UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark one)

or

Commission File No. 1-9035

Pope Resources, A Delaware Limited Partnership
(Exact name of registrant as specified in its charter)

19245 Tenth Avenue NE , Poulsbo, WA   98370
(Address of principal executive offices Zip Code)

Registrant’s telephone number, including area code: (360) 697-6626

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

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

None

        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 the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

Yes |X|   No |_|

        Indicate by check mark whether the registrant is an accelerated filer within the meaning of Exchange Act Rule 12b-2. Yes |_|   No |X|

        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 the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. |X|

        Approximate aggregate market value of the non-voting equity units of the registrant held by non-affiliates as of June 30, 2003 was $41,994,000.

        The number of the registrant’s limited partnership units outstanding as of March 12, 2004 was 4,518,095.

Documents incorporated by reference: See Item 15. Exhibit Index Item IV.

Pope Resources, A Delaware Limited Partnership
Form 10-K
For the Fiscal Year Ended December 31, 2003
Index

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PART I

OVERVIEW

        Pope Resources, A Delaware Limited Partnership (the “Partnership”), was organized in October 1985 as a result of a spin-off by Pope & Talbot, Inc. (P&T), Pope & Talbot Development, Inc. and other P&T affiliates, of certain of their timberland and real estate development assets.

        The Partnership currently operates in three primary business segments: (1) Fee Timber, (2) Timberland Management and Consulting, and (3) Real Estate. Fee Timber operations consist of the growing and harvesting of timber from the Partnership’s tree farms. Timberland Management and Consulting encompasses providing timberland management and forestry consulting services to third-party owners of timberlands and is conducted primarily through the Partnership’s wholly owned indirect subsidiary, Olympic Resource Management LLC (“ORMLLC”). Real Estate operations consist of efforts to enhance the value of the Partnership’s land investments by obtaining the entitlements necessary to make further development possible.

DESCRIPTION OF BUSINESS SEGMENTS

Fee Timber

        Operations. The Partnership’s Fee Timber segment consists of operations surrounding management of the Partnership’s core assets: the Hood Canal tree farm, which consists of 71,000-acres located in the Hood Canal area of Washington which the Partnership has held since its formation, and the 44,000-acre Columbia tree farm located in the southwestern area of Washington state which the Partnership purchased in March 2001. On January 15, 2004, the Partnership acquired 3,300 acres of timberland from Plum Creek Timber Company for $8.5 million. The timberland acquired in this acquisition is contiguous with the Columbia tree farm, will be managed as part of that larger land parcel, and is included in the 44,000 acres referenced above. The Partnership views its two tree farms as core holdings and manages them as a single operating unit. Operations on the tree farms consist of the growing of timber and the subsequent harvesting and marketing of timber and timber products to both domestic and Pacific Rim markets. The Partnership’s Fee Timber segment produced 85%, 72%, and 52% of the Partnership’s consolidated revenues in 2003, 2002, and 2001, respectively.

        Inventory. Inventory information discussed below is for both the Hood Canal and Columbia tree farms and includes the aforementioned timberland acquisition from Plum Creek Timber Company.

        As of January 15, 2004, the tree farms’ total merchantable inventory volume was estimated to be 483 million board feet (MMBF). The Partnership’s merchantable timber inventory volume as of January 1, 2003 was 447 MMBF. Merchantability is defined as timber inventory in productive timber stands that are 35 years of age and older, which represents management’s estimate of when merchantable value would be assigned to the timber in a timberland sale. Stands are not normally at their economic rotation age until after 40 years. Economic rotation age represents the estimated optimal age to harvest a specific stand of timber. The economic rotation age varies by geographic site and species.

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        The Partnership’s merchantable inventory as of January 15, 2004 and January 1, 2003 is spread between age classes as follows:

        Timber inventory volume is accounted for by the Partnership’s standing timber inventory system, which utilizes annual statistical sampling of the timber (a process called “cruising”) with adjustments made for estimated growth and depletion of areas harvested. Inventory volumes take into account the applicable state and federal regulatory limits on timber harvests as applied to our properties, including the Forests and Fish Law that supplements Washington State’s forest practice regulations to provide for expanded riparian management zones, wildlife leave trees, and other harvest restrictions. The Partnership cruised 20% of its productive timberland acres with stand ages of at least 20 years in each of the years 2003 and 2002 and plans to continue at that rate of cruise activity for the next few years. The Partnership has increased its annual plan for inventory cruises in order to refine future harvest schedules.

        The dominant timber species on the Partnership’s tree farms is Douglas-fir. Douglas-fir is noted for its strength, flexibility, and other physical characteristics that make it generally preferable to other softwoods and hardwoods for the production of construction grade lumber and plywood. In addition to Douglas-fir, inventory on the Partnership’s tree farms include Western Hemlock, Western Red Cedar, and Red Alder. The Partnership’s total merchantable timber inventory as of January 15, 2004 is spread between species as follows:

        The Hood Canal tree farm has significant acreage with mature timber and even more acreage with relatively immature trees, which results in what we call a “bimodal” age class pattern that management believes is common among western U.S. timberland ownerships. This bimodal pattern can be dealt with in three primary ways: (1) delay harvests of mature acres to backfill what would otherwise be smaller harvest years until the immature trees become merchantable; (2) harvest the mature acres at a rate that more closely approximates rotation age and allow later harvest cash flows to decline for some period while the younger blocks of acreage mature; or (3) acquire timberland properties with age-class characteristics that fill in the trough in the bimodal pattern. The Partnership opted for this last alternative with the acquisition of the Columbia tree farm in March 2001. Management believes it not only made a sound value investment on its own merits in acquiring the Columbia tree farm, but also made significant progress toward smoothing the age-class distribution of the Partnership’s timberland holdings.

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        The Partnership’s tree farms total 115,000 acres as of January 15, 2004. Of this total, approximately 100,000 acres are designated productive acres. Productive acres represent land that is suitable for growing and harvesting timber and excludes acreage that is unavailable for harvest because it is in protected wetlands or riparian management zones (stream set-asides). Productive acres also reflect deductions for roads and other land characteristics that inhibit suitability for growing or harvesting timber. As of January 15, 2004, total productive acres are spread by timber age class as follows:

        The Partnership’s annual harvest level is derived from a long-term harvest plan that factors in economic rotation ages of all stands, existing timber inventory levels, growth and yield assumptions, and regulatory constraints associated with the Washington State Forest Practices Act. From this information, management develops annual and long-term harvest plans predicated on their assessment of existing and anticipated economic conditions with the objective of maximizing long-term values. This plan is updated periodically to take into account changes in timber inventory, including species mix, site index (classification of soils), volume, size, and age of the timber. The long-term harvest plan is calculated using a non-declining even-flow harvest constraint, meaning that future harvest levels will always be as high or higher than current levels.

