<PAGE>

                                  ANNUAL REPORT
                               OF THE TRUSTEES OF
                                  MESABI TRUST
                       For the Year Ended January 31, 2001


ADDRESS

Mesabi Trust
c/o Bankers Trust Company
Corporate Trust and Agency Group
P.O. Box 318
Church Street Station
New York, NY  10008-0318
Telephone - (615) 835-2749

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, 2001 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 2001 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            2001            2000            1999            1998            1997
----------------------            ----            ----            ----            ----            ----
<S>                            <C>             <C>             <C>             <C>             <C>
Royalty and interest income    $5,753,650      $5,359,893      $5,988,143      $6,860,369      $6,001,143

Trust expenses                    407,505         389,465         353,386         362,373         381,534
                               ----------      ----------      ----------      ----------      ----------
Net income(a)                  $5,346,145      $4,970,428      $5,634,757      $6,497,996      $5,619,609
                               ==========      ==========      ==========      ==========      ==========
Net income per Unit(b)         $      .41             .38      $      .43      $      .50      $      .43
                               ==========      ==========      ==========      ==========      ==========
Distributions declared
  per unit(b)(c)               $      .41      $      .38      $      .43      $      .49      $      .42
                               ==========      ==========      ==========      ==========      ==========

At January 31
----------------------
Total Assets                   $2,556,754      $3,179,863      $2,790,042      $4,286,758      $2,603,167
                               ==========      ==========      ==========      ==========      ==========
</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, 2001, the Trustees distributed
         $.455 per Unit (including $.18 per Unit declared in fiscal 2000 and
         distributed in February 2000) and declared an additional distribution
         of $.13 per Unit, payable in February 2001. During the fiscal year
         ended January 31, 2000, the Trustees distributed $.35 per Unit
         (including $.155 per Unit declared in fiscal 1999 and distributed in
         February 1999) and declared an additional distribution of $.18 per
         Unit, payable in February 2000. 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.
         See "Reserves and Distributions" on page 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 40 years old.


                                       2
<PAGE>

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

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

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

         o    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.

         o    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.

          o   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 $38.22 for calendar year 1999, was $38.22 for calendar year
2000, and is $39.82 for calendar year 2001. 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 $637,044 for calendar year 1999, were $647,282 for
calendar year 2000 and are $663,682 for calendar year 2001. 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 2001
production may be approximately 3.6 million tons. Northshore has not provided
the Trust with an estimate for total calendar year 2001 shipments because of
uncertain market conditions in the iron ore and steel industry. (See description
of the uncertainty of market conditions in the iron ore and steel industry under
"Important Factors Affecting Mesabi Trust" below.) During calendar years 2000,
1999, 1998, 1997 and 1996, the percentage of shipments of iron ore products from
Mesabi Trust lands was approximately


                                       4
<PAGE>

99.8%, 98.9%, 99.3%, 98.3% and 98.4%, 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, 1999 ("CCI's
Annual Report"), CCI, parent company of Northshore, the lessee/operator of
Mesabi Trust iron ore interests, stated that it was continuing to evaluate
whether to build a facility to produce pig iron at CCI's Northshore Mine in
Minnesota that would produce premium grade pig iron. CCI's Annual Report stated
that while progress has been made in a number of areas on the project, a
decision relative to proceeding with this project has been delayed by
uncertainty about market conditions and timing of state environmental
permitting. Except for its May 2000 announcement regarding environmental
permitting for the facility (see below), CCI has made no public disclosure
regarding the pig iron facility project since CCI's Annual Report (CCI made no
reference to the project in its Annual Report for the year ended December 31,
2000.) 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.

