------    -----------     --------
<S>                                                    <C>           <C>             <C>
Balance, February 1, 1996                              13,120,010    $   541,403     $      3
                                                       ----------    -----------     --------

  Net income                                                  ---      5,619,609          ---
  Distribution paid August 20, 1996,
    $.085 per unit                                            ---     (1,115,201)         ---
  Distribution paid November 20, 1996,
    $.19 per unit                                             ---     (2,492,802)         ---
  Distribution declared January 17, 1997,
    paid February 20, 1997,
    $.145 per unit                                            ---     (1,902,401)         ---
                                                       ----------    -----------     --------
Balance, January 31, 1997                              13,120,010    $   650,608     $      3
                                                       ----------    -----------     --------

  Net income                                                  ---      6,497,996          ---
  Distribution paid August 20, 1997,
    $.065 per unit                                            ---       (852,801)         ---
  Distribution paid November 20, 1997,
    $.16 per unit                                             ---     (2,099,201)         ---
  Distribution declared January 16, 1997,
    paid February 20, 1998,
    $.265 per unit                                            ---     (3,476,803)         ---
                                                       ----------    -----------     --------
Balance, January 31, 1998                              13,120,010    $   719,799     $      3
                                                       ----------    -----------     --------

  Net income                                                  ---      5,634,757          ---
  Distribution paid August 20, 1998,
    $.11 per unit                                             ---     (1,443,201)         ---
  Distribution paid November 20, 1998,
    $.165 per unit                                            ---     (2,164,801)         ---
  Distribution declared January 16, 1998,
    paid February 20, 1999,
    $.155 per unit                                            ---     (2,033,602)         ---
                                                       ----------    -----------     --------
Balance, January 31, 1999                              13,120,010    $   712,952     $      3
                                                       ----------    -----------     --------
</TABLE>

See Notes to Financial Statements.

                                        F-4
<PAGE>



                                  MESABI TRUST

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                        Years ended January 31,
                                                      ------------------------------------------------------------
                                                           1999                   1998                   1997
                                                      -------------          -------------         ---------------
<S>                                                   <C>                    <C>                   <C>
Cash flows from operating activities:
       Royalties received                             $   5,967,132          $   6,769,021         $     5,855,966
       Interest received                                     48,241                 42,745                  44,634
       Expenses paid                                       (386,675)              (336,971)               (387,065)
                                                      -------------          -------------         ---------------
         Net cash provided
            by operating activities                   $   5,628,698          $   6,474,795         $     5,513,535
                                                      -------------          -------------         ---------------
Cash flows from investing activities:
       Maturities of U.S. Government
       securities                                     $   9,009,983          $   6,439,490         $     6,833,132

     Purchases of U.S.
       Government securities                             (9,045,824)            (4,453,578)             (7,172,528)
                                                      -------------          -------------         ---------------
       Net cash (used in) provided by
         investing activities                         $     (35,841)         $   1,985,912         $      (339,396)
                                                      -------------          -------------         ---------------
Cash flows from financing activities:
       Net cash (used in) financing
       activities, distributions
       to unitholders                                 $  (7,084,805)         $  (4,854,404)        $    (5,182,404)
                                                      -------------          -------------         ---------------

Net increase (decrease) in cash                       $  (1,491,948)         $   3,606,303         $        (8,265)
Cash, beginning of year                                   3,607,221                    918                   9,183
                                                      -------------          --------------        ---------------


Cash, end of year                                     $   2,115,273          $    3,607,221        $           918
                                                      -------------          --------------        ---------------


Reconciliation of net income to net cash
       provided by operating activities:

     Net income                                       $   5,634,757          $    6,497,996        $     5,619,609

     Decrease (increase) in
       accrued income                                        41,650                 (63,024)                13,802
     Decrease (increase) in prepaid                          (1,041)                   (175)                   293
       insurance
     (Decrease) increase in
       accrued expenses                                     (46,668)                 39,998                 (5,824)
     (Decrease) increase in deferred
       income                                                   ---                     ---               (114,345)
                                                      -------------          --------------        ---------------

       Net cash provided by
         operating activities                         $   5,628,698          $    6,474,795        $     5,513,535
                                                      -------------          --------------        ---------------
</TABLE>

See Notes to Financial Statements.

                                       F-5

<PAGE>

                                  MESABI TRUST

                          NOTES TO FINANCIAL STATEMENTS




Note 1.  Nature of Business, Organization and Significant Accounting Policies

                  Nature of business:

                            Mesabi Trust was created in 1961 upon the
                            liquidation of Mesabi Iron Company. The sole purpose
                            of the Trust, as set forth in the Agreement of Trust
                            dated as of July 18, 1961, is to conserve and
                            protect the Trust Estate and to collect and
                            distribute the income and proceeds therefrom to the
                            Trust's certificate holders after the payment of, or
                            provision for, expenses and liabilities. The
                            Agreement of Trust prohibits the Trust from engaging
                            in any business.

