UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K
                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

                     OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001         Commission File No.: 0-23259

                          U.S. TIMBERLANDS COMPANY, LP
             (Exact name of registrant as specified in its charter)


                   DELAWARE                                       91-1842156
         (State or other jurisdiction                         (I.R.S. Employer
      of incorporation or organization)                      Identification No.)

 625 Madison Avenue, Suite 10-B, New York, NY                       10022
   (Address of principal executive offices)                      (Zip code)

        Registrant's telephone number, including area code: 212-755-1100

                                -----------------

           Securities registered pursuant to Section 12(b) of the Act:

                                      None

     Securities registered pursuant to Section 12(g) of the Act:

  Title of Each Class:              Name of Each Exchange on Which Registered:
      Common Units                            NASDAQ National Market

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  then  preceding  12 months (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirement for the past 90 days.

                                Yes_X_  No ___

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to be the best of  registrant's  knowledge,  in definitive  proxy or information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to the Form 10-K. [X]

         The aggregate  market value of the Common Units held by  non-affiliates
of the registrant,  based on the last reported sale price of the Common Units on
the NASDAQ National Market on March 27, 2002, was approximately $14,043,848.

         Documents incorporated by reference: None

<PAGE>


                                    U.S. TIMBERLANDS COMPANY, LP

                                          TABLE OF CONTENTS
<TABLE>
<CAPTION>


                                                                                                                Page
<S>      <C>      <C>                                                                                          <C>
PART I

         Item 1.  Business........................................................................................1
         Item 2.  Properties.....................................................................................10
         Item 3.  Legal Proceedings..............................................................................11
         Item 4.  Submission of Matters to a Vote of Security Holders............................................11

PART II

         Item 5.  Market for Registrant's Common Units and Related Security Holder Matters.......................12
         Item 6.  Selected Financial Data........................................................................14
         Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations..........15
         Item 7A.  Quantitative and Qualitative Disclosures About Market Risk....................................23
         Item 8.  Financial Statements...........................................................................24
         Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........24

PART III

         Item 10. Directors and Executive Officers of the Registrant.............................................25
         Item 11. Executive Compensation.........................................................................29
         Item 12. Security Ownership of Certain Beneficial Owners and Management.................................35
         Item 13. Certain Relationships and Related Transactions.................................................36

PART IV

         Item 14. Exhibits, Financial Statements, and Reports on Form 8-K........................................38



</TABLE>

                                       ii

<PAGE>


                                     PART I

Item 1.  Business.

General

         The  business  of U.S.  Timberlands  Company,  LP, a  Delaware  limited
partnership  formed in June 1997 (the  "Company"),  consists  of the  growing of
trees and the sale of logs and standing timber.  The Company owns  approximately
489,000 fee acres of timberland and cutting rights on approximately 18,000 acres
of timberland  (collectively the  "Timberlands")  containing total  merchantable
timber volume  estimated as of January 1, 2002 to be  approximately  1.2 billion
board feet ("BBF") in Oregon east of the Cascade Range (the "Timberlands"). Logs
harvested from the  Timberlands  are sold to  unaffiliated  domestic  conversion
facilities.  These logs are processed for sale as lumber, plywood and other wood
products,  primarily  for  use  in  new  residential  home  construction,   home
remodeling and repair and general industrial applications. The Company also owns
and  operates  its own seed  orchard and  produces  approximately  five  million
conifer seedlings annually from its nursery, approximately 75% of which are used
for its own  internal  reforestation  programs,  with the balance  sold to other
forest products companies. Except as the context otherwise requires,  references
herein to, or descriptions  of, assets and operations of the Company include the
assets and operations of the Operating Company (as defined below).

         The  Timberlands'   merchantable  timber  consists  of  Ponderosa  Pine
(approximately  48%) and Douglas Fir  (approximately  14%),  species  which have
historically  commanded  premium  prices over other softwood  species,  with the
balance consisting of Lodgepole Pine, White Fir and other softwood species.  The
Timberlands  have stands of varying  ages and are unique in the forests  east of
the Cascade  Range in Oregon in that  approximately  141,000  acres are actively
managed tree farms (the  "Plantations").  The Plantations were first established
by Weyerhaeuser Company ("Weyerhaeuser") in the early 1960s and acreage has been
planted each year since then.  Currently,  the  Plantations  contain age classes
ranging  generally from one to 40 years old.  Initial  thinning or harvesting of
the  Plantation  stands is expected to begin  within the next three  years.  The
balance of the  Timberlands is composed of natural  stands.  For a more complete
description of the Company's properties, see "Properties."

         In August 1996, U.S. Timberlands Klamath Falls, LLC, a Delaware limited
liability  company  ("USTK")  and  U.S.  Timberlands  Management  Company,  LLC,
formerly  known as U.S.  Timberlands  Services  Company,  LLC ("Old  Services"),
acquired  approximately  604,000 fee acres of  timberland  (the  "Klamath  Falls
Timberlands"),   containing   an  estimated   merchantable   timber   volume  of
approximately 1.9 BBF and related assets from  Weyerhaeuser  (the  "Weyerhaeuser
Acquisition").  In  July  1997,  USTK,  which  is now the  Company's  subsidiary
operating  company  (in  such  capacity,  the  "Operating  Company"),   acquired
approximately 42,000 fee acres of timberland and cutting rights on approximately
3,000 acres of timberland  (the "Ochoco  Timberlands"),  containing an estimated
merchantable timber volume of approximately 280 million board feet ("MMBF") from
Ochoco Lumber  Company  ("Ochoco")  (the "Ochoco  Acquisition").  At the date of
acquisition,  over 40% of the merchantable  timber on the Ochoco Timberlands was
at least 80 years old.  As of December  31,  2000,  the  Company  had  harvested
substantially  all of the Old  Growth  timber  on the  Ochoco  Timberlands.  The
average age of the remaining  merchantable  timber on the Ochoco  Timberlands is
approximately  40 - 50 years in age.  During October 1999 and again in the first
and second  quarters  of 2001,  the  Company  contributed  primarily  non-income
producing,  pre-merchantable  pine  plantation  timberlands  in exchange  for an
investment  in an  affiliate  (See Item 13  Certain  Relationships  and  Related
Transactions and Notes 3 and 9 to the Consolidated Financial Statements).

         During the period from January 1, 1994 through the  acquisition  of the
Klamath Falls Timberlands by USTK,  approximately 58% of the logs harvested from
the  Klamath  Falls  Timberlands  were  delivered  to a  plywood  mill  owned by
Weyerhaeuser  at  Klamath  Falls,  Oregon.   Similarly,   prior  to  the  Ochoco
Acquisition,   substantially  all  of  the  timber  harvested  from  the  Ochoco
Timberlands was delivered to Ochoco's mills.  The Company does not currently own
any  conversion  facilities  nor  does  it  presently  intend  to own  any  such
facilities on a long-term  basis;  consequently  the Company's sales are made to
unaffiliated  third parties.  Concurrent with USTK's  acquisition of the Klamath
Falls  Timberlands,  USTK  arranged  for Collins  Products  LLC  ("Collins"),  a
privately  owned  forest  products  company  located  within the  Klamath  Falls
Timberlands area, to purchase  Weyerhaeuser's Klamath Falls mill facilities.  In
September  1996,  the Company  entered into a 10-year log supply  agreement with
Collins  (the  "Collins  Supply  Agreement")  providing  for the purchase by the
plywood mill and  delivery by the Company of a minimum of 34 million  board feet
("MMBF") of logs each year at market  prices.  During  2001,  Collins  suspended
plywood  production  at the Klamath  Falls mill and it was  mutually  decided to
cancel the remaining  years on the contract.  In addition to its sales under the
Collins  Supply  Agreement,  the  Company  sold and  continues  to sell  logs to
conversion facilities located in the area surrounding the Timberlands. There are
currently more than 40 primary  conversion  facilities located within a 150-mile
radius of the Company's Timberlands.



                                       1
<PAGE>

Formation of the Company

         On November 19, 1997,  the Company  acquired  substantially  all of the
equity  interests  in USTK and the  business  and  assets of Old  Services  (the
"Acquisition")   and  completed  its  initial  public   offering  (the  "Initial
Offering")  of common units  representing  limited  partner  interests  ("Common
Units").  Upon the closing of the Acquisition,  Old Services  contributed all of
its  assets,  including  its timber  operations,  to U.S.  Timberlands  Services
Company,  LLC,  a  newly  formed  Delaware  limited  liability  company  and the
Company's general partner (the "General Partner" or "New Services"), in exchange
for interests therein. Immediately thereafter, USTK assumed certain indebtedness
(the "Holdings Debt") of U.S.  Timberlands  Holdings,  LLC, an affiliate of USTK
("Holdings"),  and the General Partner contributed its timber operations to USTK
in exchange for a member interest in USTK. Then the General Partner  contributed
all but a 1% member  interest in USTK to the  Company in exchange  for a general
partner interest in the Company,  the right to receive  Incentive  Distributions
(as defined  herein)  and  1,387,963  subordinated  units  representing  limited
partner  interests  in  the  Company   ("Subordinated   Units"),   and  Holdings
contributed all of its interest in USTK to the Company in exchange for 2,894,157
Subordinated  Units. The General Partner then distributed the Subordinated Units
to Old  Services.  Approximately  143,398  Subordinated  Units  were used by Old
Services to redeem interests in Old Services held by certain founding  directors
of  the  General  Partner  (the  "Founding  Directors").  As a  result  of  such
transactions,  USTK became the Operating Company and the General Partner owns an
aggregate  2% interest in the  Company and the  Operating  Company on a combined
basis,  and the  right to  receive  Incentive  Distributions;  U.S.  Timberlands
Holdings  Group,  LLC, a successor to Old Services and Holdings  owns  3,140,162
Subordinated  Units and the  Founding  Directors  own an  aggregate  of  143,398
Subordinated Units. The 3,283,560  Subordinated Units owned by U.S.  Timberlands
Holdings  Group,  LLC and the Founding  Directors  represent an aggregate  25.5%
interest  in the  Company.  The  Common  Units  and the  Subordinated  Units are
referred to herein collectively as "Units" and the holders of Units are referred
to herein as "Unitholders."

         Concurrent  with the closing of the  Initial  Offering,  the  Operating
Company  and  its  wholly  owned  subsidiary,  U.S.  Timberlands  Finance  Corp.
("Finance Corp."),  consummated the public offering (the "Public Note Offering")
of $225.0  million  aggregate  principal  amount of unsecured  senior notes (the
"Notes).  See  "Management's  Discussion  and Analysis of Liquidity  and Capital
Resources."

         The purpose of the Company under the  Partnership  Agreement is limited
to serving as the non-managing  member of the Operating  Company and engaging in
any  business  activity  that may be engaged in by the  Operating  Company.  The
Operating Company's operating agreement provides that the Operating Company may,
directly  or  indirectly,  engage  in  (i)  any  activity  engaged  in  by  USTK
immediately prior to the Initial  Offering,  (ii) any other activity approved by
the General Partner but only to the extent that the General  Partner  reasonably
determines  that,  as of the date of the  acquisition  or  commencement  of such
activity,  such activity generates  "qualifying income" (as such term is defined
in  Section  7704 of the  Internal  Revenue  Code) or (iii)  any  activity  that
enhances the  operations  of an activity that is described in (i) or (ii) above.
Although the General Partner has the ability under the Partnership  Agreement to
cause the Company and the Operating  Company to engage in activities  other than
the  ownership or  operation  of  timber-producing  real  property,  the General
Partner has no current  intention of doing so. The General Partner is authorized
in general to perform all acts deemed  necessary to carry out such  purposes and
to conduct the business of the Company.



                                       2
<PAGE>

Company Structure and Management

         The operations of the Company are conducted through,  and the operating
assets are owned by, USTK, as the Operating Company. The Company owns a 98.9899%
member  interest in the  Operating  Company and the  General  Partner  owns a 1%
general partner  interest in the Company and a 1.0101%  managing member interest
in the Operating  Company.  The General  Partner  therefore owns an aggregate 2%
interest in the Company and the Operating Company on a combined basis.

         The Company's  business is managed by the General Partner.  The General
Partner does not receive any management fee or other  compensation in connection
with its  management  of the  Company,  but is  reimbursed  for all  direct  and
indirect  expenses  incurred  on  behalf  of the  Company  (including  wages and
salaries of employees,  officers and  directors of the General  Partner) and all
other  necessary or appropriate  expenses  allocable to the Company or otherwise
reasonably  incurred by the General  Partner in connection with the operation of
the Company's business.

         Conflicts  of interest  may arise  between the General  Partner and its
affiliates,  on the one hand,  and the Company,  the  Operating  Company and the
Unitholders, on the other, including conflicts relating to the purchase and sale
of timber and/or  timber  deeds,  compensation  of the  directors,  officers and
employees of the General Partner and the determination of fees and expenses that
are allocable to the Company. The General Partner has a conflicts committee (the
"Conflicts  Committee"),  consisting of two independent  members of its Board of
Directors,  that is  available  at the General  Partner's  discretion  to review
matters involving conflicts of interest.

         The principal  executive offices of the Company and the General Partner
are located at 625 Madison  Avenue,  Suite 10-B, New York,  New York 10022.  The
telephone number at such offices is (212) 755-1100.



                                       3
<PAGE>

The Timberlands

Timber Growth

         Timber growth rates  reflect  timberland  productivity  and the rate of
return on a timber investment. Growth rate is an important factor in determining
when to harvest timber and the harvest  potential of  timberlands  over the long
term. Merchantable timber is economically mature for harvesting when its current
growth  rate falls  below the desired  rate of return on the  investment  in the
standing trees. The average growth rate from  regeneration to economic  maturity
measures the capacity of the land for timber production. The Company's older and
natural  stands on the  Timberlands  that are  expected to provide the near term
harvest have a current average growth rate of  approximately  150 board feet per
acre per annum. The younger  plantations,  that presently have less merchantable
volume,  are  growing at a rate that is  expected  to average at least 315 board
feet per acre per annum to economic maturity in 50 to 60 years. This growth rate
is based on calculated volumes at the time of maturity. The Company has achieved
higher growth rates on the  Plantations by planting high quality  seedlings,  by
eliminating  competing  non-timber  growth from the  Timberlands and by applying
modern forestry practices to assist the growth of the timber. Currently,  nearly
all of the  seedlings  planted  are grown from  superior  seed  produced  in the
Company's seed orchard.  Management  does take action to enhance the growth rate
in the natural stands as well. For example,  selective  harvesting in the slower
growing  natural  stands  opens up the timber stand  allowing for more  vigorous
growth  of the  remaining  trees.  When it is no  longer  possible  to  maintain
acceptable  growth  rates in these  stands they will be  harvested  entirely and
converted to faster growing plantations.

Harvest Plans

         The Company  strives to manage all of its  Timberlands,  including  the
Plantations,  in an economically prudent and environmentally sensitive manner in
order to maximize their value over time. Integral to this management process are
the Company's  long-term  harvest plans.  The Company prepares its harvest plans
annually  based  on  analyses  of the  size and age  class  distribution  of the
Timberlands  and the economic  maturity of each harvest  tract.  The factors the
Company  considers in determining  its long-term  harvest plans  include,  among
other things,  current and expected  market  conditions,  competition,  customer
requirements,  the age, size and species  distribution of the Company's  timber,
assumptions about timber growth rates (which are improving over time as a result
of  technological  and  biological   advances  that  improve  forest  management
practices),  expected acquisitions and dispositions,  access to the Timberlands,
availability of contractors,  sales contracts and  environmental  and regulatory
constraints.  The Company's harvest plans reflect the Company's expectations for
each  year's  harvest,  including  the  sites to be  harvested,  the  manner  of
harvesting  such sites,  the volume of each species to be harvested,  the prices
expected to be received for the Company's timber,  the amount of stumpage sales,
logging and other costs, thinning operations and other relevant information. The
Company has the  flexibility to update its harvest plans during the year to take
into consideration  changes in these factors. The Company harvested or committed
to harvest  from log,  stumpage  and timber  deed sales 251  million  board feet
(MMBF) in 2001 and plans to  harvest,  or commit to harvest,  approximately  196
MMBF in 2002. The Company did not sell any MMBF through  property sales in 2001,
but intends to sell up to 90 MMBF  through  property  sales in 2002.  If current
market  conditions  do not improve,  the Company will be required to harvest its
current  Timberlands  aggressively over  approximately the next one to two years
after which time the  harvest  level is expected to decline to a level which the
Company  considers to be more  sustainable  over the long term.  Because harvest
plans are based on certain  assumptions,  many of which are beyond the Company's
control,  there can be no assurance that the Company will be able to harvest the
volumes  projected in its harvest plans.  While the Company's  debt  obligations
place certain limitations on the harvest plans, the Company believes that it has
sufficient  flexibility to permit  modifications  in response to fluctuations in
the  market  for logs and  lumber and the other  factors  described  above.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations." If the Company's  current  harvest plans are pursued  unaltered for
the  next ten  years,  if it  consummates  the land  sales  contemplated  by its
strategic plan and if its other strategic assumptions prove to be accurate,  the
Company  expects  that  its  timber  inventory  will  decline  through  2010 and
Ponderosa  Pine  volume  will  increase  as a  percentage  of its  total  timber
inventory  by such date.  The Company  expects that its  inventory  would remain
relatively stable thereafter.  Long-term harvest plans,  growth rates and forest
inventory  levels will be reviewed during 2002.  Such harvest plans,  land sales
and other strategic  assumptions do not take into account any  acquisition  that
the Company may consummate during such period.

Access

         The Timberlands are accessible by a system of approximately 5,000 miles
of  established  roadways or  low-maintenance  roads owned by the Company or its
Affiliates.  The Company uses third party road crews to conduct construction and
maintenance on the  Timberlands.  The Company  regularly  enters into reciprocal
road use  agreements  with the United States  Department of Agriculture - Forest
Service  ("USFS") and the United States  Department  of Interior  Bureau of Land
Management  ("BLM") and cooperates  with such agencies in numerous  cost-sharing
arrangements regarding jointly used roads.

Sales and Markets

         The Company sells its timber through log sales, stumpage sales and deed
sales.  Under a log sale, the Company  identifies a block of timberland  that is
ready to be harvested  and solicits  offers from its  customers  for delivery of
logs.  After a price and volume have been agreed among the parties,  the Company
contracts a third party to harvest the acreage and deliver to a roadside site on
the  Timberlands,  where a  contracted  trucking  company  picks up the logs and
delivers them to the customer.  A stumpage sale is similar to a log sale in that
the  Company  solicits  offers  from  its  customers  for  timber  on a block of
timberland that is ready to be harvested.  However,  under a stumpage  contract,
the Company sells the customer the right to harvest the timber, or stumpage, and
the  customer  arranges  to  harvest  and  deliver  the logs.  Under a  stumpage
contract, revenue recognition occurs as the timber is harvested by the customer,
as the Company retains the risk of loss until the timber is harvested.  A timber
deed sale is similar to a stumpage sale, except revenue  recognition occurs when
the contract is executed, as the Company passes the risk of loss to the customer
when the contract is executed.

                                       4
<PAGE>

         The Company  currently  sells its  sawlogs or stumpage to  unaffiliated
wood products  manufacturers  and sells its chips to unaffiliated  pulp mills or
hardboard plants. The percentage of logs which are sold as  sawlogs/stumpage  or
pulp logs is dependent upon, among other things,  the species mix and quality of
the inventory  harvested and the market dynamics  affecting the region.  Most of
the  timber  on the  Timberlands  is  softwood,  which,  due to its long  fiber,
strength,  flexibility and other  characteristics,  is generally  preferred over
hardwood  for  construction  lumber and  plywood.  Once  processed,  sawlogs are
suitable for use as structural grade lumber,  appearance  grade boards,  plywood
and laminated  veneer and can also be  manufactured  for such end uses as window
trim, molding and door jambs.  During 2001,  sawlogs,  stumpage sales and timber
deed sales accounted for  approximately  48%, 0% and 52%,  respectively,  of the
Company's  revenue.  Chips,  which can be used to make  hardboard  or pulp,  and
seedlings combined accounted for less than 1% of the Company's revenues in 2001.
There were no timber and property sales in 2001.