           Following LTV Steel's decision to close the LTV Steel Mining
Company's plant at Hoyt Lakes, Minnesota this year, CCI announced in May 2000
that it has asked the Minnesota Pollution Control Agency to delay a decision on
environmental permitting for the possible pig iron facility at CCI's Northshore
Mine in order to evaluate whether its iron ore pellet production should be
increased to meet CCI's future sales requirements. CCI stated that the requested
delay should not be interpreted to mean that CCI has abandoned plans for a
possible pig iron facility. CCI reported that it will be supplying LTV with a
majority of its iron ore pellets over the next 10 years with most of the pellets
expected to come from Minnesota sources that are owned or managed by CCI.
Besides potential expansion at CCI's Northshore Mine, CCI announced that it is
reviewing ways to increase production levels at other CCI-managed mines.

           Additionally, in a press release dated January 9, 2001, CCI announced
that it intends to reduce iron ore pellet production at the Northshore Mine by
approximately 700,000 tons in 2001. CCI stated that one of the pellet production
furnaces at the Northshore Mine would be shut down for an estimated nine month
period beginning in January. CCI cited the impact on its customers of perceived
unfairly traded imports and the general deterioration in overall steel demand in
North America as reasons for the production cutback. No forecast of the volume
of shipments of iron ore pellets for 2001 was provided.

IMPORTANT FACTORS AFFECTING MESABI TRUST

           The Agreement of Trust specifically prohibits the Trustees from
entering into or engaging in any business. This prohibition seemingly 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:


                                       5
<PAGE>

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

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

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

4.      PERCENTAGE OF MESABI TRUST ORE. As described elsewhere in this Report,
        Northshore has the ability to process and ship iron ore product from
        lands other than Mesabi Trust lands. In certain circumstances, the Trust
        may be entitled to royalties on those other shipments, but not in all
        cases. In general, the Trust will receive higher royalties (assuming all
        other factors are equal) if a higher percentage of shipments are from
        Mesabi Trust lands. The percentages of shipments that came from Mesabi
        Trust lands were 99.8%, 98.9%, 99.3%, 98.3% and 98.4% in calendar years
        2000, 1999, 1998, 1997 and 1996, respectively.

5.      UNCERTAINTY OF MARKET CONDITIONS IN THE STEEL AND IRON ORE INDUSTRY.
        After a modest improvement in the first half of 2000, North American
        steel industry fundamentals deteriorated significantly in the second
        half of the year. Weak steel demand, steel industry consolidation and
        price decreases attributable to slowing economies in the United States
        and Canada, high volumes of steel imports, and significantly rising
        energy costs have caused crisis conditions and uncertainty in the North
        American steel and iron ore industry. Such current conditions in the
        steel and iron ore industry could have an adverse impact on the
        royalties that will be paid to the Trust during 2001.

COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 2001 AND JANUARY 31, 2000

           Mesabi Trust's gross income for the fiscal year ended January 31,
2001 was $5,753,650, an increase of $393,757 (or approximately 7.3% ) from the
gross income of $5,359,893 for the fiscal year ended January 31, 2000. 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 $407,505 for the
fiscal year ended January 31, 2001 increased $18,040 (or approximately 4.6%)
from expenses of $389,465 for the fiscal year ended January 31, 2000. Total
expenses, by category, for each of the last three fiscal years is set forth
under "Income and Expense" on page 13 of this report. Increased income and
expenses resulted in net income of $5,346,145 for the fiscal year ended January
31, 2001, an increase of $375,717 from the net income of $4,970,428 for the
fiscal year ended January 31, 2000.


                                       6
<PAGE>

           Mesabi Trust's Unallocated Reserve aggregated $795,918 at January 31,
2001, as compared with an Unallocated Reserve of $763,377 at January 31, 2000.
During the fiscal year ended January 31, 2001, the Trustees distributed $.455
per Unit of Beneficial Interest. These distributions to Unitholders totaled
$5,969,605.

