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, 2000         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 February 28, 2001, was approximately $57,366,233.

         Documents incorporated by reference: None

<PAGE>


                          U.S. TIMBERLANDS COMPANY, LP



                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                                               Page


PART I
<S>                                                                                                           <C>
         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........................................................................16
         Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations..........17
         Item 7A. Quantitative and Qualitative Disclosures About Market Risk.....................................26
         Item 8.  Financial Statements...........................................................................26
         Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........26

PART III
         Item 10. Directors and Executive Officers of the Registrant.............................................26
         Item 11. Executive Compensation.........................................................................30
         Item 12. Security Ownership of Certain Beneficial Owners and Management.................................37
         Item 13. Certain Relationships and Related Transactions.................................................39

PART IV
         Item 14. Exhibits, Financial Statements, and Reports on Form 8-K........................................41

</TABLE>


<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
553,000 fee acres of timberland and cutting rights on approximately  3,000 acres
of timberland  (collectively the  "Timberlands")  containing total  merchantable
timber volume  estimated as of January 1, 2001 to be  approximately  1.5 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  half 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) and the
predecessors of the Company.

         The  Timberlands'   merchantable  timber  consists  of  Ponderosa  Pine
(approximately  47%) and Douglas fir  (approximately  13%),  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  155,000  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 39 years old.  Initial  thinning or harvesting of
the  Plantation  stands is expected to begin  within the next three  years.  The
balance of the Timberlands  are 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  has  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, 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;

                                       1
<PAGE>

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. 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.  The Collins
Supply Agreement is extendable by Collins for two additional five-year terms. In
addition to its sales under the Collins Supply Agreement, the Company sells logs
to conversion facilities located in the area surrounding the Timberlands.  There
are  currently  more than 50  primary  conversion  facilities  located  within a
150-mile radius of the Company's Timberlands.

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;  Old  Services  owns
1,244,565  Subordinated Units;  Holdings owns 2,894,157  Subordinated Units; and
the  Founding  Directors  own an aggregate of 143,398  Subordinated  Units.  The
4,282,120  Subordinated  Units owned by Old Services,  Holdings and the Founding
Directors represent an aggregate 32.6% 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  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 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 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.

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  160 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.


                                       3
<PAGE>


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, biological and genetic 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 244  million  board feet
(MMBF) in 2000 and plans to  harvest,  or commit to harvest,  approximately  150
MMBF in 2001. The Company also sold approximately 14 MMBF through property sales
in 2000 and intends to sell up to 90 MMBF through  property sales in 2001. Under
the  current  harvest  plans,   the  Company  intends  to  harvest  its  current
Timberlands  aggressively  over  approximately the next six to eight 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.  Since  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 2001.  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 Company-owned and established roadways or low-maintenance  roads. 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 2000,  sawlogs,  stumpage sales and timber
deed sales accounted for approximately 50.0%, 0.3% and 45.4%,  respectively,  of
the  Company's  revenue.  Chips,  which can be used to make  hardboard  or pulp,
accounted for approximately  0.5% of the Company's  revenues in 2000. The market
price of chips has historically been volatile, rising and falling with the price
of pulp.  Sales of seedlings  accounted  for 0.2% of the  Company's  revenues in
2000.  Timber  and  property  sales  accounted  for  the  remaining  3.6% of the
Company's revenue in 2000.

         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. The Collins Supply Agreement is extendable by Collins for
two additional five-year terms. In 2000, timber sales to Collins,  Crown Pacific
Partners,  Boise  Cascade  Corporation  and  Ochoco  Lumber  Company,  combined,
accounted  for  approximately  58% of the  Company's  revenue.  No other  single
customer  accounted  for more than 10% of the  Company's  net revenues for 2000.
Collins made its purchases  pursuant to the Collins Supply Agreement,  while the
other purchases were made pursuant to short-term arrangements. 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 50 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 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.  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
immaterial amounts of foreign imports, primarily from Canada and New Zealand. 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  1.5 BBF of  merchantable,  good
quality  timber,  approximately  155,000  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 5 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  27% of the
Timberlands  acreage  currently  consist 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
2000, the Company planted approximately 1.7 million seedlings.  Similar planting
levels are  expected  for 2001.  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 26,000 acres.

         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.



                                       7
<PAGE>

         Based on the 2000 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 2000,  and
identified  approximately  31 northern  spotted owl sites  affecting the Klamath
Falls Timberlands, three of which are located 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 as currently conducted.

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.

         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.



                                       8
<PAGE>

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, 2001, the Company  had 29 salaried 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 553,000 fee acres
of  timberland  and cutting  rights on  approximately  3,000 acres of timberland
containing total  merchantable  timber volume estimated as of January 1, 2001 to
be  approximately  1.5 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  155,000
acres of the 553,000 acre total  consist of actively  managed  pine  Plantations
with stands  ranging in age from one to 39 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, 2001,  the total
timber inventory amounted to 1.5 BBF. The Company's combined timber inventory by
MMBF and  percentage  is Ponderosa  Pine (692.2  (47%)),  Lodgepole  Pine (253.2
(17%)),  White Fir (286.3  (20%)),  Douglas fir (181.6  (13%)) and other species
(47.2 (3%)).  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, 2001,  approximately  343
MMBF, or 23%, 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, 2001, the Plantations
totaled  155,000 acres.  Of the total  acreage,  62,000 acres range from 1 to 15
years of age,  73,000  acres range from 16 to 25 years of age,  and 20,000 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.

         In the opinion of management,  after consultation with outside counsel,
the pending  lawsuits are not expected to have a material  adverse effect on the
Company's financial position or results of operations.


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 2000.



                                       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,  2000,  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*             6.50*




         * First Quarter 2001 high/low is through March 7, 2001.

         The last  reported sale price of the Common Units on Nasdaq on March 7,
2001 was $ 8.00 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.

Cash Distribution Policy

General

         The Company  currently  expects to distribute 98% of its Available Cash
(defined  below) within 45 days after the end of each quarter to  Unitholders of
record and 2% to the General  Partner.  During a specified  period that will not
end earlier than December 31, 2002 (the "Subordination  Period"),  distributions
of  Available  Cash on  Subordinated  Units are  subordinated  to the  rights of
holders of the Common Units to receive  $0.50 per Common Unit per quarter,  plus
any arrearages in the Minimum Quarterly Distribution.



                                       12
<PAGE>

         Available Cash as defined in the Partnership Agreement generally means,
with respect to any quarter of the Company,  all cash on hand at the end of such
quarter less the amount of cash reserves that is necessary or appropriate in the
reasonable  discretion  of the  General  Partner to (i)  provide  for the proper
conduct of the  Company's  business,  (ii)  comply  with  applicable  law or any
Company  debt  instrument  or  other  agreement,  or  (iii)  provide  funds  for
distributions  to Unitholders  and the General  Partner in respect of any one or
more of the next four quarters.

         Cash  distributions  will be characterized as distributions from either
Operating  Surplus or Capital  Surplus.  This  distinction  affects  the amounts
distributed to Unitholders  relative to the General  Partner,  and under certain
circumstances  it determines  whether holders of Subordinated  Units receive any
distributions.

         Operating  Surplus,  as defined in the  Partnership  Agreement,  refers
generally  to (i) the cash  balance  of the  Company  on the  date  the  Company
commences operations,  plus $15.0 million, plus all cash receipts of the Company
from its operations  since the closing of the Initial Public Offering and Public
Note Offering  (hereafter the  "Transactions"),  less (ii) all Company operating
expenses,  debt service payments  (including reserves therefor but not including
payments  required in connection with the sale of assets or any refinancing with
the proceeds of new indebtedness or an equity offering) and reserves established
for  future  Company  operations,   in  each  case  since  the  closing  of  the
Transactions.

         Capital  Surplus as also  defined  in the  Partnership  Agreement  will
generally  be  generated  only by  borrowings  (other than for  working  capital
purposes),  sales of debt and equity securities and sales or other  dispositions
of assets for cash (other than inventory,  accounts  receivable and other assets
all as disposed of in the ordinary course of business and up to $50.0 million of
land sales).

         To avoid the difficulty of trying to determine  whether  Available Cash
distributed  by the Company is from Operating  Surplus or from Capital  Surplus,
all Available Cash distributed by the Company from any source will be treated as
distributed  from  Operating  Surplus  until  the  sum  of  all  Available  Cash
distributed  since the commencement of the Company equals the Operating  Surplus
as of the end of the quarter prior to such  distribution.  Any Available Cash in
excess of such amount  (irrespective  of its  source)  will be deemed to be from
Capital Surplus and distributed accordingly.

         If Available  Cash from Capital  Surplus is  distributed  in respect of
each  Common  Unit in an  aggregate  amount per Common Unit equal to $21.00 (the
"Initial Unit Price"), plus any Common Unit Arrearages,  the distinction between
Operating  Surplus and Capital  Surplus  will cease,  and all  distributions  of
Available  Cash will be  treated  as if they were from  Operating  Surplus.  The
Company does not anticipate  that there will be significant  distributions  from
Capital Surplus.

         The  Subordinated  Units  are a  separate  class  of  interests  in the
Company,  and  the  rights  of  holders  of such  interests  to  participate  in
distributions to partners differ from the rights of the holders of Common Units.
For any given  quarter,  any Available  Cash will be  distributed to the General
Partner and to the holders of Common Units,  and may also be  distributed to the
holders of  Subordinated  Units  depending upon the amount of Available Cash for
the quarter,  the amount of Common Unit  Arrearages,  if any, and other  factors
discussed below.

         The Incentive  Distributions  are nonvoting  limited partner  interests
that  represent  the right to  receive an  increasing  percentage  of  quarterly
distributions  of  Available  Cash  from  Operating  Surplus  after  the  Target
Distribution Levels have been achieved. The Target Distribution Levels are based
on the amounts of Available Cash from Operating Surplus distributed in excess of
the payments made with respect to the Minimum Quarterly  Distribution and Common
Unit Arrearages, if any, and the related 2% distribution to the General Partner.

Distributions from Operating Surplus during Subordination Period

         The Subordination Period will generally continue until the first day of
any  quarter  beginning  after  December  31,  2002  in  respect  of  which  (i)
distributions  of Available Cash from Operating  Surplus on the Common Units and
the  Subordinated   Units  with  respect  to  each  of  the  three   consecutive
four-quarter periods immediately preceding such date equaled or exceeded the sum
of  the  Minimum  Quarterly   Distribution  on  all  of  the  Common  Units  and
Subordinated  Units during such  periods,  (ii) the Adjusted  Operating  Surplus
generated during each of the three consecutive  four-quarter periods immediately
preceding  such  date  equaled  or  exceeded  the sum of the  Minimum  Quarterly
Distribution on all of the outstanding  Common Units and Subordinated Units that
were  outstanding  during such period on a  fully-diluted  basis and the related
distribution  on the general  partner  interest in the Company and the  managing
member  interest in the Operating  Company,  and (iii) there are no  outstanding
Common Unit Arrearages.



                                       13
<PAGE>

         Prior  to  the  end of  the  Subordination  Period,  a  portion  of the
Subordinated  Units will convert into Common Units on a one-for-one basis on the
first day after the record date  established for the  distribution in respect of
any quarter ending on or after (a) December 31, 2000 with respect to one-quarter
of the Subordinated Units (1,070,530  Subordinated  Units), and (b) December 31,
2001  with  respect  to  one-quarter  of  the   Subordinated   Units  (1,070,530
Subordinated  Units),  in respect of which (i)  distributions  of Available Cash
from  Operating  Surplus on the  Common  Units and the  Subordinated  Units with
respect  to each  of the  three  consecutive  four-quarter  periods  immediately
preceding  such  date  equaled  or  exceeded  the sum of the  Minimum  Quarterly
Distribution  on all of the  outstanding  Common  Units and  Subordinated  Units
during such periods,  (ii) the Adjusted  Operating Surplus generated during each
of the two  consecutive  four-quarter  periods  immediately  preceding such date
equaled or exceeded the sum of the Minimum Quarterly  Distribution on all of the
Common Units and Subordinated  Units that were outstanding during such period on
a fully  diluted  basis and the  related  distribution  on the  general  partner
interest in the  Company  and the  managing  member  interest  in the  Operating
Company,  and (iii) there are no outstanding  Common Unit Arrearages;  provided,
however,  that the early  conversion of the second  one-quarter of  Subordinated
Units may not occur until at least one year  following  the early  conversion of
the first  one-quarter of  Subordinated  Units.  On February 6, 2001,  1,070,530
Subordinated  Units  converted to Common Units (See Note 15 to the  Consolidated
Financial Statements).

         Upon expiration of the Subordination Period, all remaining Subordinated
Units will convert into Common Units on a one-for-one  basis and will thereafter
participate, pro rata, with the other Common Units in distributions of Available
Cash. In addition,  if the General  Partner is removed as the general partner of
the Company  under  circumstances  where  Cause (as  defined in the  Partnership
Agreement)  does  not  exist  and  Units  held by the  General  Partner  and its
affiliates are not voted in favor of such removal,  (i) the Subordination Period
will end and all outstanding  Subordinated  Units will immediately  convert into
Common Units on a one-for-one  basis,  (ii) any existing  Common Unit Arrearages
will be  extinguished  and  (iii)  the  General  Partner  will have the right to
convert  its  general  partner  interest  (and its  right to  receive  Incentive
Distributions)  into  Common  Units  or to  receive  cash in  exchange  for such
interests.