     The  Company's  customers  include  numerous   unaffiliated   operators  of
conversion facilities. Since its acquisition of the Klamath Falls Timberlands in
August 1996,  the Company has sold logs and chips from such  timberlands to over
25 different  customers.  Concurrent  with the  Weyerhaeuser  Acquisition,  USTK
arranged for Collins,  a privately owned forest products  company located within
the Klamath Falls  Timberlands,  to purchase  Weyerhaeuser's  Klamath Falls mill
facilities. At such time, the Company entered into the Collins Supply Agreement,
a 10-year  log supply  agreement  with  Collins  providing  for  purchase by the
plywood  mill and  delivery  by the Company of a minimum of 34 MMBF of logs each
year at market  prices.  In the  fourth  quarter  of 2001,  the  Collins  Supply
Agreement  was  cancelled by mutual  agreement as a result of the closure of the
Collins  Klamath Falls Plywood Mill in Klamath Falls.  In 2001,  sales to Timber
Products,   Scott  Timber,   Crown  Pacific  and  Boise  Cascade  accounted  for
approximately  41% of the  Company's  revenue.  No other  single  non-affiliated
customer  accounted  for more than 5% of the  Company's  net  revenues for 2001.
Although  the  loss  of one or  more  of such  customers  or  other  significant
customers  could  have a material  adverse  effect on the  Company's  results of
operations,  the Company believes that the capacity for processing wood fiber in
the Company's  markets currently  exceeds the supply and that,  therefore,  such
customers  could readily be replaced.  There are currently  more than 40 primary
conversion  facilities  located  within  a  150-mile  radius  of  the  Company's
Timberlands.

Seasonality

         Log and stumpage  sales volumes are generally at their lowest levels in
the first and second quarters of each year. Heavy snowfalls in higher elevations
prevent access to many areas of the Company's  timberlands in the first quarter.
This limited  access,  along with spring  break-up  conditions in March or April
(when warming weather thaws and softens roadbeds),  restricts logging operations
to lower  elevations  and areas with  rockier  soil  types.  The result of these
constraints is that log sales volumes are typically at their lowest in the first
quarter,  improving in the second quarter and at their high during the third and
fourth  quarters.  Most  customers  in the region react to this  seasonality  by
carrying  high log  inventories  at the end of the calendar year at a level that
provides  sufficient  inventory  to  carry  them to the  second  quarter  of the
following year.

         Contributing  to this  seasonality  of log volumes is the market demand
for lumber and related  products which is typically lower in the first or winter
quarter  when  activity in the  construction  industry is slow,  but  increasing
during the spring,  summer and fall quarters.  Log and stumpage prices generally
increase in the spring with this build up of construction  activity matching the
timing of re-entry to all forested areas and increased logging activity.

                                       5
<PAGE>

Competition

         Due to  transportation  costs,  domestic  conversion  facilities in the
Pacific  Northwest  tend to purchase raw materials  within  relatively  confined
geographic areas, generally within a 200-mile radius. It is generally recognized
that log  suppliers  such as the Company  provide  their market with a commodity
product.  The Company and its competitors all benefit from the same  competitive
advantages in the region--namely,  excess of demand, close proximity to numerous
mills,  and positive  demographic  trends of the Pacific  Northwest and the West
Coast. Therefore, the Company and its competitors are currently able to sell all
the logs  they are  able to  produce  at a  market  clearing  price.  Additional
competitive  factors  within a market area  generally  will include  species and
grade,  quality,  ability to supply logs which  consistently meet the customers'
specifications and ability to meet delivery  requirements.  The Company believes
that  it  has  a  reputation  as  a  stable  and  consistent  supplier  of  well
merchandised,  high-quality  logs. The Company has no conversion  facilities and
therefore  does not compete with its  customers for logs.  The Company  believes
that this gives it an advantage  over certain of its  competitors  that also own
conversion facilities.

         The Company  competes with  numerous  private land and timber owners in
the northwestern  United States and the state agencies of Oregon,  as well as of
foreign imports, primarily from Canada, Chile, and New Zealand. In recent years,
the strength of the U.S. dollar combined with the much lower value of currencies
in Canada, the Pacific Rim and South America have made international competition
a larger factor in competitive  pricing. In addition,  the Company competes with
the USFS,  the BLM and the Bureau of Indian  Affairs.  Certain of the  Company's
competitors have significantly greater financial resources than the Company.

         The  Company  believes  that it  competes  successfully  in the  timber
business for the following reasons:  (i) the Company has substantial holdings of
timber  properties which include  approximately  1.2 BBF of  merchantable,  good
quality  timber,  approximately  141,000  acres of plantation  timberland  and a
full-scale  seed  orchard  and  nursery  operation  located  in a  region  where
conversion  facilities  have been  experiencing  shortages in the supply of wood
fiber;  (ii) the Company  focuses on owning  timberlands  rather than  operating
conversion facilities,  which minimizes the Company's cost structure and capital
expenditures,  allows the  Company to seek the most  favorable  markets  for its
timber  rather than being  committed to supply its own  facilities,  and ensures
that the Company will not compete with its  customers;  (iii) the Company's lean
operating structure allows it to efficiently manage its Timberlands,  and should
enable it to acquire additional  timberlands without  commensurate  increases in
overhead;  and (iv) the Company's  computerized  geographic  information  system
("GIS")  enables the Company to evaluate the optimal  timing and patterns of the
harvest of its Timberlands and evaluate and integrate acquisitions of additional
timberlands.

Resource Management

Timber Resource Management

         All  of  the  silvicultural  activities  on  the  Timberlands  and  the
harvesting  and delivery of logs are conducted by independent  contractors.  The
Company's   operations   involve  intensive  timber  management  and  harvesting
operations,  which  include  road  construction  and  reforestation,  as well as
wildlife and watershed  management,  all of which are carefully  monitored using
the Company's GIS. See  "Geographic  Information  System." The Company employs a
number of traditional and recently developed harvesting  techniques on its lands
based on site-specific  characteristics and other resource  considerations.  The
topography of the Timberlands allows over 95% of the Timberlands to be harvested
using lower-cost mechanical methods as opposed to higher-cost cable systems.

         Harvesting on the  Timberlands  is conducted  using both  selective and
regeneration  harvesting.  In selective  harvesting,  a partial harvest provides
merchantable  timber  and  opens up the  stand  for  supplemental  growth on the
remaining  stand.  Harvest entries are separated by  approximately 1 to 15 years
and each entry is prescribed  for volume to be removed,  spacing to be provided,
and diameter limits to be harvested. In regeneration  harvesting,  which is used
to harvest approximately 60% of the Company's timber, all merchantable volume is
removed in a single harvest. After an area has been regeneration harvested,  the
Company employs a reforestation contractor to plant two-year-old seedlings at an
optimal density of  approximately  300 trees per acre. The Company also attempts
to protect and maintain the ecosystem within the Timberlands while providing for
a reasonable harvest.  For example,  the Company typically leaves a mix of green
and dead trees at the harvest site, including some large trees, snags and downed
logs to provide  habitats for a variety of wildlife  species while enriching the
soil for successive generations of trees.

                                       6
<PAGE>

         Particular forestry practices vary by geographic region and depend upon
factors  such  as  soil  productivity,  weather,  terrain,  tree  size,  age and
stocking.  The climate, site and soil conditions on the east side of the Cascade
Range,  for example,  permit  management to harvest on an optimal  rotation,  or
harvest  cycle,  of 50 to 60 years.  Forest stands are thinned  periodically  to
improve growth and stand quality until harvested.  The Company actively utilizes
commercial thinning as a timber management  practice.  Pre-commercial  thinning,
which  occurs  only in the  Plantation  stands,  is  utilized  when  the  timber
harvested is not merchantable.  The Company believes that such thinning improves
the overall  productivity  of the  Timberlands  by  enhancing  the growth of the
remaining  trees.  Occasionally,  revenues are generated  from  pre-merchantable
thinning due to strong markets for wood chips.

         The  Company's  policy  is to  ensure  that  every  acre  harvested  is
reforested in order to enhance the long-term value of its timberlands.  Based on
the geographic and climatic conditions of a given harvest site,  harvested areas
may be  regenerated  naturally,  by leaving  mature trees to reseed the area, or
replanted  with  seedlings.  Natural  regeneration  methods  are widely  used on
approximately  40% of the Company's  harvested  land.  Approximately  29% of the
Timberlands  acreage currently  consists of Plantations.  The Company expects to
convert  an average  of 14,000  acres of  natural  stands per year over the next
three years to Plantations.  The seed orchard  produces seed from trees selected
because they were the best  genotype in their  respective  environments.  During
2001, the Company  planted  approximately  2.3 million  seedlings and expects to
plant 3.8 million  seedlings in 2002.  The Company uses the seed  collected from
its orchard (representing  approximately 90% of seedlings planted) to grow trees
with desirable  traits such as superior  growth  characteristics,  good form and
disease  resistance,  resulting in greater wood volume over a rotation than that
generated by naturally  regenerated  seedlings.  The  seedlings are grown in the
Company's nursery,  which uses seeds from the Company's seed orchard,  which was
established by Weyerhaeuser in 1973.

Geographic Information System ("GIS")

         The GIS is a computer  software  program that the Company acquired from
Weyerhaeuser as part of the Klamath Falls  Acquisition.  The GIS data, which has
been  compiled  over  a  period  of  at  least  five  years,  includes  detailed
topographical  field maps for every stand within the Timberlands  including data
for the Ochoco Timberlands,  setting forth the  characteristics,  including age,
species,  size and other  characteristics  for the timber growing on each stand.
Using the data in the GIS,  the Company  can use a computer  model to "grow" the
timber over time,  enabling it to generate long-term harvest plans and to update
its  inventory  annually.  To maintain the integrity of the data in the GIS, the
Company performs a detailed ground survey of the remaining timber inventory on a
tract after each  harvest  and updates the data in the GIS for that tract.  With
the aid of the GIS,  the  Company is able to  actively  manage the  Timberlands,
track its inventory and develop  site-specific harvest plans on multiple scales,
adding additional layers of detail, such as the location of roadways or wildlife
nesting  areas,  as  required.  The GIS also  permits the Company to analyze the
impact  that  new  legislation  may have on its  Timberlands  by  inputting  the
proposed  constraints  imposed by such  legislation  in light of the  particular
field  characteristics  of its Timberlands.  The Company believes the GIS may be
used to the Company's advantage to evaluate potential acquisition opportunities.

Federal and State Regulation

Endangered Species

         The Federal  Endangered  Species Act and counterpart  state legislation
protect species  threatened with possible  extinction.  Protection of endangered
species may include  restrictions on timber harvesting,  road building and other
silvicultural  activities in areas containing the affected species.  A number of
species  indigenous  to the  Pacific  Northwest  have been  protected  under the
Endangered  Species Act,  including the northern spotted owl, marbled  murrelet,
Columbian  white-tail  deer,  mountain  caribou,  grizzly  bear,  bald eagle and
various anadromous fish species.  Currently,  the Company has identified several
spotted owl and bald eagle  nesting  areas  affecting  the  Timberlands  and the
presence of bull trout in certain of its streams, which may affect harvesting on
approximately 27,000 acres.



                                       7
<PAGE>

         The United States Fish and Wildlife  Service (the  "USFWS")  listed the
American  Bald Eagle in 1976 and the Northern  Spotted Owl in 1990 as threatened
species  throughout its range in Washington,  Oregon and California.  The Oregon
Forest Practices Act and related regulations also protect endangered species and
has specific  provisions  governing habitat  protection for the spotted owl, the
bald eagle and other threatened species.

         Based on the 2001 survey year,  there were  approximately 70 bald eagle
sites  on  the  Klamath  Falls  Timberlands.  The  Company  observes  harvesting
restrictions  around the eagle sites.  Due in part to efforts of the Company and
its  Predecessor,  the bald eagle is expected to be removed from the  endangered
species list in the near future.

         In addition,  the Company conducts surveys to determine the presence of
northern  spotted owls. The surveys have been  conducted  every year in order to
(i) meet the regulatory  requirements  for timber  harvest and other  management
activities, (ii) monitor existing sites and determine the current status of such
sites,  (iii) determine if areas  identified as containing  suitable habitat are
supporting  owls  and  (iv)  investigate  other  spotted  owl or  other  species
sightings.  The most recent of such surveys was  completed  in August 2001,  and
identified  approximately  33 northern  spotted owl sites  affecting the Klamath
Falls  Timberlands,  three of which are located,  totally,  on the Klamath Falls
Timberlands.

         The Company  believes that it is managing its harvesting  operations in
the  areas  affected  by  protected  species  in  substantial   compliance  with
applicable federal and state regulations. Based on certain consultants' reports,
and on management's  knowledge of the Timberlands,  the Company does not believe
that there are any species protected under the Endangered Species Act or similar
state laws that, under current regulations and Court interpretation,  would have
a material adverse effect on the Company's ability to harvest the Timberlands in
accordance with current harvest plans. There can be no assurance,  however, that
species within the Timberlands may not  subsequently  receive  protected  status
under the Endangered Species Act or that currently  protected species may not be
discovered in significant  numbers within the Timberlands.  Additionally,  there
can  be  no  assurance  that  future  legislative,  administrative  or  judicial
activities related to protected species will not adversely affect the Company or
its ability to continue its activities and operations.

Timberlands

         The operation of the Timberlands is subject to specialized statutes and
regulations  in the State of  Oregon,  which has  enacted  laws  which  regulate
forestry  operations,  including the Forest  Practices Act, which addresses many
growing,  harvesting  and  processing  activities on forest  lands.  Among other
requirements,  these laws restrict the size and spacing of regeneration  harvest
units,  and impose  certain  reforestation  obligations  on the owners of forest
lands.  The State of Oregon  requires a company to  provide  prior  notification
before beginning harvesting  activity.  The Forest Practices Act and other state
laws and regulations control timber slash burning, operations during fire hazard
periods,  logging  activities  which may affect water courses or in proximity to
certain  ocean and inland shore lines,  water  protection  and  enhancement  and
certain grading and road construction activities.  The Company believes it is in
substantial compliance with these regulations.

Environmental Laws and Superfund

         The  Company's  operations  are  subject  to  federal,  state and local
environmental   laws  and   regulations   relating  to  the  protection  of  the
environment.  Although the Company  believes  that it is in material  compliance
with these requirements, there can be no assurance that significant costs, civil
and criminal  penalties,  and liabilities will not be incurred,  including those
relating to claims for damages to property or natural  resources  resulting from
the Company's operations.

                                       8
<PAGE>

         Environmental  laws and  regulations  have  changed  substantially  and
rapidly  over the last 20  years,  and the  Company  anticipates  there  will be
continuing  changes.  The trend in  environmental  regulations  is to place more
restrictions and limitations on activities that may affect the environment, such
as  emissions  of  pollutants   and  the  generation  and  disposal  of  wastes.
Increasingly strict environmental  restrictions and limitations have resulted in
increased  operating  costs for the Company and it is possible that the costs of
compliance with environmental laws and regulations will continue to increase.

Access to Timberlands May be Limited by Federal Regulation

         A substantial  portion of the Timberlands  consists of sections of land
that are  intermingled  with or adjacent to sections of federal  land managed by
the USFS and the BLM.  Removal of trees from those  portions of the  Timberlands
requires  transportation of the logs by truck across logging and general purpose
roads.  The Company has entered into road use  agreements  with the USFS and the
BLM. The majority of the Company's timberland  management  activities to include
the  transportation  of timber products across federal land and roads fall under
such  agreements,  which  describe the Company's  exclusive  rights to transport
timber  products across federal lands and roads without USFWS  consultation.  In
many cases,  access is only, or most  economically,  achieved  through a road or
roads built across adjacent  federal land pursuant to a reciprocal  right-of-way
("RROW").  Removal of federal  timber often  requires  similar access across the
Timberlands.  Recent  litigation  (not involving the Company)  before the United
States Court of Appeals for the Ninth Circuit held that the BLM was not required
to consult with the USFWS,  which administers the Endangered  Species Act, prior
to  approving  a private  landowner's  proposal  to build an access  road across
federal land pursuant to an existing RROW entered into prior to the enactment of
the Endangered Species Act. A reversal on appeal or a rehearing of that case, or
future federal law or regulation  requiring the BLM to consult with the USFWS in
connection with an RROW, could materially adversely affect the Company's ability
to harvest the affected  portion of the  Timberlands.  Certain of the  Company's
RROW  agreements  contain  provisions  that  require  compliance  with state and
federal  environmental  laws and  regulations.  To the extent  that the  Company
acquires new Timberlands  that require access through federal lands, the Company
may enter into new RROW agreements with the BLM or other federal  agencies which
would require  consultation  with the USFWS. In addition,  the BLM has published
advance notice of its intent to revise  regulations  governing  RROW  agreements
entered into the future to, among other things,  expand the BLM's  consideration
of  environmental  and  cultural  factors  in  granting,   issuing  or  renewing
rights-of-way,  provide  the BLM with  regulatory  authority  to  object  to the
location of roads  because of  potential  effects on  threatened  or  endangered
species  and  allow  for  the   abandonment  of   rights-of-way   under  certain
circumstances.

Safety and Health

         The operations of the  Timberlands  are subject to the  requirements of
the Federal  Occupational  Safety and Health Act ("OSHA") and  comparable  state
statutes  relating to the health and safety of employees.  The Company  believes
that it is in  compliance  with OSHA  regulations,  including  general  industry
standards,  permissible  exposure levels for toxic chemicals and  record-keeping
requirements.

                                       9
<PAGE>

Employees

         As of March 15, 2002, the Company had 32 employees, including employees
of the General  Partner that manage the business of the Company.  The  employees
are not  unionized,  and the Company  believes  that its employee  relations are
good. All of the silvicultural  activities on the Timberlands and the harvesting
and  delivery  of logs are  conducted  by  independent  contractors  who are not
employees of the Company.

Item 2.  Properties

Timber Inventory

         The Company currently owns and manages  approximately 489,000 fee acres
of timberland  and cutting  rights on  approximately  18,000 acres of timberland
containing total  merchantable  timber volume estimated as of January 1, 2002 to
be  approximately  1.2 BBF in Oregon east of the Cascade  Range.  A merchantable
tree is a tree of  sufficient  size  that  will  produce  a sound log 16 feet in
length and at least 4.6 inches in diameter,  inside bark,  at the small end. The
Company's  merchantable timber inventory consists of a substantial percentage of
premium  species of  softwood,  consisting  of  Ponderosa  Pine and Douglas Fir,
species which have  historically  commanded  premium  prices over other softwood
species,  as well as Lodgepole  Pine,  White Fir and other species.  The Company
believes that the Timberlands are suitable for current operations.

         The Timberlands have stands of varying sizes and ages and are unique in
the forests east of the Cascade  Range in Oregon in that  approximately  141,000
acres of the 489,000 acre total  consist of actively  managed  Pine  Plantations
with stands  ranging in age from one to 40 years.  The  Plantations  are stocked
with  high  quality  Ponderosa  Pine  (approximately  78%)  and  Lodgepole  Pine
(approximately  22%). Initial thinning of the Plantation  stands,  including the
thinning of commercial  quantities of merchantable  timber, is expected to begin
within the next three years. See "The Timberlands--Harvest Plans."

Merchantable Timber Inventory by Species

         The Company maintains data regarding the estimated  merchantable timber
inventory  by  species  within  the  Timberlands.   All  volumes  are  based  on
information  developed by Company  personnel.  As of January 1, 2002,  the total
timber inventory amounted to 1.2 BBF. The Company's combined timber inventory by
MMBF and  percentage  is Ponderosa  Pine (550.1  (48%)),  Lodgepole  Pine (190.5
(16%)),  White Fir (211.6  (18%)),  Douglas Fir (163.1  (14%)) and other species
(41.8 (4%)).  Other species include Cedar,  Sugar Pine,  Western Larch and Grand
Fir.

Size and Species Distribution of Merchantable Timber

         The  Company's  Timberlands  are  diversified  by species mix and, to a
lesser extent, by size distribution. Timber on the Timberlands generally reaches
merchantable  size between 40 and 50 years in natural  stands and between 25 and
35 years in the  Plantations.  The Company  maintains  data as to the  estimated
volume  distribution of merchantable timber on the Timberlands by species and by
diameter at  breast-height  ("DBH").  As of January 1, 2002,  approximately  256
MMBF, or 22%, of the merchantable timber, had a DBH of 16 or more inches.