           The following chart summarizes Mesabi Trust's royalty income for the
fiscal years ended January 31, 2001 and January 31, 2000, respectively:

<TABLE>
<CAPTION>
                                              Fiscal Years Ended January 31,
                                            2001                      2000
                                            ----                      ----
<S>                                       <C>                     <C>
          Base overriding royalties       $5,376,626              $5,005,190
          Bonus royalties                         --                  --
          Minimum advance
             Royalty paid (recouped)              --                  --
          Fee royalties                      330,139                 311,016
                                             -------                 -------
            Total royalty income          $5,706,765              $5,316,206
                                          ==========              ==========
</TABLE>


COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 2000 AND JANUARY 31, 1999

           Mesabi Trust's gross income for the fiscal year ended January 31,
2000 was $5,359,893, a decrease of $628,250 (or approximately 10.5% ) from the
gross income of $5,988,143 for the fiscal year ended January 31, 1999. 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 $389,465 for the
fiscal year ended January 31, 2000 increased $36,079 (or approximately 10.2%)
from expenses of $353,386 for the fiscal year ended January 31, 1999. Total
expenses, by category, for each of the last three fiscal years is set forth
under "Income and Expense" on page 13 of this report. Decreased income and
increased expenses resulted in net income of $4,970,428 for the fiscal year
ended January 31, 2000, a decrease of $664,329 from the net income of $5,634,757
for the fiscal year ended January 31, 1999.

           Mesabi Trust's Unallocated Reserve aggregated $763,377 at January 31,
2000, as compared with an Unallocated Reserve of $712,952 at January 31, 1999.
During the fiscal year ended January 31, 2000, the Trustees distributed $.35 per
Unit of Beneficial Interest. These distributions to Unitholders totaled
$4,592,003.

         The following chart summarizes Mesabi Trust's royalty income for the
fiscal years ended January 31, 2000 and January 31, 1999, respectively:

<TABLE>
<CAPTION>
                                                Fiscal Years Ended January 31,
                                              2000                    1999
                                              ----                    ----
<S>                                         <C>                     <C>
          Base overriding royalties         $5,005,190              $5,607,420
          Bonus royalties                           --                     --
          Minimum advance                           --                     --
             royalty paid (recouped)
          Fee royalties                        311,016                 331,826
                                            ----------              ----------
            Total royalty income            $5,316,206              $5,939,246
                                            ==========              ----------
</TABLE>


                                       7
<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 2000 Annual Report, CCI estimated that there currently remains
enough ore reserve in the Peters and Cloquet Lease Lands to produce concentrated
product for 81 year of mining at current extraction rates. The Mesabi Lease
Lands provide an area for location of service roads, supporting plants and
equipment and dump sites for overburden.

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

LEASEHOLD ROYALTIES

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


                                       8
<PAGE>



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

<TABLE>
<CAPTION>
                                                                       Applicable royalty
                                                                   (expressed as a percentage
             Tons of iron ore products                               of gross sales proceeds
             shipped in calendar 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 2001 and further assume that pellets were
shipped from Silver Bay, Minnesota in the second and third calendar quarters of
2001 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 2001 would be as follows:

<TABLE>
<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 2001 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 2001 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 $38.22 per ton for calendar year 1999, $38.22 per ton for calendar
year 2000, and will be $39.82 per ton for calendar 2001. The Adjusted


                                       9
<PAGE>

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 $39.82 is assumed
for calendar year 2001 and that two million tons of iron ore products were
shipped in the second calendar quarter of 2001 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 2001 as follows:

                               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%

           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 2001 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.


                                       10
<PAGE>

           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 $637,044 for the calendar
year 1999, $647,282 for the calendar year 2000 and is $663,682 for the calendar
year 2001. 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.

           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

                                       11
<PAGE>

which the All Commodities Producer Price Index exceeds 295.8 (the level of the
Index for December 1981).

           Fee royalties aggregating $330,139 with respect to crude ore mined by
Northshore were earned by Mesabi Land Trust during the fiscal year ended January
31, 2001.