         "Adjusted  Operating  Surplus" for any period generally means Operating
Surplus  generated  during  such  period,  less (a) any net  increase in working
capital borrowings during such period and (b) any net reduction in cash reserves
for  Operating  Expenditures  during  such period not  relating to an  Operating
Expenditure  made during such  period;  and plus (x) any net decrease in working
capital  borrowings during such period and (y) any net increase in cash reserves
for Operating  Expenditures  during such period  required by any debt instrument
for the repayment of principal, interest or premium. Operating Surplus generated
during a period is equal to the  difference  between (i) the  Operating  Surplus
determined at the end of such period and (ii) the Operating  Surplus  determined
at the beginning of such period.

         Distributions  by the Company of Available Cash from Operating  Surplus
with respect to any quarter during the Subordination  Period will be made in the
following manner:

               first,  98% to the Common  Unitholders,  pro rata,  and 2% to the
          General  Partner,  until there has been distributed in respect of each
          outstanding  Common  Unit an  amount  equal to the  Minimum  Quarterly
          Distribution for such quarter;

               second,  98% to the Common  Unitholders,  pro rata, and 2% to the
          General  Partner,  until there has been distributed in respect of each
          outstanding  Common Unit an amount equal to any Common Unit Arrearages
          accrued  and  unpaid  with  respect to any prior  quarters  during the
          Subordination Period;

               third, 98% to the Subordinated  Unitholders,  pro rata, and 2% to
          the General  Partner,  until there has been  distributed in respect of
          each  outstanding  Subordinated  Unit an amount  equal to the  Minimum
          Quarterly Distribution for such quarter; and thereafter, in the manner
          described in "--Incentive Distributions" below.

         Notwithstanding  the  foregoing,  no  distributions  may be made on the
Subordinated  Units with respect to any quarter if the Consolidated Fixed Charge
Coverage Ratio (as defined in the  Partnership  Agreement) for the  four-quarter
period ended with such quarter is equal to or less than 1.75 to 1.00.



                                       14
<PAGE>

Incentive Distributions

         For any  quarter for which  Available  Cash from  Operating  Surplus is
distributed to the Common and Subordinated Unitholders in an amount equal to the
Minimum Quarterly  Distribution on all Units and to the Common Unitholders in an
amount equal to any unpaid Common Unit Arrearages, then any additional Available
Cash from Operating Surplus in respect of such quarter will be distributed among
the Unitholders and the General Partner in the following manner:

               first,  98% to all  Unitholders,  pro rata, and 2% to the General
          Partner,  until the  Unitholders  have  received  (in  addition to any
          distributions   to  Common   Unitholders  to  eliminate   Common  Unit
          Arrearages)  a total of $0.550  for such  quarter  in  respect of each
          outstanding Unit (the "First Target Distribution");

               second, 85% to all Unitholders,  pro rata, and 15% to the General
          Partner,  until the  Unitholders  have  received  (in  addition to any
          distributions   to  Common   Unitholders  to  eliminate   Common  Unit
          Arrearages)  a total of $0.633  for such  quarter  in  respect of each
          outstanding Unit (the "Second Target Distribution");

               third, 75% to all  Unitholders,  pro rata, and 25% to the General
          Partner,  until the  Unitholders  have  received  (in  addition to any
          distributions   to  Common   Unitholders  to  eliminate   Common  Unit
          Arrearages)  a total of $0.822  for such  quarter  in  respect of each
          outstanding Unit (the "Third Target Distribution"); and

               thereafter,  50% to all  Unitholders,  pro  rata,  and 50% to the
          General Partner.

         The  distributions  to the General  Partner set forth above that are in
excess of its  aggregate 2% general  partner  interest  represent  the Incentive
Distributions.  The right to receive Incentive  Distributions is not part of the
general partner interest and may be transferred separately from such interest in
certain limited  circumstances.  See "--The Partnership  Agreement--Transfer  of
General Partner's Interests and Incentive Distribution Rights."

Adjustment of Minimum Quarterly Distribution and Target Distribution Levels

         In addition to reductions  of the Minimum  Quarterly  Distribution  and
Target  Distribution  Levels made upon a  distribution  of  Available  Cash from
Capital Surplus,  the Minimum Quarterly  Distribution,  the Target  Distribution
Levels, the Unrecovered  Capital, the number of additional Common Units issuable
during the Subordination  Period without a Unitholder vote, the number of Common
Units  issuable  upon  conversion  of the  Subordinated  Units and other amounts
calculated  on a per Unit  basis  will be  proportionately  adjusted  upward  or
downward,  as  appropriate,  in the event of any  combination  or subdivision of
Common  Units  (whether  effected by a  distribution  payable in Common Units or
otherwise),  but not by reason of the  issuance of  additional  Common Units for
cash or property. For example, in the event of a two-for-one split of the Common
Units (assuming no prior adjustments), the Minimum Quarterly Distribution,  each
of the  Target  Distribution  Levels and the  Unrecovered  Capital of the Common
Units would each be reduced to 50% of its initial level.

         The Minimum Quarterly  Distribution and the Target  Distribution Levels
may also be adjusted if legislation is enacted or if existing law is modified or
interpreted by the relevant  governmental  authority in a manner that causes the
Company to become taxable as a corporation or otherwise  subjects the Company to
taxation as an entity for federal,  state or local income tax purposes.  In such
event, the Minimum  Quarterly  Distribution and the Target  Distribution  Levels
would be reduced to an amount equal to the product of (i) the Minimum  Quarterly
Distribution  and  each  of  the  Target  Distribution   Levels,   respectively,
multiplied by (ii) one minus the sum of (x) the maximum effective federal income
tax rate to which the Company is then subject as an entity plus (y) any increase
that results from such  legislation  in the  effective  overall  state and local
income tax rate to which the  Company  is  subject as an entity for the  taxable
year in which such event  occurs  (after  taking into account the benefit of any
deduction  allowable for federal income tax purposes with respect to the payment
of state and local  income  taxes).  For  example,  assuming the Company was not
previously  subject to state and local income tax, if the Company were to become
taxable as an entity for federal  income tax  purposes  and the  Company  became
subject to a maximum marginal federal, and effective state and local, income tax
rate of 38%, then the Minimum Quarterly Distribution and the Target Distribution
Levels would each be reduced to 62% of the amount thereof  immediately  prior to
such adjustment.



                                       15
<PAGE>

Item 6. Selected Financial Data

<TABLE>
<CAPTION>

                                                  U.S. Timberlands (1)                                      Predecessor (1)
                                                  ---------------------------------------------     --------------------------------
                                                                                                      August 30,         January 1,
                                                                                                     1996 through       1996 through
                                                                                                     December 31,        August 29,
                                                  2000            1999        1998        1997           1996               1996
<S>                                               <C>             <C>         <C>          <C>        <C>                 <C>
   CASH FLOWS AND OTHER DATA
      (IN MILLIONS):
   Modified EBITDDA (7) . . . . . . . . . . . . .  $ 49.3          $ 50.6      $ 44.2       $ 53.3     $ (1.4)             $ 3.6
   Additions to timber and timberlands (3)            2.3             1.0         0.6        111.6      283.6                0.5
   Cash flow from (used in) operating
      activities . . . . . . . . . . . . . . . .     28.9            25.5        18.5         26.3       (3.0)               5.5
   Cash flow from (used in) investing
      activities . . . . . . . . . . . . . . . .     (2.3)           (1.3)       (0.6)      (101.6)    (291.5)              (0.5)
   Cash flow from (used in) financing
      activities . . . . . . . . . . . . . . . .    (26.2)          (26.2)      (23.7)        69.3      311.0                (5.1)
   OPERATING STATEMENT DATA
      (IN MILLIONS EXCEPT PER
      UNIT AMOUNTS):
   Revenues (2)(3) . . . . . . . . . . . . . . .     75.6            77.0        71.3         77.3       14.0               15.6
   Depreciation, depletion and road
      amortization (2)(3) . . . . . . . . . . . .   28.8            23.3        21.9          17.3        3.3                0.9
   Cost of timber and property sales (2)(3)           2.6              --         5.9          8.7          --                 --
   Operating income (loss) (2)(3) . . . . . . . .    17.9            27.2        16.3         27.3       (4.8)               2.7
   Income (loss) before extraordinary
      items (4) . . . . . . . . . . . . .  . . .     (4.1)            6.4        (6.4)        (1.4)     (13.0)               2.7
   Extraordinary items, losses on
      extinguishment of debt (5) . . . . . . . .        --               --         --        (9.3)         --                 --
   Income (loss) before general partner
      and minority interest . . . . . . . . . . .    (4.1)            6.4        (6.4)       (10.7)     (13.0)               2.7

   PER UNIT DATA (6):
   Basic income (loss) before
      extraordinary items per unit:
      Common . . . . . . . . . . . . . . . . . .     (0.31)           0.48       (0.49)       3.05        --                  --
      Subordinated . . . . . . . . . . . . . . .     (0.31)           0.48       (0.49)       (1.01)     (3.04)               --
   Basic net income (loss) per unit:
      Common . . . . . . . . . . . . . . . . . .     (0.31)           0.48       (0.49)       (0.86)       --                 --
      Subordinated . . . . . . . . . . . . . . .     (0.31)           0.48       (0.49)       (2.30)     (3.04)               --

   BALANCE SHEET DATA (AT
      PERIOD END, IN MILLIONS):
   Working capital . . . . . . . . . . . . . . .      2.0             2.4         1.4         1.8       21.5                 0.5
   Total assets (3) . . . . . . . . . . . . . . .   300.9           327.7       350.7        385.2      310.2               27.8
   Long-term debt (8) . . . . . . . . . . . . . .   225.0           225.0       225.0        225.0      305.0                --
   Equity (deficit) (9) . . . . . . . . . . . . .    67.1            97.2       116.9        145.6       (2.9)              27.8

   OPERATING DATA (UNAUDITED):
   Log, stumpage and timber deed sales
      volumes (MMBF) (2)(3) . . . . . . . . . . .   243.7           187.3       144.5        138.9       30.2               32.8
   Property sales volumes (MMBF) (2) . . . .          13.6              --       26.6         41.5        --                 --

</TABLE>



                                       16
<PAGE>


(1)      Due to the  Weyerhaeuser  Acquisition on August 30, 1996, the financial
         and  operating  data  after  August  30,  1996  are not  comparable  to
         financial and operating data of the Predecessor.  In 1996, USTK and Old
         Services  were formed and  subsequently  entered into the  agreement to
         consummate the Weyerhaeuser  Acquisition.  As legal entities,  USTK and
         Old Services were not  consolidated.  However,  due to common ownership
         and management, the financial statements of USTK and Old Services prior
         to the Transactions have been presented on a combined basis.
(2)      Revenues in 2000  consist of $72.3  million of log,  stumpage  and deed
         sales,  $2.8 million of timber and  property  sales and $0.5 million of
         by-products and other sales.  Revenues in 1999 consist of $76.6 million
         of log,  stumpage  and deed 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."
(3)      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.
(4)      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."
(5)      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  extingjuishment 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.
(6)      No per unit  information  is presented for period ended August 29, 1996
         as the Predecessor had a different ownership structure and any per unit
         information  would not be  relevant  or  meaningful  to the user of the
         selected financial data. See discussion of per unit information in Note
         1 of the Notes to Consolidated Financial Statements.
(7)      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."
(8)      See discussion of long-term debt at Note 7 of the Notes to Consolidated
         Financial Statements.
(9)      The  Weyerhaeuser  Acquisition in August of 1996 was accounted for as a
         purchase. Therefore, the financial statements as of and for the periods
         ending prior to the date of the Weyerhaeuser  Acquisition are accounted
         for under the pre-Weyerhaeuser Acquisition basis of accounting. Because
         the Klamath  Timberlands did not legally exist as a stand-alone entity,
         there are no separate  meaningful  equity  accounts of the  Predecessor
         prior to the Weyerhaeuser Acquisition.


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.



                                       17
<PAGE>

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.


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. The
low supply of timber from public  lands,  which is expected to continue  for the
foreseeable  future,  has benefited  private  timber holders such as the Company
through higher stumpage and log prices.  Certain market  conditions for finished
products, however, have negatively impacted stumpage and log prices in 2000.

         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 restrict prices from significant increases.  While raw material supply
is  expected  to be an  ongoing  challenge  for the  lumber  and  wood  products
industry,  such  conditions  would likely be favorable for timber owners such as
the Company.

         In response to an increase in 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 2000 were down  significantly  from
1999 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.  A
large portion of the Company's property consists of Pine species, which are used
in the finishing  market,  for molding trim,  doors and windows.  This market is
more affected by repair and remodeling than new housing construction. Prices for
these 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 current 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 could have 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  expires on March 31, 2001,  has not had a
material  impact on the price or demand for logs in the United  States  although
its long-term effect, as well as the effect of its termination, is uncertain.



                                       18
<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 fluctuate with market conditions.

Current Market Conditions

        Log prices in the Northwest drastically declined during 2000 as compared
to 1999 due to the slowing United States economy and supply and demand factors.