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        Projected annual harvest levels over the next 30 years in million board feet:

        As stated above, future harvest levels are modeled to be non-declining in volume over time. An exception to this harvest modeling rule will be made for the January 2004 acquisition of 3,300 acres such that projected harvest levels in 2004 and 2005 will be higher than the 45 MMBF otherwise modeled. This January 2004 purchase included a large percentage of merchantable timber that the Partnership plans to harvest over the next two years to recoup a significant part of the acquisition price. Since the cost of the January 2004 acquisition is added to the overall tree farm basis for depletion , the rate of depletion expense per MBF will increase while the incremental harvest should boost operating income. In 2004 and 2005 the management expects this acquisition to increase operating income by between $2.0 and $3.0 million, depending on prices realized, net of the expected increase in depletion expense.

        Marketing and Markets. The Partnership markets timber using the manufactured log method, where it engages independent logging contractors to harvest the standing timber and manufacture it into logs that the Partnership then sells on the open market. The Partnership or its subsidiaries retain title to the logs until harvest is concluded and delivery takes place, which normally occurs at a customer log yard. We sell our logs both domestically and internationally through log exporting intermediaries. One of our principal international markets is the Pacific Rim. Logs going to this destination are generally sold to US-backed brokers who in turn sell direct to offshore customers. Japan is by far the largest buyer of logs in the Pacific Rim market, though Korea and China represent significant export markets from time to time.

        Another method for selling timber that the Partnership occasionally engages in is the stumpage sale. Under this sale method, standing timber is sold to purchasers who manage the harvesting and marketing of the timber where title to the timber ordinarily transfers at the time of severance. These operations are governed by provisions of the sales contract and are closely monitored by the Partnership to facilitate sound forestry and stewardship practices and regulatory compliance. Stumpage sales are generally used in unique situations when the Partnership believes returns can be improved by selling timber immediately “on the stump” rather than waiting for the harvest to be completed and selling manufactured logs.

        Customers. The Partnership sells its logs domestically to lumber mills (and other processors of wood fiber) located throughout western Washington and northwest Oregon. Logs sold to the export market are sold to export intermediaries located at the ports of Tacoma, Olympia, and Longview, Washington. The cost of transporting logs limits the destinations to which the Partnership can profitably sell its logs.

        The Fee Timber segment had one major customer, Simpson Timber Company, which represented 35% of segment revenue in 2003. Mill competition for available log supply is an important factor in the harvest and sale of logs. Lumber mill ownership has consolidated over the last few years resulting in fewer local customers for the Partnership’s logs. Further consolidation of mill ownership in the Puget Sound area could cause a decline in prices realized for the Partnership’s logs.

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        Competition. There are many competitors of the Partnership who are, for the most part, comparable in size or larger. Log sellers compete on the basis of quality, pricing, and the ability to satisfy volume demands for various types and grades of logs to respective markets. Management believes that the location, type, and grade of the Partnership’s timber will enable it to effectively compete in these markets. However, the Partnership’s products are subject to increasing competition from a variety of non-wood and engineered wood products as well as competition from foreign-produced logs.

        Forestry and Stewardship Practices. The Partnership’s timberland operations incorporate management activities that include reforestation, control of competing brush in young stands, thinning of the timber to achieve optimal spacing after stands are established, and fertilization. During 2003, the Partnership planted 677,000 seedlings on 1,700 acres of the Partnership’s tree farms. This compares to the years 2002 and 2001 in which the Partnership planted 648,000 and 667,000 seedlings on 1,500 and 2,100 acres, respectively. The number of acres and seedlings planted will vary from year to year based upon harvest level and timing of harvest together with weather conditions that affect seedling survival. Management’s policy is to stay current on its reforestation program, returning all timberlands to productive status as soon as economically feasible following harvest.

        Sustainable Forestry Initiative (SFI). In 2003, management engaged Pricewaterhouse Coopers LLP to audit the Partnership’s forestry and stewardship practices against those required by the American Forest & Paper Association for SFI certification. The Partnership’s tree farms passed the audit and are now SFI certified. Certification under SFI is not currently a requirement to sell to customers in the Partnership’s geographic market but the certification is gaining more market acceptance and may represent a competitive advantage in the future. Additionally, management believes that independent third-party verification of the Partnership’s strong commitment to good land stewardship practices helps the Partnership maintain positive relationships with customers and neighbors.

        Fire Management. Management has taken a number of steps to mitigate risk of loss from fire, which is nonetheless possible on any timberland property. First, the Partnership maintains a well-developed road system that allows access and quick response to fires that do occur. Second, management maintains a fire plan and program that provides for increased monitoring activities and requires all operators to maintain adequate fire suppression equipment during the summer fire season.

Timberland Management and Consulting

        Background. In March 1997, the Partnership’s unitholders authorized management to expand its timberland business with the Investor Portfolio Management Business (IPMB). The IPMB has two complementary business strategies: (a) timberland management and (b) portfolio development. In 1997, the Partnership formed two wholly owned subsidiaries ORM, Inc. and ORMLLC to facilitate the IPMB activities.

        Operations. The Timberland Management and Consulting segment’s key operation has been to provide various aspects of timberland management services to third-party timberland owners. During the fourth quarter of 2002 ORMLLC announced that its contract to serve as the western region timberland manager for Hancock Timber Resource Group (HTRG) would not be renewed for fiscal year 2003. That contract accounted for revenues of $4.1 million for both the fiscal years ended December 31, 2002 and 2001. This segment produced 9%, 23% and 20% of the Partnership’s consolidated revenues in 2003, 2002, 2001, respectively.

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                Timberland Management. As of December 31, 2003, ORMLLC has successfully completed disposition activities for its largest timberland management client. As a result ORMLLC begins 2004 without a major timberland management client. Management is actively seeking other opportunities to manage timberlands on behalf of current and prospective clients.