INCOME AND EXPENSE

           Total income for Mesabi Trust for the fiscal year ended January 31,
2001 was $5,753,650, consisting of $46,885 in interest earned on the investment
of the Unallocated Reserve, $330,139 in fee income, $0 in minimum advance
royalty income, and $5,376,626 in overriding royalty income compared with
$5,359,893 in total income for the previous fiscal year. Total expenses for the
fiscal year were $407,505, compared with $389,465 in total expenses for the
previous fiscal year. There were distributions paid per Unit of Beneficial
Interest totaling $.455 for the fiscal year ended January 31, 2001, compared
with distributions paid for the fiscal year ended January 31, 2000 of $.35 per
Unit.

           Total expenses by categories were as follows:

<TABLE>
<CAPTION>
                                                                 Fiscal Years ended January 31,
                                                         ----------------------------------------------
                                                           2001             2000              1999
                                                           ----             ----              ----
<S>                                                       <C>               <C>              <C>
Compensation of Trustees                                  $136,325          $130,046         $125,083
Fees and Disbursements
  Administrative                                            62,500            65,983           62,500
  Accounting                                                33,230            34,629           36,302
  Inspection trips, travel and
    other expenses of Trustees                              41,664            31,138           38,677
  Legal                                                     53,038            42,038           19,707
  Mining consultant and field
    Representatives                                         14,480            16,194           16,548
  Printing of annual and quarterly
    reports, and letters to
    certificate holders                                     35,004            31,168           22,421
  Securities and Exchange Commission                           ---               ---              ---
  Transfer Agent and Registrar                              21,335            23,537           22,689
  Transfer Agent miscellaneous
    Disbursements                                            9,929            10,586            9,458
  Other miscellaneous expenses                                 ---             4,146                1
                                                          --------          --------         --------
                                                          $407,505          $389,465         $353,386
                                                          ========          ========         ========
</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.


                                       12
<PAGE>

RESERVES AND DISTRIBUTIONS

           Mesabi Trust's Unallocated Reserve aggregated $795,918 at January 31,
2001, compared with an Unallocated Reserve of $763,377 at January 31, 2000. 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 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, 2000
totaled $4,592,003 and payments to Unitholders during the fiscal year ended
January 31, 2001 totaled $5,969,605.

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>
                                                             Amount
Fiscal Quarter Ended             High          Low          Declared         Per Unit
--------------------             ----          ---          --------         --------
<S>                              <C>          <C>           <C>             <C>
April 30, 1999                   3 7/16       2 13/16       $       --      $       --
July 31, 1999                    3 6/16       2 15/16        1,049,600           0.080
October 31, 1999                 3 1/16       2 7/16         1,508,801           0.115
January 31, 2000                 3 1/4        2 3/16         2,361,602           0.180
                                                           -----------      ----------
                                                            $4,920,003      $    0.375
                                                            ==========      ==========

<CAPTION>
                                                             Amount
Fiscal Quarter Ended             High          Low          Declared         Per Unit
--------------------             ----          ---          --------         --------
<S>                              <C>          <C>           <C>             <C>
April 30, 2000                   3            2 5/8         $       --      $       --
July 31, 2000                    3 5/8        2 13/16        1,312,001           0.100
October 31, 2000                 4            3 5/16         2,296,002           0.175
January 31, 2001                 3 1/2        2 3/4          1,705,601           0.130
                                                           -----------      ----------
                                                            $4,313,604      $    0.405
                                                            ==========      ==========
</TABLE>

           As of the close of business on April 19, 2001, the beneficial
interest in Mesabi Trust was represented by 13,120,010 Units registered in the
names of approximately 2,591 individuals holding of record approximately
1,653,664 Units, and in the names of approximately 526 brokers, nominees, or
fiduciaries holding of record approximately 11,466,346 Units.