        During 2000,  the United States economy began  experiencing  an economic
slow-down.  Mortgage interest rates were climbing to levels significantly higher
than those  experienced  over the past few years and as such  created  weakening
conditions for new home construction, home repair and remodeling, and industrial
and other  construction,  which  weakened  the  demand for  finished  lumber and
plywood  products.  As a result of the  decreased  demand and excess  production
capacity  within the  industry  the  markets  for  finished  lumber and  plywood
products  dropped to their lowest  levels in the last ten years.  As a result of
the weakening in the finished  products  markets,  the prices being realized for
the Company's logs and timber declined  significantly  from 1999 levels.  Prices
for the Company's logs and stumpage are also at or near ten year lows.

        Prices for the fourth  quarter of 2000 remained weak  continuing a trend
started near the end of the second quarter.  For the fourth quarter of 2000, the
Company's  average  delivered  log  prices  for  Ponderosa  Pine,  Douglas  Fir,
Lodgepole  Pine,  and White Fir were down  approximately  16%, 8%, 17%, and 10%,
respectively, from the same period in 1999.

        The excess  production  levels of 2000 are expected to continue into the
first half of 2001, reducing the chances of a near-term recovery of wood product
prices.  In addition,  the impact of the  expiration  of the  agreement  between
Canada and United States  limiting the Canadians  lumber imports into the United
States  through March 31, 2001 is yet to be determined and could add to the over
supply of  finished  wood  products.  As a result of the above  conditions,  the
Company does not expect a significant increase in prices during 2001.


                                       19
<PAGE>

Results of Operations

         The following  table sets forth sales volume for each of 2000, 1999 and
1998 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)
        ------                   ----         --------        -----          ----         --------        -----         ------------
<S>                           <C>               <C>         <C>             <C>            <C>           <C>               <C>

         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                  --

         1998
    Year ended 12/31           93,557         50,894              --         $ 420          $ 479            --             $ 6,275
    4th Quarter                24,299         23,787              --         $ 396          $ 441            --                  --
    3rd Quarter                29,017         22,617              --         $ 431          $ 511            --                  --
    2nd Quarter                23,832          2,506              --         $ 432          $ 570            --             $ 6,275
    1st Quarter                16,409          1,984              --         $ 418          $ 447            --                  --

</TABLE>




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

         Revenues.  Revenues decreased $1.4 million, or 1.8%, 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  dollar  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 9.9% decrease, reflecting weaker markets for the Company's log sales.


                                       20

<PAGE>

         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 $246 compared
to an average  timber deed sales price of $379 in 1999,  a 35.1%  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 was 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  planned  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 47.6% in 1999
to 32.1% 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.

         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 13.3%  over 1999  primarily  because  of  a $10.4
million  decrease  in net  income,  which was more than offset by the addback 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.


                                       21

<PAGE>

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

         Revenues.  Revenues increased $5.7 million, or 8.0%, from $71.3 million
in 1998 to $77.0 million in 1999. The increase is primarily  attributable  to an
increase in timber deed sales of $32.8  million and a $3.0  million  increase in
log sales,  partially  offset by a $22.8 million  reduction in stumpage sales, a
$1.0 million  decrease in  by-products  and other revenues and the fact that the
Company had no land sales in 1999 compared to approximately $6.3 million in land
sales in 1998. To meet its working capital  requirements,  the Company harvested
and sold logs and  stumpage  in 1999 at rates in excess of both 1998  levels and
the estimated current annual board footage growth on the Timberlands.
         Timber deed sales for 1999 were $32.8 million on volumes of 86,463 MBF,
compared to no timber deed revenue for 1998.

         Log  sales  for 1999 were  $42.3  million  on  volumes  of 97,170  MBF,
compared  to log sales of $39.3  million on  volumes of 93,557 MBF in 1998.  The
average  log sales  price per MBF for 1999 was $436  compared  to an average log
sales  price  per MBF of $420 for 1998,  a 3.8%  increase,  reflecting  stronger
markets, primarily for White Fir and Douglas Fir logs.

         Stumpage  sales for 1999 were $1.5  million  on  volumes  of 3,645 MBF,
compared with stumpage  sales of $24.4 million on volumes of 50,894 MBF in 1998.
The  average  stumpage  sales  price  per MBF for 1999 was $419  compared  to an
average  stumpage sales price per MBF of $479 for 1998, a 12.5%  reduction.  The
decrease in average stumpage sales prices from 1998 to 1999 was primarily due to
a reduction in the grade of timber  harvested from the Ochoco  Timberlands.  The
overall reduction in stumpage sales volume is due to the increased use of timber
deed sales in 1999.

         The Company had no revenue from timber and  property  sales during 1999
as compared to  approximately  $6.3 million in planned timber and property sales
during 1998.

         Gross Profit. Gross profit increased by $9.8 million from $26.8 million
in 1998 to $36.6 million in 1999 and gross margin  increased  from 37.6% in 1998
to 47.6% in 1999. The increase in gross margin was primarily from three factors.
First,  the Company's  normal annual review of its standing timber inventory and
depletion  rate during the first  quarter of 1999 resulted in a reduction of the
Company's  depletion rate, and a savings of approximately  $4.9 million in 1999.
Also, the Company did not have any land sales during 1999,  which have typically
resulted in lower margins than log,  stumpage and deed sales. In addition to the
above items, the Company benefited from an overall increase in log prices during
1999.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  expenses decreased by $2.0 million from $10.5 million in 1998 to
$8.5 million in 1999.  This expense also  decreased as a percentage of net sales
from 14.7% in 1998 to 11.0% in 1999. The decrease was primarily  attributable to
one-time  expenses of $1.7 million related to severance costs and the repurchase
of member  interests in the General  Partner that were incurred during the first
and fourth quarters of 1998, combined with the provision in 1998 for the closure
of the Seattle office.

         Interest  Expense.  Interest  expense  for 1999 was  $21.9  million  as
compared  to  $22.2  million  for  1998,  representing  a $0.3  million  or 1.4%
reduction. Interest expense for both 1999 and 1998 was incurred primarily on the
$225.0  million of Notes issued in the November 1997 Public Note  Offering.  The
slight decrease in interest expense in 1999 can be attributed to a reduced level
of borrowing  against the available  revolving credit  facilities during 1999 as
compared to 1998.

         Interest Income. Interest income for 1999 was $0.6 million, an increase
of $0.1  million or 20.0% from  interest  income for 1998 of $0.5  million.  The
increase is primarily  attributable  to imputed  interest from deed sales with a
term of more  than one  year.  Imputed  interest  income  from  deed  sales  was
approximately  $0.3 million in 1999.  The increase in interest  from timber deed
sales was  partially  offset by a reduction  in other  interest  income due to a
decrease in cash and cash equivalents available in 1999 compared to 1998.


                                       22
<PAGE>

         Other Income  (Expense),  net. Other income,  net, was $1.1 million for
1999 compared to other expense,  net, of $0.3 million for 1998,  representing an
increase to income of $1.4 million. The increase is primarily  attributable to a
mark-to-market  gain on an interest  rate collar of  approximately  $1.0 million
during 1999. In addition,  revenues from land use management  operations such as
grazing permits increased in 1999.

         Cash Flow  From  Operations.  During  1999,  cash flow from  operations
increased $7.0 million or 37.8% primarily as a result of increased gross margins
and  a  reduction  of  selling,  general  and  administrative  expenses,  offset
partially by decreased  proceeds  from timber and  property  sales,  increase in
balance of notes receivable and a decrease in accrued liabilities.

Partners' Capital

         During 1999 the  limited  partners'  interest  in the Company  declined
$19.5 million from $115.7 million to $96.2 million.  This decline was the result
of distributions to Unitholders of $25.7 million during 1999 partially offset by
the limited partners' share of the Company's net income of $6.2 million in 1999.
The General Partner interest in the Company also declined during 1999 reflecting
its share of the Company's distributions and net income for 1999.


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,
2000 the Company  had a cash  balance of $3.2  million  and had $2.0  million of
working capital.

         Operating  Activities.  Cash flows provided by operating  activities in
2000 were $28.9 million, compared to cash flows provided by operating activities
of $25.5 million in 1999.  The $3.4 million  increase in cash flows  provided by
operating  activities was primarily  attributable to a $10.4 million decrease in
net income which was more than offset by the addback of non-cash operating items
and the changes in assets and liabilities.

         Investing Activities. Cash flows used in investing activities were $2.3
million in 2000, as compared to cash flows used in investing  activities of $1.3
million  during 1999.  The increase is primarily  attributable  to a purchase of
cutting rights in June 2000 for approximately $1.3 million,  partially offset by
the Company's $0.3 million investment in affiliate in 1999.

         Financing  Activities.  Cash flows used in  financing  activities  were
$26.2  million in 1999 and 2000.  During 1999 and 2000,  the Company  paid $26.2
million in distributions to Unitholders, General Partner and minority interest.



                                       23
<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 will 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 Company was in compliance  with these covenants at
December 31, 2000 and 1999.

Affiliate Credit Facility

         During the second  quarter of 2000,  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  under  certain  terms  and  covenants.   The  covenants  include
restrictions on the Company's ability to make cash distributions,  incur certain
additional  indebtedness  or incur certain  liens.  In addition,  the Company is
required to maintain  certain  financial  ratios.  The Affiliate Credit Facility
will expire on June 30, 2001.  At that time,  amounts  borrowed  will be due and
payable. As of December 31, 2000 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  2001.  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.


                                       24
<PAGE>

Capital Expenditures/Cash Distributions

         Capital   expenditures  in  2000  totaled  $2.3  million.  The  Company
purchased  timber cutting rights for  approximately  4.2 MMBF of timber for $1.3
million. The remaining $1.0 million in capital expenditures incurred were mainly
in the nature of land  management/silvicultural  costs,  miscellaneous equipment
and computer  hardware.  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/silvicultural
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 $1.5 million in 2001. Capital  expenditures will consist primarily
of capitalized silvicultural costs and miscellaneous equipment purchases.

         Cash required to meet the Company's debt service and the quarterly cash
distributions 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 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's ability in the future to make  distributions at current levels will be
adversely  affected.  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 2000, the Company announced that an independent committee of
the board of directors had been formed to evaluate management  proposals to take
the Company  private.  The  independent  committee has retained  separate  legal
counsel and intends to retain financial  advisors to assist in this process.  To
date, a proposal from management has not been received.

New Accounting Standard - SFAS No. 133

        In June  of  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, 2000, it will absorb a
loss of approximately  $74 from its allocable share of the cumulative  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.



                                       25
<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.


                                    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.




                                       26
<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                            57           Chairman, Chief Executive Officer, President and Director (1)

    Aubrey L. Cole                           77           Director (2)

    George R. Hornig                         46           Director (3)

    William A. Wyman                         62           Director (4)

    Alan B. Abramson                         55           Director (5)

    Robert F. Wright                         75           Director (6)

    Thomas C. Ludlow                         54           Vice President and Chief Financial Officer

    Martin Lugus                             60           Vice President, Timberland Operations

    Toby A. Luther                           27           Assistant Vice President, Corporate Controller - Western Operations

    Walter L. Barnes                         58           Assistant Vice President, Harvesting

    Robert A. Broadhead                      49           Assistant Vice President, Marketing

    Jay Jeffrey Vermilya                     44           Assistant Vice President, Planning

    Christopher J. Sokol                     51           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 and
         LTIP Committees.

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

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

         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).  Mr. Cole is a Director of Deotexas
Inc. (a development stage company).

                                       27
<PAGE>

         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,  where,  until 1984 when he  retired,  he  counseled a variety of
service,  natural resources and manufacturing  companies on projects  concerning
strategic profit improvement and management  organization.  Mr. Wyman has served
as a  director  of  Donaldson,  Lufkin  &  Jenrette,  SS&C  Technologies,  Prime
Response, Predictive Systems, Internosis, and Pega Systems.

         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:  Hanover  Direct Inc. (a catalog  marketer),  Reliance  Standard Life
Insurance Co. and affiliates  (life insurance  companies),  The Navigators Group
Inc.  (a  property  insurance  company),  Deotexas  Inc.  (a  development  stage
company),  Universal American Financial Corp. (an insurance company),  Quadlogic
Controls Corp. (a meter manufacturer) 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. Mr. Ludlow holds an HBA in Business from the University of Western
Ontario and an MBA from the Anderson School at the University of California, Los
Angeles.

         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.

         Toby A. Luther serves as the Corporate  Controller - Western Operations
of the General  Partner,  responsible  for all  accounting  functions.  Prior to
joining  the  General  Partner  in  1999,  Mr.  Luther  was an  accountant  with
PricewaterhouseCoopers.



                                       28
<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 1993-1996,  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.

           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  securityholders  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 2000,  all filings  required were
properly made.