                 Portfolio Development. Portfolio development’s goal is to build and manage diversified portfolios of timberlands for third-party investors, sometimes acting exclusively as a timberland portfolio manager, while at other times co-investing as a partner on behalf of Pope Resources. An example of the strategy ORMLLC is employing to meet this goal is ORM Timber Fund I, LP. This fund, if fully subscribed, will have $50 million of invested capital and is authorized to borrow up to an additional $25 million (debt to value is limited to 33%). The fund is currently being marketed to institutional investors (with a minimum investment of $500,000) and Pope Resources will invest 10%, or up to $5 million, of the $50 million equity portion of the fund. As the fund approaches closing, ORMLLC will look for timberland for the fund to acquire. ORMLLC is expected to earn management and acquisition fees from the fund.

                Forestry Consulting. In addition to its timberland management activities, ORMLLC also earns revenue by providing forestry consulting services to third-party owners and managers of timberland assets in Washington, Oregon, and California. ORMLLC is providing forestry consulting services from four separate locations in Washington: Port Angeles, Port Gamble, Poulsbo, and Chehalis, and one location in McCloud, California.

        Marketing. ORMLLC pursues third-party timberland management opportunities in North America through direct marketing to timberland owners. Marketing includes regular contact with forest products industry representatives and non-industry owners to develop new business opportunities. ORMLLC has developed brochures and other marketing materials that describe the services provided through the Timberland Management and Consulting segment. The Partnership’s acquisition and disposition activities keep management informed of changes in timberland ownership that can represent opportunities for the Partnership to market its services.

        Customers. Timberland management revenue in 2003 includes one client that represented 76% of segment revenue. Since the project for this customer was a management and disposition project that was largely completed at December 31, 2003, management does not expect to earn significant revenue from this client in 2004.

        Competition. ORMLLC and its subsidiaries compete against both larger and smaller companies providing similar services. There are approximately one dozen established timberland investment management organizations competing against ORMLLC in the timberland portfolio development business. The companies in this group have access to established sources of capital and, in some cases, increased economies of scale that can put ORMLLC at a disadvantage. Smaller regional companies compete effectively on price for limited scope consulting and land management projects.

Real Estate

        Background. The Partnership’s Real Estate activities are closely associated with the management of its timberlands. After logging its timberlands, and subject to zoning regulations, the Partnership has three primary options for what to do next: reforest the land; develop it for sale as improved property; or sell it in undeveloped (or developed) acreage tracts. Management continually evaluates its timberlands in terms of best economic use, whether this means continuing to grow timber or reclassifying the property for sale or development. As management reclassifies timber properties for sale or development, the Partnership may replace such properties with timberland purchases in more remote areas.

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        Operations. Real Estate operations include (a) residential and commercial property rentals in Port Gamble and (b) that work considered by management necessary to maximize the value of the Partnership’s 2,600-acre portfolio of higher-and-better-use property holdings. This latter objective is generally obtained by securing the entitlements necessary to make development possible.

                Port Gamble. Port Gamble has been designated a “Rural Historic Town”under Washington State’s Growth Management Act (GMA). This designation allows for substantial new commercial, industrial, and residential development of the town utilizing historic land use patterns, densities, and architectural character. Efforts in 2003 centered on introducing new visitor-focused commercial activities to the town. These include antiques, an art gallery, and a teashop. Additionally, the Partnership made a concerted effort to promote the town as a venue for weddings, hosting over 30 in its first year. Other 2003 efforts included attaining water rights for the town that will allow for a significant first phase of development. In 2004, management will continue to focus on increasing commercial use of the town, and begin an evaluation of existing sewer and water infrastructure.

                A negotiated settlement with P&T in January 2002 resulted in the Partnership taking over the millsite as well as providing for the initiation of environmental cleanup activities, the responsibility for which is being split between P&T and the Partnership. That settlement represents a significant step toward defining Port Gamble’s future. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations – Real Estate – Environmental Remediation Costs.”

        Other Land Investments. The Partnership is also involved in adding value to other real estate development properties (such as those located in Gig Harbor, Bremerton, Kingston, and Hansville, Washington) through efforts to secure approved development plans for each of these properties. These investments are long-term in nature. With the passage of the GMA in the early 1990‘s, the Partnership worked to place as many of its properties as possible within designated Urban Growth Areas to increase long-term values. Value-adding activities include securing favorable zoning and obtaining final plat approvals to allow for the highest and best use of the properties. Once the Partnership has maximized the land value, alternatives for realizing value from the properties will be considered, including development, outright sale, or joint ventures with experienced property developers. The Partnership expects to realize sales revenue from portions of the aforementioned properties starting in 2004 with the most significant realizations to materialize as certain developments discussed below occur sometime between the years 2005 and 2007.

                Gig Harbor. Gig Harbor, a suburb of Tacoma, Washington, is the site of a 320-acre mixed-use development. The Partnership expects to benefit from an amendment to the City of Gig Harbor’s comprehensive plan in 2003 that is expected to result in 35 acres of the property being rezoned from business-park to commercial retail. Assuming the rezone of the 35 acres occurs, the development opportunity for the 320-acre project will be roughly as follows: 200 acres for residential development; 51 acres for a business park; and 69 acres for a neighborhood commercial center. In December 2003, the Partnership executed a purchase and sale agreement with Costco Wholesale Corporation for up to 20 acres of the commercial center with the ultimate acreage amount dependent on a finalized site plan. In 2002, the Partnership executed a purchase and sale agreement with the YMCA for 11 acres of the business park. Additional commercial and business park properties will be marketed in 2004. Prior to closing a sale with either Costco Wholesale Corporation or the YMCA, the Partnership will be committed to install infrastructure, including road, sewer, and water infrastructure, in order to facilitate development of the property and comply with obligations set out when the property was annexed into the city. Expenditures to install infrastructure for the Gig Harbor site are expected to begin in the summer of 2004 and continue for several years and are expected to total $13.0 million to $15.0 million. The Partnership expects revenues from this property to begin in 2005 and peak in conjunction with the anticipated opening in 2007 of a new Tacoma Narrows Bridge span connecting Gig Harbor with Tacoma.