                                       13
<PAGE>

THE TRUSTEES

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


Name and Address of Trustee                Principal Occupation
---------------------------                --------------------

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



                                           Respectfully submitted,

                                           BANKERS TRUST COMPANY
                                           DAVID J. HOFFMAN
New York, New York                         RICHARD G. LAREAU
April 19, 2001                             IRA A. MARSHALL, JR.
                                           NORMAN F. SPRAGUE III


                                       14
<PAGE>

                          INDEPENDENT AUDITOR'S REPORT




To the Trustees
Mesabi Trust
New York, New York

           We have audited the accompanying balance sheet of Mesabi Trust as of
January 31, 2001, and the related statements of income, unallocated reserve and
trust corpus and cash flows for the year ended January 31, 2001. 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 audit. The
financial statements of Mesabi Trust, as of January 31, 2000 and 1999, were
audited by other auditors whose report dated March 8, 2000, expressed an
unqualified opinion on those statements.

           We conducted our audit 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 audit provides 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, 2001, and the results of its income and its cash flows for the year
ended January 31, 2001, in conformity with generally accepted accounting
principles.


                                                  EIDE BAILLY LLP
Fargo, North Dakota
March 14, 2001
                                                  /s/ Eide Bailly LLP


                                      F-1
<PAGE>

                          INDEPENDENT AUDITOR'S REPORT




To the Trustees
Mesabi Trust
New York, New York

           We have audited the accompanying balance sheet of Mesabi Trust as of
January 31, 2000 and 1999, 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, 2000. 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 provides 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, 2000 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended January 31, 2000, in conformity
with generally accepted accounting principles.


                                            MCGLADRY & PULLEN LLP
New York, New York
April 19, 2001
                                            /s/ McGladry & Pullen, LLP


                                      F-2

<PAGE>




                                  MESABI TRUST

                                 BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                         January 31,
                                                                                 ------------------------------
                                                                                  2001               2000
                                                                                  ----               ----
<S>                                                                           <C>                 <C>
                           ASSETS

Cash                                                                          $   1,947,696       $      51,082
U.S. Government securities,
         at amortized cost (which approximates market)                              505,815           2,888,947
Accrued income                                                                       98,893             235,056
Prepaid insurance                                                                     4,347               4,775
                                                                              -------------       -------------
                                                                                  2,556,751           3,179,860
                                                                                                  -------------

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
                                                                              -------------       -------------
                                                                              $   2,556,754       $   3,179,863
                                                                              =============       =============

                LIABILITIES, UNALLOCATED RESERVE AND TRUST CORPUS

Liabilities:
    Distribution payable                                                      $   1,705,601       $   2,361,602
    Accrued expenses                                                                 55,232              54,881
                                                                              -------------       -------------
                                                                                  1,760,833           2,416,483


Unallocated reserve                                                                 795,918             763,377

Trust Corpus                                                                              3                   3
                                                                              -------------       -------------
                                                                              $   2,556,754       $   3,179,863
                                                                              =============       =============
</TABLE>



See Notes to Financial Statements.


                                      F-3

<PAGE>




                                  MESABI TRUST

                              STATEMENTS OF INCOME


<TABLE>
<CAPTION>
                                                                  Years ended January 31,
                                                  ------------------------------------------------------------
                                                       2001                  2000                1999
                                                       ----                  ----                ----
<S>                                                 <C>                  <C>                   <C>
REVENUE

   Royalties under amended
         lease agreements                           $  5,376,626         $  5,005,190          $  5,607,420
   Royalties under Peters
         Lease fee                                       330,139              311,016               331,826
   Interest                                               46,885               43,687                48,897
                                                    ------------         ------------          ------------

                  Total revenue                        5,753,650            5,359,893             5,988,143
                                                    ------------         ------------          ------------


EXPENSES

   Compensation of Trustees                              136,325              130,046               125,083
   Corporate Trustee's administrative fees                62,500               65,983                62,500
   Professional fees and expenses:
         Legal and accounting                             86,268               76,667                56,009
         Mining consultant and field
         representatives                                  14,480               16,194                16,548
   Transfer agent's and registrar's fees                  21,335               23,537                22,689
   Other Trust expenses                                   86,597               77,038                70,557
                                                    ------------         ------------          ------------

                  Total expenses                         407,505              389,465               353,386
                                                    ------------         ------------          ------------

Net income                                          $  5,346,145         $  4,970,428          $  5,634,757
                                                    ============         ============          ============

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

Net income per unit                                 $        .41         $        .38          $        .43
                                                    ============         ============          ============
</TABLE>



See Notes to Financial Statements.