Acreage Distribution by Age Class on Plantations

         The  Company  also  maintains  data as to the acreage  distribution  of
timber on the  Plantations by age class.  As of January 1, 2002, the Plantations
totaled  141,000 acres.  Of the total  acreage,  67,000 acres range from 1 to 15
years of age,  51,000  acres range from 16 to 25 years of age,  and 23,000 acres
are 26 years of age or older.

                                       10
<PAGE>

Item 3. Legal Proceedings

         In November  2000,  six  purported  class  action  lawsuits  were filed
against the General  Partner and the Board of Directors  of the General  Partner
(the "Board")  alleging breach of fiduciary duty and self-dealing by the General
Partner and the Board in  connection  with an  announcement  on November 2, 2000
that a group led by senior  management  has begun the process to explore  taking
the Company private (the "Going-Private Transaction").

         All six  lawsuits  were filed in the Court of  Chancery of the State of
Delaware for the County of New Castle. Each lawsuit was filed by a unitholder of
the Company, on behalf of all other Unitholders of the Company who are similarly
situated,  and seeks to have the class certified and the unitholder bringing the
lawsuit named as representative of the class. In addition,  the lawsuits seek to
enjoin the Going-Private  Transaction,  to rescind the Going-Private Transaction
if it is consummated, and to recover damages and attorneys' fees. In addition to
naming the General  Partner and the Board as  defendants,  all six lawsuits name
the Company as a defendant.  As of March 15, 2002, all of the lawsuits have been
withdrawn,  without prejudice, by the plaintiffs pending further developments in
the Going Private Transaction.

Item 4. Submission of Matters to a Vote of Security Holders

         There were no matters submitted to a vote of the Company's  Unitholders
during the fourth quarter of 2001.


                                       11
<PAGE>

                                     PART II

Item 5. Market for Registrant's Common Units and Related Security Holder Matters

         The Common  Units are listed and traded on the NASDAQ  National  Market
("NASDAQ")  under the symbol "TIMBZ." The Common Units began trading on November
14, 1997, at an initial  public  offering price of $21.00 per Common Unit. As of
December  31,  2001,  there  were  approximately  8,100  record  holders  of the
Company's  Common Units and four record  holders of the  Company's  Subordinated
Units.  There  is  no  established  public  trading  market  for  the  Company's
Subordinated Units.


The following table sets forth the high and low closing sales prices for the
Common Units on Nasdaq:

                                               Common Unit Price Range
                                             --------------------------
                                                  High         Low
                                             --------------------------


First Quarter 1998 .....................    $   21.50   $   20.31
Second Quarter 1998 ....................        21.88       18.00
Third Quarter 1998 .....................        19.50       14.88
Fourth Quarter 1998 ....................        18.25       13.00
First Quarter 1999 .....................        14.50       11.56
Second Quarter 1999 ....................        14.69       11.50
Third Quarter 1999 .....................        15.75       10.75
Fourth Quarter 1999 ....................        13.38        9.81
First Quarter 2000 .....................        11.38        9.50
Second Quarter 2000 ....................        10.56        9.56
Third Quarter 2000 .....................        11.38        9.63
Fourth Quarter 2000 ....................        10.75        5.38
First Quarter 2001 .....................         8.50        7.13
Second Quarter 2001 ....................         8.48        5.20
Third Quarter 2001 .....................         5.92        2.68
Fourth Quarter 2001 ....................         2.90        1.59
First Quarter 2002 .....................         2.04*       1.68*


         The last reported sale price of the Common Units on NASDAQ on March 27,
2002 was $ 1.77 per Common Unit.

Cash Distributions

         The Company  made its first cash  distribution  on the Common Units and
the Subordinated Units on May 15, 1998, of $0.73, representing the sum of $0.50,
the Minimum  Quarterly  Distribution  for the first quarter of 1998, plus $0.23,
the pro rata portion of the Minimum  Quarterly  Distribution for the period from
November  19, 1997  through  December  31,  1997.  The Company  made the Minimum
Quarterly  Distributions of $0.50 per Unit for each subsequent quarter on August
14, 1998,  November 13, 1998,  February 12, 1999, May 14, 1999, August 13, 1999,
November 15, 1999,  February 14, 2000, May 15, 2000,  August 14, 2000,  November
14, 2000 and February 14, 2001, respectively.  On May 10, 2001, due to declining
log  prices  and  deteriorating  business  conditions,  the  Board of  Directors
indefinitely  suspended  further  distributions.  Given the current state of the
timber  markets,  the  Company  does not expect to be in a position  to make any
distributions to the Unitholders for the foreseeable future.

         Pursuant to the provisions of the Notes, no  distributions  may be made
by the  Operating  Company to the  Company  with  respect to any  quarter if the
Consolidated  Fixed Charge Coverage Ratio ( as defined in the Indenture) for the
four-quarter  period  ended  with such  quarter is equal to or less than 1.75 to
1.00.

                                       12
<PAGE>

Item 6: Selected Financial Data

<TABLE>
<CAPTION>


                                                     U.S. Timberlands


                                                         2001         2000        1999         1998          1997
<S>                                                    <C>         <C>          <C>          <C>          <C>
CASH FLOWS AND OTHER DATA
    (IN MILLIONS):
Modified EBITDDA (5) . . . . . . . . . . . . . .      $ 23.2       $ 49.3       $ 50.6       $ 44.2       $ 53.3
Additions to timber and timberlands (2)                  5.6          2.3          1.0          0.6        111.6
Cash flow from operating activities                      9.2         28.9         25.5         18.5          26.3
Cash flow from (used in) investing
    activities . . . . . . . . . . . . . . . . .        (4.7)        (2.3)        (1.3)        (0.6)      (101.6)
Cash flow from (used in) financing
    activities . . . . . . . . . . . . . . . . .        (6.6)       (26.2)       (26.2)       (23.7)        69.3

OPERATING STATEMENT DATA
    (IN MILLIONS EXCEPT PER
    UNIT AMOUNTS):
Revenues (1) . . . . . . . . . . . . . . . . . .        54.6         75.6         77.0         71.3         77.3
Depreciation, depletion and road
    amortization (1) . . . . . . . . . . . . . .        37.3         28.8         23.3         21.9         17.3
Cost of timber and property sales (1)                      -          2.6            -          5.9          8.7
Operating income (loss) (1) . . . . . . . . . .        (14.1)        17.9         27.2         16.3         27.3
Income (loss) before extraordinary
    items  . . . . . . . . . . . . .  . . . . .        (36.6)       (4.1)         6.4         (6.4)        (1.4)
Extraordinary items, losses on
    extinguishment of debt (4). . . . . . . . .            -                        -             -          9.3
Income (loss) before general partner
    and minority interest . . . . . . . . . . .        (36.6)        (4.1)         6.4         (6.4)       (10.7)

PER UNIT DATA :
Basic income (loss) before
    extraordinary items per unit:
    Common . . . . . . . . . . . . . . . . . .          (2.79)       (0.31)       0.48         (0.49)        3.05
    Subordinated . . . . . . . . . . . . . . .          (2.79)       (0.31)       0.48         (0.49)       (1.01)
Basic net income (loss) per unit:

    Common . . . . . . . . . . . . . . . . . .          (2.79)       (0.31)       0.48         (0.49)       (0.86)
    Subordinated . . . . . . . . . . . . . . .          (2.79)       (0.31)       0.48         (0.49)       (2.30)

BALANCE SHEET DATA (AT
    PERIOD END, IN MILLIONS):
Working capital . . . . . . . . . . . . . . . .         (1.7)         2.0          2.4          1.4          1.8
Total assets  . . . . . . . . . . . . . . . . .        254.4        300.9        327.7        350.7        385.2
Long-term debt (4)(6) . . . . . . . . . . . . .        225.0        225.0        225.0        225.0        225.0
Equity (deficit)  . . . . . . . . . . . . . . .         24.4         67.1         97.2        116.9        145.6

OPERATING DATA (UNAUDITED):
Log, stumpage and timber deed sales
    volumes (MMBF) (1) . . . . . . . . . . . . .       250.7        243.7        187.3        144.5        138.9
Property sales volumes (MMBF) (1) . . . . .. . .           -         13.6           -          26.6         41.5


                                       13
<PAGE>

</TABLE>


(1)  Revenues in 2001 consist of $54.1 million of log,  stumpage and deed sales,
     $0.0 million of timber and property  sales and $0.4 million of  by-products
     and other sales. Revenues in 2000 consist of $72.3 million of log, stumpage
     and deed sales,  $2.8 million of timber and property sales and $0.6 million
     of by-products  and other sales.  Revenues in 1999 consist of $76.6 million
     of log and stumpage sales and $0.4 million of by-products  and other sales.
     Revenues in 1998 consist of $63.6 million of log and stumpage  sales,  $6.3
     million of timber and property  sales and $1.4 million of  by-products  and
     other sales.  Revenues in 1997 consist of $60.4 million of log and stumpage
     sales,  $15.2  million of timber  and  property  sales and $1.7  million of
     by-products  and other sales.  Revenues prior to 1997 consist  primarily of
     log sales. See "Management's Discussion and Analysis of Financial Condition
     and Results of Operations."

(2)  In July 1997, the Company acquired the Ochoco  Timberlands for $110 million
     from Ochoco  Lumber  Company.  In August  1996,  the Company  acquired  the
     Klamath Falls Timberlands for $283.5 million from Weyerhaeuser.

(3)  See effect of interest expense and amortization of deferred  financing fees
     and  debt  guarantee  fees in  "Management's  Discussion  and  Analysis  of
     Financial Condition and Results of Operations."

(4)  On July 14, 1997 the Company retired certain borrowings under the Operating
     Company's then existing  revolving credit facility term loan which resulted
     in an  extraordinary  loss on  extinguishment  of  debt  of  $3.6  million.
     Additionally,  in conjunction  with the issuance of the Notes,  the Company
     retired all existing debt under certain  pre-existing  long-term  financing
     arrangements  resulting in an extraordinary  loss on extinguishment of debt
     of $5.7 million.  Such  extraordinary  losses were due  principally  to the
     write-off of existing unamortized deferred financing fees.

(5)  Modified  EBITDDA  is  defined  as  operating  income  plus   depreciation,
     depletion,  and road  amortization  and cost of timber and property  sales.
     Modified  EBITDDA should not be considered as an alternative to net income,
     operating income, cash flows from operating activities or any other measure
     of financial  performance  presented in accordance with generally  accepted
     accounting  principles.  Modified EBITDDA is not intended to represent cash
     flow and does not represent the measure of cash available for distribution,
     but provides additional information for evaluating the Company's ability to
     make the Minimum Quarterly Distribution. In addition, Modified EBITDDA does
     not necessarily  represent funds available for  management's  discretionary
     use as it is  calculated  prior to debt  service  obligations  and  capital
     expenditures.  See  "Management's  Discussion  and  Analysis  of  Financial
     Condition and Results of Operations."

(6)  See  discussion  of long-term  debt at Note 7 of the Notes to  Consolidated
     Financial Statements.



                                       14
<PAGE>


Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

Forward-Looking Statements

         Certain   information   contained   in  this   report  may   constitute
forward-looking  statements  within the meaning of the federal  securities laws.
Although   the   Company   believes   that   expectations   reflected   in  such
forward-looking statements are based upon reasonable assumptions, it can give no
assurance that its expectations will be achieved. Forward-looking information is
subject to certain  risks,  trends and  uncertainties  that could  cause  actual
results  to differ  materially  from those  projected.  Such  risks,  trends and
uncertainties  include  the  highly  cyclical  nature  of  the  forest  products
industry, general economic conditions,  competition,  price conditions or trends
for the Company's products, the possibility that timber supply could be affected
if  governmental,  environmental  or endangered  species  policies  change,  and
limitations  on the  Company's  ability  to  harvest  its  timber due to adverse
natural conditions or increased  governmental  restrictions.  The results of the
Company's  operations  and its  ability to pay  quarterly  distributions  to its
Unitholders  depend  upon a number  of  factors,  many of which are  beyond  its
control.  These  factors  include  general  economic  and  industry  conditions,
domestic and export prices, supply and demand for logs, seasonality,  government
regulations  affecting  the  manner  in  which  timber  may  be  harvested,  and
competition  from other  supplying  regions and substitute  products.  These and
other risks are  described  in the  Company's  other  reports  and  registration
statements,  which are available from the United States  Securities and Exchange
Commission.

General

         The Company's  primary business is the growing and harvesting of timber
(see Item 1. Business).

           The Company's  results of operations are affected by various factors,
many of which are beyond its control,  including  general  industry  conditions,
domestic  and  international  prices and supply and demand for logs,  lumber and
other  wood  products,  seasonality  and  competition  from other  domestic  and
international supplying regions and substitute products.

                                       15
<PAGE>

Supply and Demand Factors

Supply

         The supply of logs  available  for purchase  has been most  affected in
recent  years  by  significant   reductions  in  timber  harvested  from  public
timberlands,  principally  as a result of efforts  to  preserve  the  habitat of
certain  endangered  species,  as well as a change in the emphasis of government
policy toward habitat  preservation,  conservation  and recreation and away from
timber  management.  Since  the early  1970s,  environmental  and other  similar
concerns and  governmental  policies  have  substantially  reduced the volume of
timber under contract to be harvested from public lands.  The pace of regulatory
activity  accelerated in the late 1980s.  The resulting  supply  decrease caused
prices for logs to increase  significantly,  reaching  peak levels  during 1993.
Prior to 1998, the low supply of timber from public lands,  which is expected to
continue for the foreseeable  future,  benefited  private timber holders such as
the Company through higher stumpage and log prices.  Since 1998, the strength of
the U.S.  dollar has decreased  exports and increased  imports and has equalized
the supply and demand equation and contributed to the general  downward trend of
prices Certain  market  conditions  for finished  products have also  negatively
impacted stumpage and log prices in 2001.

         Industry participants do not expect environmental  restrictions to ease
materially within any reasonable planning horizon. Consequently,  many producers
of  lumber  and  wood  products  are  attempting  to  adapt  to the  new  supply
environment by increasing their emphasis on raw material  yields,  entering into
long-term  timber  supply  arrangements  and  value  added  manufacturing,   and
accessing previously untapped supplies (such as private wood lot owners,  timber
with  difficult  access,  alternative  species and imports).  These factors have
tended to maintain  supply of domestic  produced  logs and have kept prices from
increasing.

         In  response to an  increase  in  domestic  timber  prices in the early
1990s, imports of logs and lumber from abroad (from countries such as Canada and
New Zealand) increased.  These imports,  however, only partially offset the lost
volume of  timber  from  public  timberlands  and did not  replace  the  mature,
high-quality timber found in greater quantities on public  timberlands.  Imports
are  likely  to  continue  to  increase  over  the  next  few  years  and  could
significantly  affect the raw material  supplies in the domestic lumber and wood
products industry.

Demand

         Changes in general  economic and  demographic  factors,  including  the
strength  of the  economy,  unemployment  rates  and  interest  rates  for  home
mortgages and  construction  loans,  have  historically  caused  fluctuations in
housing  starts and, in turn,  demand and prices for lumber and  commodity  wood
products.  United  States  housing  starts for 2001 were up  slightly  from 2000
levels.  Because of the growth of the home  center  distribution  business,  the
repair and remodeling  markets have become a significant  factor in terms of the
demand  for  lumber and  commodity  wood  products  and have  dampened  the wide
fluctuations  that  occurred  when new housing  starts were the primary  factor.
Prices for Pine species,  primarily Ponderosa Pine, reached a peak in the spring
of 1993 and as a result  attracted  imports of Radiata Pine from New Zealand and
Chile.  Given the strong,  growing  economy of the past several years,  domestic
markets have been able to absorb the increasing  quantities of imported  Radiata
Pine lumber.  With the slowing of our domestic  economy,  decreasing  demand for
repair and  remodeling  markets  and over  supply of  finished  products  in the
industry,  the level of imports  has had a negative  impact on pricing  for Pine
lumber.  The demand for logs in the United  States is also affected by the level
of lumber  imports.  In response to increasing  lumber imports from Canada,  the
United  States and Canada  signed an  agreement  in 1996  which  restricted  the
availability  of  Canadian  softwood  lumber in the United  States.  The Company
believes that this  agreement,  which  expired on March 31, 2001,  has not had a
material impact on the price or demand for logs in the United States. The United
States and Canada are presently negotiating a new softwood lumber agreement even
though it has been recommended that a 30% tariff be imposed on Canadian softwood
lumber.  The long  term  effect  of not  having  an  agreement  or  having a new
agreement is uncertain.

                                       16
<PAGE>

         Due to  transportation  costs,  domestic  conversion  facilities in the
Pacific  Northwest  tend to purchase raw materials  within  relatively  confined
geographic areas,  generally within a 200-mile radius. The conversion facilities
in the vicinity of the Timberlands need more wood supply to run at capacity than
can be produced by nearby timberlands.  As a result, the demand from this region
is  relatively  steady,  although  prices have  generally  declined  with market
conditions.

Current Market Conditions

         While log prices in the  Company's  market area were down 6.5%  between
the fourth quarter of 2000 and the first quarter of 2001 and decreased  again by
12% in the second  quarter,  prices  showed  some  improvement  in the third and
fourth quarters.

         The  average log price  realizations  in 2001 were down to $349 per MBF
from  $393  per MBF in 2000  (-11%)  continuing  a trend  where  average  prices
declined 9.8% between 1999 and 2000.  During 2001  realizations  on timber deeds
were  down to $160  per MBF  from  $249 per MBF in 2000  (-36%).  This  decrease
follows a decrease in timber deed realizations of 35% in 2000.


                                       17

<PAGE>

Results of Operations

         The following  table sets forth sales volume for each of 2001, 2000 and
1999 from the sale of logs,  stumpage  and timber  deeds by thousand  board feet
("MBF") and price per thousand board feet and the sales of property.


<TABLE>
<CAPTION>

                                     Sales Volume (MBF)                          Price Realization (MBF)
                              ------------------------------------        ---------------------------------------
                                                            Timber                                        Timber         Timberland
     Period                     Logs        Stumpage         Deeds           Logs         Stumpage        Deeds         Sales ($000)
     ------                     ----        --------         -----           ----         --------        -----         ------------
     2001
<S>                           <C>             <C>          <C>              <C>           <C>             <C>          <C>
Year ended 12/31              74,640             -         176,105          $ 349                         $ 160
4th Quarter                   15,827             -          48,838          $ 361              -          $ 158
3rd Quarter                   27,984             -          83,899          $ 347              -          $ 173
2nd Quarter                    9,890             -          28,624          $ 313              -          $ 138
1st Quarter                   20,939             -          14,744          $ 357          $   -          $ 133

     2000
Year ended 12/31              96,112           503         147,083          $ 393          $ 379          $ 246            $ 2,773
4th Quarter                   38,922             -          57,844          $ 382             --          $ 174            $ 2,773
3rd Quarter                   22,718             -          29,501          $ 372             --          $ 189                  -
2nd Quarter                   13,908             -          51,037          $ 432             --          $ 346                  -
1st Quarter                   20,564           503           8,701          $ 425          $ 379          $ 325                  -

     1999
Year ended 12/31              97,170         3,645          86,463          $ 436          $ 419          $ 379                  -
4th Quarter                   30,790           980          16,209          $ 432          $ 391          $ 351                  -
3rd Quarter                   39,008           744          25,597          $ 444          $ 404          $ 334                  -
2nd Quarter                   15,376            --          26,898          $ 455             --          $ 484                  -
1st Quarter                   11,996         1,921          17,759          $ 395          $ 440          $ 308                  -
</TABLE>



                                       18
<PAGE>

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

         Revenues.  Revenues decreased $21.0 million, or 28%, from $75.6 million
in 2000 to $54.6 million in 2001.  The decrease is primarily  attributable  to a
decrease in log sales of $11.8  million and a $6.4 million  decrease in stumpage
sales and deed sales,  and the fact that the Company had a $2.8  million  dollar
timber and property sale in 2000. To meet its working capital requirements,  the
Company  harvested  and sold logs and stumpage in 2001 at rates in excess of the
estimated current annual board footage growth on the Timberlands.

         Log  sales  for 2001 were  $26.0  million  on  volumes  of 74,640  MBF,
compared to log sales of $37.8 million on volumes of 96,112 in 2000. The average
log sales price for 2001 was $349 compared to an average log sales price of $393
in 2000, an 11% decrease, reflecting weaker markets for the Company's log sales.