                                       29
<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, 2000:



               SUMMARY COMPENSATION TABLE
               --------------------------

<TABLE>
<CAPTION>

                                                                                            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                            2000          $ 463,500      $ 256,750                --                    --
      Chairman and                           1999            450,000        225,000            50,000                    --
      Chief Executive Officer                1998            300,000        150,000                --                    --

    Thomas C. Ludlow                         2000             80,208         75,000            50,000                    --
      Vice President and                     1999                 --             --                --                    --
      Chief Financial Officer                1998                 --             --                --                    --

    Martin Lugus                             2000            123,600         30,900                --                    --
      Vice President - Timberland            1999            120,000         35,000                --                    --
                                             1998            101,521         24,625                --                    --

    Walter L. Barnes                         2000             97,850         24,463                --                    --
      Assistant Vice President               1999             95,000         23,750                --                    --
      - Harvesting                           1998             80,000         20,150                --                    --

    Robert A. Broadhead                      2000             92,700         23,175                --                    --
      Assistant Vice President               1999             90,000         22,500                --                    --
      - Marketing                            1998             77,150         19,275                --                    --

    Greg G. Byrne (1)                        2000            110,833         41,833                --                    --
      Vice President and                     1999            150,000         90,000            50,000                    --
      Chief Financial Officer                1998                 --             --                --                    --

</TABLE>


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

(1)      In August of 2000 Mr. Byrne resigned as the CFO of U.S. Timberlands.


                                       30
<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.


                                       31
<PAGE>

         The  following  table sets forth  certain  information  with respect to
option grants to the named executive officers during fiscal 2000:



                 OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>


                                                                                                        Potential Realizable Value
                     Number of               % of Total                                                   at Assumed Annual Rates
                     Securities             Options/SARs                                                   of Unit Appreciation
                     Underlying               Granted              Exercise or                             for Option Term (2)
                                                                                                           --------------------
                    Options/SARs            to Employees           Base Price       Expiration
         Name         Granted            During Fiscal Year       ($/Unit) (1)         Date               5%                  10%
         ----         -------            ------------------       -------------        ----               --                  ---

<S>                    <C>                     <C>                   <C>             <C>               <C>                 <C>
Thomas C. Ludlow       50,000                  92.6%                 $9.813          07/03/10          $308,567            $781,970
</TABLE>



(1)      The Unit Options become exercisable automatically upon, and in the same
         proportion  as,  the  conversion  of the  Subordinated  Units to Common
         Units,  which date shall be no earlier  than the date of record for the
         distribution for the quarter ended December 31, 2000.

(2)      A ten-year period (the maximum length of the Unit Option term) was used
         for compounding purposes in the above calculations.



                                       32
<PAGE>

         The following table sets forth certain  information with respect to the
aggregate number and value of options at the fiscal year-end 2000:



             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
                            Shares                                 December 31, 2000                     December 31, 2000
                                                                   -----------------                     -----------------
                           Acquired
            Name         on Exercise      Value Realized    Exercisable       Unexercisable       Exercisable        Unexercisable
            ----         -----------      --------------    -----------       -------------       -----------        -------------

<S>                          <C>               <C>             <C>                      <C>             <C>                    <C>
   John M. Rudey              --                $--              --                     157,218        $--                N/A (1)

   Thomas C. Ludlow           --                $--              --                      50,000        $--                N/A (1)

   Martin Lugus               --                $--              --                      64,331        $--                N/A (1)

   Walter L. Barnes           --                $--              --                      34,310        $--                N/A (1)

   Robert A. Broadhead        --                $--              --                      34,310        $--                N/A (1)

   Greg G. Byrne (2)          --                $--              --                 --                 $--                N/A

</TABLE>



(1)      At the close of trading on December 31,  2000,  the market value of the
         Common Units was $6.69 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.

(2)      In August of 2000 Mr. Byrne resigned as the CFO of U.S. Timberlands.

         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.


                                       33
<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  $129,000,  $117,000 and $144,000 to the
Directors of the General  Partner for consulting  services during 2000, 1999 and
1998, 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.

         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.





                                       34
<PAGE>

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.



                                       35
<PAGE>

Performance Table

         The table below  compares  the total  return of the Common Units of the
Company (TIMBZ) from November 1997 through  December 2000 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.


                                                           Wilshire
                                TIMBZ          5000          Timber
               Nov-97         100.0000       100.0000       100.0000
               Dec-97         100.0000       101.7041       94.8159
               Jan-98         102.1084       102.1701       103.0243
               Feb-98         101.5060       109.4505       105.7192
               Mar-98         102.4096       114.7915       106.6448
               Apr-98         102.4097       116.0483       110.3326
               May-98         99.9036        112.8172       103.2802
               Jun-98         94.5962        116.6389       102.2380
               Jul-98         93.6596        113.9777       93.3714
               Aug-98         78.2635        96.0984        83.0277
               Sep-98         89.8106        102.2357       91.1198
               Oct-98         93.6596        109.7327       95.9279
               Nov-98         78.4894        116.4924       96.2521
               Dec-98         70.5745        123.7924       93.2970
               Jan-99         76.5107        128.2464       94.4403
               Feb-99         71.7288        123.4479       93.9282
               Mar-99         65.5806        128.0594       98.6391
               Apr-99         74.4613        134.0939       109.4980
               May-99         72.3338        131.0268       110.3067
               Jun-99         79.4254        137.5426       116.7776
               Jul-99         89.3536        133.1827       112.8808
               Aug-99         75.1705        131.8384       106.2163
               Sep-99         63.3790        128.1250       109.7610
               Oct-99         72.9596        136.1732       105.1903
               Nov-99         65.2796        140.5742       99.5787
               Dec-99         60.6716        151.0840       102.8186


                                       36
<PAGE>


               Jan-00         68.3516        144.7171       97.2321
               Feb-00         65.2796        147.7839       91.7633
               Mar-00         64.0707        156.3723       104.4350
               Apr-00         67.6974        148.1197       103.8459
               May-00         67.2743        142.7739       101.9652
               Jun-00         66.0049        148.9598       94.4175
               Jul-00         67.6974        145.8096       99.8345
               Aug-00         69.3898        156.1974       97.8788
               Sep-00         70.2360        148.9049       89.2642
               Oct-00         39.7722        145.6366       98.6537
               Nov-00         49.9465        130.9967       93.0633
               Dec-00         49.4840        133.1803       88.0087
               Jan-01         58.9646        138.1624       86.1871
               Feb-01         61.1850        124.9703       83.3621




                                       37
<PAGE>


Item 12.  Security Ownership of Certain Beneficial Owners and Management

         The following  table sets forth the beneficial  ownership of Units held
by  beneficial  owners of five percent or more of the Units,  by  directors  and
executive  officers of the General  Partner and by all  directors  and executive
officers of the General Partner as a group as of February 28, 2001.

<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>
    Rudey Timber Company, LLC (1)               1,030,089          10.7%          2,170,618          67.6%              24.9%

    U.S. Timberlands Management
    Company, LLC (2)                             311,141            3.2%           933,424           29.1%               9.7%

    U.S. Timberlands Holdings, LLC (3)           723,539            7.5%          2,170,618          67.6%              22.5%

    John M. Rudey (4)                           1,817,645          18.8%          3,104,042          96.7%              38.2%

    Thomas C. Ludlow (5)                         12,500               *               --               --                  *

    George R. Hornig (6)                         240,345            2.5%            36,120            1.1%               2.1%

    Robert F. Wright (7)                         189,000            2.0%              --               --                1.5%

    Aubrey L. Cole (8)                           189,000            2.0%              --               --                1.5%

    Alan B. Abramson (9)                         12,500               *               --               --                  *

    William A. Wyman (10)                        12,500               *               --               --                  *

    All Directors and Executive Officers
         as a Group (7 persons)                 1,906,490          19.5%          3,140,162          97.8%              38.9%

</TABLE>


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

*- Less than 1% of class.

     (1)  Current address is 625 Madison Avenue, Suite 10-B, New York, NY 10022.
          Includes all  2,894,157 of the  Subordinated  Units owned by Holdings.
          Rudey Timber Company, LLC has a 99% member interest in Holdings.

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

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

     (4)  Current address is 625 Madison Avenue, Suite 10-B, New York, NY 10022.
          Includes  1,244,565  Subordinated  Units  beneficially  owned  by  Old
          Services  and  2,894,157  Subordinated  Units  beneficially  owned  by
          Holdings.  Mr. Rudey is attributed  100%  beneficial  ownership of all
          Subordinated  Units owned by Old  Services  and  Holdings  through his
          interests  therein  and in  Rudey  Timber  Company,  LLC  Includes  an
          aggregate of 541,450 Common Units owned by Rudey Timber Company,  John
          Rudey's minor children,  Garrin Properties Group and U.S.  Timberlands
          Service Company,  LLC,  respectively.  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 February 28, 2001.

     (5)  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 February 28, 2001.

     (6)  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 February 28,
          2001.

     (7)  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.

     (8)  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.

     (9)  Current address is 501 Fifth Avenue, New York, NY 10017.  Common Units
          beneficially   owned  are   Common   Unit   equivalents   representing
          exercisable unit options at February 28, 2001.

     (10) Current  address is 4 North Balch Street,  Hanover,  NH 03755.  Common
          Units  beneficially  owned are Common  Unit  equivalents  representing
          exercisable  unit options at February 28, 2001.

         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."



                                       38
<PAGE>

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.

Related Party Transactions

         Glenn A. Zane,  a  principal  of Mason,  Bruce & Girard,  served as the
Acting Senior Vice  President and Acting  Director of Operations for the Company
during  1999.  In January  2000,  Mr. Zane  resigned  as the Acting  Senior Vice
President  and Acting  Director of Operations  for the Company.  The Company has
continued to utilize Mr. Zane and Mason, Bruce & Girard for consulting services.
The Company paid approximately  $821,000 and $925,000 to Mason, Bruce and Girard
during 2000 and 1999,  respectively.  Such payments were for consulting services
and include Mr. Zane's  compensation  as Acting Senior Vice President and Acting
Director of Operations during 1999.

Investment in Affiliate

         In October 1999,  the Company made an  investment  in U.S.  Timberlands
Yakima,  LLC (USTY),  an unconsolidated  affiliate.  USTY, a 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 $294,000 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.  The
Preferred LLC Interests are  redeemable at the Company's  option on December 31,
2004 or at USTY's option at any time prior thereto, 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. The General Partner of the Company provides  management  services
to USTY  for a fee  equal  to 2% of  USTY's  earnings  before  interest,  taxes,
depreciation and  amortization.  The Company granted U.S.  Timberlands  Holdings
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 $2.7 million 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.



                                       39
<PAGE>

Repurchase of Certain Member Interests; Severance Payments

         On January 5, 1998, the General  Partner made certain changes in senior
management.  In connection therewith,  Edward J. Kobacker,  the former Executive
Vice President and Chief Operating  Officer and a former Director of the General
Partner, became entitled to receive approximately $700,000 in severance payments
pursuant to his employment agreement. In addition,  pursuant to the terms of the
General  Partner's  operating  agreement,  the member  interests  of each of Mr.
Stephens,  Mr.  Kobacker  and John H. Beuter,  a former  Director of the General
Partner, were subject to repurchase at an aggregate price of $385,000 payable in
three  annual  installments   commencing  February  1,  1998.  The  Company  has
reimbursed the General Partner for such repurchase payments.

         During January 1999,  the Company paid $260,000,  $175,000 and $145,000
to Messrs.  Symington,  Michie and McDowell,  respectively,  as severance  under
their employment agreements with the Company. In July 1999, under the terms of a
settlement the Company reached with Messrs. Symington, Michie, and McDowell, the
Company  committed to pay an  additional  sum of $675,000 to Messrs.  Symington,
Michie, and McDowell.

Affiliate Credit Facility

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



                                       40
<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

<TABLE>
<CAPTION>

                  <S>        <C>
                  +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, LP
                          and 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 13, 2001.
</TABLE>

(b)  Reports on Form 8-K

               No  reports  on Form 8-K were  filed  during  the  quarter  ended
December 31, 2000.



*    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.


                                       41
<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 16th day of
April 2001.
                       U.S. TIMBERLANDS COMPANY, LP

                       By:    U.S. Timberlands Services Company, LLC
                              Its 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>

                                                                                                     April 16, 2001
/s/  John M. Rudey                                  Chairman, Chief Executive Officer,
--------------------------------------
                  John M. Rudey                     President and Director (Principal Executive
                                                    Officer)
                                                                                                     April 16, 2001
/s/ Thomas C. Ludlow                                Chief Financial Officer
--------------------------------------------
                  Thomas C. Ludlow
                                                                                                     April 16, 2001
/s/ Toby A. Luther                                  Corporate Controller -
--------------------------------------------           Western Operations
                  Toby A. Luther                       (Principal Accounting Officer)

                                                                                                     April 16, 2001
/s/ Aubrey L. Cole                                  Director
--------------------------------------------
                  Aubrey L. Cole
                                                                                                     April 16, 2001
/s George R. Hornig                                 Director
--------------------------------------------
                  George R. Hornig
                                                                                                     April 16, 2001
/s/  Alan B. Abramson                               Director
--------------------------------------------
                  Alan B. Abramson
                                                                                                     April 16, 2001
/s/  William A. Wyman                               Director
--------------------------------------------
                  William A. Wyman
                                                                                                     April 16, 2001
/s/  Robert F. Wright                               Director
--------------------------------------------
                  Robert F. Wright
</TABLE>


                                       42
<PAGE>





EXHIBIT INDEX


        23.1  Consent of Richard A. Eisner & Company, LLP dated April 13, 2001.





                                       43
<PAGE>




CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

Contents                                                                                                       Page

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

Consolidated balance sheets as of December 31, 2000 and 1999                                                    F-3

Consolidated statements of operations for the years ended December 31, 2000, 1999, and 1998                     F-4

Consolidated statements of changes in partners' capital for the years ended December 31, 2000,
1999 and 1998                                                                                                   F-5

Consolidated statements of cash flows for the years ended December 31, 2000, 1999 and 1998                      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, 2000 and 1999, 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, 2000.
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  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the 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, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with generally accepted accounting
principles.