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                Bremerton. The City of Bremerton approved the request for a planned development on the Partnership’s 233-acre mixed-use property within the city limits of Bremerton. The planned development has a mix of industrial and residential uses. In July 2000 a 15-year development agreement was approved and adopted by the City of Bremerton. Initial marketing of this property will focus on finding suitable buyers for the 60-acre industrial portion of the property.

                Kingston and Hansville. There are three other on-going projects in Kitsap County that involve Partnership land: a 720-acre residential development in Kingston; a 360-acre proposed park adjacent to the aforementioned Kingston project; and a 248-acre residential development in Hansville. The Partnership is currently developing a plan with Kitsap County to delay processing the project application for the 720-acre Kingston project while undergoing a comprehensive plan amendment to bring urban-level zoning to approximately half of the property. In a separate but related activity, Kitsap County is currently analyzing the potential to acquire 360 acres owned by the Partnership adjacent to the 720-acre project for a regional park. The county may also move to acquire the remaining rural zoned area of the Kingston project at a later date. Such new zoning coupled with a proposed new wastewater treatment plant would allow reconfiguration of the existing plan to allow a more diverse set of residential products. Preliminary plat approval was granted for 89 lots on the Hansville property in early 2003. The Partnership intends to market the raw property to other developers in 2004.

        Marketing. Marketing activities in the Real Estate segment consisted of marketing residential and commercial space available for lease during 2003. As mentioned above, the Partnership plans in 2004 to begin marketing the Hansville property to residential property developers. The Partnership is currently working with Kitsap County to purchase the 360-acres in Kingston for a county park.

        Customers. The Partnership’s customers for Port Gamble rental space consist of both individual and commercial tenants. Land-buying customers are typically either private individuals or residential contractors interested in purchasing undeveloped land.

        Competition. The Partnership’s Real Estate activities consist primarily of adding value to current land holdings. Once those properties are ready for development, the Partnership will likely seek property developers for a sale or joint venture. Other bulk parcel owners in the Puget Sound area have similar strategies.

        Transportation. Land values for our Real Estate portfolio are strongly affected by transportation limitations between the Kitsap Peninsula and the Seattle-Tacoma corridor. Transportation options between Seattle/Tacoma and Kitsap County include driving on the Tacoma Narrows Bridge or taking a ferryboat. The Washington State Department of Transportation has been working for several years to add a new span to the Tacoma Narrows Bridge connecting Tacoma and Gig Harbor. The project was proposed as a public/private partnership that would be financed through the imposition of tolls. Construction of the span is now underway and is expected to be completed in 2007.

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        Ferry transportation in our operating geography currently includes ferries that carry both automobiles and passengers from Kingston, Bremerton, or Bainbridge Island to Seattle and back. The Washington State Department of Transportation discontinued a foot-ferry service between Bremerton and Seattle in the summer of 2003. Voters in Kitsap County rejected a proposed sales tax that would have funded passenger-only ferry service from south, central, and northern locations in Kitsap County to Seattle. There are currently several private companies exploring alternatives for providing passenger-only service to the Kitsap Peninsula.

Employees

        As of January 1, 2004, the Partnership employed 40 full-time, year-round salaried employees and up to 26 part-time and seasonal personnel, who are distributed between the segments as follows:

        None of the Partnership’s employees are subject to a collective bargaining agreement and the Partnership has no knowledge that any steps toward unionization are in progress. Management considers the Partnership’s relations with its employees to be good.

Government Regulation

        In the operation and management of its tree farms, the Partnership is subject to federal and state laws that govern land use. Management’s objective is to be in compliance with such laws and regulations at all times. We anticipate that increasingly strict requirements relating to the environment, threatened and endangered species, natural resources, forestry operations, and health and safety matters, as well as increasing social concern over environmental issues, may result in additional restrictions on the timber operations of the Partnership. This will in turn result in increased costs, additional capital expenditures, and reduced operating flexibility. Management believes the Partnership’s assets and properties are in material compliance with all applicable federal, state and local laws, regulations and ordinances applicable to its business. However, there can be no assurance that future legislative, governmental, or judicial decisions will not adversely affect the Partnership’s operations. See “Governmental Regulation,” below.

Regulatory Structure

        Growing and harvesting timber are subject to numerous laws and government policies to protect the environment, non-timber resources such as wildlife and water, and other social values. Changes in those laws and policies can significantly affect local or regional timber harvest levels and market values of timber-based raw materials. Real estate development activities are also subject to numerous state and local regulations such as the GMA. In addition, the Partnership is subject to federal, state or provincial, and local pollution controls (with regard to air, water and land); solid and hazardous waste management, disposal and remediation laws; and regulations in each segment and all geographic regions in which it has operations.

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        Endangered Species and Habitats. A number of fish and wildlife species that inhabit geographic areas near or within Partnership timberlands have been listed as threatened or endangered under the federal Endangered Species Act (ESA) or similar state laws in the United States. Federal ESA listings include the northern spotted owl, marbled murrelet, a number of salmon species, bull trout and steelhead trout in the Pacific Northwest. Listings of additional species or populations may result from pending or future citizen petitions or be initiated by Federal or state agencies. Federal and state requirements to protect habitat for threatened and endangered species have resulted in restrictions on timber harvest on some timberlands, including some timberlands of the Partnership. Additional listings of fish and wildlife species as endangered, threatened, or sensitive under the ESA and similar state laws as well as regulatory actions taken by Federal or state agencies to protect habitat for these species may, in the future, result in the following: an increase in operating costs; additional restrictions on timber harvests, forest management practices or real estate development; and potential impact on timber supply and prices.

        Forestry Management Practices. Forest practice acts in some states in the United States increasingly affect present or future harvest and forest management activities. For example, in some states, these rules have one or more of the following impacts: limit the size of clear-cut; require some timber to be left unharvested to protect water quality and fish and wildlife habitat; regulate construction and maintenance of forest roads; require reforestation following timber harvest; and contain procedures for state agencies to review and approve proposed forest practice activities. Federal, state, and local regulations protecting wetlands could affect future harvest and forest management practices on some of the Partnership’s timberlands.

        Each state in which the Partnership owns or manages timberlands has developed “best management practices” to reduce the effects of forest practices on water quality and aquatic habitats. Additional, more stringent regulations may be adopted in order to achieve the following: enhance water quality standards under the federal Clean Water Act; protect fish and wildlife habitats; or advance other public policy objectives.