         Timber  deed  sales for 2001 were  $28.1  million on volumes of 176,105
MBF,  compared to timber deed revenue of $34.3 million on volumes of 147,083 MBF
in 2000.  The average timber deed sales price per MBF for 2001 was $160 compared
to an average  timber  deed sales  price of $246 in 2000,  a 35%  decrease.  The
significant decrease in timber deed sales realization is due to overall declines
in market conditions, as well as a change in the timber mix being sold in timber
sales.

         There were no stumpage sales for 2001,  compared with stumpage sales of
$0.2 million on volumes of 503 MBF in 2000. The reduction in stumpage volumes is
a result of the  Company's  strategic  decision  to utilize log sales and timber
deed sales as its primary source of revenue.

         The  Company  had no revenue  from  timber and  property  sales in 2001
compared to $2.8 million in revenue from timber and property sales during 2000.

         Gross  Profit.  Gross  profit  decreased  along with  revenues by $23.7
million  from  $24.3  million in 2000 to $0.6  million in 2001 and gross  margin
decreased  from 32% in 2000 to 1% in 2001.  The  decrease  in gross  margin  was
primarily from three factors.  First, contracted log and haul costs on a per MBF
basis  were  higher  during  2001 as  compared  to 2000 due to longer  hauls for
delivered  logs.  Second,  the  Company's  timber deed sales were  composed of a
different value grade mix as compared to 2000.  Finally,  continued  declines in
the timber  markets have  resulted in lower  realizations  on delivered  log and
stumpage values.  Depletion,  depreciation and road amortization  increased from
$28.8 million in 2000 to $37.3 million in 2001 due to increased volume of timber
sales,  increases in depletion  rates  effective  January 1, 2001 and  increased
volume of timber sold from a separate pool with a higher depletion rate.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  expenses  were $8.3 million in 2001,  consistent  with  selling,
general and  administrative  expenses of $8.4 million in 2000.  Within  selling,
general and administrative,  most categories of expenses were down. Salaries and
wages were down $1.0  million due to the  elimination  of the annual  bonuses of
$0.6 million, management positions that were vacant for a portion of the year of
$0.2 million,  and a settlement with previous  employee of $0.2 million in 2000.
Those  decreases  were  offset by  increases  in  professional  services of $1.2
million  over  2000,  relating  to the  cost of  advisors  for  the  independent
committee.

         Equity in Net  Income  (Loss) of  Affiliate.  The equity in net loss of
affiliate  was $6.4  million  during 2001 as compared to equity in net income of
affiliate of $2.0 million in 2000. The loss in 2001 reflects the Company's share
of losses absorbed from its common and preferred  investment in U.S. Timberlands
Yakima,  LLC. and the income in 2000  reflects the  recapture of $0.6 million in
losses  previously  absorbed by its  preferred  investment  in U.S.  Timberlands
Yakima,  LLC and the Company's  accrued  return of $1.4 million on its preferred
investment  See  "Investment  in Affiliate"  included in Note 9 of the Financial
Statements for an  explanation  of the preferred and common  investments in U.S.
Timberlands Yakima, LLC.

         Interest Expense.  Interest expense was $22.0 million in 2001 and $21.9
million in 2000 consisting primarily of interest expense on the Company's $225.0
million of Senior Notes.

         Other Income  (Expense),  net. Other income,  net, was $0.1 million for
2001,  compared to $0.2 million for 2000,  representing  a decrease in income of
$0.1 million.

         Cash Flow  From  Operations.  During  2001,  cash flow from  operations
decreased $19.7 million or 68% over 2000,  primarily  because of a $32.1 million
decrease in net income.

                                       19
<PAGE>

Partners' Capital

         During 2001, the limited partner interest in the Company declined $42.2
million  from $66.4  million to $24.2  million.  This  decline was the result of
distributions to Unitholders of $6.4 million during 2001, as well as the limited
partners'  share of the Company's net loss of $35.8 million in 2001. The General
Partner  interest in the Company also declined  during 2001 reflecting its share
of the Company's  distributions  and net loss for 2001. The Company  anticipates
that  partners'  capital  will  continue  to  decline  given  current  operating
conditions.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

         Revenues. Revenues decreased $1.4 million, or 2%, from $77.0 million in
1999 to $75.6  million in 2000.  The  decrease is  primarily  attributable  to a
decrease in log sales of $4.5  million and a $1.3  million  decrease in stumpage
sales,  partially offset by a $1.5 million increase in timber deed sales and the
fact that the Company had a $2.8 million  timber and property  sale in 2000.  To
meet its working capital  requirements,  the Company harvested and sold logs and
stumpage  in 2000 at rates in  excess  of both  1999  levels  and the  estimated
current annual board footage growth on the Timberlands.

         Log  sales  for 2000 were  $37.8  million  on  volumes  of 96,112  MBF,
compared to log sales of $42.3 million on volumes of 97,170 in 1999. The average
log sales price for 2000 was $393 compared to an average log sales price of $436
in 1999, a 10% decrease, reflecting weaker markets for the Company's log sales.

         Timber  deed  sales for 2000 were  $34.3  million on volumes of 147,083
MBF,  compared to timber deed revenue of $32.8  million on volumes of 86,463 MBF
in 1999.  The average timber deed sales price per MBF for 2000 was $258 compared
to an average  timber  deed sales  price of $379 in 1999,  a 32%  decrease.  The
significant decrease in timber deed sales realization is due to overall declines
in market  conditions  as well as a  reduction  in the quality of the timber mix
being  sold in timber  sales.  During  2000 there  were less  timber  deed sales
containing larger, old growth timber which commands a premium,  than in 1999. In
addition  the  Company's  timber  deed sales in the second  quarter  represented
substantially  all of the remaining old growth timber on the Ochoco  Timberlands
and were of a lower  grade  species  mix  than  sales of  timber  on the  Ochoco
Timberlands in previous years.

         Stumpage  sales for 2000  were  $0.2  million  on  volumes  of 503 MBF,
compared  with  stumpage  sales of $1.5 million on volumes of 3,645 MBF in 1999.
The  reduction  in  stumpage  volumes  is a result  of the  Company's  strategic
decision to utilize  log sales and timber  deed sales as its  primary  source of
revenue.

         The Company had $2.8 million in revenue from timber and property  sales
in 2000 compared to no revenue from timber and property sales during 1999.

         Gross Profit.  Gross profit  decreased $12.3 million from $36.6 million
in 1999 to $24.3 million in 2000 and gross margin  decreased from 48% in 1999 to
32% in 2000.  The decrease in gross  margin was  primarily  from three  factors.
First,  contracted log and haul costs on a per MBF basis were  approximately 20%
higher  during 2000 as compared to 1999 due to longer hauls for  delivered  logs
and higher fuel costs.  Second, the Company's timber deed sales were composed of
a lower value grade mix as compared to 1999.  Finally continued  declines in the
timber markets have resulted in lower realizations on delivered log and stumpage
values.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  expenses  were $8.4 million in 2000,  consistent  with  selling,
general and  administrative  expenses of $8.5 million in 1999.  Within  selling,
general and administrative  expenses salaries and wages were up $0.3 million and
professional  services  were up $0.5 million  over 1999.  Those  increases  were
offset by a settlement with previous employees of $0.7 million in 1999.

                                       20
<PAGE>

         Equity in Net Income (Loss) of  Affiliate.  The equity in net income of
affiliate  was $2.0  million  during  2000 as  compared to equity in net loss of
affiliate of $0.9 million in 1999.  The income in 2000 reflects the recapture of
$0.6  million  in  losses  absorbed  from  its  preferred   investment  in  U.S.
Timberlands Yakima, LLC, and the Company's accrued return of $1.4 million on its
preferred  investment.  During 1999, the Company absorbed $0.3 million in losses
on its common  investment in U.S.  Timberlands  Yakima,  LLC and $0.6 million in
losses absorbed by its preferred investment in U.S. Timberlands Yakima, LLC. See
"Investment  in Affiliate"  included in Note 9 of the Financial  Statements  for
explanation of the preferred and common investments in U.S.  Timberlands Yakima,
LLC.

         Interest  Expense.  Interest expense was $21.9 million in 2000 and 1999
consisting  primarily of interest  expense on the  Company's  $225.0  million of
Senior Notes.

         Other Income  (Expense),  net. Other income,  net, was $0.2 million for
2000,  compared to $1.1 million for 1999,  representing  a decrease in income of
$0.9 million. The decrease is primarily attributable to a mark-to-market gain on
an interest rate collar of  approximately  $1.0 million  during 1999 and no such
gains in 2000.

         Cash Flow  From  Operations.  During  2000,  cash flow from  operations
increased  $3.4 million or 13% over 1999  primarily  because of a $10.4  million
decrease in net  income,  which was more than offset by the add back of non-cash
items and changes in assets and liabilities.

Partners' Capital

         During 2000, the limited partner interest in the Company declined $29.8
million  from $96.2  million to $66.4  million.  This  decline was the result of
distributions  to  Unitholders  of $25.8  million  during  2000,  as well as the
limited  partners'  share of the Company's net loss of $4.0 million in 2000. The
General Partner interest in the Company also declined during 2000 reflecting its
share  of the  Company's  distributions  and net  loss  for  2000.  The  Company
anticipates  that  partners'  capital  will  continue to decline  given  current
operating conditions.

Liquidity and Capital Resources

         The Company's  primary  sources of liquidity have been cash provided by
operating  activities as well as debt and equity financings.  As of December 31,
2001,  the  Company  had a cash  balance of $1.1  million  and had $1.7  million
working capital deficit.

         Operating  Activities.  Cash flows provided by operating  activities in
2001 were $9.2 million,  compared to cash flows provided by operating activities
of $28.9 million in 2000.  The $19.7 million  decrease in cash flows provided by
operating  activities was primarily  attributable to a $32.1 million increase in
net loss.

         Investing Activities. Cash flows used in investing activities were $4.7
million in 2001, as compared to cash flows used in investing  activities of $2.3
million during 2000 principally for reforestation,  timber acquisitions and road
additions in each year.

         Financing  Activities.  Cash flows used in  financing  activities  were
$26.2 and $6.6 million in 2000 and 2001.  During 2000 and 2001, the Company paid
$26.2 and $6.6 million in  distributions  to  Unitholders,  General  Partner and
minority  interest.  Beginning in the second quarter of 2001, the Company ceased
making distributions to its Unitholders.

                                       21
<PAGE>

Notes

         On November 14, 1997,  the  Operating  Company  issued  $225.0  million
aggregate principal amount of Notes (the "Notes") representing unsecured general
obligations  of the  Operating  Company which bear interest at 9 5/8% per annum,
payable  semiannually  in arrears on May 15 and November 15. The Notes mature on
November  15,  2007  unless  previously  redeemed.  The Notes do not require any
mandatory  redemption  or  sinking  fund  payments  prior  to  maturity  and are
redeemable  at the option of the  Operating  Company in whole or in part,  on or
after  November  15,  2002,  at  predetermined  redemption  prices plus  accrued
interest  to  the  redemption  date.  Upon  the  occurrence  of  certain  events
constituting  a "change of control" (as defined in the  Indenture),  the Company
must offer to  purchase  the Notes,  at a  purchase  price  equal to 101% of the
principal  amount  thereof,  plus  accrued  and unpaid  interest  to the date of
purchase.  There  can be no  assurance  that the  Company  will  have  access to
sufficient funds to repurchase the Notes in the event of a change in control.

         The indenture  governing the Notes (the  "Indenture")  contains various
affirmative and restrictive  covenants  applicable to the Operating  Company and
its subsidiaries,  including limitations on the ability of the Operating Company
and its subsidiaries to, among other things,  (i) incur additional  indebtedness
(other than  certain  permitted  indebtedness)  unless the  Operating  Company's
Consolidated  Fixed  Charge  Coverage  Ratio (as  defined in the  Indenture)  is
greater than 2.25 to 1.00,  and (ii) make  distributions  to the  Company,  make
investments  (other than  permitted  investments)  in any person,  create liens,
engage in transactions with affiliates,  suffer to exist any restrictions on the
ability of a  subsidiary  to make  distributions  or repay  indebtedness  to the
Company,  engage  in sale  and  leaseback  transactions,  enter  into a  merger,
consolidation or sale of all or substantially all of its assets,  sell assets or
harvest timber in excess of certain limitations or engage in a different line of
business.  Under the Indenture,  the Operating Company will be permitted to make
cash  distributions  to the  Company  so long as no  default or event of default
exists  or would  exist  upon  making  such  distribution  (a) if the  Operating
Company's Consolidated Fixed Charge Coverage Ratio (as defined in the Indenture)
is greater than 1.75 to 1.00, in an amount,  in any quarter,  equal to Available
Cash (as defined in the Indenture) for the immediately  preceding fiscal quarter
or (b) if the Operating  Company's  Consolidated  Fixed Charge Coverage Ratio is
equal to or less than 1.75 to 1.00,  in an  aggregate  amount  not to exceed (i)
$7.5  million  less the  aggregate of all  restricted  payments  made under this
clause (b)(i) during the  immediately  preceding 16 fiscal  quarters (or shorter
period, if applicable,  beginning on the issue date of the Notes), plus (ii) the
net  proceeds of certain  capital  contributions  (including  the sale of Units)
received by the Company.  The Operating Company was not in compliance with these
fixed charge  coverage tests at December 31, 2001 and is therefore not permitted
to make any cash distributions to the Company.  Accordingly,  the Company is not
able to make distributions to its Unitholders.

Affiliate Credit Facility

         During the second  quarter of 2001,  the Company  renewed its  existing
credit  agreement with an affiliate of the General  Partner  ("Affiliate  Credit
Facility").  The Affiliate  Credit  Facility  allows the Company to borrow up to
$12.0 million.  The Affiliate  Credit Facility will expire on April 30, 2002. At
that time,  amounts  borrowed will be due and payable.  As of December 31, 2001,
there were no outstanding  borrowings under the Affiliate  Credit Facility.  The
Company's  intent  is to  replace  the  Affiliate  Credit  Facility  with a bank
facility  during 2002.  The Company  also has the ability to generate  cash flow
through the acceleration of planned log and timber deed sales. In addition,  the
Company's  intent is to use new funds raised  through  investment and commercial
banks for  acquisitions,  if any,  although  there can be no assurance that such
financing will be available on terms acceptable to the Company.

         Under the Affiliate Credit Facility, so long as no Event of Default (as
defined in the Affiliate Credit Facility) exists or would result,  the Operating
Company will be permitted to make quarterly cash distributions to the Company in
an amount  not to exceed  Available  Cash (as  defined in the  Affiliate  Credit
Facility) in the preceding quarterly period.

                                       22
<PAGE>

Capital Expenditures/Cash Distributions

         Capital   expenditures  in  2001  totaled  $5.6  million.  The  Company
purchased timber cutting rights from its affiliate for  approximately  17.2 MMBF
of timber for $4.5 million.  The remaining $1.1 million in capital  expenditures
incurred  were  mainly  in the  nature  of land  management/silviculture  costs.
Capital expenditures were financed through cash flow generated by operations. As
the  Company  does not  currently  own and  does  not plan to own  manufacturing
facilities, and all logging is subcontracted to third parties, it is anticipated
that capital expenditures in the future will not be significant and will consist
mainly of land management/silviculture expenditures. It is currently anticipated
that the Company will not maintain  significant log inventories,  although small
log  inventories may be maintained for a short period of time, or incur material
capital  expenditures for machinery and equipment.  The Company anticipates that
capital  expenditures  will be  approximately  $1.1  million  in  2002.  Capital
expenditures  will  consist  primarily  of  capitalized  silviculture  costs and
miscellaneous equipment purchases.

         Cash required to meet the Company's  debt service will be  significant.
To meet its working capital requirements,  the Company has been selling logs and
making timber sales at a rate in excess of the General Partner's estimate of the
current  annual board  footage  growth on the  Company's  timberlands.  The debt
service and, prior to the first quarter of 2001,  quarterly  cash  distributions
have been funded from  operations and borrowings.  Given  projected  volumes for
sales  of logs  and  timber,  estimated  current  board  footage  growth  on the
timberlands and the harvest  restrictions  in the Notes,  unless prices improve,
costs are  reduced,  new markets are  developed or the Company  makes  accretive
acquisitions,  the  Company  does not  expect  to make cash  distributions.  The
Company continues to evaluate means to improve cash flows, including the factors
mentioned above.  There can be no assurance that prices will improve or that the
Company will be able to take any of these actions and it is unlikely prices will
improve or any of these actions will take effect within a short-term horizon.

Effects of Inflation

         Prices  for the  Company's  stumpage  and logs may be  subject to sharp
cyclical fluctuations due to market or other economic conditions,  including the
level of construction activity but generally do not directly follow inflationary
trends.  Costs of forest  operations  and  general and  administrative  expenses
generally reflect inflationary trends.

Recent Developments

         In  November  2001,  management  amended  its offer to take the company
private,  reducing  the offer to a total of $3.75  per unit,  $1.875 in cash and
$1.875 in 7 year  notes.  As of this date,  the offer is being  reviewed  by the
independent committee.

New Accounting Standard - SFAS No. 133

         In June 1998, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standards  (SFAS) No. 133,  "Accounting for Derivative
Instruments and Hedging Activities", which as amended, is required to be adopted
for fiscal  quarters of fiscal years  beginning  after June 15,  2000.  SFAS 133
requires the Company to recognize all  derivatives  in the balance sheet at fair
value.  Derivatives  that are not hedges must be adjusted to fair value  through
earnings. If the derivative is a hedge,  depending upon the nature of the hedge,
changes  in fair  value of the  derivative  will  either be offset  against  the
changes in fair  value of the hedged  assets,  liabilities  or firm  commitments
through  earnings or recognized in other  comprehensive  income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately  recognized in earnings.  Although the Company
had no outstanding  derivative positions at December 31, 2001, it has absorbed a
loss of approximately $146 from its allocable share of the effect of adoption of
SFAS 133 by its equity basis investee,  U.S.  Timberlands Yakima, LLC, to reduce
the carrying value of an interest rate cap agreement to its fair value.

                                       23
<PAGE>

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

         Not applicable.



Item 8.  Financial Statements

         The  information  required  hereunder is included in this report as set
forth in the "Index to Financial Statements" on Page F-1.

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure

         Not applicable.

                                       24
<PAGE>

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

         The General Partner manages and operates the activities of the
Company. As is commonly the case with publicly traded limited partnerships,  the
Company does not directly employ any of the persons  responsible for managing or
operating the Company. In general, the management of the General Partner manages
and operates  the  Company's  business as officers and  employees of the General
Partner and its  affiliates.  The  Unitholders  do not  directly  or  indirectly
participate in the management or operation of the Company.

         In January 1999,  the General  Partner  appointed  William A. Wyman and
Alan B. Abramson,  two members of the General  Partner's  Board of Directors who
are neither  officers,  employees or security holders of the General Partner nor
directors,  officers,  or employees of any affiliate of the General Partner,  to
serve on the General Partner's Conflicts Committee.  The Conflicts Committee has
the  authority  to review  specific  matters as to which the Board of  Directors
believes  there may be a  conflict  of  interest  in order to  determine  if the
resolution  of such  conflict  proposed  by the  General  Partner  is  fair  and
reasonable to the Company.  Any matters approved by the Conflicts Committee will
be conclusively deemed to be fair and reasonable to the Company, approved by all
partners of the Company and not a breach by the General  Partner or its Board of
Directors of any duties they may owe the Company or the  Unitholders.  The Board
of Directors also has an audit committee (the "Audit Committee") composed of the
two  independent  directors  as well as  George R.  Hornig,  which  reviews  the
external  financial  reporting  of the  Company,  recommends  engagement  of the
Company's  independent public  accountants and reviews the Company's  procedures
for  internal  auditing and the adequacy of the  Company's  internal  accounting
controls.  The  Board  of  Directors  also  has a  compensation  committee  (the
"Compensation  Committee"),  consisting  of five  directors,  including  the two
independent directors,  which determines the compensation of the officers of the
General  Partner and administers  its employee  benefit plans. In addition,  the
Board  of  Directors  has  a  Long-Term  Incentive  Plan  Committee  (the  "LTIP
Committee"),  which consists of four  directors,  including the two  independent
directors, which acts with respect to the Company's Long-Term Incentive Plan. As
of May 2001, the Board of Directors formed an independent  committee to evaluate
management's  proposal regarding the offer to take the Company private.  William
A. Wyman and Alan B. Abramson are members of the independent committee.