                            The lessee/operator of Mesabi Trust's mineral
                            interests is Northshore Mining Corporation (NMC), a
                            subsidiary of Cleveland-Cliffs Inc. (CCI). CCI is
                            among the world's largest producers of iron ore
                            products. Prior to September 30, 1994, the
                            lessee/operator had been a subsidiary of Cyprus Amax
                            Minerals Company and was named Cyprus Northshore
                            Mining Corporation (Cyprus NMC).

                  Organization:

                            The beneficial interest in Mesabi Trust is
                            represented by 13,120,010 transferable units
                            distributed on July 27, 1961 to shareholders of
                            Mesabi Iron Company.

                            The Trust's status as a grantor trust was confirmed
                            by letter ruling addressed to Mesabi Iron Company
                            from the Internal Revenue Service in 1961. As a
                            grantor trust, Mesabi is exempt from Federal income
                            taxes and its income is taxable directly to the
                            Unitholders.

         A summary of Mesabi Trust's significant accounting policies follows:

                  Investments:

                            The Trust invests solely in U.S. Government
                            securities. Management determines the appropriate
                            classifications of the securities at the time they
                            are acquired and evaluates the appropriateness of
                            such classifications as of each balance sheet date.

                            The U.S. government securities are classified as
                            held-to-maturity securities as the Trust has the
                            positive intent and ability to hold to maturity and
                            are stated at amortized cost.

                                       F-6

<PAGE>

                                  MESABI TRUST

                          NOTES TO FINANCIAL STATEMENTS


Note 1.           Nature of Business, Organization and Significant Accounting
                  Policies (continued)

                  Revenue recognition:

                            Royalty income under the amended lease agreements
                            with NMC (Cyprus NMC through September 30, 1994) is
                            recognized as it is earned. Under such agreements,
                            royalties are earned upon shipment, regardless of
                            whether the actual sales proceeds for any shipment
                            are received by NMC.

                            Royalty income under the Peters Lease fee agreement
                            also is recognized as it is earned. Under such
                            agreement, however, royalties are earned (at the
                            option of NMC (Cyprus NMC through September 30,
                            1994)) either upon mining of crude ore from Peters
                            Lease lands or upon shipment of iron ore product
                            produced from Peters Lease lands.

                  Fixed property, including intangibles:

                            The Trust's fixed property, including intangibles,
                            is recorded at nominal values and includes the
                            following:

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


                                    (2)       The entire beneficial interest in
                                              Mesabi Land Trust which owns a 20%
                                              fee interest in the lands subject
                                              to the Peters Lease and the entire
                                              fee interest in other properties
                                              in Minnesota.

                  Accounting estimates:

                            The preparation of financial statements in
                            conformity with generally accepted accounting
                            principles requires management to make estimates and
                            assumptions that affect the reported amounts of
                            assets and liabilities and disclosure of contingent
                            assets and liabilities at the date of the financial
                            statements and the reported amounts of revenues and
                            expenses during the reporting period. Actual results
                            could differ from those estimates.

                  Fair value of financial instruments:

                            The carrying amounts of financial instruments
                            including cash, U.S. government securities,
                            distributions payable and accrued expenses
                            approximated fair value as of January 31, 1999 and
                            1998 because of the relative short maturity of these
                            instruments.

                                       F-7

<PAGE>

                                  MESABI TRUST

                          NOTES TO FINANCIAL STATEMENTS


 Note 2.          U.S. Government Securities

                  The amortized cost approximates market value as of January 31,
                  1999 and 1998. The securities are classified as
                  held-to-maturity and mature as follows:

<TABLE>
<CAPTION>

                                                            January 31, 1999                 January 31, 1998
                                                            ----------------                 ----------------
                   <S>                                      <C>                              <C>
                   Due within one year                      $        132,817                 $        198,502
                   Due after one year through
                     four years                                      402,097                          300,571
                                                            ----------------                 ----------------
                                                            $        534,914                 $        499,073
                                                            ----------------                 ----------------
                                                            ----------------                 ----------------
</TABLE>

Note 3.           Unallocated Reserve

                  Leasehold royalty income constitutes the principal source of
                  revenue to Mesabi Trust. Prior to August 17, 1989, royalties
                  were based on the quantity and iron content of pellets shipped
                  by the then lessee, Reserve Mining Company ("Reserve"), from
                  Mesabi Trust properties. From May 1986 until July 1990,
                  however, Mesabi Trust did not have any royalty income, due
                  principally to the filing of a Chapter 11 bankruptcy petition
                  by Reserve and the suspension of Reserve's operations in 1986.