        In the State of Washington, the Forest and Fish Report became the basis for revised Forest Practices Rules and Regulations that were adopted in 2000. The Washington Forest Protection Association produced the Forest and Fish Report through the collaborative efforts of Washington State’s private landowners; federal, state and county governments; and Native American tribes. The goals of these revised rules are:

        The proposed Water Quality Standards that the Washington State Department of Ecology adopted in 2003 have undergone Department of Ecology and public scrutiny. As such, these rules should be sufficient to comply with the Anti-Degradation Implementation Plan as described in the Clean Water Act.

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        The regulatory and non-regulatory forest management programs described above have increased operating costs and resulted in changes in the value of timber and logs from the Partnership’s timberlands. These kinds of programs also can make it more difficult to respond to rapid changes in markets, extreme weather or other unexpected circumstances. One additional effect may be further reductions in usage of (and some substitution of other products for) lumber and plywood. The Partnership does not believe that these kinds of programs have had, or in 2004 will have, a significant effect on the Partnership’s total harvest of timber, although they may have such an effect in the future. Further, management does not expect the Partnership to be disproportionately affected by these programs as compared with typical timberland owners. Likewise, management does not expect that these programs will significantly disrupt its planned operations over large areas or for extended periods.

        Water Quality. The U.S. Environmental Protection Agency also promulgated regulations in 2000 requiring states to develop total maximum daily load (TMDL) allocations for pollutants in water bodies that have been determined to be “water quality impaired.” The TMDL requirements may set limits on pollutants that may be discharged to a body of water or set additional requirements, such as best management practices for nonpoint sources, including timberland operations, to reduce the amounts of pollutants. These requirements are expected to impact tree farming principally through new rules requiring tree farms to better control silt from roads, harvest blocks and other management activities from coming in contact with water quality impaired bodies of water. TMDLs will be established for specific water bodies in many of the states in which the Partnership operates. TMDLs will be written to achieve water quality standards within 10 years when practicable. It is not possible at this time to estimate the capital expenditures that may be required for the Partnership to meet pollution allocations until a specific TMDL is promulgated or to determine whether these expenditures will have a material impact on the Partnership’s financial condition or results of operations.

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        Washington State Growth Management Act (GMA). Land holdings throughout Washington State are affected by the GMA, which requires counties to submit comprehensive plans that identify the future direction of growth and stipulate where population densities are to be concentrated. The purposes of the GMA include: (1) direction of population growth to population centers (Urban Growth Areas), (2) reduction of “suburban sprawl”, and (3) protection of historical sites. The Partnership works with local governments within the framework of the GMA to develop its real estate holdings to their highest and best use.

* Includes 3,371 acres acquired in January 2004.

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        None.

        No matters were submitted to a vote of the Partnership’s unit holders during the fourth quarter of 2003.

PART II

Market Information

        Certain information respecting trades in the Partnership’s equity securities is quoted on the Nasdaq National Market System. The Partnership’s units trade under the ticker symbol “POPEZ”. The following table sets forth the 2002 – 2003 quarterly ranges of low and high prices for the Partnership’s units:

Unitholders

        As of January 31, 2004, there were approximately 280 holders of record of 4,518,095 outstanding units.

Distributions

        All cash distributions are at the discretion of the Partnership’s managing general partner, Pope MGP, Inc. (the “Managing General Partner”). The Partnership made two quarterly five-cents-per-unit distributions and two quarterly seven-cents per-unit distributions totaling $1.1 million in 2003. The Partnership did not make distributions in 2001 and in October 2002 the Managing General Partner announced that it was reinstituting a distribution policy. Management intends to continue to pay quarterly seven-cents-per-unit distributions in 2004 so long as the Managing General Partner determines this amount to be appropriate. Constraints established through existing timber mortgages limit distributions to 50% of net income, excluding distributions made to offset income tax expense resulting from ownership of the Partnership units. Management will periodically examine the distribution policy to ensure it meets the long-term objective of maximizing Partnership value.

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Issuance of Unregistered Securities

        The Partnership did not conduct any unregistered offering of its securities in 2003.

        Actual Results. The financial information set forth below for each of the indicated years is derived from the Partnership’s audited consolidated financial statements. This information should be read in conjunction with the consolidated financial statements and related notes included with this report and previously filed with the Securities and Exchange Commission (SEC).

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        This discussion should be read in conjunction with the Partnership’s audited consolidated financial statements included with this report.

EXECUTIVE OVERVIEW

        Pope Resources, A Delaware Limited Partnership (“we” or the “Partnership”), was organized in October 1985 as a result of a spin-off by Pope & Talbot, Inc. (“P&T”). Pope Resources is engaged in three primary businesses. The first, and by far most significant segment in terms of owned assets and operations, is the Fee Timber segment. Operations in this segment consist of growing timber to be harvested as logs for sale to export and domestic manufacturers. The second most significant business in terms of total assets owned is the development and sale of real estate. Real Estate activities primarily take the form of securing permits and entitlements for raw land and then realizing that land’s value by the selling of larger parcels to buyers who will take the land further up the value chain-either to home buyers or commercial property end-users. Since these land projects span multiple years, the Real Estate segment may incur losses for multiple years until a major project is sold resulting in operating income. Our third business is that of providing timberland-related services to third parties. These services may take the form of large-scale timberland management, forestry consulting, or acquisition or disposition services. Factors affecting results from each of these segments are discussed in more detail below.

        As of December 31, 2003, we owned nearly 112,000 acres of timberland in western Washington state plus 2,600 acres of real estate held for development. In January 2004 the Partnership acquired an additional 3,300 acres of timberland in its current operating area. Our third-party services have been historically conducted in the states of Washington, Oregon, and California, plus the Canadian provinces of British Columbia and Alberta.

        Macroeconomic factors that have a significant bearing on our business include the following: housing starts in the US (and to a lesser degree in Japan); interest rates; and currency exchange rates – particularly those between the US and Canada, Japan, and Europe. The first two of these macroeconomic factors reflect or influence the health of the U.S. housing market. The housing market, together with the repair and remodel market, consume nearly 73% of the log volume supplied to the U.S. Currency exchange rates influence the competitiveness of our primary product compared to logs that might be imported from Canada, Europe, or the Southern Hemisphere. A favorable US$/yen exchange rate can help our export logs compete in the Japanese market with logs that originate from Canada, Europe, or the Southern Hemisphere.