                                       25
<PAGE>

Directors, Executive Officers and Key Employees of the General Partner

         The following table sets forth certain  information with respect to the
members of the Board of Directors of the General Partner, its executive officers
and certain key  employees.  Executive  officers and  directors  are elected for
one-year terms.
<TABLE>
<CAPTION>

     Name                                     Age                                      Position with General Partner
------------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>
    John M. Rudey                             58           Chairman, Chief Executive Officer, President and Director (1)
------------------------------------------------------------------------------------------------------------------------------------
    Aubrey L. Cole                            78           Director (2)
------------------------------------------------------------------------------------------------------------------------------------
    George R. Hornig                          47           Director (3)
------------------------------------------------------------------------------------------------------------------------------------
    William A. Wyman                          63           Director (4)
------------------------------------------------------------------------------------------------------------------------------------
-    Alan B. Abramson                          56           Director (5)
------------------------------------------------------------------------------------------------------------------------------------
    Robert F. Wright                          76           Director (6)
------------------------------------------------------------------------------------------------------------------------------------
    Thomas C. Ludlow                          55           Vice President and Chief Financial Officer
------------------------------------------------------------------------------------------------------------------------------------
    Martin Lugus                              61           Vice President, Timberland Operations
------------------------------------------------------------------------------------------------------------------------------------
    Robert B. Longo                           48           Corporate Controller
------------------------------------------------------------------------------------------------------------------------------------
    Walter L. Barnes                          59           Assistant Vice President, Harvesting
------------------------------------------------------------------------------------------------------------------------------------
    Robert A. Broadhead                       50           Assistant Vice President, Marketing
------------------------------------------------------------------------------------------------------------------------------------
    Jay Jeffrey Vermilya                      45           Assistant Vice President, Planning
------------------------------------------------------------------------------------------------------------------------------------
    Christopher J. Sokol                      52           Assistant Vice President, Forestry
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


     (1)  Member of the Executive (Chairman), Nominating (Chairman), Finance and
          Compensation Committees.

     (2)  Member of the Compensation and LTIP Committees.

     (3)  Member of the Executive,  Audit,  Finance  (Chairman) and Compensation
          Committees.

     (4)  Member of the Audit (Chairman),  Conflicts (Chairman),  Compensation ,
          LTIP and Independent Committees.

     (5)  Member of the  Audit,  Conflicts,  Compensation  (Chairman),  LTIP and
          Independent Committees.

     (6)  Member of the Nominating, Finance and LTIP (Chairman) Committees.

                                       26
<PAGE>

         John M. Rudey serves as Chairman,  Chief Executive  Officer,  President
and as a Director of the General  Partner.  Since 1992,  Mr. Rudey has served as
Chief  Executive  Officer  of  Garrin  Properties  Holdings,   Inc.,  a  private
investment  company that manages and advises investment  portfolios  principally
concentrated in the timber and forest products industries and in real estate.

         Aubrey L. Cole serves as a Director of the General Partner. Since 1989,
Mr. Cole has been a consultant for Aubrey Cole Associates, a sole proprietorship
which provides management  consulting services and makes investments.  From 1986
to 1989,  Mr. Cole was the Vice  Chairman of the Board and  Director of Champion
International  Corporation (a publicly traded forest products  company) and from
1983 to 1993, Mr. Cole was the Chairman of Champion  Realty  Corporation (a land
sales subsidiary of Champion International).

         George R. Hornig  serves as a Director of the  General  Partner.  Since
1999,  Mr.  Hornig has been Managing  Director of Credit  Suisse First  Boston's
Private  Equity  Division.  From 1993 to 1999,  Mr. Hornig was an Executive Vice
President of Deutsche  Bank  Americas  Holdings,  Inc. (the United States arm of
Deutsche Bank, a German banking  concern) and affiliated  predecessor  entities.
From 1991 to 1993, Mr. Hornig was the President and Chief  Operating  Officer of
Dubin & Swieca Holdings,  Inc., an investment management business.  From 1988 to
1991, Mr. Hornig was a co-founder, Managing Director and Chief Operating Officer
of Wasserstein Perella & Co., Inc. (a mergers and acquisitions investment bank).
From 1983 to 1988,  Mr.  Hornig  was an  investment  banker in the  Mergers  and
Acquisitions  Group of The First Boston  Corporation.  Prior to 1983, Mr. Hornig
was an attorney with Skadden,  Arps, Slate, Meagher & Flom. Mr. Hornig is also a
director of Unity Mutual Life Insurance Company and Forrester Research, Inc.

         William A. Wyman  serves as a Director of the General  Partner,  having
been elected to the Board in January  1999.  Mr. Wyman is a former  President of
the Management Consulting Group of Booz, Allen & Hamilton. Mr. Wyman joined Booz
Allen in 1965,  as a consultant to a variety of service,  natural  resources and
manufacturing  and financial  companies.  In 1984, he formed his own  consulting
firm,  Oliver,  Wyman & Company,  to provide  strategic and operating counsel to
large financial institutions.  Since his retirement in 1995, he has been working
as a counselor to Chief  Executives  of several  companies.  He is a Director of
Predictive Systems Inc, Pegasystems Inc., and Internosis, Inc, and serves on the
Board of Advisors  for The Sprout  Group,  a venture  capital  partnership,  and
Castle Harlan Inc., a buyout partnership.

         Alan B. Abramson  serves as a Director of the General  Partner,  having
been  elected to the Board in January  1999.  Mr.  Abramson is the  President of
Abramson Brothers  Incorporated,  a real-estate  management and investment firm,
where he has been  employed  since 1972.  He serves as a Director of  Datascope,
Inc., a medical technology company.

         Robert F. Wright  serves as a Director of the  General  Partner.  Since
1988, Mr. Wright has served as President and Chief  Executive  Officer of Robert
F. Wright  Associates,  Inc., a firm making strategic  investments and providing
business consulting services. Previously, Mr. Wright spent 40 years, 28 years as
a partner,  at Arthur  Andersen & Co. Mr.  Wright is a director of the following
companies:  Reliance  Standard Life Insurance Co. and affiliates (life insurance
companies), The Navigators Group Inc. (a property insurance company),  Universal
American Financial Corp. (an insurance company),  C.D.G. Technology Inc. (growth
stage systems and suppliers to water utilities) and G.V.A.  Williams Real Estate
Co., Inc. (a real estate company).

         Thomas C. Ludlow became Vice President and Chief  Financial  Officer of
the  General  Partner  in July  2000.  From 1998 to 2000,  Mr.  Ludlow was Chief
Financial  Officer of Forest  Systems,  LLC, a Boston  based  timber  investment
management company. From 1995 to 1998, Mr. Ludlow was Director and head of North
American  Forest  Products  for  Deutsche  Morgan  Grenfell,   an  international
investment  bank.  Prior to 1995,  Mr.  Ludlow  worked  with  various  financial
institutions. .

         Martin Lugus serves as Vice  President - Timberland  Operations  of the
General  Partner,  responsible  for all land  management  and  operations on fee
lands. Mr. Lugus was employed by Weyerhaeuser for 28 years, during which time he
served as Forestry  Manager from 1981 to 1991 and Timberlands  Manager from 1991
to 1996 and then for the General Partner in his current role.

                                       27
<PAGE>

Key Employees

         Walter L. Barnes serves as Assistant Vice President - Harvesting of the
General  Partner,  responsible for all solid wood logging and fiber  operations.
From 1993 to 1996, prior to joining the General Partner, Mr. Barnes acted as the
Operations  Harvest  Manager  for  Weyerhaeuser.  Mr.  Barnes  was  employed  by
Weyerhaeuser  for 28  years  and has  extensive  experience  managing  different
harvesting systems on both the East and West sides of the Cascade Range.

         Robert A.  Broadhead  serves as Assistant Vice President - Marketing of
the General  Partner  since 1996,  responsible  for all log and  stumpage  sales
transactions.  Prior to joining the General  Partner in 1996, Mr.  Broadhead was
employed  by  Weyerhaeuser  for 20 years and  gained  additional  experience  in
investing and planning while serving as Planning Manager from 1981 to 1994.

         Robert B.  Longo  serves as the  Corporate  Controller  of the  General
Partner,  responsible  for  accounting  functions.  Prior to joining the General
Partner  in  2001,  Mr.  Longo  was  Chief  Financial  Officer  of  Desert  Lake
Technologies,  LLC and The New Algae Company,  Inc. From 1980 to 1995, Mr. Longo
held various financial and management positions at American Cyanamid Company.

         Jay Jeffrey  Vermilya  serves as Assistant Vice President - Planning of
the General  Partner,  responsible for all harvest planning as well as operating
and  developing  the inventory and GIS systems.  From 1979 to 1987 Mr.  Vermilya
worked for Crown  Zellerbach  Corp. and them from 1987 to 1994 as Chief Forester
for the  Cambell  Group.  Mr.  Vermilya  then went to work for  Weyerhaeuser  as
district  forester  and then for the  General  Partner  in 1996 in the same role
until 2000, when he assumed his current responsibilities.

         Christopher  J. Sokol serves as Assistant  Vice President - Forestry of
the  General  Partner,   responsible  for  forestry  operations,   environmental
relationships,  harvest prescriptions and nursery/orchard  operations.  Prior to
joining the General Partner in 1996, Mr. Sokol was employed by Weyerhaeuser  for
22 years and gained  additional  experience  in forest  regeneration  and timber
sales  while  serving as  District  Forester  from 1982 to 1991 and as  Forestry
Manager thereafter.

Compliance with Section 16(a) of the Exchange Act

         Section  16(a) of the  Securities  Exchange  Act of 1934,  as  amended,
requires the General Partner's officers and directors,  and persons who own more
than 10% of a registered  class of equity  securities  of the  Company,  to file
reports of ownership and changes in ownership  with the  Securities and Exchange
Commission and the NASDAQ National Market. Officers,  directors and greater than
ten percent  security  holders are  required  by SEC  regulation  to furnish the
Company with copies of all Section 16(a) forms they file.

         Based on its  review of the  copies of such  forms  received  by it, or
written  representations  regarding ownership of the Company's  securities,  the
Company  believes  that during the fiscal year 2001,  all filings  required were
properly made.

                                       28
<PAGE>

Item 11.  Executive Compensation

         The Company and the General Partner were formed in June 1997. Under the
terms of the  Partnership  Agreement,  the Company is required to reimburse  the
General Partner for expenses relating to the operation of the Company, including
salaries and bonuses of employees employed on behalf of the Company,  as well as
the costs of providing benefits to such persons under employee benefit plans and
for the costs of health and life insurance.

         The  following  table sets  forth  annual  salary,  bonus and all other
compensation  awards and payouts earned by the General Partner's Chief Executive
Officer and the four most highly  compensated  executive  officers who earned in
excess of $100,000 (the "Named Executive Officers") for services rendered during
the fiscal year ended December 31, 2001:

<TABLE>
<CAPTION>

                SUMMARY COMPENSATION TABLE
                                                                                             Long-Term
                                                          Annual                           Compensation
                                                       Compensation                           Awards
                                                                                            Securities
    Name and Principal                     Fiscal                                           Underlying               All Other
    Position                                 Year       Salary ($)        Bonus ($)         Options/SARs(#)         Compensation
    --------                                 ----       ----------        ---------        ---------------          ------------
<S>                                          <C>          <C>            <C>                  <C>                   <C>
    John M. Rudey                            2001         $ 463,500      $       --                      --                   --
      Chairman and                           2000           463,500         256,750                      --                   --
      Chief Executive Officer                1999           450,000         225,000                  50,000                   --
-----------------------------------------------------------------------------------------------------------------------------------
    Thomas C. Ludlow                         2001           225,000               -
      Vice President and                     2000            80,208          75,000                  50,000                   --
      Chief Financial Officer                1999                --              --                      --                   --
-----------------------------------------------------------------------------------------------------------------------------------
    Martin Lugus                             2001           123,600              --
      Vice President - Timberland            2000           123,600          30,900                      --                   --
                                             1999           120,000          35,000                      --                   --
-----------------------------------------------------------------------------------------------------------------------------------
    Walter L. Barnes                         2001            97,850              --
      Assistant Vice President               2000            97,850          24,463                      --                   --
      - Harvesting                           1999            95,000          23,750                      --                   --
-----------------------------------------------------------------------------------------------------------------------------------
    Robert A. Broadhead                      2001            92,700               -
      Assistant Vice President               2000            92,700          23,175                      --                   --
      - Marketing                            1999            90,000          22,500                      --                   --
</TABLE>

                                       29
<PAGE>

Long-Term Incentive Plan

         The  General  Partner  has adopted  the U.S.  Timberlands  Company,  LP
Amended and Restated 1997  Long-Term  Incentive Plan (the  "Long-Term  Incentive
Plan")  for  key  employees  and  directors  of  the  General  Partner  and  its
affiliates.  The summary of the Long-Term  Incentive Plan contained  herein does
not purport to be complete  and is qualified in its entirety by reference to the
Long-Term Incentive Plan, which is filed as an exhibit to the Company's Form S-1
Registration Statement. The Long-Term Incentive Plan consists of two components,
a unit  option plan (the "Unit  Option  Plan") and a  restricted  unit plan (the
"Restricted  Unit Plan").  The Long-Term  Incentive Plan  currently  permits the
grant of Unit  Options and  Restricted  Units  covering an  aggregate of 857,748
Common Units.

         Unit Option Plan. The Unit Option Plan  currently  permits the grant of
options ("Unit  Options")  covering  857,748 Common Units.  Unit Options granted
during the Subordination Period will become exercisable  automatically upon, and
in the same proportions as, the conversion of the  Subordinated  Units to Common
Units.  If a  grantee's  employment  is  terminated  by  reason  of  his  death,
disability or  retirement,  the grantee's  Unit Options will become  immediately
exercisable.  In addition,  a grantee's  Unit  Options  will become  immediately
exercisable  in the event of a "change of control" of the Company (as defined in
the Long-Term Incentive Plan).

         Upon exercise of a Unit Option, the General Partner will acquire Common
Units in the open  market at a price equal to the  then-prevailing  price on the
principal  national  securities  exchange  upon which the Common  Units are then
traded,  or directly from the Company or any other  person,  or use Common Units
already owned by the General Partner,  or any combination of the foregoing.  The
General  Partner  will be  entitled  to  reimbursement  by the  Company  for the
difference  between the cost incurred by the General  Partner in acquiring  such
Common Units and the proceeds  received by the General  Partner from an optionee
at the time of exercise. Thus, the cost of the Unit Options will be borne by the
Company.  If the  Company  issues new Common  Units  upon  exercise  of the Unit
Options,  the total number of Units  outstanding  will  increase and the General
Partner will remit the proceeds received from the optionee to the Company.

         The  Unit  Option  Plan  has  been   designed  to  furnish   additional
compensation  to  key  executives  and  key  directors  and  to  increase  their
proprietary  interest in the future performance of the Company measured in terms
of growth in the market value of Common Units.

         There  were no option  grants to the named  executive  officers  during
fiscal 2001.

                                       30
<PAGE>

         The following table sets forth certain  information with respect to the
aggregate number and value of options at the fiscal year-end 2001:



             AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
                       FISCAL YEAR ENDED OPTION/SAR VALUES
<TABLE>
<CAPTION>

                                                                 Number of Securities
                                                                 Underlying/Unexercised              Value of Unexercised
                                                                    Options/SARs at              In-the-Money Options/SARs at
                                                                  December 31, 2001                   December 31, 2001
                             Shares                                -----------------                   -----------------
                            Acquired
           Name           on Exercise    Value Realized     Exercisable       Unexercisable     Exercisable        Unexercisable
           ----           -----------    --------------     -----------       -------------     -----------        -------------
<S>                       <C>                  <C>               <C>              <C>            <C>                    <C>
  John M. Rudey                --              $   --            39,304           117,914        $   --                 N/A (1)
  Thomas C. Ludlow             --              $   --            12,500            37,500        $   --                 N/A (1)
  Martin Lugus                 --              $   --            16,083            48,248        $   --                 N/A (1)
  Walter L. Barnes             --              $   --             8,577            25,733        $   --                 N/A (1)
  Robert A. Broadhead          --              $   --             8,577            25,733        $   --                 N/A (1)

</TABLE>

(1)  At the close of trading  on  December  31,  2001,  the market  value of the
     Common  Units was $1.66  per  common  unit.  Since the Unit  Options,  once
     exercisable, would be exercisable at a range of $9.813 to $14.750 per unit,
     the in-the-money computation is inapplicable.

         Restricted  Unit  Plan.  A  Restricted  Unit is a  "phantom"  unit that
entitles  the  grantee to receive a Common  Unit upon the vesting of the phantom
unit.  No grants  have  been  made  under the  Restricted  Unit  Plan.  The LTIP
Committee  may, in the future,  determine  to make grants under such plan to key
employees and directors  containing such terms as the Committee shall determine.
Restricted Units granted during the Subordination Period will vest automatically
upon, and in the same proportions as, the conversion of the  Subordinated  Units
to Common Units.  Common Units to be delivered  upon the "vesting" of rights may
be Common Units acquired by the General Partner in the open market, Common Units
already  owned by the  General  Partner,  Common  Units  acquired by the General
Partner directly from the Company or any other person, or any combination of the
foregoing.  The General Partner will be entitled to reimbursement by the Company
for the cost incurred in acquiring such Common Units.  If the Company issues new
Common  Units,  the total  number of Units  outstanding  will  increase  and the
Company will receive no remuneration.

         The issuance of the Common Units pursuant to the  Restricted  Unit Plan
is intended to serve as a means of incentive  compensation  for  performance and
not primarily as an opportunity to  participate  in the equity  appreciation  in
respect of the Common Units.  Therefore, no consideration will be payable by the
plan participants upon vesting and issuance of the Common Units.

         The  General  Partner's  Board  of  Directors  in  its  discretion  may
terminate  the Long-Term  Incentive  Plan at any time with respect to any Common
Units or Unit  Options  for which a grant has not  theretofore  been  made.  The
General  Partner's Board of Directors will also have the right to alter or amend
the Long-Term  Incentive  Plan or any part thereof from time to time;  provided,
however,  that no change in any outstanding  grant may be made that would impair
the rights of the participant without the consent of such participant.

                                       31
<PAGE>

Compensation of Directors

         Compensation  for  Directors  of the General  Partner  covers  services
rendered  for  both  the  Company  and  the  Operating  Company.  No  additional
remuneration  will be paid to  employees  who  also  serve  as  directors.  Each
independent  director  receives $50,000  annually,  for which they each agree to
participate  in four  regular  meetings  of the  Board  of  Directors  and  four
Audit/Conflicts  Committee meetings.  Each other non-employee  director receives
$50,000  annually (to be paid in cash or  Subordinated  Units,  as determined by
each  director),  for  which  they each  agree to  participate  in four  regular
meetings of the Board of  Directors.  Each  non-employee  director  will receive
$1,250 for each additional meeting in which he participates.  In addition,  each
non-employee  director  will be  reimbursed  for his  out-of-pocket  expenses in
connection  with  attending  meetings of the Board of  Directors  or  committees
thereof.  Each director will be fully indemnified by the Company for his actions
associated with being a director to the extent permitted under Delaware law.

         The General Partner has entered into consulting agreements with each of
Aubrey Cole Associates (a consulting  firm affiliated with Mr. Cole),  Robert F.
Wright  Associates,  Inc. (a consulting firm affiliated with Mr. Wright) and Mr.
Hornig pursuant to which each such person or firm provides  consulting  services
to the General Partner.  Each such agreement  provides for an annual retainer of
$25,000,  plus $150 per hour (with a maximum  per diem of $1,200)  for  services
rendered at the request of the General Partner. In addition, the General Partner
entered into a consulting  agreement  with Mr. Wyman that provides for an annual
retainer of $50,000 for services rendered at the request of the General Partner.
Each  consulting  agreement  will be  reviewed  annually  by a  majority  of the
directors who do not have consulting agreements.

         The Company paid approximately  $98,000,  $129,000, and $117,000 to the
Directors of the General  Partner for consulting  services during 2001, 2000 and
1999, respectively.

Employment Agreements

         The General  Partner has entered into an employment  agreement with Mr.
Rudey (the "Executive"). The agreement has a term expiring on December 31, 2002,
and includes confidentiality and non-compete provisions.