                                      F-4

<PAGE>

                                  MESABI TRUST

               STATEMENTS OF UNALLOCATED RESERVE AND TRUST CORPUS
                   YEARS ENDED JANUARY 31, 2001, 2000 AND 1999


<TABLE>
<CAPTION>
                                                                               Unallocated Reserve
                                                                               -------------------
                                                                Number of                                Trust
                                                                  Units              Amount              Corpus
                                                                  -----              ------              ------
<S>                                                           <C>                  <C>               <C>
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, 1999,
         paid February 20, 1999,
         $.155 per unit                                                 ---           (2,033,602)              ---
                                                              -------------        -------------     -------------
Balance, January 31, 1999                                        13,120,010              712,952                 3
                                                              -------------        -------------     -------------

     Net income                                                         ---            4,970,428               ---
         Distribution paid August 20, 1999,
         $.08 per unit                                                  ---           (1,049,600)              ---
         Distribution paid November 20, 1999,
         $.115 per unit                                                 ---           (1,508,801)              ---
         Distribution declared January 20, 2000,
         paid February 20, 2000,
         $.18 per unit                                                  ---           (2,361,602)              ---
                                                              -------------        -------------     -------------
Balance, January 31, 2000                                        13,120,010              763,377                 3
                                                              -------------        -------------     -------------

     Net income                                                         ---            5,346,145               ---
         Distribution paid August 20, 2000,
         $.10 per unit                                                  ---           (1,312,001)              ---
         Distribution paid November 20, 2000,
         $.175 per unit                                                 ---           (2,296,002)              ---
         Distribution declared January 18, 2001,
         paid February 20, 2001,
         $.13 per unit                                                  ---           (1,705,601)              ---
                                                              -------------        -------------     -------------
Balance, January 31, 2001                                        13,120,010        $     795,918     $           3
                                                              =============        =============     =============
</TABLE>



See Notes to Financial Statements.


                                      F-5

<PAGE>



                                  MESABI TRUST

                            STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                        Years ended January 31,
                                                       -----------------------------------------------------------
                                                           2001                   2000                   1999
                                                           ----                   ----                   ----
<S>                                                    <C>                   <C>                     <C>
Cash flows from operating
         activities:
       Royalties received                              $   5,843,339         $    5,216,513          $   5,967,132
       Interest received                                      46,473                 43,315                 48,241
       Expenses paid                                        (406,725)              (377,983)              (386,675)
                                                       --------------        --------------          -------------
         Net cash provided by operating
         activities                                        5,483,087              4,881,845              5,628,698
                                                       -------------         --------------          -------------
Cash flows from investing activities:
       Maturities of U.S. Government
       securities                                          6,975,801              6,191,645              9,009,983
       Purchases of U.S. Government
       securities                                         (4,592,669)            (8,545,678)            (9,045,824)
                                                       --------------        --------------          -------------
       Net cash (used in) provided by
       investing activities                                2,383,132             (2,354,033)               (35,841)
                                                       -------------         --------------          -------------
Cash flows from financing activities:
       Net cash (used in) financing
       activities, distributions
       to unitholders                                     (5,969,605)            (4,592,003)            (7,084,805)
                                                       --------------        --------------          -------------

Net increase (decrease) in cash                            1,896,614             (2,064,191)            (1,491,948)

Cash, beginning of year                                       51,082              2,115,273              3,607,221
                                                       -------------         --------------          -------------

Cash, end of year                                      $   1,947,696         $       51,082          $   2,115,273
                                                       =============         ==============          =============

Reconciliation of net income
         to net cash provided by
         operating activities:
         Net income                                    $   5,346,145         $    4,970,428          $   5,634,757
         Decrease (increase) in
         accrued income                                      136,163               (100,065)                41,650
         Decrease (increase) in prepaid
         insurance                                               428                     86                 (1,041)
         (Decrease) increase in
         accrued expenses                                        351                 11,396                (46,668)
                                                       -------------         --------------          --------------
       Net cash provided by
       operating activities                            $   5,483,087         $    4,881,845          $   5,628,698
                                                       -------------         ==============          =============
</TABLE>



See Notes to Financial Statements.