        As an owner and manager of timberland, we focus keenly on three “product” markets: the markets for logs, lumber and timberland. Each of these markets has unique and distinct market factors so that they do not move up or down in lockstep with each other. Generally, the lumber market is the most volatile as it responds quickly (even daily) to changing demand expectations that are housing-driven and changes to lumber inventories. Log markets will in turn be affected by what is happening in the lumber spot markets, but pricing shifts typically adjust monthly rather than daily. Log price volatility is also moderated because logs are used to produce products besides just lumber (especially pulp). The market for timberland tends to be even less volatile with pricing that lags both lumber and log markets. This is a function of the longer time horizons utilized by investors in timberland where the short-swing fluctuations of log or lumber prices become stabilized in acquisition modeling. We watch the lumber market because activity there can presage log price changes. We are in the log market constantly as we negotiate delivery prices to our customers. The timberland market is important as we are constantly evaluating our own portfolio and its underlying value as well as the opportunities to adjust that portfolio through either the acquisition or disposition of such land.

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        Management’s major opportunity and challenge is to profitably grow our revenue base. We have added almost 44,000 acres over the last three years to our timberland portfolio with the most recent addition of 3,300 acres coming in January 2004. Our real estate challenges center around how and when to “harvest” a parcel of land and capture the optimum value increment through sale. Regarding our third-party timberland services, we are without a major client contract in early 2004 for the first time in six years and are intently seeking to secure income opportunities for this segment.

Our consolidated revenues in 2003, 2002, and 2001, on a percentage basis by segment, are as follows:

        Further segment financial information is presented in Note 10 to the Partnership’s Consolidated Financial Statements included with this report.

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RESULTS OF OPERATIONS

The following table reconciles net income (loss) for the years ended December 31, 2003 to 2002 and 2002 to 2001. This table provides readers with some detailed numeric analysis of factors affecting changes in net income over the last three years. Explanatory text describing these changes is contained in the remainder of this Management Discussion and Analysis of Operations.

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Fee Timber

Revenues and Operating Income

        Fee Timber revenue is earned primarily from the harvest and sale of logs from the Partnership’s 112,000 acres of fee timber located in western Washington and to a lesser extent from the sale of gravel and cellular communication tower leases. In January 2004 we acquired an additional 3,300 acres of timberland, which increased our timberland holdings to 115,000 acres.

Revenue and operating income generated by the Fee Timber segment for each year in the three-year period ended December 31, 2003, are as follows:

        Fiscal Year 2003 compared to 2002. Fee Timber revenue decreased $382,000, or 1.6%, to $22.9 million in 2003 from $23.3 million in 2002. Harvest volume declined slightly to 45.0 million board feet (MMBF) from 45.1 MMBF for 2002. The decline in harvest volume combined with a $12 per MBF decline in average price realized resulted in the decline in revenue, which was partially offset by an increase in revenue from small timberland sales that represented $288,000 of revenue in 2003 and $44,000 of revenue in 2002. Operating income decreased $530,000, or 5.2%, to $9.7 million from $10.2 million in 2002. The decrease in operating income is due to the decline in revenue and an increase in road maintenance and silviculture costs.

        The Partnership regularly adjusts its timberland portfolio of holdings as part of its active management through acquisitions and dispositions of smaller parcels. The timberland acquisition in January of 2004 of 3,300 acres for $8.5 million is a good example of this type of transaction. A large component of this specific acquisition represented merchantable timber. As a result, annual harvest levels in 2004 and 2005 are expected to increase to approximately 58 MMBF and are forecasted to fall back to the 2003 level of 45 MMBF in 2006.

        Fiscal Year 2002 compared to 2001. Fee Timber revenue decreased $1.7 million, or 7%, to $23.3 million in 2002 from $25.0 million in 2001. In 2002, we harvested 45.1 million board feet (MMBF) — up 8.8 MMBF, or 24%, from the 2001 harvest volume of 36.3 MMBF. In spite of this harvest volume difference, annual revenues for 2002 are 7% lower than the prior year’s revenues due to the sale of 3,750 acres of land and timber for $5.3 million in 2001. Our weighted average log price of $488 per thousand board feet (MBF) for the year ending 2002 was down $15/MBF, or 3%, from the year ending 2001. Operating income increased $1.0 million, or 11%, to $10.2 million in 2002 from $9.2 million in 2001, largely due to the increase in harvest volume.

        Export Log Market. Log revenues from our timberland ownership are significantly affected by export log market conditions. Sales to the export market totaled 11%, 15%, and 20% of log revenue for 2003, 2002, and 2001, respectively. The vast majority of our export log volume is sold to Japan. Indirect sales to the export market totaled 4.2 MMBF, 6.3 MMBF, and 8.1 MMBF, of softwood logs for 2003, 2002, and 2001, respectively. The decrease in volume sold through the export market in 2003 is indicative of deteriorating export market conditions, a trend that also existed from 2001 to 2002. The average price per MBF realized for export logs sold was $574, $574, and $620 for 2003, 2002, and 2001, respectively.

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        The 2003 realized average export log price did not change from 2003 to 2002 but declined 7% from 2002 to 2001. Low export prices realized in 2003 and 2002 were driven largely by weak economic conditions in Japan, the growth of engineered wood products, and increased foreign competition in the log market. The export log market is experiencing some improvement in export pricing in the first quarter of 2004, but management does not project a significant, sustained improvement in the export market in the foreseeable future.

        Domestic Log Market. Domestic sawlog volumes were 32.0 MMBF, 30.6 MMBF, and 19.9 MMBF in 2003, 2002, and 2001, respectively. The increase in domestic volume sold in 2003 from 2002 represents a shift in volume from the export market to the domestic market. Average realized domestic log prices per MBF were $514, $535, and $560 in 2003, 2002, and 2001, respectively. Prices realized from domestic log sales declined due to two separate factors. First, lumber imports from Canada have increased as a result of the softwood lumber dispute between the U.S. and Canada. As a result, log prices have declined as domestic mills are competing with imported Canadian lumber. Second, the domestic log market remains saturated with logs that were redirected away from weak Asian export markets. Management expects to continue pursuing heavier sales volumes in domestic markets so long as overseas log markets remain relatively weak.