           The agreement provides for an annual base salary of $450,000, subject
to such increases as the Board of Directors of the General Partner may authorize
from time to time.  Effective January 1, 2001, the Board of Directors authorized
an increase to $463,500.  In addition,  the  Executive is eligible to receive an
annual cash bonus to be determined by the  Compensation  Committee not to exceed
100% of his base salary.  The Executive  will be entitled to participate in such
other  benefit  plans and  programs as the  General  Partner may provide for its
employees in general.

         The agreement provides that in the event the Executive's  employment is
terminated  without "Cause" (as defined in the Employment  Agreements) or if the
Executive  terminates his employment for "Good Reason" (as defined below),  such
individual will be entitled to receive a severance payment in an amount equal to
his base salary for the remainder of the  employment  term under the  Employment
Agreement or 12 months, whichever is less, plus a prorated bonus for the year of
such  termination  calculated  based on the  bonus  being  equal to 100% of base
salary.  In the event of termination  due to death or disability,  the Executive
will  be  entitled  to  accrued  salary  and  benefits  up to  the  date  of the
termination. In the event the individual's employment is terminated for "Cause,"
he will receive accrued salary and benefits up to the date of termination.

                                       32
<PAGE>
         Good Reason is defined in the  agreement  generally  as: (i) failure of
the General Partner's members to elect or re-elect the Executive to the Board of
Directors,  (ii)  failure of the General  Partner to vest in the  Executive  the
position, duties and responsibilities  contemplated by his Employment Agreement,
(iii)  failure  of the  General  Partner to pay any  portion of the  Executive's
compensation,  (iv) any material  breach by the General  Partner of any material
provision  of the  Employment  Agreement  and (v) a  material  reduction  in the
individual's  duties,  responsibilities  or status upon a "change of control" as
defined in the Employment  Agreement.  "Cause" is defined  generally as: (i) any
felony  conviction,  (ii) any  material  breach by the  Executive  of a material
written agreement between the Executive and the Company, (iii) any breach caused
by the Executive of the Partnership  Agreement,  (iv) any willful  misconduct by
the Executive  materially  injurious to the Company,  (v) any willful failure by
the Executive to comply with any material policies,  procedures or directives of
the  Board  of   Directors   of  the   General   Partner   or  (vi)  any  fraud,
misappropriation of funds, embezzlement or other similar acts of misconduct with
respect to the Company.

Committee Interlocks and Insider Participation in Compensation Decisions

         The  Compensation  Committee  of the  General  Partner is  composed  of
Messrs.  Rudey,  Abramson,  Wyman,  Hornig and Cole.  Mr.  Rudey also  serves as
Chairman of the General Partner.

         The  duties of the  Compensation  Committee  are to (i)  determine  the
annual  salary,  bonus and  benefits,  direct  and  indirect,  of all  executive
officers,  (ii)  review  and  recommend  to the full  Board any and all  matters
related to benefit plans covering the foregoing officers and any other employees
and (iii) serve as the  Long-Term  Incentive  Plan  Committee  for the Company's
Long-Term Incentive Plan.

         When setting executive officer  compensation  levels,  the Compensation
Committee  considers a variety of quantitative and qualitative  criteria tied to
the strategic goals of the Company,  such as maintaining  the Minimum  Quarterly
Distribution,   an  executive's  acceptance  of  additional  responsibility  and
acquisition  activity.  The  above  factors  were  applied  by the  Compensation
Committee  in  determining  the salary  and bonus  amounts  for all  executives,
including the CEO.

                                       33
<PAGE>

Performance Table

           The table below  compares the total return of the Common Units of the
Company (TIMBZ) from November 1997 through  December 2001 with the Wilshire 5000
Index (WFKX) and a portfolio (TIMBER)  consisting of Boise Cascade  Corporation,
Plum Creek Timber Co., LP and Crown Pacific Partners, LP.

                            TIMBZ         Wilshire 5000        Timber Index

           November 1997     100.0            100.0                100.0
            December-97       97.1            101.9                 94.4
            December-98       69.2            125.7                 92.9
            December-99       60.0            155.4                106.8
            December-00       50.6            138.4                102.9
            December-01       13.3            141.0                118.7









                                       34
<PAGE>

Item 12.  Security Ownership of Certain Beneficial Owners and Management

         The following table sets forth, as of February 28, 2002, the beneficial
ownership of Units held by (i) beneficial  owners of five percent or more of the
Units (ii) directors and executive officers of the General Partner and (iii) all
directors and executive officers of the General Partner as a group.

<TABLE>
<CAPTION>

                                                                                             Percentage of
                                                            Percentage of    Subordinated     Subordinated   Percentage of
                                          Common Units      Common Units        Units            Units        Total Units
                                          Beneficially      Beneficially     Beneficially     Beneficially    Beneficially
        Name of Beneficial Owners             Owned             Owned           Owned            Owned           Owned
        -------------------------             -----             -----           -----            -----           -----

<S>                                         <C>                <C>            <C>                <C>             <C>
   U.S. Timberlands Holdings Group, LLC (1) 1,597,880          18.70%         3,140,162          73.3%           36.9%

   John M. Rudey (2)                        1,817,645           8.7%          3,140,162          96.7%           38.0%

   Thomas C. Ludlow (3)                      12,500               *               --               --               *

   George R. Hornig (4)                      189,000            2.2%              --               --             1.8%

   Robert F. Wright (5)                      189,000            2.2%              --               --             1.5%

   Aubrey L. Cole (6)                        189,000            2.2%              --               --             1.5%

   Alan B. Abramson (7)                      12,500               *               --               --               *

   William A. Wyman (8)                      12,500               *               --               --               *

   All Directors and Executive Officers

       as a Group (7 persons)               1,906,490           19.8%         3,140,162          97.8%           39.2%
</TABLE>

*- Less than 1% of class.

     (1)  Current address is 625 Madison Avenue, Suite 10-B, New York, NY 10022.

     (2)  Current address is 625 Madison Avenue, Suite 10-B, New York, NY 10022.
          Includes 1,597,880 Subordinated Units and 3,140,162 Common Units owned
          by Holdings Group.  Mr. Rudey is attributed 100% beneficial  ownership
          of all units owned by Holdings  Group through his interests  therein .
          Includes Common Units owned by John Rudey's minor  children,  and U.S.
          Timberlands  Service  Company,  LLC. In addition,  Mr.  Rudey's  units
          include all 189,000 of Common Units owned by U.S. Timberlands Services
          Co.,  LLC.  Mr.  Rudey  owns a  78.75%  interest  in U.S.  Timberlands
          Services  Company,   LLC,  the  Partnership's  General  Partner.  Also
          includes 39,305 Common Unit equivalents  representing exercisable unit
          options at April 15, 2002.

     (3)  Current address is 625 Madison Avenue, Suite 10-B, New York, NY 10022.
          Common   Units   beneficially   owned  are  Common  Unit   equivalents
          representing exercisable unit options at April 15, 2002..

     (4)  Current address is 1220 Park Avenue, New York, NY 10128.  Includes all
          189,000 Common Units owned by U.S.  Timberlands Services Co., LLC. Mr.
          Hornig owns a 16.25% interest in U.S.  Timberlands  Services  Company,
          LLC, the  Partnership's  General Partner.  Also includes 39,305 Common
          Unit  equivalents  representing  exercisable unit options at March 30,
          2002.

     (5)  Current address is 57 West 57th Street, Suite 704, New York, NY 10019.
          . Includes all 189,000 Common Units owned by U.S. Timberlands Services
          Co., LLC. Mr. Wright owns a 2.5% interest in U.S. Timberlands Services
          Company, LLC, the Partnership's General Partner.

     (6)  Current address is 16825  Northchase  Drive,  Suite 800,  Houston,  TX
          77060. . Includes all 189,000  Common Units owned by U.S.  Timberlands
          Services Co.,  LLC. Mr. Cole owns a 2.5% interest in U.S.  Timberlands
          Services Company, LLC, the Partnership's General Partner.

     (7)  Current address is 501 Fifth Avenue, New York, NY 10017.  Common Units
          beneficially   owned  are   Common   Unit   equivalents   representing
          exercisable unit options at April 15, 2002.

     (8)  Current  address is 4 North Balch Street,  Hanover,  NH 03755.  Common
          Units  beneficially  owned are Common  Unit  equivalents  representing
          exercisable unit options at March 30,2002.

                                       35
<PAGE>

         All of the  outstanding  member  interests  in the General  Partner are
owned by management,  directors and related persons and entities. The members of
the General Partner are parties to an operating  agreement,  which,  among other
things,  provides  that the member  interests of  management  and  directors who
retire,  resign or  otherwise  terminate  their  relationship  with the  General
Partner will be repurchased  by the General  Partner.  In addition,  each member
other than  affiliates  of Mr. Rudey is provided  certain "tag along" and "bring
along" rights with respect to sales of member  interests in the General  Partner
by  Mr.   Rudey's   affiliates.   See   "Certain   Relationships   and   Related
Transactions--Repurchase of Certain Member Interests; Severance Payments."

Item 13.  Certain Relationships and Related Transactions

         The  Company  is  managed  by  the  General  Partner  pursuant  to  the
Partnership  Agreement.  Under the Partnership  Agreement the General Partner is
entitled to reimbursement of certain costs of managing the Company.  These costs
included  compensation  and benefits  payable to officers  and  employees of the
General Partner,  payroll taxes,  general and administrative  expenses and legal
and professional fees.

Consulting Agreements

         The General Partner has entered into consulting agreements with each of
Aubrey Cole Associates (a consulting  firm affiliated with Mr. Cole),  Robert F.
Wright  Associates,  Inc. (a consulting firm affiliated with Mr. Wright) and Mr.
Hornig pursuant to which each such person or firm provides  consulting  services
to the General Partner.  Each such agreement  provides for an annual retainer of
$25,000,  plus $150 per hour (with a maximum  per Diem of $1,200)  for  services
rendered at the request of the General Partner.  Each consulting  agreement will
be reviewed  annually by a majority of the directors who do not have  consulting
agreements. In addition, the General Partner entered into a consulting agreement
with Mr.  Wyman that  provides  for an annual  retainer of $50,000 for  services
rendered  at the  request  of the  General  Partner.  See also  Compensation  of
Directors included in Item 11.

Investment in Affiliate

         In October 1999,  the Company made an  investment  in U.S.  Timberlands
Yakima,  LLC (USTY), an unconsolidated  affiliate.  USTY, an entity organized to
acquire timber properties  located in Central  Washington and Central Oregon, is
engaged in the  growing of trees and sale of logs and  standing  timber to third
party wood processors.  The Company contributed to USTY $294,000 of cash for 49%
of USTY's common  interests (the "Common LLC  Interests").  The remaining Common
LLC  Interests  were acquired for $306,000 in cash by U.S.  Timberlands  Holding
Group,  LLC, a Delaware limited liability company in which John Rudey and George
Hornig, respectively,  the Chairman of the Board and a director of the Company's
General Partner, hold a controlling  interest.  The Company also acquired all of
the senior preferred interests in USTY (the "Senior or Preferred LLC Interests")
for its contribution to USTY of timberlands  consisting  primarily of non-income
producing,  pre-merchantable  pine  plantations  having an agreed  upon value of
$22.0 million. The Company recorded its investment in the Senior LLC interest at
its $18.9  million  cost  basis for the  contributed  timberlands.  Terms of the
Preferred LLC Interests  include a cumulative  annual guaranteed return of 5% of
the  $22.0  million  agreed  upon  value of the  contributed  timberlands  until
December 31, 2001 and 6% thereafter.  The Preferred LLC Interests are redeemable
at USTY's  option for a  redemption  price equal to the agreed upon value of the
Preferred LLC Interests plus any portion of the  guaranteed  return not received
by the Company prior to the  redemption  date.  Generally,  USTY's net income or
losses are allocated to the Common LLC Interests.  However, net losses exceeding
the account  balances of the Common LLC Interests are allocated to the Preferred
LLC  Interest.  The Company  accounts  for the  Preferred  LLC Interest at cost,
reduced by losses,  if any, in excess of the Common LLC  Interests.  The Company
accounts for its Common LLC Interest by the equity  method.  A subsidiary of the
General Partner of the Company  provides  management  services to USTY for a fee
equal to 2% of USTY's agreed upon assets under management.

                                       36
<PAGE>

During the twelve  months  ended  December  31,  2001,  the Company  contributed
cutting rights and timberland located in Central Oregon to its affiliate,  USTY.
The contributions  have an aggregate agreed upon value of $18.5 million and were
added to the  Company's  Preferred  Interest  in USTY.  Terms of the  additional
senior  preferred  interest  acquired are the same terms as the senior preferred
interest  previously issued to the Company.  The Company recorded its additional
preferred  interest  at its basis  for the  cutting  rights  and  timberland  of
approximately  $16.3  million.  All property that has been  contributed  for the
Company's  preferred  interest in USTY has been  pledged as  collateral  by USTY
under its credit  facility  with its  lender.

On April 15, 2001, the Company purchased timber cutting rights for approximately
17.2 million board feet from USTY for $4.5 million.  These timber cutting rights
expire in March 2004.

On August 29, 2001 the Company sold timber cutting rights for approximately 80.6
million board feet to USTY for $12.0 million. These timber cutting rights expire
in August 2004.

In November 2001, USTK sold timber cutting rights for approximately  44.8 mbf to
U.S.T.Y. for $7.0 million. These cutting rights expire in October 2004.

Affiliate Credit Facility

         See the description of the Affiliate  Credit  Facility  included in the
Liquidity and Capital Resources section of Item 7.


                                       37
<PAGE>

                                     PART IV

Item 14.  Exhibits, Financial Statements, and Reports on Form 8-K

(a)(1) and (2) Financial Statements

         See "Index to Financial Statements" set forth on page F-1.

(a)(3) Exhibits


     + 3.1  --  Amended and Restated  Agreement of Limited  Partnership of U.S.
                Timberlands Company, LP

     + 3.2  --  Second  Amended  and  Restated  Operating  Agreement  of  U.S.
                Timberlands Klamath Falls, LLC


     +10.2  -- Indenture  among U.S.  Timberlands  Klamath  Falls,  LLC, U.S.
               Timberlands  Finance  Corp.  and State Street Bank and Trust
               Company, as trustee

     +10.3  -- Contribution,  Conveyance and Assumption  Agreement among U.S.
               Timberlands Company, L Pand certain other parties

     *10.4  -- Form of U.S. Timberlands Company, LP 1997 Long-Term Incentive
               Plan

     *10.5  -- Employment Agreement for Mr. Rudey


     *10.9  -- Supply Agreement  between U.S.  Timberlands  Klamath Falls, LLC
               and  Collins Products LLC

     *21.1  -- List of Subsidiaries

      23.1  -- Consent of Richard A. Eisner & Company, LLP dated April 12, 2002.


(b)  Reports on Form 8-K

         One report  dated  November  13, 2001 on Form 8-K was filed  during the
quarter ended December 31, 2001.

*    Incorporated by reference to the same numbered  Exhibit to the Registrant's
     Registration Statement on Form S-1 filed November 13, 1997.

+    Incorporated by reference to the same numbered  Exhibit to the Registrant's
     Current Report on Form 8-K filed January 15, 1998.


                                       38
<PAGE>



                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto  duly  authorized on this 12th day of
April 2002.

                     U.S. TIMBERLANDS COMPANY, LP

                     By:   U.S. Timberlands Services Company, LLC
                            It's General Partner

                     By:    /s/ John M. Rudey
                            ----------------------------
                            John M. Rudey, Chairman, Chief Executive Officer
                               and President

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
<S>                                                 <C>                                            <C>



/s/ John M. Rudey                                   Chairman, Chief Executive Officer,              April 15, 2002
--------------------------------------------        President and Director (Principal Executive
                  John M. Rudey                     Officer)


/s/ Thomas C. Ludlow                                Chief Financial Officer
--------------------------------------------                                                        April 15, 2002
                  Thomas C. Ludlow


/s/ Robert B. Longo                                Corporate Controller
--------------------------------------------       (Principal Accounting Officer)                   April 15, 2002
                  Robert B. Longo

/s/ Aubrey L. Cole                                  Director
--------------------------------------------                                                        April 15, 2002
                  Aubrey L. Cole


/s/ George R. Hornig                                Director
--------------------------------------------                                                        April 15, 2002
                  George R. Hornig


/s/ Alan B. Abramson                                Director
--------------------------------------------                                                        April 15, 2002
                  Alan B. Abramson


/s/ William A. Wyman                                Director
--------------------------------------------                                                        April 15, 2002
                  William A. Wyman


/s/ Robert F. Wright                                Director
--------------------------------------------                                                        April 15, 2002
                  Robert F. Wright

</TABLE>


                                       39
<PAGE>


EXHIBIT INDEX




23.1 Consent of Richard A. Eisner & Company, LLP dated April 15, 2002.




                                       40
<PAGE>


CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

Contents                                                                                                       Page

<S>                                                                                                             <C>
Independent auditors' report                                                                                    F-2

Consolidated balance sheets as of December 31, 2001 and 2000                                                    F-3

Consolidated statements of operations for the years ended December 31, 2001, 2000, and 1999                     F-4

Consolidated statements of changes in partners' capital for the years ended December 31, 2001,
2000 and 1999                                                                                                   F-5

Consolidated statements of cash flows for the years ended December 31, 2001, 2000 and 1999                      F-6

Notes to consolidated financial statements                                                                      F-7

</TABLE>


<PAGE>


INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Partners of
U.S. Timberlands Company, LP


We have audited the accompanying consolidated balance sheets of U.S. Timberlands
Company,  LP and  subsidiaries as of December 31, 2001 and 2000, and the related
consolidated  statements of  operations,  changes in partners'  capital and cash
flows for each of the years in the  three-year  period ended  December 31, 2001.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  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 consolidated  financial statements  enumerated above present
fairly, in all material  respects,  the financial  position of U.S.  Timberlands
Company,  LP and  subsidiaries as of December 31, 2001 and 2000, and the results
of their operations and their cash flows for each of the years in the three-year
period  ended  December 31,  2001,  in  conformity  with  accounting  principles
generally accepted in the United States of America.