Richard A. Eisner & Company, LLP

New York, New York
January 24, 2001, except as to Note 15, as
        to which the date is February 26, 2001


                                                                             F-2



<PAGE>


U.S. TIMBERLANDS COMPANY, LP AND SUBSIDIARIES



     Consolidated Balance Sheets
     (in thousands, except unit information)
<TABLE>
<CAPTION>

                                                                                                   December 31,
                                                                                                       2000                    1999
                                                                                                   ---------               ---------
<S>                                                                                                <C>                     <C>
     ASSETS
     Current assets:
           Cash and cash equivalents                                                               $   3,168               $   2,798
           Accounts receivable, net                                                                    4,430                     672
           Other receivables                                                                             160                     124
           Notes receivable                                                                            2,285                   2,344
           Prepaid expenses and other current assets                                                      35                     981
                                                                                                   ---------               ---------
                     Total current assets                                                             10,078                   6,919


     Timber and timberlands, net                                                                     264,673                 293,828
     Investment in affiliate                                                                          20,542                  18,243
     Property, plant and equipment, net                                                                  926                   1,038
     Notes receivable, less current portion                                                                -                   2,304
     Deferred financing fees, net                                                                      4,648                   5,323
                                                                                                   ---------               ---------
                     Total assets                                                                  $ 300,867               $ 327,655
                                                                                                   =========               =========


     LIABILITIES AND PARTNERS' CAPITAL
     Current liabilities:
           Accounts payable                                                                        $   1,222               $     346
           Accrued liabilities                                                                         3,326                   3,286
           Deferred revenue                                                                            1,474                      39
           Payable to general partner and affiliate                                                    2,065                     840
                                                                                                   ---------               ---------
                    Total current liabilities                                                          8,087                   4,511
                                                                                                   ---------               ---------
     Long-term debt                                                                                  225,000                 225,000
                                                                                                   ---------               ---------
     Commitments and contingencies (Note 14)

     Minority interest                                                                                   678                     981
                                                                                                   ---------               ---------
     Partners' capital:
           General partner interest                                                                      678                     981
           Limited partner interest (12,859,607 units issued and outstanding as of
               December 31, 2000 and 1999)                                                            66,424                  96,182
                                                                                                   ---------               ---------
                                                                                                      67,102                  97,163
                                                                                                   ---------               ---------

                     Total liabilities and partners' capital                                       $ 300,867               $ 327,655
                                                                                                   =========               =========
</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 31,
                                                                             2000              1999                    1998
                                                                           --------          --------                --------
<S>                                                                        <C>               <C>                     <C>
    Revenues:
          Log and stumpage sales                                           $ 72,268          $ 76,594                $ 63,636
          Timber and property sales                                           2,773                 -                   6,275
          By-products and other                                                 571               400                   1,413
                                                                           --------          --------                --------
                                                                             75,612            76,994                  71,324
                                                                           --------          --------                --------

    Cost of products sold:
          Cost of timber harvested                                          (19,853)          (17,056)                (16,683)
          Cost of timber and property sales                                  (2,641)                -                  (5,917)
          Depletion, depreciation and road amortization                     (28,816)          (23,318)                (21,938)
                                                                           --------          --------                --------
                                                                            (51,310)          (40,374)                (44,538)
                                                                           --------          --------                --------
                Gross profit                                                 24,302            36,620                  26,786


    Selling, general and administrative expenses                             (8,428)           (8,477)                (10,462)
    Equity in net income (loss) of affiliate                                  1,990              (901)                      -
                                                                           --------          --------                --------
    Operating income                                                         17,864            27,242                  16,324

    Interest expense                                                        (21,921)          (21,937)                (22,183)
    Amortization of deferred financing fees                                    (675)             (675)                   (675)
    Interest income                                                             403               565                     460
    Other income (expense), net                                                 208             1,162                    (309)
                                                                           --------          --------                --------
    Income (loss) before general partner and minority interest               (4,121)            6,357                  (6,383)
    Minority interest                                                            41               (64)                     64
                                                                           --------          --------                --------
    Net income (loss)                                                        (4,080)            6,293                  (6,319)
    General partner interest                                                     41               (64)                     64
                                                                           --------          --------                --------
    Net income (loss) applicable to common and
          subordinated units                                               $ (4,039)          $ 6,229                $ (6,255)
                                                                           ========           =======                ========


    Net income (loss) per each common and subordinated
           unit - Basic and Diluted                                          ($0.31)           $0.48                   ($0.49)
                                                                             =======           ======                  =======

    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)

<TABLE>
<CAPTION>


                                                                General Partner Limited Partner        Total
                                                                      Interest        Interest  Partners' Capital

<S>                                                                  <C>           <C>                <C>
     Balance, January 1, 1998                                         $ 1,471       $ 144,175          $ 145,646
     Distributions to unitholders ($1.73 per unit)                       (227)        (22,249)           (22,476)
     Net loss                                                             (64)         (6,255)            (6,319)
                                                                     ---------    ------------       ------------

     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
                                                                     =========    ============       ============

</TABLE>




See notes to consolidated financial statements.                             F-5
<PAGE>


U.S. TIMBERLANDS COMPANY, LP AND SUBSIDIARIES
Notes to Consolidated  Financial  Statements  December 31, 2000 and 1999 (dollar
amounts in thousands, except per unit amounts)

<TABLE>
<CAPTION>

    Consolidated Statements of Cash Flows
    (in thousands)
                                                                                         Year Ended December 31,
                                                                                  2000                 1999                  1998
                                                                               --------              --------             --------
<S>                                                                            <C>                    <C>                 <C>
    Cash flows from operating activities:
        Net income (loss)                                                      $ (4,080)              $ 6,293             $ (6,319)
        Adjustments to reconcile net income (loss) to net cash
            provided by operating activities:
                Depreciation, depletion, amortization and cost of
                     timber and property sold                                    31,457                23,318               27,855
                (Gain) loss on disposal of assets                                   (39)                   66                    -
                Amortization of deferred financing fees                             675                   675                  675
                Equity in net (income) loss of affiliate                         (1,990)                  901                    -
                Other non-cash items                                                127                     -                  361
                Minority interest                                                   (41)                   64                  (64)
                Changes in assets and liabilities:
                     Accounts receivable                                         (3,758)                  855                  999
                     Other receivables                                              (36)                  989                 (939)
                     Notes receivable                                             2,363                (3,469)               1,065
                     Prepaid expenses and other current assets                      946                  (555)                 108
                     Accounts payable                                               876                  (387)                (671)
                     Accrued liabilities                                             40                (1,119)                (653)
                     Deferred revenue                                             1,435                (1,575)              (4,130)
                     Payable to general partner and affiliate                       896                  (553)                 257
                                                                               --------              --------             --------
                         Net cash provided by operating activities               28,871                25,503               18,544
                                                                               --------              --------             --------
    Cash flows from investing activities:
        Purchase of property, plant and equipment                                   (55)                  (44)                 (32)
        Proceeds from sale of assets                                                 50                     8                    -
        Timber and road additions                                                (2,253)                 (955)                (610)
        Investment in affiliate                                                       -                  (294)                   -
                                                                               --------              --------             --------
                         Net cash used in investing activities                   (2,258)               (1,285)                (642)
                                                                               --------              --------             --------
    Cash flows from financing activities:
        Distributions to partners                                               (25,981)              (25,981)             (22,476)
        Distributions to minority interest                                         (262)                 (263)                (227)
        Payment to affiliate                                                          -                     -               (1,000)
                                                                               --------              --------             --------
                         Net cash used in financing activities                  (26,243)              (26,244)             (23,703)
                                                                               --------              --------             --------
    Net increase (decrease) in cash and cash equivalents                            370                (2,026)              (5,801)
    Cash and cash equivalents, beginning of period                                2,798                 4,824               10,625
                                                                               --------              --------             --------
    Cash and cash equivalents, end of period                                   $  3,168              $  2,798             $  4,824

    Supplemental cash flow information:
        Cash paid for interest                                                 $ 21,786              $ 21,746             $ 21,418
                                                                               ========              ========             ========


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

</TABLE>


See notes to consolidated financial statements.                             F-6
<PAGE>

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  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 generally  accepted
accounting principles 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 are  recognized  upon  delivery to the customer.
Revenue on timber deeds and timber and property  sales are 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. At December 31,
1999 deferred  revenue  represents  cash  received in advance of logs  harvested
under stumpage contracts.

                                                                             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  customers
accounted for  approximately  22%, 14%, 11%, and 10% of the Company's  aggregate
net  revenues  from log,  stumpage,  and  timber  deed  sales for the year ended
December 31, 2000. In 1999, these customers represented  approximately 17%, 15%,
18%, and 14%,  respectively,  of aggregate net revenues  from log,  stumpage and
deed sales. In 1998, these four customers  accounted for approximately 27%, 18%,
19%, and 10% 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's four largest customers accounted for 27% of the Company's accounts
receivable at December 31, 2000 and none of the Company's accounts receivable at
December 31, 1999. The Company  periodically  reviews its allowance for doubtful
accounts and reserves an estimated amount for such accounts.  As of December 31,
2000 and 1999 the Company had an  allowance  for  doubtful  accounts of $550 and
$200, 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, 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, 2000 and 1999 was $2,102 and $1,427, respectively.

Minority Interest
The General  Partner  holds a 1% minority  interest  ownership in the  Operating
Company (the "Minority  Interest").  A pro rata share of the Operating Company's
results of operations are 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. For the years ended
December 31, 2000,  1999 and 1998 there were 12,859,607  total weighted  average
units outstanding comprised of 8,577,487 common units and 4,282,120 subordinated
units.  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  excercisable  (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>


U.S. TIMBERLANDS COMPANY, LP AND SUBSIDIARIES
Notes to Consolidated  Financial  Statements  December 31, 2000 and 1999 (dollar
amounts in thousands, except per unit amounts)

1.  Business and Significant Accounting Policies (Continued):
New Accounting Standard
In June of 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, 2000, it will absorb a
loss of approximately  $74 from its allocable share of the cumulative  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.

Reclassifications
Certain amounts in prior years have been reclassified for comparability purposes
and have no impact on net income or partners' capital.

2.  Timber and Timberlands:
Timber and Timberlands consisted of the following at December 31:

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


Timber and logging roads                           $317,215   $317,856
Timberlands                                          39,111     39,338
Seed orchard and nursery stock                        1,364      1,277
                                                   --------   --------

                                                    357,690    358,471
Less accumulated depletion and road amortization     93,017     64,643
                                                   --------   --------

                                                   $264,673   $293,828
                                                   ========   ========

                                                                            F-10

<PAGE>



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:

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

Current assets                                          $  3,887   $  9,129
Noncurrent assets, principally timber and timberlands     71,174     74,726
Current liabilities                                       11,195      5,611
Noncurrent liabilities - long-term debt                   42,807     60,000
Redeemable preferred member interest (owned by the
    Operating Company)                                    20,295     18,243
Net sales                                                 25,606        560
Gross profit                                              10,018        342
Net income (loss)                                          2,815     (1,207)


4.  Property, Plant and Equipment:
Property, plant and equipment consisted of the following at December 31:

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

Equipment                                        $  661   $  674
Buildings and improvements                          843      843
                                                 ------   ------

                                                  1,504    1,517
Less accumulated depreciation and amortization      578      479
                                                 ------   ------

                                                 $  926   $1,038
                                                 ======   ======


5.  Accrued Liabilities:
Accrued liabilities consisted of the following at December 31:


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

Interest                    $2,792   $2,729
Severance and harvest tax      217      242
Other                          317      315
                            ------   ------

                            $3,326   $3,286
                            ======   ======




                                                                            F-11
<PAGE>



6.  Short-Term Debt:
In 2000, 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, 2000),  which is based on
the Company's  leverage ratio.  The prime lending rate was 9.50% at December 31,
2000.  The Affiliate  Credit  Facility  expires on June 30, 2001 and all amounts
borrowed  thereunder  shall then be due and payable.  There were no  outstanding
borrowings  under the Affiliate  Credit  Facility at December 31, 2000 and 1999.
Peak  borrowings  were $6,000 and $3,000  under the  Affiliate  Credit  Facility
during  2000  and  1999,  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 $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.  The Affiliate  Credit Facility
also contains financial ratio covenants as to EBITDDA (earnings before interest,
taxes, depreciation,  depletion, and amortization), interest coverage ratio, and
leverage  ratio.  The Company was in compliance with these covenants at December
31, 2000.

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 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.

8.  Partners' Capital:
Partnership Equity
The  partnership  had 8,577,487  Common Units and 4,282,120  Subordinated  Units
outstanding  on  December  31,  2000  and  1999.  In  February  2001,  1,070,530
Subordinated Units converted into common units (See Note 15).

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.