                  On August 17, 1989, Cyprus NMC purchased substantially all of
                  Reserve's assets, including Reserve's interest in the Mesabi
                  Trust lands, and Mesabi Trust entered into agreements with
                  Reserve's Chapter 11 Trustee and Cyprus NMC, which modified
                  the method of calculating royalties payable to Mesabi Trust
                  and transferred the interest of Reserve in the Mesabi Trust
                  lands to Cyprus NMC. Royalties are now determined by both the
                  volume and selling price of iron ore pellets and other
                  products sold.

                  On September 30, 1994, Cyprus Amax Minerals Company sold its
                  iron ore operations, including Cyprus NMC, to Cleveland-Cliffs
                  Inc. (CCI). CCI renamed the operation Northshore Mining
                  Corporation (NMC). CCI is among the world's largest producers
                  of iron ore products.

                  Pursuant to the amended assignment agreements, NMC (Cyprus NMC
                  through September 30, 1994) is obligated to pay Mesabi Trust
                  base overriding royalties, in varying amounts constituting a
                  percentage of the gross proceeds of shipments, from Silver
                  Bay, Minnesota, of iron ore product produced from Mesabi Trust
                  lands or, to a limited extent, other lands. NMC (Cyprus NMC
                  through September 30, 1994) is obligated to make payments of
                  overriding royalties on product shipments within 30 days
                  following the calendar quarter in which such shipments occur.
                  NMC (Cyprus NMC through September 30, 1994) resumed mining
                  operations and shipping product from Silver Bay in the second
                  calendar quarter of 1990, and the first payment of overriding
                  royalties was made in July 1990.

                  NMC (Cyprus NMC through September 30, 1994) also is obligated
                  to pay to Mesabi Trust a minimum advance royalty of $500,000
                  per annum, subject to adjustment for inflation and deflation
                  (but not below $500,000), which is credited against base

                                       F-8

<PAGE>

                                  MESABI TRUST

                          NOTES TO FINANCIAL STATEMENTS


                  overriding royalties and royalty bonuses. NMC (Cyprus NMC
                  through September 30, 1994) is obligated to make quarterly
                  payments of the minimum advance royalty in January, April,
                  July and October of each year. For the calendar year ending
                  December 31, 1999, the minimum advance royalty is $637,044.
                  The minimum annual advance royalty was $636,935, $621,606 and
                  $610,335 for the calendar years ended December 31, 1998; 1997;
                  and 1996, respectively.

                  The unallocated reserve aggregated $712,952 at January 31,
                  1999, as compared with an unallocated reserve of $719,799 and
                  $650,608 at January 31, 1998 and 1997, respectively. During
                  the fiscal years ended January 31, 1999, 1998 and 1997, the
                  Trustees distributed cash payments totaling $7,084,805 (of
                  $.54 per Unit), $4,854,404 (of $.37 per Unit) and $5,182,404
                  (or $.395 per Unit), respectively, of beneficial interest in
                  Mesabi Trust. In addition, in January 1999 the Trustees
                  declared a distribution of $.155 per unit of beneficial
                  interest which was paid in February 1999.

Note 4.           Summary of Quarterly Earnings (Unaudited)

The quarterly results of operations for the two years ended January 31, 1999 are
presented below:

<TABLE>
<CAPTION>

                                                                    Year ended January 31, 1999
                                                 -----------------------------------------------------------------
                                                      First            Second            Third           Fourth
                                                     Quarter           Quarter          Quarter          Quarter
                                                 --------------     ------------     ------------     ------------
                  <S>                            <C>                <C>              <C>              <C>
                  Revenue                        $      499,451     $  1,481,240     $  2,609,768     $  1,397,684
                  Expenses                               69,718           97,172           72,098          114,398
                                                 --------------     ------------     ------------     ------------
                  Net income                     $      429,733     $  1,384,068     $  2,537,670     $  1,283,286
                                                 --------------     ------------     ------------     ------------
                                                 --------------     ------------     ------------     ------------

                  Net income per unit            $         0.03     $       0.11     $       0.19     $       0.10
                                                 --------------     ------------     ------------     ------------
</TABLE>

                                       F-9

<PAGE>

                                  MESABI TRUST

                          NOTES TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                                    Year ended January 31, 1998
                                                 ----------------------------------------------------------------
                                                      First            Second            Third          Fourth
                                                     Quarter           Quarter          Quarter         Quarter
                                                 --------------     ------------     ------------    ------------
                  <S>                            <C>                <C>              <C>              <C>
                  Revenue                        $      249,745     $  1,259,552     $  2,331,438     $ 3,019,634
                  Expenses                               65,698           80,811           70,289         145,575
                                                 --------------     ------------     ------------    ------------
                  Net income                     $      184,047     $  1,178,741     $  2,261,149    $  2,874,059
                                                 --------------     ------------     ------------    ------------
                                                 --------------     ------------     ------------    ------------

                  Net income per unit            $         0.01     $       0.09     $       0.17    $       0.22
                                                 --------------     ------------     ------------    ------------
</TABLE>

                                       F-10