Richard A. Eisner & Company, LLP

New York, New York
    February 1, 2002,  except as to the
    final  paragraph of Note 14, as
    to which the date is March 15, 2002



                                      F-2



<PAGE>

<TABLE>
<CAPTION>


U.S. TIMBERLANDS COMPANY, LP AND SUBSIDIARIES

    Consolidated Balance Sheets
    (in thousands, except unit information)
                                                                                    December 31,
                                                                                  2001       2000
                                                                               --------   --------
<S>                                                                            <C>        <C>
    ASSETS

Current assets:
     Cash and cash equivalents                                                 $  1,070   $  3,168
     Accounts receivable, net                                                       311      4,430
     Other receivables                                                              280        160
     Notes receivable                                                             1,153      2,285
     Prepaid expenses and other current assets                                      225         35
                                                                               --------   --------
             Total current assets                                                 3,039     10,078

Timber and timberlands, net                                                     214,511    264,673
Investment in affiliate                                                          31,609     20,542
Property, plant and equipment, net                                                  811        926
Notes receivable, less current portion                                              428       --
Deferred financing fees, net                                                      3,973      4,648
                                                                               --------   --------
             Total assets                                                      $254,371   $300,867
                                                                               ========   ========


LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
     Accounts payable                                                          $  1,334   $  1,222
     Accrued liabilities                                                          3,331      3,326
     Deferred revenue                                                              --        1,474
     Payable to general partner and affiliate                                        41      2,065
                                                                               --------   --------
             Total current liabilities                                            4,706      8,087
                                                                               --------   --------
Long-term debt                                                                  225,000    225,000
                                                                               --------   --------

Commitments and contingencies
Minority interest                                                                   247        678
                                                                               --------   --------

Partners' capital:
     General partner interest                                                       247        678
     Limited partner interest (12,859,607 units issued and outstanding as of
        December 31, 2001 and 2000)                                              24,171     66,424
                                                                               --------   --------
                                                                                 24,418     67,102
                                                                               --------   --------
             Total liabilities and partners' capital                           $254,371   $300,867
                                                                               ========   ========

</TABLE>

See notes to consolidated financial statements

                                      F-3

<PAGE>

U.S. TIMBERLANDS COMPANY, LP AND SUBSIDIARIES

   Consolidated Statements of Operations
   (in thousands, except unit and per unit amounts)

<TABLE>
<CAPTION>

                                                                                             Year Ended December
                                                                                         2001         2000        1999
                                                                                       --------    --------     --------
<S>                                                                                     <C>         <C>         <C>
           Revenues:
                Log, timber deed and stumpage sales,
                  including $19,015 (2001) and $2,900 (2000) to an affiliate           $ 54,128    $ 72,268     $ 76,594
                Property sales                                                             --         2,773        --
                By-products and other                                                       436         571         400
                                                                                       --------    --------     --------
                                                                                         54,564      75,612      76,994
                                                                                       --------    --------     --------

           Cost of products sold:
                Cost of timber harvested                                                (16,652)    (19,853)    (17,056)
                Cost of property sales                                                     --        (2,641)       --
                Depletion, depreciation and road amortization                           (37,287)    (28,816)    (23,318)
                                                                                       --------    --------     --------
                                                                                        (53,939)    (51,310)    (40,374)
                                                                                       --------    --------     --------
                    Gross profit                                                            625      24,302      36,620

           Selling, general and administrative expenses                                  (8,340)     (8,428)     (8,477)
           Equity in net income (loss) of affiliate                                      (6,403)      1,990        (901)
                                                                                       --------    --------     --------
           Operating income (loss)                                                      (14,118)     17,864      27,242

           Interest expense                                                             (21,993)    (21,921)    (21,937)
           Amortization of deferred financing fees                                         (675)       (675)       (675)
           Interest income                                                                  101         403         565
           Other income, net                                                                131         208       1,162
                                                                                       --------    --------     --------
           Income (loss) before general partner and minority interest                   (36,554)     (4,121)      6,357
           Minority interest                                                                366          41         (64)
                                                                                       --------    --------     --------
           Net income (loss) before general partner interest                            (36,188)     (4,080)      6,293
           General partner interest                                                         366          41         (64)
                                                                                       --------    --------     --------
           Net income (loss) applicable to common and
                subordinated units                                                     $(35,822)   $ (4,039)   $  6,229
                                                                                       ========    ========    ========

           Net income (loss) per each common and subordinated unit-
                          basic and diluted                                            ($  2.79)   ($  0.31)   $   0.48
                                                                                       ========    ========    ========

           Weighted-Average Units outstanding                                        12,859,607  12,859,607  12,859,607

</TABLE>

See notes to consolidated financial statements

                                      F-4


<PAGE>

U.S. TIMBERLANDS COMPANY, LP AND SUBSIDIARIES

    Consolidated Statements of Changes in Partners' Capital
    (in thousands, except per unit amounts)
<TABLE>
<CAPTION>


                                                        General Partner          Limited Partner              Total
                                                            Interest                Interest            Partners' Capital
<S>                                                                    <C>                  <C>                    <C>
    Balance, December 31, 1998                                      $ 1,180               $ 115,671              $ 116,851
    Distributions to unitholders ($2.00 per unit)                      (263)                (25,718)               (25,981)
    Net income                                                           64                   6,229                  6,293
                                                     -----------------------  ----------------------   --------------------

    Balance, December 31, 1999                                          981                  96,182                 97,163
    Distributions to unitholders ($2.00 per unit)                      (262)                (25,719)               (25,981)
    Net loss                                                            (41)                 (4,039)                (4,080)
                                                     -----------------------  ----------------------   --------------------

    Balance, December 31, 2000                                          678                  66,424                 67,102
    Distributions to unitholders ($0.50 per unit)                       (65)                 (6,431)                (6,496)
    Net loss                                                           (366)                (35,822)               (36,188)
                                                     -----------------------  ----------------------   --------------------

    Balance, December 31, 2001                                       $ 247                $ 24,171               $ 24,418
                                                     =======================  ======================   ====================
</TABLE>

See notes to consolidated financial statements

                                      F-5
<PAGE>

U.S. TIMBERLANDS COMPANY, LP AND SUBSIDIARIES

   Consolidated Statements of Cash Flows
   (in thousands)
<TABLE>
<CAPTION>

                                                                Year Ended December 31,
                                                               2001        2000        1999
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
   Cash flows from operating activities:
  Net income (loss)                                         $(36,188)   $ (4,080)   $  6,293
   Adjustments to reconcile net income (loss) to net cash
      provided by operating activities:
         Depreciation, depletion, amortization and cost of
             timber and property sold                          37,287      31,457      23,318
         (Gain) loss on disposal of assets                         (2)        (39)         66
         Amortization of deferred financing fees                  675         675         675
         Equity in net (income) loss of affiliate               6,403      (1,990)        901
         Other non-cash items                                     233         127          --
         Minority interest                                       (366)        (41)         64
         Changes in assets and liabilities:
             Accounts receivable                                4,119      (3,758)        855
             Other receivables                                   (120)        (36)        989
             Notes receivable                                     704       2,363      (3,469)
             Prepaid expenses and other current assets           (190)        946        (555)
             Accounts payable                                     112         876        (387)
             Accrued liabilities                                    5          40      (1,119)
             Deferred revenue                                  (1,474)      1,435      (1,575)
             Payable to general partner and affiliate          (2,024)        896        (553)
                                                             --------    --------    --------
                Net cash provided by operating activities       9,174      28,871      25,503
                                                             --------    --------    --------
Cash flows from investing activities:
   Purchase of property, plant and equipment                       --         (55)        (44)
   Proceeds from sale of assets                                   904          50           8
   Timber and road additions                                   (5,615)     (2,253)       (955)
   Investment in affiliate                                         --          --        (294)
                                                             --------    --------    --------
                Net cash used in investing activities          (4,711)     (2,258)     (1,285)
                                                             --------    --------    --------
Cash flows from financing activities:
   Distributions to partners                                   (6,496)    (25,981)    (25,981)
   Distributions to minority interest                             (65)       (262)       (263)
                                                             --------    --------    --------
                Net cash used in financing activities          (6,561)    (26,243)    (26,244)
                                                             --------    --------    --------
Net increase (decrease) in cash and cash equivalents           (2,098)        370      (2,026)
Cash and cash equivalents, beginning of period                  3,168       2,798       4,824

Cash and cash equivalents, end of period                     $  1,070    $  3,168    $  2,798
                                                             ========    ========    ========

Supplemental cash flow information:

   Cash paid for interest                                    $ 22,033    $ 21,786    $ 21,746

Noncash activities:
   Contribution of timberlands for investment in affiliate   $ 16,289    $     --    $ 18,850

</TABLE>


See notes to consolidated financial statements


                                       F-6
<PAGE>

U.S. TIMBERLANDS COMPANY, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
(dollar amounts in thousands, except per unit amounts)

10K as of apr11 tcl.doc F -10 1. Business and Significant  Accounting  Policies:
Business  U.S.   Timberlands   Company,  LP  (the  "MLP"),  a  Delaware  limited
partnership,  was formed in 1997 to acquire and own 99% of the equity  interests
in U.S.  Timberlands Klamath Falls, LLC ("USTK" and the "Operating Company") and
through the Operating Company to acquire and own the business and assets of U.S.
Timberlands Management Company, LLC, formerly known as U.S. Timberlands Services
Company,  LLC. As used herein,  "Company" refers to the consolidated entities of
the MLP and the Operating Company.

The primary activity of the Company is the growing of trees and the sale of logs
and standing  timber to third party wood  processors.  The  Company's  timber is
located  principally in Oregon,  east of the Cascade Range.  Logs harvested from
the timberlands are sold to unaffiliated domestic conversion  facilities.  These
logs  are  processed  for sale as  lumber,  plywood  and  other  wood  products,
primarily for use in new  residential  home  construction,  home  remodeling and
repair and general industrial applications.

U.S.   Timberlands  Services  Company,  LLC  (the  "General  Partner"  and  "New
Services")  manages the  businesses  of the MLP and the Operating  Company.  The
General Partner owns a 1% general  partner  interest in the MLP and a 1% general
partner interest in the Operating Company.  All management  decisions related to
the Company are made by the General Partner.

Consolidation

The accompanying  consolidated  financial statements include the accounts of the
MLP and  its  subsidiary,  the  Operating  Company.  All  material  intercompany
transactions and balances have been eliminated. An investment in an affiliate is
accounted for by the equity method (See Note 3).

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and  disclosure  of  contingent  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.

Revenue Recognition

Revenue on delivered  log sales is  recognized  upon  delivery to the  customer.
Revenue on timber deeds, timber and property sales is generally  recognized upon
closing.  Revenue from timber sold under stumpage  contracts (i.e., the customer
arranges  to harvest  and  deliver  the logs) is  recognized  when the timber is
harvested.  Deferred  revenue as of  December  31,  2000  represents  a customer
deposit for a timber deed sale that was closed in January 2001.


                                      F-7
<PAGE>


1.  Business and Significant Accounting Policies (Continued):
Concentration of Credit Risk

Financial  instruments that potentially subject the Company to concentrations of
credit risk consist  principally  of trade  accounts and notes  receivable.  The
majority of the Company's  trade accounts and notes  receivable are derived from
sales to third party wood processors. The Company's four largest, non-affiliated
customers  accounted  for  approximately  22%,  7%, 6%, and 6% of the  Company's
aggregate  net revenues from log,  stumpage,  and timber deed sales for the year
ended December 31, 2001. In 2000, these customers represented approximately 14%,
8%, 2%, and 16%, respectively,  of aggregate net revenues from log, stumpage and
deed sales. In 1999, these four customers  accounted for approximately  13%, 4%,
0%, and 17% of aggregate  net  revenues  from log,  stumpage and deed sales.  No
other single customer accounted for more than 10% of aggregate net revenues from
log,  stumpage,  and timber  deed  sales in those  years.  Credit  risk on trade
receivables is mitigated by control  procedures to monitor the credit worthiness
of customers.  The Company  mitigates credit risk related to notes receivable by
obtaining asset lien rights or performing credit worthiness  procedures or both.
The Company  periodically  reviews  its  allowance  for  doubtful  accounts  and
reserves an estimated amount for such accounts. As of December 31, 2001 and 2000
the  Company  had  an  allowance  for  doubtful   accounts  of  $100  and  $550,
respectively.

Cash and Cash Equivalents

Cash and cash equivalents  consist of highly liquid  investments with maturities
at date of purchase of 90 days or less.

Timber and Timberlands

Timber and timberlands is comprised of timber,  timberlands,  logging roads, and
seed stock and nursery stock.

Timber, timberlands and roads

Timber, timberlands and roads are stated at cost less depletion and amortization
for timber  previously  harvested.  The cost of the timber harvested  (including
logging roads) is determined based on the volume of timber harvested in relation
to the amount of estimated net merchantable volume, primarily utilizing a single
composite pool. The Company  estimates its timber  inventory  using  statistical
information and data obtained from physical measurements, site maps, photo-types
and other information gathering techniques. These estimates are updated annually
and may result in adjustments of timber volumes and depletion  rates,  which are
recognized  prospectively.  Changes  in these  estimates  have no  effect on the
Company's cash flow.

Seed orchard and nursery stock

The Company operates and maintains a seed orchard and nursery. Costs incurred by
the  orchard  and  nursery  to  produce  seed  and  seedlings  utilized  in  the
reforestation  of the Company's  timberlands are capitalized to seed orchard and
nursery stock in the  accompanying  balance sheets. A certain amount of seed and
seedling stock is sold to unaffiliated customers and is reflected as a component
of by-products and other revenues in the accompanying statements of operations.


                                      F-8
<PAGE>

1.  Business and Significant Accounting Policies (Continued):
Property, Plant and Equipment

Property,  plant and equipment,  including significant improvements thereto, are
stated at cost less  accumulated  depreciation and  amortization.  Cost includes
expenditures for major  improvements and  replacements.  Maintenance and repairs
are charged to expense as incurred.  When assets are sold,  retired or otherwise
disposed of, the cost and accumulated depreciation are removed from the accounts
and any resulting gain or loss is reflected in income.

The cost of property, plant and equipment is depreciated using the straight-line
method over the  estimated  useful lives of the related  assets.  Buildings  and
improvements   are  generally   depreciated  over  40  years  and  equipment  is
depreciated  over 3 to 5 years.  Leasehold  improvements are amortized under the
straight-line  method based on the shorter of the lease periods or the estimated
useful lives of the improvements.

Deferred Financing Fees

Deferred  financing  fees consist of fees incurred in connection  with obtaining
the related debt financing.  The Company amortizes  deferred financing fees over
the terms of the related debt. The Company presents deferred  financing fees net
of accumulated amortization.  The accumulated amortization of deferred financing
fees as of December 31, 2001 and 2000 was $2,777 and $2,102, respectively.

Minority Interest

The General Partner holds a 1% ownership  interest in the Operating Company (the
"Minority  Interest").  A pro rata share of the Operating  Company's  results of
operations is allocated to the Minority  Interest in the accompanying  financial
statements.

Income Taxes

The MLP is a master limited  partnership and USTK is a limited liability company
("LLC").  Accordingly,  the MLP and the LLC are not liable for  federal or state
income  taxes  since the MLP's and the LLC's  income or loss is  reported on the
separate tax returns of the individual Unitholders or members.  Accordingly,  no
provision  for  current  or  deferred  income  taxes has been  reflected  in the
accompanying financial statements.

Per Unit Information

Net income (loss) per unit is calculated  using the weighted  average  number of
common and subordinated units outstanding, divided into net income (loss), after
adjusting for the 1% General  Partner  interest in the MLP. Unit options will be
included in calculating diluted net income (loss) per unit, assuming the results
would be dilutive,  upon  achievement  of the  performance  criteria  which,  if
maintained  for the  required  period,  would  result  in the  options  becoming
exercisable  (See Note 10).  Unit options have not been  included in the diluted
calculation as the effect is anti-dilutive.

Unit-Based Compensation Plans

The Company accounts for unit-based  compensation  plans under the provisions of
the Accounting  Principles  Board's Opinion No. 25, "Accounting for Stock Issued
to  Employees".  The Company has adopted the disclosure  only  provisions of the
Financial Accounting Standards Board Statement No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation" (see Note 10).


                                      F-9
<PAGE>

1.  Business and Significant Accounting Policies (Continued):
New Accounting Standards

The Company adopted Statement of Financial  Accounting Standards (SFAS) No. 133,
"Accounting for Derivative  Instruments and Hedging Activities" as of January 1,
2001.  SFAS 133 requires the Company to recognize all derivatives in the balance
sheet at fair  value.  Derivatives  that are not hedges must be adjusted to fair
value through earnings. If the derivative is a hedge,  depending upon the nature
of the  hedge,  changes in fair value of the  derivative  will  either be offset
against  the  changes in fair value of the hedged  assets,  liabilities  or firm
commitments through earnings or recognized in other  comprehensive  income until
the  hedged  item is  recognized  in  earnings.  The  ineffective  portion  of a
derivative's  change in fair value will be  immediately  recognized in earnings.
Although  the Company had no  outstanding  derivative  positions at December 31,
2001, it has absorbed a loss of  approximately  $146 from its allocable share of
the  effect  of  adoption  of  SFAS  133  by its  equity  basis  investee,  U.S.
Timberlands  Yakima,  LLC, to reduce the carrying  value of an interest rate cap
agreement to its fair value.

2.  Timber and Timberlands:

Timber and Timberlands consisted of the following at December 31:

                                                     2001      2000
                                                   --------   --------

Timber and logging roads                           $309,759   $317,215
Timberlands                                          34,566     39,111
Seed orchard and nursery stock                        1,437      1,364
                                                   --------   --------

                                                    345,762    357,690
Less accumulated depletion and road amortization    131,251     93,017
                                                   --------   --------

                                                   $214,511   $264,673
                                                   ========   ========

3.  Investment in Affiliate:

Following is summarized financial  information for U.S. Timberlands Yakima, LLC,
the Company's equity basis affiliate (See Note 9), as of and for the years ended
December 31:
<TABLE>
<CAPTION>

                                                           2001         2000        1999
                                                        ---------    ---------   ---------
<S>                                                     <C>          <C>         <C>
Current assets                                          $   5,779    $   3,887   $   9,129
Noncurrent assets, principally timber and timberlands     116,558       71,174      74,726
Current liabilities                                         1,883       11,195       5,611
Noncurrent liabilities - long-term debt                    88,435       42,807      60,000
Redeemable preferred member interest (owned by the
   Operating Company)                                      32,019       20,295      18,243
Net sales                                                  13,574       25,606         560
Gross profit                                                3,120       10,018         342
Net income (loss)                                          (5,329)       2,815      (1,207)
</TABLE>


                                      F-10
<PAGE>

4.  Property, Plant and Equipment:

Property, plant and equipment consisted of the following at December 31:

                                                   2001     2000
                                                 ------   ------

Equipment                                        $  646   $  661
Buildings and improvements                          843      843
                                                 ------   ------

                                                  1,489    1,504
Less accumulated depreciation and amortization      678      578
                                                 ------   ------

                                                 $  811   $  926
                                                 ======   ======

5.  Accrued Liabilities:

Accrued liabilities consisted of the following at December 31:

                              2001     2000
                            ------   ------

Interest                    $2,752   $2,792
Severance and harvest tax       65      217
Other                          514      317
                            ------   ------

                            $3,331   $3,326
                            ======   ======

6.  Short-Term Debt:

In 2001, the Company extended a credit facility with an affiliate of the General
Partner (the "Affiliate Credit Facility"), which allows the Company to borrow up
to $12.0 million. The Company's  obligations under the Affiliate Credit Facility
represent unsecured general  obligations.  Borrowings under the Affiliate Credit
Facility bear interest at the prime lending rate as published in the Wall Street
Journal plus applicable  margin (1.25% at December 31, 2001),  which is based on
the Company's  leverage ratio.  The prime lending rate was 4.75% at December 31,
2001. The Affiliate  Credit  Facility  expires on April 30, 2002 and all amounts
borrowed  thereunder  shall then be due and payable.  There were no  outstanding
borrowings  under the Affiliate  Credit  Facility at December 31, 2001 and 2000.
Peak  borrowings  were $10,370 and $6,000 under the  Affiliate  Credit  Facility
during  2001  and  2000,  respectively.  A  commitment  fee of 0.5%  is  payable
quarterly on the unused  available  portion of the  Affiliate  Credit  Facility.
Total  interest and fees paid to the affiliate  were $330 and $75 in 2001,  $130
and $58 in 2000, and $25 and $29 in 1999, respectively.

The Affiliate Credit Facility contains certain restrictive covenants,  including
limits on the ability of the Company to make cash  distributions,  incur certain
additional indebtedness or incur certain liens.

7.  Long-Term Debt:
Senior Notes

The  $225,000  of Notes,  which were  issued in 1997,  were  issued  jointly and
severally by the Operating Company and U.S.  Timberlands Finance Corp. ("Finance
Corp."), a wholly owned subsidiary of the Operating Company  (collectively,  the
"Issuers").  The Issuers serve as co-obligors of the Notes.  The Notes represent
unsecured general obligations of the Company and bear interest at 9-5/8% payable
semiannually  in arrears on May 15 and  November  15, and mature on November 15,
2007 unless previously redeemed. The Notes are redeemable at the


                                      F-11
<PAGE>

7.  Long-Term Debt (Continued)

option of the  Issuers in whole or in part,  on or after  November  15,  2002 at
predetermined redemption prices plus accrued interest to the redemption date.

The Notes contain certain restrictive covenants,  including limiting the ability
of the Operating Company and its subsidiaries to make cash distributions,  incur
additional  indebtedness,  sell  assets or  harvest  timber in excess of certain
limitations.  Under certain  restrictive  covenants,  The  Operating  Company is
presently prohibited from making distributions to the Company.

8.  Partners' Capital:
Partnership Equity

The MLP had 9,648,017 Common Units and 3,211,590  Subordinated Units outstanding
on December 31, 2001 and 8,577,487 Common Units and 4,282,120 Subordinated Units
on December 31, 2000 and 1999. In February,  2001. 1,070,530  Subordinated Units
converted into Common Units.

Partnership Income (loss)

As  provided  in  the  MLP  Agreement  and  the  Operating  Company's  Operating
Agreement,  income and losses are  allocated  98% to the holders of  outstanding
Common Units (the Common  Unitholders) and Subordinated  Units (the Subordinated
Unitholders),  1% to the General  Partner's  general partner interest in the MLP
and 1% to the General Partner's minority interest in the Operating Company.