        Other Timber Products. Pulp, hardwood, and other log volumes represented 19%, 18%, and 23% of total harvest volume for 2003, 2002, and 2001, respectively. The slight increase in other timber volume sold as a percent of total volume in 2003 relative to 2002 is due to the harvesting of more lower-quality hemlock stands on the Hood Canal tree farm, which produced a higher proportion of pulp logs. The significant decline in pulp, hardwood and other volume as a percent of total harvest in 2002 relative to 2001 is due to improved log merchandising. Logs sold as pulp generally command lower prices than logs sold as sawlogs in the domestic market. To the extent log volume can be moved from pulp logs to domestic sawlog sorts, higher revenue is realized. Other log prices were $292, $249, and $254, per MBF for 2003, 2002, and 2001, respectively. The increase in price realized on other timber products represents an improvement in price realized on pulp logs in 2003 relative to 2002. The increase in pulp prices was caused by a decline in local pulp log inventories. The decline in other log prices in 2002 relative to 2001 reflects the overall decline in log prices during that period.

        Harvest Volumes and Seasonality. We harvested the following timber for each year in the three-year period ended December 31, 2003:

        The Partnership’s 115,000 acres of timberland consist of the 71,000-acre Hood Canal tree farm and the 44,000-acre Columbia tree farm, which includes the 3,300 acres acquired in January 2004. The Hood Canal tree farm is located in the Hood Canal region of Washington State. Most of this tree farm acreage is at a relatively low elevation where harvest activities are possible year-round. As a result of this competitive advantage, we are often able to harvest and sell a greater portion of our annual harvest in the first half of the year when the log supply in the marketplace tends to be lower. During 2003 management decided to front load harvest toward the beginning of the year to take advantage of what appeared to be a short-term spike in the log markets. Harvest activities in 2002 were relatively consistent from quarter to quarter while, during 2001, harvest activities tapered off in early autumn as we reached our planned annual harvest volume. The percentage of annual harvest volume harvested by quarter for each year in the three-year period ended December 31, 2003 is as follows:

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Cost of Sales

        Fee Timber cost of sales for each year in the three-year period ended December 31, 2003, are as follows:

        Depletion costs from harvest activities averaged $64, $68, and $55 per MBF for 2003, 2002, and 2001, respectively. The depletion rate changes each year as harvested timber stands are removed, or depleted, and new depletion “layers” are added to the overall depletion pool as merchantable timber stands reach the age of 40. The depletion rate in 2003 declined 6% from the rate in 2002, reflecting the interplay between removing harvested timber stands and adding new depletion “layers.” Blending the higher relative cost basis of the timber on the Columbia tree farm acquired in 2001 with Hood Canal tree farm’s low historical basis caused the depletion rate per MBF to increase significantly from 2001 to 2002. Depletion costs in 2001 also include $4.4 million in depletion resulting from timberland sales, most notably stemming from the 3,750-acre sale of a portion of the Columbia tree farm. The depletion rate in 2002 represents one full year of harvest from the higher cost basis Columbia tree farm. Management expects an increase in the depletion rate in 2004 as we closed on an $8.5 million timberland acquisition early in 2004.

        Harvest, haul and other costs (excluding costs resulting from timberland sales) averaged $160, $159, and $165 per MBF for 2003, 2002, and 2001, respectively. Average harvest haul and other costs increased modestly from 2002 to 2003 and decreased from 2001 to 2002. Harvest costs vary based upon the physical site characteristics of acreage harvested. Harvest units that are difficult to access, or that are located on steep hillsides, are more expensive to harvest. Haul costs vary based upon the distance between the harvest site and the customer’s location. Costs resulting from timberland sales were $32,000, $20,000, and $0.8 million in 2003, 2002, and 2001, respectively. The timberland sale costs in 2001 resulted from the aforementioned 3,750-acre sale of a portion of the Columbia tree farm.

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Operating Expenses

        Fee Timber operating expenses for each of the three years ended December 31, 2003, 2002, and 2001 were $3.1 million, $2.7 million, and $2.5 million, respectively. Operating cost increased in 2003 relative to 2002 due to added silviculture and road maintenance costs. Silviculture costs represent the cost of projects that are undertaken for the purpose of increasing the quantity or quality of our timber inventory. Examples include management of competing vegetation and work performed to improve the seed stock available for us to grow seedlings for future reforestation. We have experienced an increase in road maintenance costs following the enactment of new road maintenance rules in Washington state. Management expects continued high levels of road maintenance costs for the next 2 to 3 years as we upgrade roads and culverts to comply with the new rules. The increase in operating expenses in 2002 relative to 2001 is due to the first full year of operating costs for the Columbia tree farm that was acquired in March of 2001.

Timberland Management and Consulting

Revenues and Operating Income

        The Timberland Management and Consulting segment earns revenue by providing timberland management and forestry consulting services to timberland owners and managers. An additional aspect of that segment’s activities is the development of timberland property portfolios on behalf of third-party clients. Management is currently marketing a timber fund to individual and institutional investors interested in investing directly in timberland properties to diversify their portfolios.

        Results for 2003 reflect the decline in revenue following HTRG’s decision to integrate management of its client properties into operations with the corollary decision not to renew the timberland management contract with ORMLLC. Revenues and operating income for the Timberland Management and Consulting segment for each year in the three-year period ended December 31, 2003, are as follows:

        Fiscal Year 2003 compared to 2002. Revenue decreased $4.9 million, or 67%, to $2.4 million in 2003 from $7.3 million in 2002. The decrease in revenue was primarily the result of HTRG’s decision to not renew the management contract with ORMLLC and the closure of our Canadian forestry consulting offices. Operating income declined $647,000, or 72%. Revenue and operating income in 2003 includes $1.8 million and $1.6 million of revenue, respectively, from a major timberland management client. ORMLLC successfully completed the management assignment for this client in late 2003. As a result, operating results for 2004 are expected to compare unfavorably to 2003 for this segment unless additional management or consulting assignments are located to replace the revenue from the completed project.

