ORM Timber Fund I, LP (Fund I), ORM Timber Fund II, Inc. (Fund II), and ORM Timber Fund III (REIT) Inc. (Fund III), collectively “the Funds”, were formed by Olympic Resource Management LLC (ORMLLC), a wholly owned subsidiary of Pope Resources, for the purpose of attracting capital to purchase timberlands. The objective of these Funds is to generate a return on investments through the acquisition, management, value enhancement and sale of timberland properties. Each Fund will operate for a term of ten years from the end of the respective drawdown period, with Fund I terminating in August 2017, Fund II terminating in March 2021, and Fund III terminating on the tenth anniversary of the completion of its drawdown period. Fund III’s drawdown period will end at the earlier of placement of all committed capital or July 31, 2015. During the fourth quarter of 2012, Fund III acquired 19,000 acres of northern California timberland for a purchase price of $45.1 million which represented a deployment of 25% of the Fund III committed capital.

Pope Resources and ORMLLC together own 20% of Fund I and Fund II and 5% of Fund III. The Funds are consolidated into the Partnership’s financial statements based in part on ORMLLC’s controlling role as the general partner or managing member of the Funds. The Funds’ statements of operations for the quarters ended September 30, 2013 and 2012 reflect operating income of $134,000 and loss of $306,000, respectively. These operating results exclude management fees paid by the Funds to ORMLLC of $701,000 and $515,000 for the third quarters of 2013 and 2012, respectively, which are eliminated in consolidation. The Funds’ statements of operations for the nine months ended September 30, 2013 and 2012 reflect operating income of $2.4 million and loss of $8,000, respectively. These operating results exclude management fees paid by the Funds to ORMLLC of $2.1 million and $1.6 million for the nine months ended September 30, 2013 and 2012, respectively, which are eliminated in consolidation. The portion of these fees, among other items of income and expense, attributed to third-party investors is reflected as an adjustment to income in the Partnership’s Condensed Consolidated Statement of Comprehensive Income under the caption “Net loss attributable to noncontrolling interests - ORM Timber Funds.”

The Partnership’s condensed consolidated balance sheet included assets and liabilities of the Funds as of September 30, 2013 and December 31, 2012, which were as follows:

(in thousands)	September 30, 2013		December 31, 2012
Assets:
Cash	$	1,128	$	1,262
Other current assets		1,061		691
Total current assets		2,189		1,953
Timber, timberland and roads (net of $27,279 and $20,664 of accumulated depletion)		169,714		175,410
Other long-term assets		100		111
Total assets	$	172,003	$	177,474
Liabilities and equity:
Current liabilities excluding long-term debt	$	1,697	$	1,413
Current portion of long-term debt		11		34
Total current liabilities		1,708		1,447
Long-term debt		25,000		11,002
Total liabilities		26,708		12,449
Funds' equity		145,295		165,025
Total liabilities and equity	$	172,003	$	177,474