                                      F-6
<PAGE>

                                  MESABI TRUST

                          NOTES TO FINANCIAL STATEMENTS


                         JANUARY 31, 2001, 2000 AND 1999

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.

         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


                                      F-7

<PAGE>

                  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, 2001 and
                  2000 because of the relative short maturity of these
                  instruments.


                                      F-8

<PAGE>

Note 2.  U.S. Government Securities

         The amortized cost approximates market value as of January 31, 2001 and
         2000. The securities are classified as held-to-maturity and mature as
         follows:
<TABLE>
<CAPTION>
                                                      January 31, 2001          January 31, 2000
                                                      ----------------          ----------------
<S>                                                         <C>                     <C>
                   Due within one year                      $  97,782               $2,487,132
                   Due after one year through
                     four years                               408,033                  401,815
                                                            ---------               ----------
                                                            $ 505,815               $2,888,947
                                                            =========               ==========
</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.


                                      F-9

<PAGE>

         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 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, 2001, the minimum advance royalty is $663,862. The minimum
         annual advance royalty was $647,282, $637,044, and $636,935 for the
         calendar years ended December 31, 2000; 1999; and 1998; respectively.

         The unallocated reserve aggregated $795,918 (of $.06 per Unit), at
         January 31, 2001, as compared with an unallocated reserve of $763,377
         and $712,952 at January 31, 2000 and 1999, respectively. During the
         fiscal years ended January 31, 2001, 2000 and 1999 the Trustees
         distributed cash payments totaling $5,969,605 (of $.455 per Unit),
         $4,592,003 (of $.35 per Unit), and $7,084,805 (of $.54 per Unit),
         respectively, of beneficial interest in Mesabi Trust. In addition, in
         January 2001 the Trustees declared a distribution of $.13 per unit of
         beneficial interest which was paid in February 2001.


                                      F-10

<PAGE>

Note 4.  Summary of Quarterly Earnings (Unaudited)

The quarterly results of operations for the years ended January 31, 2001 and
2000 are presented below:

<TABLE>
<CAPTION>
                                                                    Year ended January 31, 2001
                                                  -----------------------------------------------------------------
                                                      First           Second           Third             Fourth
                                                     Quarter         Quarter          Quarter           Quarter
                                                   -----------    -------------   --------------     --------------
<S>                                                <C>            <C>             <C>                <C>
                  Revenue                             $443,827       $1,554,610       $2,577,808         $1,177,405
                  Expenses                              91,618           89,358           80,682            145,848
                                                   -----------    -------------   --------------     --------------
                  Net income                          $352,209       $1,465,252       $2,497,126         $1,031,557
                                                   ===========    =============   ==============     ==============

                  Net income per unit              $      0.03    $        0.11   $         0.19     $         0.08
                                                   ===========    =============   ==============     ==============

<CAPTION>

                                                                    Year ended January 31, 2000
                                                  -----------------------------------------------------------------
                                                      First           Second           Third             Fourth
                                                     Quarter         Quarter          Quarter           Quarter
                                                   -----------    -------------   --------------     --------------
<S>                                                <C>            <C>             <C>                <C>

                  Revenue                             $455,960       $1,126,492       $1,711,061        $2,066,380
                  Expenses                              85,917          112,781           79,273           111,494
                                                   -----------    -------------   --------------     --------------
                  Net income                          $370,043       $1,013,711       $1,631,788        $1,954,886
                                                   ===========    =============   ==============     ==============

                  Net income per unit              $      0.03    $        0.08   $         0.12     $        0.15
                                                   ===========    =============   ==============     ==============
</TABLE>


                                      F-11