Cash Distributions

The Company is required to make  quarterly  cash  distributions  from  Available
Cash, as defined in the MLP Agreement if cash is available for distributions. If
made, cash  distributions  are paid in order of preferences:  first, the minimum
quarterly  distribution  of $.50 per unit (the "MQD") to Common  Unitholders and
the General  Partner,  and  second,  to the extent cash  remains  available,  to
Subordinated  Unitholders.  On February 14,  2001,  The Company made a $0.50 per
unit  distribution.   The  Company  announced  on  May  10,  2001  that  it  has
indefinitely  suspended  further  distributions  due to declining log prices and
deteriorating business conditions..

The MLP  Agreement  sets forth  certain cash  distribution  target rates for the
Company to meet in order for the General  Partner's  share of Available  Cash to
increase  (such  increases  referred to as  "Incentive  Distributions").  To the
extent that the quarterly distributions exceed $.550 per Common and Subordinated
Unit, the General Partner  receives 15% of the excess Available Cash rather than
the base amount of 2%. To the extent  that the  quarterly  distributions  exceed
$.633 per Common and Subordinated  Unit, the General Partner receives 25% of the
excess Available Cash and to the extent that the quarterly  distributions exceed
$.822 per Common and Subordinated  Unit, the General Partner receives 50% of the
excess  Available  Cash.  Since the quarterly  distributions  did not exceed the
minimum quarterly  distributions for 2001, 2000 or 1999, the General Partner did
not receive any such Incentive Distributions for those years.

Subordinated Units

The  Subordinated  Units are subordinated in right of distributions to the right
of Common Unitholders to receive the MQD. Because the MQD was paid to Common and
Subordinated  Unitholders for three  consecutive  four-quarter  periods and such
distributions  were  equal to or less  than  the  Company's  Adjusted  Operating
Surplus,  as that term is  defined  in the MLP  Agreement,  for two  consecutive
four-quarter periods, in February 2001 25% of the then outstanding  Subordinated
Units converted . Since no  distributions  have been made since February 2001and
the Company has announced an indefinite suspension of distributions,  conversion
of the remaining Subordinated Units is unlikely in the foreseeable future.

                                      F-12
<PAGE>

8.  Partners' Capital (Continued)
Liquidation Preference

During the subordination  period,  Common Unitholders will generally be entitled
to  receive  more  per  unit  in  liquidating  distributions  than  Subordinated
Unitholders.  Following  conversion of the Subordinated Units into Common Units,
all units will receive the same liquidation treatment.

9.  Certain Relationships and Related Party Transactions:
General Partner

The General Partner has the ability to control management of the Company and has
all voting rights of the Company except for certain matters set forth in the MLP
Agreement,  as amended  ("MLP  Agreement").  The ownership of  Subordinated  and
Common Units by certain affiliates of the General Partner  effectively gives the
General Partner the ability to prevent its removal.

The General Partner does not receive any management fee or other compensation in
connection  with its  management  of the  Company.  The General  Partner and its
affiliates  perform services for the Company and are reimbursed for all expenses
incurred on behalf of the Company,  including the costs of employee, officer and
director  compensation properly allocable to the Company, and all other expenses
necessary or  appropriate  to the conduct of the business of, and  allocable to,
the Company.  The MLP Agreement provides that the General Partner will determine
the  expenses  that  are  allocable  to the  Company  in any  reasonable  manner
determined by the General Partner in its sole discretion.  Related  non-interest
bearing receivables and payables between the General Partner and the Company are
settled in the ordinary  course of  business.  As of December 31, 2001 and 2000,
the Company had a payable to the General Partner of $41 and $955,  respectively.
During 2001, 2000, and 1999 expenses  allocated to and reimbursed by the Company
totaled $6,760, $7,717, and $8,347, respectively.

Certain  conflicts  of  interest  could  arise as a result of the  relationships
described  above.  The Board of Directors and management of the General  Partner
have a duty to manage the Company in the best interests of the Unitholders  and,
consequently,  must exercise good faith and integrity in handling the assets and
affairs of the Company.

Consulting Agreements

As of December 31, 2001,  the General  Partner has  consulting  agreements  with
affiliates of certain  Directors of the General Partner,  pursuant to which each
such person or firm has provided and/or will provide consulting  services to the
General  Partner.  The agreements  provide for an annual retainer of $25 to $50,
plus an hourly rate for services rendered at the request of the General Partner.
Payments by the General Partner related to consulting  agreements in 2001, 2000,
and 1999 amounted to $98, $129, and $117, respectively.

Investment in and Transactions with Affiliates

In October 1999, the Company made an investment in U.S.  Timberlands Yakima, LLC
(USTY), an unconsolidated affiliate.  USTY, a then newly formed entity organized
to acquire timber properties  located in Central  Washington and Central Oregon,
is engaged in the growing of trees and sale of logs and standing timber to third
party wood processors.  The Company  contributed to USTY $294 of cash for 49% of
USTY's common interests (the "Common LLC  Interests").  The remaining Common LLC
Interests were acquired for $306 in cash by U.S. Timberlands Holding Group, LLC,
a Delaware  limited  liability  company  in which John Rudey and George  Hornig,
respectively,  the Chairman of the Board and a director of the Company's General
Partner,  hold a  controlling  interest.  The Company  also  acquired all of the
senior preferred interests in USTY (the "Senior or Preferred LLC Interests") for
its  contribution  to USTY of  timberlands  consisting  primarily of  non-income
producing,  pre-merchantable  pine  plantations  having an agreed  upon value of
$22,000.  The Company  recorded its investment in the Senior LLC interest at its
$18,850 cost basis for the contributed  timberlands.  Terms of the Preferred LLC
Interests include a cumulative annual guaranteed return of 5% until December 31,
2001 and 6%  thereafter  of the  $22,000  agreed  upon value of the  contributed
timberlands. The Preferred LLC Interests are redeemable at USTY's option for a

                                      F-13
<PAGE>

9.  Certain Relationships and Related Party Transactions (Continued):
redemption  price equal to the agreed upon value of the Preferred LLC Interests,
either in cash or by returning the contributed timberlands,  plus any portion of
the guaranteed  return not received by the Company prior to the redemption date.
Generally,  USTY's  net  income  or  losses  are  allocated  to the  Common  LLC
Interests.  However, net losses exceeding the account balances of the Common LLC
Interests are allocated to the Preferred LLC Interest.  The Company accounts for
the Preferred LLC Interest at cost plus accrued  dividends to the extent earned,
reduced by losses,  if any, in excess of the Common LLC  Interests.  The Company
accounts for its Common LLC Interest by the equity method.

As a result of a refinancing  transaction entered into by USTY in September
2001, the Company's common  beneficial  interest in USTY is now held through the
Company's 49% common interest in a holding company, UST Yakima Holdings II, LLC.

On  September  14,  2001,  management  of USTY was taken over by US  Timberlands
Yakima  Services,  LLC ("Yakima  Services"),  a wholly owned  subsidiary  of the
General  Partner of the  Company.  Yakima  Services is paid a fee equal to 2% of
agreed upon valuation of the assets under management. Prior thereto, the General
partner  provided  management  services for a fee equal to 2% of USTY's earnings
before interest,  taxes,  depletion,  depreciation and  amortization.  Such fees
charged to operations by USTY in 2001  amounted to $1,137.  The Company  granted
U.S.  Timberlands Holding Group, LLC an irrevocable proxy to vote its Common and
Preferred Interests.

During 1999,  concurrently with and in order to facilitate USTY's acquisition of
the Washington  timberlands  referred to above, an entity  controlled by John M.
Rudey  agreed to acquire in the future a portion of the property and any related
liabilities  that the Company and USTY were  unwilling  to acquire,  the sale of
which was a  condition  of the seller to the USTY  acquisition.  Such entity was
paid $2,700 by the seller for its  agreement  to acquire  such  property and any
related  liabilities.  The General Partner's  Conflicts  Committee  reviewed and
approved the structure of the Company's investment in the affiliate.

In June 2000, USTK purchased timber cutting rights for approximately 4.2 million
board feet from USTY for $1.3  million.  These timber  cutting  rights expire in
June 2003

In December 2000, USTK sold  approximately  8,000 acres of timberland located in
Central Oregon to USTY for $2,900.

During 2001, USTK contributed  cutting rights and timberland  located in Central
Oregon to its affiliate,  USTY. The contributions  have an aggregate agreed upon
value of $18.5  million  and were added to USTK's  Preferred  Interest  in USTY.
Terms of the additional senior preferred interest acquired are the same terms as
the senior  preferred  interest  previously  issued to USTK.  USTK  recorded its
additional  preferred interest at its cost for the cutting rights and timberland
of  approximately  $16.3  million.  All property that has been  contributed  for
USTK's  preferred  interest in USTY has been pledged as collateral by USTY under
its credit facility with its lender.

In March of 2001, USTK purchased  timber cutting rights for  approximately  17.2
million  board feet from USTY for $4.5  million.  These  timber  cutting  rights
expire in March 2004.

In  September of 2001 USTK sold timber  cutting  rights for  approximately  80.6
million board feet to USTY for $12.0 million. These timber cutting rights expire
in August 2004.

In November  of 2001 USTK sold  timber  cutting  rights for  approximately  44.8
million board feet to USTY for $7.0 million.  These timber cutting rights expire
in October 2004.


                                      F-14
<PAGE>


9.  Certain Relationships and Related Party Transactions (Continued):
Gross profits  realized on USTK's sales of timber cutting rights to USTY, to the
extent of the Company's ownership interest in USTY, have been eliminated and are
recognized in  operations  upon USTY's sale of the timber to third  parties.  In
addition,  the  Company's  equity in net income  (loss) of  affiliates  has been
adjusted to eliminate  its share of gross  profits  realized by USTY on sales of
timber cutting rights to USTK, until USTK sells the timber to third parties.

Payments to Affiliate

See Note 6 regarding  interest and  commitment  fees paid to an affiliate of the
General Partner under the Affiliate Credit Facility.

Severance and Settlement

Selling,  general and administrative expenses in 1999 and 2000 included $675 and
$203 respectively related to settlement with former employees of the Company.

Other Related Party Transactions

During 1999,  Glenn A. Zane served as Acting  Senior Vice  President  and Acting
Director of Operations  for the Company.  The Company paid  approximately  $323,
$821 and $925  during  2001,  2000 and 1999,  respectively,  to  Mason,  Bruce &
Girard,  of which Mr.  Zane is a  partner.  Such  payments  were for  consulting
services and include Mr. Zane's compensation.

10.  Management Incentive Plans:
Unit Option Plans

The Company  has a Unit Option  Plan,  which  permits the grant of options  (the
"Unit  Options") to employees and  directors of the General  Partner who perform
services for the Company,  covering  857,749 Common Units.  Unit Options granted
under the Company's Unit Option Plan are  determined by the Long-Term  Incentive
Plan Committee of the Board of Directors (the "LTIP  Committee") and are granted
at fair market  value at the date of the grant.  In 1999,  200,000  Unit Options
were granted to directors  and 142,620  options  were granted to  employees.  In
2000, 54,000 Unit Options were granted to employees. In 2001, there were no Unit
Options  granted.  The Unit  Options  granted  expire ten years from the date of
grant and become  exercisable  automatically  upon and in the same proportion as
the conversion of Subordinated Units to Common Units. See further explanation of
subordinated  units  and  related  performance  criteria  in  Note 8.  Once  the
performance criteria are achieved,  the Company will record compensation expense
for the  difference  between  the  exercise  price and fair  value of the Common
Units,  with a  corresponding  increase to  partnership  capital.  Although  the
performance criteria were met for the years ended December 31, 2000 and 1999, no
compensation  expense was recorded during such years, as the market price of the
units was less than the exercise price during the years. As indicated in Note 8,
distributions  have been suspended and accordingly the performance  criteria had
not been met as of December 31, 2001.


                                      F-15
<PAGE>


10.  Management Incentive Plans (Continued):

The following  table  summarizes the activity  related to unit options for three
years ended December 31, 2001

                                                                 Weighted
                                                                  Average
                                               Number of         Exercise
                                                Shares             Price
                                            ----------------  ----------------


      Outstanding, December 31, 1998                450,317       $     14.75
      Unit options granted                          342,620             13.16
      Unit options cancelled                        (35,310)            14.71
                                            ----------------


      Outstanding, December 31, 1999                757,627             14.02
      Unit options granted                           54,000              9.70
      Unit options cancelled                        (54,000)            13.89
                                            ----------------


      Outstanding, December 31, 2000                757,627             13.75
      Unit options granted                                -                 -
      Unit options cancelled                        (70,620)            13.22
                                            ----------------


      Outstanding, December 31, 2001                687,007             13.78


As of December 31, 2001  exercise  prices for options  outstanding  were between
$5.84 and $14.75 with a weighted  average exercise price of $13.78 per unit. The
weighted average  remaining  contractual life of the options was 7 years.  There
were no unit  options  exercisable  at December  31,  2000 or 1999.  Options for
171,752  units were  exercisable  at December 31, 2001,  with a weighed  average
exercise price of $13.78 per unit.

The Company has computed,  for pro forma disclosure purposes as required by SFAS
123, the value of the Unit  Options  granted  under the Unit Option Plan.  These
computations  were  made  using  the  Black-Scholes   option-pricing  model,  as
prescribed by SFAS 123, with the following weighted average assumptions for 2000
and 1999:

                                                   2000              1999
                                              ----------------  ---------------

      Risk-free rate of return                     5.98%            4.88%

      Expected dividend yield                      9.52%            9.52%

      Expected life of the Unit Options           5 Years           5 Years

      Expected volatility                         80.59%            49.65%

The weighted-average  fair value of unit options was $3.61 and $2.87 for options
granted in 2000 and 1999, respectively.

                                      F-16
<PAGE>

10.  Management Incentive Plans (Continued):
If the Company had adopted the  expensing  provisions of SFAS 123, the impact on
2001,  2000 and 1999's net  income  (loss) and net income  (loss) per unit would
have been as follows:


<TABLE>
<CAPTION>

                                                                                 Year Ended December 31,
                                                                      2001              2000              1999
                                                                   ---------          --------           -------
<S>                                                                <C>                <C>                <C>
   Net income (loss) as reported                                   $ (36,188)         $ (4,080)          $ 6,293
   Net income (loss) pro forma                                       (36,511)           (4,617)            5,846
   Basic and diluted net income (loss) per unit - as reported          (2.79)            (0.31)             0.48
   Basic and diluted net income (loss) per unit - pro forma            (2.84)            (0.36)             0.45
</TABLE>



For purposes of the pro forma disclosures,  the estimated fair value of the unit
options is amortized  to expense over their  estimated  exercise  period,  which
corresponds to the assumed subordinated unit's conversion period.

Restricted Unit Plan:

During 1997, the Company  authorized the establishment of a restricted unit plan
(the  "Restricted  Unit  Plan"),  which  allows the  Company to grant units (the
"Restricted  Units") to employees at the  discretion of the LTIP  Committee.  No
consideration will be payable by the plan participants upon vesting and issuance
of the  Restricted  Units.  Restricted  Units granted  during the  subordination
period  would  vest  automatically  upon  and  in  the  same  proportion  as the
conversion  of  Subordinated  Units to Common  Units.  Restricted  Units granted
subsequent to the  subordination  period are the equivalent of Common Units.  No
Restricted Units have been granted as of December 31, 2001.

Income Interests of the General Partner

In connection  with the Common Units  offering and the related  formation of the
General Partner, the General Partner issued income interests to certain officers
and  directors  of  the  General  Partner  at no  cost.  Such  income  interests
participate  pro rata in cash  distributions  from USTK and the  Company.  Under
certain circumstances,  the General Partner is required to repurchase the income
interests  from officers and directors upon  termination of their  employment at
fair market value as determined by independent  appraisal (see Note 9, severance
and settlement).

                                      F-17
<PAGE>

11.  Fair Value of Financial Instruments:

A summary of the fair value of the Company's  significant  financial instruments
and the methods and significant  assumptions used to estimate those values is as
follows:

     (a)  Short-term  financial  instruments  - The  fair  value  of  short-term
          financial instruments,  including cash and cash equivalents, trade and
          other  receivables,  notes  receivable,  trade  accounts  payable  and
          certain accrued  liabilities,  approximates  their carrying amounts in
          the financial statements due to the short maturities of such items.

     (b)  Long-term debt - The estimated  fair value of the Company's  long-term
          debt was approximately  $150,750 and $180,000 at December 31, 2001 and
          2000, respectively, based on published market quotations.

12.      Quarterly Results (Unaudited):

<TABLE>
<CAPTION>

                                                         Quarter Ended
                                     ----------------------------------------------------------------------
                                     December 31 (a)       September 30         June 30        March 31       Total Year
<S>                                          <C>                  <C>               <C>            <C>            <C>
   2001

   Revenues                                  $ 13,471             $ 24,299          $ 7,327        $ 9,467        $ 54,564
   Gross profit (loss)                            245                  764             (252)          (132)            625
   Net  (loss)                                (10,190)              (8,583)          (8,600)        (8,815)        (36,188)
   Net (loss) per unit (b)(C)                   (0.78)               (0.66)           (0.66)         (0.68)          (2.79)

   2000

   Revenues                                  $ 25,664             $ 14,064         $ 23,960       $ 11,924        $ 75,612
   Gross profit                                 4,471                2,716           12,881          4,234          24,302
   Net income (loss)                           (2,038)              (5,340)           5,119         (1,821)         (4,080)
   Net income (loss) per unit (b)(C)            (0.15)               (0.41)            0.39          (0.14)          (0.31)
</TABLE>


(a)  The quarter ended December 31, 2000 includes revenues of $2,773 and related
     costs of $2,641 from a property sale.

(b)  See  discussion  of  per  unit  information  in  Note  1 of  the  notes  to
     consolidated financial statements

(C)  Basic and diluted.


14.  401(K) Defined Contribution Plan:

The  Company   sponsors  a  401(k)  defined   contribution   plan  which  covers
substantially all full-time employees. Company contributions to the plan totaled
$56 in 2001, $30 in 2000 and $34 in 1999.

14. Commitments, Contingencies and Other:

Log Supply Agreement

On August 30,  1996,  the  Company  entered  into a wood supply  agreement  with
Collins Products,  LLC to supply a volume of approximately 34 million board feet
of  merchantable  timber  annually to Collins at market prices.  The term of the
agreement  was ten  years and was  renewable  for two  additional  terms of five
years,  each at the option of Collins.  As a result of Collins  Products closing
its plywood  mill in Klamath  Falls in 2001,  the  Company and Collins  mutually
decided to cancel the log supply agreement.  Revenues from Collins Products were
approximately $2,125, $10,842 and $11,160 for 2001, 2000 and 1999 respectively.

                                      F-18
<PAGE>

Interest Rate Collar Agreement

The Company entered into interest rate collar agreements to manage interest rate
risk,  the last of which ended in October 1999.  Income of $991 in 1999 on these
agreements  is  included  in other  income  in the  accompanying  statements  of
operations.

Litigation

In November  2000,  six purported  class action  lawsuits were filed against the
General  Partner and the Board of Directors of the General Partner (the "Board")
alleging  breach of fiduciary duty and  self-dealing  by the General Partner and
the Board in connection  with an  announcement  on November 2, 2000 that a group
led by senior  management  had begun the  process to explore  taking the Company
private (the "Going-Private Transaction").

In February 2001  management  put forward a formal offer for the "Going  Private
Transaction" at $7.75 per unit in cash and notes.  In November 2001,  management
amended  its offer to $3.75 per unit (50% in cash and 50% in 7 year notes of the
Company).

14.  Commitments, Contingencies and Other (Continued):

All six  lawsuits  were filed in the Court of  Chancery of the State of Delaware
for the County of New  Castle.  Each  lawsuit was filed by a  unitholder  of the
Company,  on behalf of all other  Unitholders  of the Company who are  similarly
situated,  and seeks to have the class certified and the unitholder bringing the
lawsuit named as representative of the class. In addition,  the lawsuits seek to
enjoin the Going-Private  Transaction,  to rescind the Going-Private Transaction
if it is consummated, and to recover damages and attorneys' fees. In addition to
naming the General  Partner and the Board as  defendants,  all six lawsuits name
the Company as a defendant.

         As of March 15, 2002,  all six lawsuits  have been  withdrawn,  without
prejudice, by the plaintiffs,  pending further developments in the Going Private
Transaction.

                                      F-19