                                                                            F-12

<PAGE>



8.  Partners' Capital (Continued):
Cash Distributions
The Company is required to make  quarterly  cash  distributions  from  Available
Cash, as defined in the MLP Agreement. Generally, 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.

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 2000, 1999 or 1998, 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. Provided that the MQD has been paid to
Common and Subordinated  Unitholders for three consecutive  four-quarter periods
and that such  distributions  are 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, 25% of the Subordinated Units will convert to
Common Units as early as 2001,  25% as early as 2002 and the  remaining  50% may
convert  to  Common  Units  as  early  as 2003.  In  February  2001,  25% of the
Subordinated Units converted to Common Units (See Note 15).

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  noninterest
bearing receivables and payables between the General Partner and the Company are
settled in the ordinary  course of  business.  As of December 31, 2000 and 1999,
the Company had a payable to the General Partner of $955 and $840, respectively.
During 2000, 1999, and 1998 expenses  allocated to and reimbursed by the Company
totaled $7,717, $8,347, and $9,058, respectively.

                                                                            F-13

<PAGE>



9.  Certain Relationships and Related Party Transactions (Continued):
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, 2000,  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 2000, 1999,
and 1998 amounted to $129, $117, and $144, respectively.

Investment in Affiliate
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% of the $22,000
agreed upon value of the  contributed  timberlands.  The Preferred LLC Interests
are redeemable at the Company's  option on December 31, 2004 or at USTY's option
at any time prior thereto, 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 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.

The General Partner of the Company  provides  management  services to USTY for a
fee equal to 2% of USTY's  earnings before  interest,  taxes,  depreciation  and
amortization.  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, the Company  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 accordance with equity method accounting,  the Company's
portion  of the gross  profit  ($436 or 49%)  realized  by USTY from the sale of
these timber  cutting rights has been  eliminated in the Company's  consolidated
financial statements.



                                                                            F-14
<PAGE>


9.  Certain Relationships and Related Party Transactions (Continued):
In December 2000, USTK sold  approximately  8,000 acres of timberland located in
Central Oregon to its affiliate, USTY, for $2,900,000. In accordance with equity
method  accounting,  the  Company's  portion of the gross  profit  ($127 or 49%)
realized by USTK has been  eliminated  in the Company's  condensed  consolidated
financial statements.

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 included $675 related to
settlement with former employees of the Company. In 1998,  selling,  general and
administrative  expenses  included  approximately  $1,280 in severance to former
employees. In addition, pursuant to the terms of the General Partner's operating
agreement,  the member  interests  of three  former  employees  were  subject to
repurchase  at an aggregate  price of $385 payable in three annual  installments
commencing  February 1, 1998. The aggregate  repurchase of the member  interests
was  included in selling,  general and  administrative  expenses in 1998 and the
Company has reimbursed the General Partner for such repurchase payments.

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 $821 and
$925 during 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.  During 1997, in connection  with
the  reorganization  of the Company and concurrent with the initial  offering of
its public  units,  604,153  Unit  Options  were  granted to key  employees  and
directors of the General Partner. An additional 90,622 Unit Options were granted
to key employees  and  directors on December 12, 1997,  in  connection  with the
closing of the sale of 1,118,803  Common  Units  pursuant to the exercise by the
underwriters of their  overallotment  option and, in 1998,  100,000 Unit Options
were granted to directors  and 240,170  options  were granted to  employees.  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.
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,  1999 and 1998, no  compensation
expense was  recorded  during such years,  as the market  price of the units was
less than the exercise price during the years.


                                                                            F-15

<PAGE>



10.  Management Incentive Plans (Continued):


<TABLE>

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

<S>                                                           <C>                    <C>
       Outstanding, December 31, 1997                               694,775                14.75 (a)
       Unit options granted                                         340,170                14.75
       Unit options cancelled                                      (584,628)               14.75
                                                          ------------------


       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
                                                          ==================
</TABLE>



(a)             Options were  originally  granted with exercise  prices  ranging
                from  $21.00  to $21.44  per unit.  During  December  1998,  the
                exercise  price was  reduced  to $14.75 per unit by the Board of
                Directors.


As of December 31, 2000  exercise  prices for options  outstanding  were between
$5.84 and $14.75 with a weighted  average exercise price of $13.75 per unit. The
weighted average  remaining  contractual life of the options was 8 years.  There
were no unit options exercisable at December 31, 2000, 1999 or 1998.


                                                                            F-16
<PAGE>



10.  Management Incentive Plans (Continued):
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, 1999 and 1998:

<TABLE>
<CAPTION>


                                                             2000                 1999                 1998
                                                       ------------------   ------------------   ------------------

<S>                                                          <C>                  <C>                  <C>
       Risk-free rate of return                              5.98%                4.88%                5.50%

       Expected dividend yield                               9.52%                9.52%                9.52%

       Expected life of the Unit Options                    5 Years              5 Years              5 Years

       Expected volatility                                  80.59%               49.65%               25.50%


</TABLE>

The  weighted-average  fair value of unit options was $3.61, $2.87 and $2.02 for
options granted in 2000, 1999 and 1998, respectively.

If the Company had adopted the  expensing  provisions of SFAS 123, the impact on
2000,  1999 and 1998's net  income  (loss) and net income  (loss) per unit would
have been as follows:


<TABLE>
<CAPTION>

                                                                               Year Ended December 31,
                                                                             2000                  1999                  1998
                                                                          -----------        ------------        --------------
<S>                                                                        <C>                  <C>                  <C>
      Net income (loss) as reported                                        $ (4,080)            $ 6,293              $ (6,319)
      Net income (loss) pro forma                                            (4,617)              5,846                (6,565)
      Basic and diluted net income (loss) per unit - as reported              (0.31)               0.48                 (0.49)
      Basic and diluted net income (loss) per unit - pro forma                (0.36)               0.45                 (0.51)
</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 units conversion period (see Note 8).

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, 2000.

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  $180,000 and $207,000 at December 31, 2000 and
         1999, respectively, based on published market quotations.

(c)      Interest rate collar agreement - The Company entered into interest rate
         collar agreements to manage interest rate risk.  Contemplated  variable
         rate borrowings did not occur,  and  accordingly,  these agreements are
         marked to market.  The fair value of these  agreements is the estimated
         amount that the Company  would receive or pay upon  termination  of the
         agreements at the balance sheet date or other  specific  point in time.
         The Company terminated the interest rate collar agreements effective in
         October  1999.  Income or losses on these  agreements  is  reflected in
         other income (expense) in the accompanying  statements of operations in
         the amount of $991 in 1999 and ($361) in 1998.


12.      Quarterly Results (Unaudited):


<TABLE>
<CAPTION>

                                                                 Quarter Ended
                                     -------------------------------------------------------------------
                                        December 31(a)   September 30(c)   June 30(c)     March 31(c)            Total Year
                                        --------------   ---------------   ----------     -----------            ----------
<S>                                      <C>             <C>              <C>            <C>                   <C>
    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-Basic and Diluted (b)          (0.15)          (0.41)            0.39          (0.14)                (0.31)

    1999
    Revenues                             $ 19,394        $ 26,175         $ 20,296       $ 11,129              $ 76,994
    Gross profit                            7,853          11,389           12,254          5,124                36,620
    Net income (loss)                        (346)          3,941            4,413         (1,715)                6,293
    Net income (loss)
    per unit-Basic and Diluted (b)          (0.03)           0.30             0.34          (0.13)                 0.48
</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)  Net  income  (loss)  and net  income  (loss)  per unit for the first  three
     quarters of 2000 have been  restated to reflect an  adjustment in recording
     the  Company's  equity in earnings  of  affiliate.  The Company  previously
     reported  net  income  (loss) for the  first,  second and third  quarter of
     ($1,552),  $5,250  and  ($5,237),   respectively.  The  Company  previously
     reported net income (loss) per unit for the first, second and third quarter
     of ($0.12), $0.40 and ($0.40),  respectively.  The adjustment had no effect
     on revenues or gross profit.

13.      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
$30 in 2000, $34 in 1999 and $26 in 1998.





                                                                            F-18
<PAGE>

14. Commitments and Contingencies:
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 is ten years and is renewable for two additional  terms of five years,
each at the option of Collins.

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  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.

In the opinion of  management,  after  consultation  with outside  counsel,  the
pending  lawsuits  are not  expected  to have a material  adverse  effect on the
Company's financial position or results of operations.

15. Subsequent Event:
Distribution
In January 2001,  the Board of Directors of the General  Partner  authorized the
Company  to make a  distribution  of $0.50  per Unit  applicable  to the  fourth
quarter 2000. The total  distribution in the amount of $6,561 (including $131 to
the General  Partner) was paid on February 14, 2001 to  Unitholders of record as
of February 2, 2001.

Preferred Investment
On February 26, 2001, the Company  contributed  cutting rights on  approximately
31,000 acres of timberland located in Central Oregon to its affiliate, USTY. The
cutting  rights have an agreed upon value of $12.0 million and were added to the
Company's  Preferred  Interest in USTY. Terms of the additional senior preferred
interest  include  a  cumulative  annual  guaranteed  return  of 5% of the $12.0
million  agreed  upon  value.  The  additional  senior  preferred   interest  is
redeemable at the Company's  option on December 31, 2004 or at USTY's option any
time prior thereto for a redemption  price equal to the agreed upon value of the
Preferred Interest,  either in cash or by returning the contributed timberlands,
plus any  portion  of the  guaranteed  return  not yet paid by USTY prior to the
redemption date. The Company recorded its additional  preferred  interest at its
basis for the timber of approximately $10.9 million.

Unit Conversion
In  accordance  with the  Company's  Amended and  Restated  Agreement of Limited
Partnership,  1,070,530  Subordinated  Units converted,  on a one for one basis,
into Common Units effective  February 6, 2001. As of February 6, 2001 the number
of outstanding Common Units is 9,648,017 and the number of Subordinated Units is
3,211,590.

                                                                            F-19

<PAGE>



                          U.S. Timberlands Yakima, LLC



<PAGE>






C O N T E N T S

<TABLE>
<CAPTION>

                                                                                                 Page

<S>                                                                                                 <C>
Independent Auditors' Report                                                                        1

Financial Statements:
   Balance Sheets as of December 31, 2000 and 1999                                                  2
   Statements of Operations for the year ended December 31, 2000 and for the period
         from September 28, 1999 (date of inception) to December 31, 1999                           3
   Statements of Redeemable Preferred Member Interest and Members' Equity for the year
         ended December 31, 2000 and for the period from September 28, 1999 (date of
         inception) to December 31, 1999                                                            4
   Statements of Cash Flows for the year ended December 31, 2000 and for the period from
         September 28, 1999 (date of inception) to December 31, 1999                                5
   Notes to Financial Statements                                                                    6

</TABLE>


<PAGE>




Independent Auditors' Report



To the Board of Directors and Members of
U.S. Timberlands Yakima, LLC



We have audited the accompanying  balance sheets of U.S. Timberlands Yakima, LLC
as of December  31, 2000 and 1999,  and the related  statements  of  operations,
redeemable  preferred member interest and members' equity and cash flows for the
year ended December 31, 2000 and for the period from September 28, 1999 (date of
inception)  to  December  31,  1999.   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  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable  assurance  about  whether  the  financial  statements  are free from
material  misstatement.  An audit includes examining,  on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion, the financial statements enumerated above present fairly, in all
material respects,  the financial position of U.S. Timberlands Yakima, LLC as of
December 31, 2000 and 1999, and the results of its operations and its cash flows
for the year ended  December 31, 2000 and for the period from September 28, 1999
(date of inception) to December 31, 1999, in conformity with generally  accepted
accounting principles.




Richard A. Eisner & Company, LLP

New York, New York
January 24, 2001, except as to Note 11 as to
         which the date is February 26, 2001


                                                                               1
<PAGE>


U.S. Timberlands Yakima, LLC

Balance Sheets

<TABLE>
<CAPTION>

                                                                                     December 31,
                             ASSETS                                                2000                1999
                                                                             ------------        ------------
<S>                                                                            <C>                 <C>
    Current assets:
      Cash and cash equivalents (including restricted cash of
           $5,485,591 at December 31, 1999)                                  $    434,434       $   9,076,481
      Accounts receivable                                                       1,574,851              20,418
      Receivable from preferred member                                          1,109,516                   -
      Notes receivable                                                            760,774                   -
      Other current assets                                                          7,451              31,766
                                                                             ------------        ------------
               Total current assets                                             3,887,026           9,128,665

    Timber and timberlands, net                                                70,422,986          73,864,206
    Equipment, net                                                                 67,150              36,316
    Deferred financing fees, net                                                  683,500             825,000
                                                                             ------------        ------------
                                                                             $ 75,060,662        $ 83,854,187
                                                                             ============        ============



                              LIABILITIES AND MEMBERS' EQUITY

    Current liabilities:
      Current portion of bank credit facility                                $ 10,000,000        $ 13,500,000
      Accounts payable and accrued expenses                                     1,195,216             125,225
      Advanced payment from customer                                                    -           5,485,591
                                                                             ------------        ------------
               Total current liabilities                                       11,195,216          19,110,816

    Bank credit facility, less current portion                                 42,807,000          46,500,000

    Commitments and contingencies (Note 9)

    Redeemable preferred member interest                                       20,294,550          18,243,371

    Members' equity:
      Common members' interest                                                    763,896                   -
                                                                             ------------        ------------
                                                                             $ 75,060,662        $ 83,854,187
                                                                             ============        ============
</TABLE>




    The accompanying notes are an integral part of these financial statements.

                                                                               2

<PAGE>


Statements of Operations
<TABLE>
<CAPTION>

                                                                                     Period From
                                                                                    September 28,
                                                                                    1999 (Date of
                                                                Year Ended          Inception) to
                                                               December 31,          December 31,
                                                                   2000                  1999
                                                            -------------------   -------------------
<S>                                                               <C>                    <C>
    Revenues:
      Log and stumpage sales                                      $ 25,232,401           $   517,644
      By-products and other                                            373,565                42,405
                                                            -------------------   -------------------

                                                                    25,605,966               560,049
                                                            -------------------   -------------------

    Cost of products sold:
      Cost of timber harvested                                       9,052,747                83,039
      Depletion, depreciation and road amortization                  6,535,256               135,465
                                                            -------------------   -------------------

                                                                    15,588,003               218,504
                                                            -------------------   -------------------

               Gross profit                                         10,017,963               341,545

    Operating, general and administrative expenses                   1,368,194               201,138
                                                            -------------------   -------------------

               Operating income                                      8,649,769               140,407
                                                            -------------------   -------------------

    Other income (expense):
      Interest expense                                              (5,586,658)           (1,331,063)
      Amortization of deferred financing fees                         (401,500)              (81,250)
      Interest income                                                  138,181                70,519
      Miscellaneous income (expense)                                    15,283                (6,042)
                                                            -------------------   -------------------

                                                                    (5,834,694)           (1,347,836)
                                                            -------------------   -------------------


               Net income (loss)                                  $  2,815,075         $  (1,207,429)
                                                            ===================   ===================
</TABLE>


    The accompanying notes are an integral part of these financial statements.


                                                                               3


<PAGE>


Statements of Redeemable Preferred Member Interest and Members' Equity
<TABLE>
<CAPTION>

                                                                  Redeemable
                                                                   Preferred             Common
                                                                    Member              Members'
                                                                   Interest              Equity
                                                               ------------------  -------------------

<S>                                                               <C>                 <C>
    Balance, September 28, 1999 (inception)                          $        -          $         -
      Member contributions                                            18,850,800              600,000
      Net loss                                                          (607,429)            (600,000)
                                                               ------------------  -------------------

    Balance, December 31, 1999                                        18,243,371                    -
      Recapture of loss allocated to preferred interest                  607,429                    -
      Guaranteed return to preferred interest                          1,443,750                    -
      Balance of net income                                                    -              763,896
                                                               ------------------  -------------------

    Balance, December 31, 2000                                      $ 20,294,550          $   763,896
                                                               ==================  ===================
</TABLE>


    The accompanying notes are an integral part of these financial statements.

                                                                               4

<PAGE>


Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                                       Period From
                                                                                                      September 28,
                                                                                                      1999 (Date of
                                                                                    Year Ended        Inception) to
                                                                                   December 31,       December 31,
                                                                                       2000               1999
                                                                                 -----------------  ------------------
<S>                                                                                <C>                   <C>
    Cash flows from operating activities:
      Net income (loss)                                                            $    2,815,075      $   (1,207,429)

      Adjustments  to  reconcile  net  income  (loss)  to net cash  provided  by
           operating activities:
        Depreciation, depletion and amortization                                        6,535,256             135,465
        Amortization of deferred financing fees                                           401,500              81,250
        Change in:
             Accounts receivable                                                       (1,554,433)            (20,418)
             Receivable from preferred member                                          (1,109,516)                  -
             Notes receivable                                                            (760,774)                  -
             Other current assets                                                          24,315             (13,016)
             Accounts payable and accrued expenses                                      1,069,991             125,225
             Advanced payment from customer                                            (5,485,591)          5,485,591
                                                                                 -----------------  ------------------

               Net cash provided by operating activities                                1,935,823           4,586,668
                                                                                 -----------------  ------------------

    Cash flows from investing activities:
      Acquisition of timber and timberlands                                            (3,077,563)        (55,147,146)
      Purchase of equipment                                                               (47,307)            (38,041)
                                                                                 -----------------  ------------------

               Net cash (used in) investing activities                                 (3,124,870)        (55,185,187)
                                                                                 -----------------  ------------------

    Cash flows from financing activities:
      Proceeds from bank credit facility                                                        -          60,000,000
      Payments made on bank credit facility                                            (7,193,000)                  -
      Deferred financing fees                                                            (260,000)           (925,000)
      Contributions from members                                                                -             600,000
                                                                                 -----------------  ------------------

               Net cash (used in) provided by financing activities                     (7,453,000)         59,675,000
                                                                                 -----------------  ------------------

    Net (decrease) increase in cash, cash equivalents and restricted cash              (8,642,047)          9,076,481
    Cash, cash equivalents and restricted cash, beginning of year                       9,076,481                   -
                                                                                 -----------------  ------------------

    Cash, cash equivalents and restricted cash, end of year                        $      434,434      $    9,076,481
                                                                                 =================  ==================

    Supplemental Cash Flow Information:
    Cash paid during the year for interest                                         $    5,141,792      $    1,331,063

    Noncash Investing and Financing Activities:
    Timberlands received for preferred member interest                             $            -      $   18,850,800

    The accompanying notes are an integral part of these financial statements.

                                                                               5

</TABLE>



<PAGE>


U.S. Timberlands Yakima, LLC
Notes to Financial Statements
December 31, 2000 and 1999

6

1.    Summary of Significant Accounting Policies:
      Line of Business
      U.S. Timberlands Yakima, LLC (the "Company") was formed in 1999 to acquire
      approximately  56,000  acres  of  timberland  in  Central  Washington  and
      approximately  54,000 acres of timberland in Central  Oregon (see Note 2).
      The primary  business  activity of the Company is the growing of trees and
      the sale of logs  and  standing  timber  to third  party  wood  processors
      located  primarily  in  Central   Washington  and  Central  Oregon.   U.S.
      Timberlands Services Company, LLC (the "Manager"),  an entity under common
      control with U.S. Timberlands Holding Group, LLC which controls the common
      membership interest in the Company, manages the businesses of the Company.
      All management decisions related to the Company are made by the Manager.

      Use of Estimates
      The  preparation of the financial  statements in conformity with generally
      accepted  accounting  principles requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities and
      disclosure  of  contingent  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
      Revenues  from  delivered  log sales are  recognized  upon delivery to the
      customer.  Revenues from timber deeds and  timberland  sales are generally
      recognized upon closing. Revenue from timber sold under stumpage contracts
      (i.e.,  where the  customer  arranges the harvest and delivery of the logs
      but without being granted a deed) are recognized at the time the timber is
      harvested.

      Concentration of Credit Risk
      Financial   instruments   that   potentially   subject   the   Company  to
      concentrations of credit risk consist principally of accounts  receivable.
      Substantially  all of the Company's  accounts  receivable are derived from
      sales to third party wood processors.  The Company's two largest customers
      accounted for 80% and 92% of the Company's aggregate net revenues from log
      and stumpage sales for the year ended December 31, 2000 and for the period
      ended December 31 1999,  respectively.  No other single customer accounted
      for more than 10% of net revenues from log and stumpage sales. The loss of
      these  customers  could have a material,  negative impact on the Company's
      results  of  operations.   Management  does  not,  however,  expect  these
      relationships  to be discontinued.  Credit risk on accounts  receivable is
      mitigated  by control  procedures  to monitor  the  credit  worthiness  of
      customers.

      Cash, Cash Equivalents and Restricted Cash
      Cash and cash equivalents  consists primarily of demand deposits and money
      market accounts.  Restricted cash at December 31, 1999 consists of a money
      market  account that was restricted as to its  availability  under the log
      supply  agreement  with  Boise  Cascade  Corporation  (see  Note  9).  The
      restricted  cash became  available as the Company made sales under the log
      supply  agreement  with Boise Cascade  Corporation.  At December 31, 1999,
      there was  $5,485,591  of  restricted  cash.  As of  December  31,2000 the
      Company had fulfilled its  commitments in relation to restricted  cash and
      there was no restricted cash.

                                                                               6

<PAGE>


1.    Summary of Significant Accounting Policies, Continued:
      Timber and Timberlands
      Timber and timberlands are stated at cost less depletion and  amortization
      for timber previously harvested. Depletion expense (including amortization
      of logging roads) from the Company's  sales of logs and timber is based on
      the relation of sales volume to the estimated net  merchantable  inventory
      volume on the timberlands.  The Company estimates net merchantable  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.

      Equipment
      Equipment is stated at cost less accumulated depreciation. 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 equipment is depreciated using the  straight-line  method over
      the estimated useful lives of the assets.  Equipment is depreciated over 3
      to 5 years.

      Deferred Financing Fees
      Deferred  financing  fees  consist of fees  incurred  in  connection  with
      obtaining the bank credit facility described in Note 5 as well as $234,000
      for an interest  rate cap entered into between the Company and the Bank of
      Montreal  under the terms of its bank credit  facility  during  2000.  The
      Company amortizes the deferred financing fees over the term of the related
      debt.

      Advanced Payment From Customer
      Advanced  payment  from  customer at December  31, 1999  represents a $6.0
      million  advance  received by the Company from Boise  Cascade  Corporation
      less 1999 log sales under the terms of the log supply agreement with Boise
      Cascade  Corporation  (see Note 9). The Company  recognized the advance as
      revenue as it made log sales and  certain  agreed  upon  timber deed sales
      under the log supply  agreement  during  2000.  At  December  31, 2000 the
      Company had no advanced payments from customers.

      Income Taxes
      The Company is a limited liability  company.  Accordingly,  the Company is
      not liable for federal or state income taxes since the Company's income or
      loss is reported on the separate tax returns of the members.  Accordingly,
      no provision  for current or deferred  income taxes has been  reflected in
      the accompanying financial statements.

                                                                               7

<PAGE>


1.    Summary of Significant Accounting Policies, Continued:
      New Accounting Standard
      In June of 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 the fair value of the
      derivative  will either be offset  against the change in fair value of the
      hedged  assets,  liabilities  or  firm  commitments  through  earnings  or
      recognized  in other  comprehensive  income  until the hedge,  if any,  is
      recognized in earnings.  The ineffective  portion of a derivative's change
      in fair  value  will be  immediately  recognized  in  earnings.  Effective
      January  1,  2001 the  Company  will  report a loss of  $151,742  from the
      cumulative  effect of adoption of SFAS 133 to reduce the carrying value of
      an interest rate cap agreement to its fair value of $6,758.

2.       Timberland Acquisitions:
      Yakima Timberlands:
      On October 4, 1999,  the Company  acquired  approximately  56,000 acres of
      timber  and  timberlands  and  approximately  700 acres of timber  cutting
      rights from Boise Cascade Corporation for approximately $55.1 million (the
      "Yakima  Timberlands").  Substantially  all  of  the  purchase  price  was
      allocated to timber,  timberlands  and logging roads.  The acquisition was
      financed through a credit facility obtained by the Company (see Note 5).

      Antelope Timberlands:
      On October 4, 1999,  the  Company  issued a  redeemable  preferred  member
      interest (see Note 6) to an affiliate, U.S. Timberlands Klamath Falls, LLC
      ("USTK")  for  USTK's  contribution  of  approximately   54,000  acres  of
      timberland  located in Central  Oregon (the "Antelope  Timberlands").  The
      Company recorded the acquisition of timberlands (and the related preferred
      interest) at USTK's basis for the timberlands of $18,850,000.

      Yainax Timberlands:
      On December 29, 2000, the Company purchased  approximately  8,000 acres of
      timberland  located  in  Central  Oregon  (Yainax  Timberlands)  from  its
      affiliate,  USTK, for $2,900,000.  Substantially all of the purchase price
      was allocated to timber,  timberlands  and logging roads.  The acquisition
      was financed through cash flows from operations.


                                                                               9

<PAGE>


3.    Timber and Timberlands:
      Timber and timberlands consisted of the following at December 31:

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

Timber and logging roads                           $57,734,184   $55,236,946
Timberlands                                         19,222,326    18,642,000
Water rights                                           119,000       119,000
                                                   -----------   -----------

                                                    77,075,510    73,997,946
Less accumulated depletion and road amortization     6,652,524       133,740
                                                   -----------   -----------

                                                   $70,422,986   $73,864,206
                                                   ===========   ===========


4.    Equipment:
      Equipment consists of the following at December 31:

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

Equipment                       $85,348   $38,041
Less accumulated depreciation    18,198     1,725
                                -------   -------

                                $67,150   $36,316
                                =======   =======





5.    Bank Credit Facility:
      The Company's bank credit  facility with the Bank of Montreal (the "Bank")
      consists of a revolving  bank line of credit ("Line of Credit") and a term
      credit facility ("Term Note"),  collectively  referred to hereafter as the
      "Credit  Facility".  The Credit  Facility  was  obtained by the Company to
      facilitate  the  acquisition of the Yakima  Timberlands  (see Note 2). The
      Line of Credit  provides for borrowings of up to $2.0 million and the Term
      Note was for $58.0 million.  The Credit Facility is  collateralized by all
      of the Company's assets.

      The Credit  Facility  agreement  provides  for floating  rate  interest at
      either (a) the LIBOR plus  applicable  margin (3.50% at December 31, 2000)
      based on the Company's  leverage  ratio; or (b) the Bank's prime rate plus
      applicable  margin  (2.00% at December  31,  2000) based on the  Company's
      leverage ratio. In addition,  the Credit Facility agreement provides for a
      reduction of 0.25% from the applicable margin under either option once the
      Company has achieved a 55% advance rate on its borrowing base. At December
      31, 2000, the effective  rates under the LIBOR option and the Bank's prime
      rate option were 10.28% and 11.50%,  respectively.  At December  31, 2000,
      $51,000,000 and $1,807,000 of the outstanding  borrowings under the Credit
      Facility bore interest at the LIBOR plus  applicable  margin interest rate
      option and the Bank's  prime rate plus  applicable  margin  interest  rate
      option, respectively.

                                                                               9

<PAGE>


5.    Bank Credit Facility, Continued:
      Under the terms of the Credit Facility, the borrowing base is equal to the
      sum of 65% of timber deed receivables due within eighteen  months,  75% of
      eligible  receivables,  100% of the  restricted  cash  advanced  by  Boise
      Cascade  Corporation (see Notes 1 and 9) and 60% of the total merchantable
      timber  value as  determined  by, and  reviewed  quarterly  by, the Bank's
      independent consultant. The advance rate for the total merchantable timber
      value will  decrease  to 55% at  December  30, 2001 under the terms of the
      agreement.  The Company  recalculates  the  borrowing  base monthly and is
      required to pay down all borrowings under the Credit Facility in excess of
      the borrowing base. The term of the Credit  Facility is through  September
      30,  2002,  at which  time all  outstanding  borrowings  under the  Credit
      Facility are due.

      The Credit Facility  contains  certain  restrictive  covenants,  including
      limits on the ability of the Company to make  capital  expenditures,  make
      cash distributions  (including the preferred interest  guaranteed return),
      incur liens,  incur additional  indebtedness,  make loans and investments,
      sell property and pay management  fees. In addition,  the Credit  Facility
      contains certain financial ratio covenants.  The Company was in compliance
      with these covenants at December 31, 2000.

      To the  extent  that the  Company's  total  borrowings  under  the  Credit
      Facility  do not exceed the  Company's  borrowing  base,  the  Company may
      utilize the $2.0 million Line of Credit as a working capital facility. The
      Company had  outstanding  borrowings  of $2.0 million at December 31, 1999
      and no  outstanding  borrowings  at  December  31,  2000 under the Line of
      Credit.

      As of December 31, 2000 and 1999, the Company had  outstanding  borrowings
      of $52,807,000 and $58,000,000, respectively, under the Term Note.

      The Company  anticipates  $10,000,000  in maturities  during 2001 with the
      remaining $42,807,000 of the Credit Facility due and payable during 2002.

6.       Members' Interest and Redeemable Preferred Interest:
      Common Interests:
      Concurrent  with the acquisition of the Yakima  Timberlands  (see Note 2),
      U.S.  Timberlands  Holding Group,  LLC and U.S.  Timberlands  Company,  LP
      contributed  $306,000  and  $294,000,   respectively,  for  common  member
      interests of 51% and 49%,  respectively,  (the "Common  Interests") in the
      Company.

      Preferred Interest:
      Concurrent  with the acquisition of the Yakima  Timberlands  (see Note 2),
      USTK  contributed the Antelope  Timberlands  (see Note 2) having an agreed
      upon value of $22.0 million for all senior preferred interests ("Preferred
      Interest")  in the  Company.  Terms of the  Preferred  Interest  include a
      cumulative annual guaranteed return of 5% of the $22.0 million agreed upon
      value.  The Preferred  Interest is redeemable at USTK's option on December
      31,  2004  or at  the  Company's  option  any  time  prior  thereto  for a
      redemption price equal to the agreed upon value of the Preferred Interest,
      either  in cash or by  returning  the  contributed  timberlands,  plus any
      portion of the guaranteed return not yet paid by the Company prior to

                                                                              10

<PAGE>


6.    Members' Interest and Redeemable Preferred Interest, Continued:
      the  redemption  date. As of December 31, 2000 the  cumulative  guaranteed
      return  amounted to  $1,443,750,  including  interest,  which,  through an
      allocation  of  net  income  has  increased  the  carrying  amount  of the
      redeemable  preferred  member's  interest.  No payments of the return have
      been made.

      Partnership Income (Loss):
      As provided by the Company's operating  agreement,  income attributable to
      the Common Interests is generally  allocated according to their percentage
      of the outstanding  Common  Interests.  However,  net losses exceeding the
      account  balances of the Common  Interests  are allocated to the Preferred
      Interest.  Losses,  if  any,  allocated  to  the  Preferred  Interest  are
      recaptured prior to any income being allocated to the Common Interests. At
      December 31, 1999,  $607,429 in losses had been  absorbed by the Preferred
      Interest.  These  losses were fully  recovered by the  Preferred  Interest
      during 2000.

7.       Fair Value of Financial Instruments:
      The fair value of the Company's financial instruments are presented below.
      The estimates require subjective judgments and are approximate. Changes in
      methodologies and assumptions could significantly affect estimates.

      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,  approximate  their
      carrying  amounts in the financial  statements due to the short maturities
      of such items.

      Long-term debt:
      The estimated  fair value  approximates  the carrying value of $52,807,000
      and  $60,000,000  at December  31, 2000 and 1999,  respectively  given the
      nature of the debt and that it is tied to major interest rate indexes.

      Interest rate cap agreement:
      The Company entered into an interest rate cap agreement to manage interest
      rate risk during  2000.  The fair value of this  agreement at December 31,
      2000 is approximately $6,758 .

                                                                              11

<PAGE>


8. Quarterly Results (Unaudited):
<TABLE>
<CAPTION>

                                                            Quarter Ended
                              --------------------------------------------------------------------
                              December 31 (a)    September 30 (a)     June 30 (a)     March 31 (a)       Total Year
                              ---------------    ----------------     -----------     ------------       ----------
<S>                                <C>                 <C>              <C>              <C>              <C>
     2000
     Revenues                      $ 8,429,218         $ 7,404,347      $ 4,987,548      $ 4,784,853      $ 25,605,966
     Gross profit                    2,735,340           1,975,390        2,196,517        3,110,716        10,017,963
     Net income (loss)               1,170,504            (124,862)         368,876        1,400,557         2,815,075

     1999
     Revenues                        $ 560,049                 $ -              $ -              $ -         $ 560,049
     Gross profit                      341,545                   -                -                -           341,545
     Net income (loss)              (1,207,429)                  -                -                -        (1,207,429)
</TABLE>



      (a)As the Company was formed on  September  28, 1999 (date of  inception),
         1999  information  is only presented for the quarter ended December 31,
         1999. All  transactions  in 1999 occurred  between  October 4, 1999 and
         December 31, 1999.

9.    Commitments and Contingencies:
      Lease Agreement:
      The Company  leases its facility  under a  noncancelable  operating  lease
      expiring  in October  2004.  Rent  expense  was $17,370 and $3,476 for the
      years ended  December  31,  2000 and 1999,  respectively.  Future  minimum
      payments required under the operating lease agreement are:

                                                        Year ending December 31:

           2001                                                       $  18,500
           2002                                                          18,500
           2003                                                          18,500
           2004                                                          15,500
                                                                 ---------------
                    Total minimum lease commitments                   $  71,000
                                                                 ===============



      Log Supply Agreement:
      Concurrently with the acquisition of the Yakima  Timberlands (see Note 2),
      the Company  entered into a log supply  agreement (the  "Agreement")  with
      Boise Cascade Corporation ("Boise") to supply a volume of approximately 11
      million board feet ("MMBF"),  25 MMBF, 25 MMBF, 9 MMBF, and 9MMBF in 1999,
      2000, 2001, 2002, and 2003, respectively,  of merchantable timber to Boise
      at market prices.  The term of the Agreement is through  November 2003 and
      may be renewed by mutual agreement of the parties for successive five year
      periods.  Boise  shall  have the right to  terminate  the  Agreement  upon
      permanent  closure of its  Yakima,  Washington  sawmill or upon  permanent
      closure of its Yakima, Washington plywood plant.

                                                                              12

<PAGE>


9.    Commitments and Contingencies, Continued:
      Under the terms of the Agreement, and concurrently with the closing of the
      acquisition of the Yakima  Timberlands,  Boise prepaid $6.0 million to the
      Company   against  the  1999/2000   Agreement   commitment,   representing
      approximately  35% of the current  estimated market value of the 1999/2000
      commitment  under the  Agreement.  The Company  recorded  the $6.0 million
      advance as restricted  cash and as an advance payment from customer during
      1999 (see Note 1). Under the Agreement,  the Company and Boise agreed upon
      values of 39  parcels on the Yakima  Timberlands  and Boise was  granted a
      first  priority deed of trust on the parcels.  As of December 31, 2000 the
      Company had  fulfilled  its  commitment  under the Agreement and Boise had
      reconveyed  all 39 parcels back to the Company,  thus  restoring the first
      priority of the Bank under the Credit Facility.

      Litigation:
      The  Company is involved in legal  proceedings  and claims  arising in the
      normal course of business.  In the opinion of  management,  the outcome of
      such legal  proceedings and claims will not have a material adverse effect
      on the Company's results of operations and financial position.

10.      Related Party Transactions:
      The Manager receives reimbursement for reasonable and necessary direct and
      indirect  expenses  related to  managing  the Company in addition to a fee
      (the  "Manager's  Fee") of 2% of the Company's  EBITDDA (as defined in the
      Company's operating agreement).  There is an annual cap of $750,000 on the
      total payments to the Manager including the Manager's Fee. During 2000 and
      1999 the Company paid a total of $530,881 and $182,112, respectively. Such
      reimbursements  included a Manager's  Fee of $0 and  $6,042,  for 2000 and
      1999, respectively. The Manager waived the Manager's Fee for 2000.

      During 1999,  concurrently  with and in order to facilitate  the Company's
      acquisition of the Yakima  Timberlands (see Note 2), an entity  controlled
      by John M.  Rudey,  (the  controlling  member of both the Manager and U.S.
      Timberlands  Holding Group, LLC) agreed to acquire in the future a portion
      of the property and any related liabilities that the Company was unwilling
      to acquire,  the sale of which was a condition of the seller to the Yakima
      Timberlands  acquisition.  Such entity was paid $2.7 million by the seller
      for its agreement to acquire such property and related liabilities.

      In June 2000,  the Company made a timber deed sale for  approximately  4.2
      million board feet to its affiliate,  USTK,  for $1.3 million.  The timber
      deed expires in June 2003.

      In July 2000, the Company entered into a Road Upgrade  Agreement with U.S.
      Timberlands  Holding  Group,  LLC,  which  controls the common  membership
      interest in the Company,  whereby U.S.  Timberlands  Holding Group, LLC is
      responsible for paying the costs of all road construction, reconstruction,
      improvements, upgrades, new or repaired bridges, culverts, fords and other
      stream-crossing  structures on the Yakima  Timberlands.  U.S.  Timberlands
      Holding  Group,  LLC charges a quarterly fee to the Company for use of the
      roads that have been built or upgraded  per the  agreement.  During  2000,
      U.S.   Timberlands   Holding   Group,   LLC  reimbursed  the  Company  for
      approximately  $1.0 million in road upgrade  expenditures  and the Company
      was charged $48,466 for road use fees for 2000 under the agreement.  As of
      December  31,  2000 the  Company  had a  payable  due to U.S.  Timberlands
      Holding Group, LLC for the $48,466 in road use fees.

                                                                              13

<PAGE>

10.   Related Party Transactions, Continued:
      In December  2000,  the  Company  purchased  approximately  8,000 acres of
      timberland for $2,900,000 from its affiliate, USTK (see Note 2).

      As of December 31, 2000 the Company had a receivable  of  $1,009,516  from
      its affiliate USTK for a deposit that was made for the Company into USTK's
      bank account.  In addition,  the Company had a receivable of $100,000 from
      USTK at December  31, 2000 for the excess of the  purchase  price paid for
      the Yainax  Timberlands over appraised value as per the purchase agreement
      with USTK.

11.      Subsequent Event:
      On February 26, 2001, the Company received cutting rights on approximately
      31,000 acres of timberland  located in Central  Oregon from its affiliate,
      USTK.  The cutting  rights have an agreed upon value of $12.0  million and
      were added to the senior preferred  interest in the Company.  Terms of the
      additional   senior  preferred   interest  include  a  cumulative   annual
      guaranteed  return of 5% of the  $12.0  million  agreed  upon  value.  The
      additional  senior  preferred  interest is  redeemable at USTK's option on
      December 31, 2004 or at the Company's  option any time prior thereto for a
      redemption price equal to the agreed upon value of the Preferred Interest,
      either  in cash or by  returning  the  contributed  timberlands,  plus any
      portion of the guaranteed  return not yet paid by the Company prior to the
      redemption  date. The Company  recorded the acquisition of the timber (and
      the  related  preferred  interest)  at  USTK's  basis  for the  timber  of
      approximately $10.9 million.

                                                                              14