        Fiscal Year 2002 compared to 2001. Revenue decreased $2.4 million, or 25%, to $7.3 million in 2002 from $9.7 million in 2001. The decrease in revenue resulted from the renegotiation of a timberland management contract in mid-2001. The contract change resulted in a lower management fee offset in part by a larger fee earned upon disposition of the properties managed. Operating income declined $766,000 or 47%. The decrease in operating income is primarily due to $583,000 of restructuring charges recorded in the fourth quarter of 2002 following HTRG’s decision to not renew the management contract with ORMLLC and the closure of our Canadian forestry consulting offices.

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Operating Expenses

        Timberland Management and Consulting operating expenses for each of the three years ended December 31, 2003, 2002, and 2001 were $2.1 million, $6.4 million, and $8.0 million, respectively. Operating expenses decreased $4.3 million, or 67%, in 2003 relative to 2002 as a result of reducing the support infrastructure supporting the HTRG contract and closure of the forestry consulting offices in Canada. Operating expenses decreased in 2002 relative to 2001 as a result of reduced operating expenses in the forestry consulting business in Canada offset by the $583,000 of restructuring charges recorded following the loss of the HTRG contract and closure of the forestry consulting offices in Canada.

Investor Portfolio Management Business (IPMB)

        IPMB operations include timberland management and portfolio development. An example of portfolio development is ORM Timber Fund I, LP. If and when the fund is fully subscribed, both management and acquisition fees will be earned from administering the fund. These activities are, as well as the marketing costs associated with the fund, part of the IPMB. IPMB operations are currently conducted in ORMLLC and are subject to the following terms in the fund’s Limited Partnership Agreement.

        Limitation on Expenditures

        The 1997 amendment to Pope Resources’ Limited Partnership Agreement authorizing the IPMB strategy limits our cumulative net expenditures to $5,000,000, including debt guarantees. As of December 31, 2003 cumulative expenditures incurred in pursuit of IPMB opportunities, including guarantees, were less than cumulative revenues generated. Therefore, cumulative net expenditures as of December 31, 2003 against the $5,000,000 limit are zero.

        Allocation of Income

        The 1997 amendment to Pope Resources’ Limited Partnership Agreement further specifies that income from the IPMB will be split using a sliding scale allocation method beginning at 80% to the Partnership’s wholly-owned subsidiary, ORM, Inc., and 20% to Pope MGP, Inc., the managing general partner of the Partnership. The sliding scale allocation method will evenly divide IPMB income between ORM, Inc. and Pope MGP, Inc. once such income reaches $7,000,000 in any given fiscal year.

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Real Estate

Revenues and Operating Income

        Real Estate segment revenues are derived from land sales and rental income from income-producing properties. Results from Real Estate operations are expected to vary significantly from year to year as we make multi-year investments in entitlements and infrastructure prior to selling entitled or developed land.

        An example of this is our development property at Gig Harbor, Washington. In 2003, the City of Gig Harbor approved an amendment to its comprehensive plan that allows 35 acres of our property to be upzoned from “business park” to “commercial” zoning. Following this amendment, work began immediately to submit a rezone application and to plan the infrastructure necessary to make development of this site possible. In December 2003 we signed a purchase and sale agreement with Costco Wholesale Corporation to sell up to 20 acres of this 320-acre site for a store expected to open in 2005. Our agreement with Costco specifies a price to be paid of $10 per square foot, with the amount of square footage ultimately dependent on final site layout and store design considerations. We expect the ultimate sale price paid to be approximately $7.5 million for approximately 17 acres. This sale is not expected to close until late 2004 or 2005 as closing is contingent upon completion of the rezone application and installation of certain key infrastructure components.

        Revenues and operating loss for the Real Estate segment for each year in the three-year period ended December 31, 2003, are as follows:

Fiscal Year 2003 compared to 2002. Revenue increased $135,000, or 8%, to $1.7 million from $1.6 million in 2002. The increase in revenue is due to an increase in revenue generated at the Port Gamble townsite offset by a decrease in revenue from land sales. The Port Gamble townsite has benefited from increased management attention following the sale of Port Ludlow in 2001. Management has identified several buildings that were not being utilized to their full potential and, after making some capital improvements, has leased the properties at higher rates than previously realized. Land sale revenue has declined following the 2002 sale of all the lots in the Seabeck and Grandridge plats.

Fiscal Year 2002 compared to 2001. Revenue generated by the Real Estate segment decreased $11.5 million due to the sale of Port Ludlow operations in August 2001. Operating loss decreased $1.0 million primarily due to fewer non-recurring charges in 2002 ($895,000 in 2002 and $1.3 million in 2001) and the sale of Port Ludlow in 2001.

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Cost of Sales

        Real Estate cost of sales for each of the three years ended December 31, 2003, 2002, and 2001 were $390,000, $1.0 million, and $7.2 million, respectively. The decrease in cost of sales in 2003 relative to 2002 is due to the decrease in land sales. The decrease in costs of sales in 2002 relative to 2001 was due to the sale of Port Ludlow in the earlier period.

Operating Costs

        Real Estate operating expenses for each of the three years ended December 31, 2003, 2002, and 2001 were $1.8 million, $2.3 million, and $8.6 million, respectively. The decrease in operating expense from 2003 to 2002 is due to $895,000 of non-recurring expenses ($730,000 of environmental remediation and $165,000 of warranty charges) in 2002 netted against an increase in operating expenses for the Gig Harbor property. The decrease in operating expenses in 2002 relative to 2001 is due to the sale of Port Ludlow in 2001 offset by the $895,000 of non-recurring charges in 2002.

Environmental Remediation Costs

        We have an accrued liability of $292,000 and $629,000 at December 31, 2003 and 2002, respectively. The accrual represents estimated environmental remediation charges in and around the townsite of Port Gamble. Port Gamble is a historic town that was owned by Pope & Talbot, Inc. (P&T) for decades until 1985 when the townsite and other assets were spun off to the Partnership. P&T continued to operate the townsite through 1995 and lease the mill site at Port Gamble until January 2002 when a settlement agreement was signed between the Partnership and P&T, which divided up the responsibility for paying environmental remediation charges in Port Gamble. The mill site had an operating lumber mill through 1995 that was dismantled by the end of 1996.

        Activity in the environmental remediation liability consists of the following:

        As of December 31, 2003 the majority of the clean up work was complete. Most of the expenditures now represent the cost of monitoring the sites, which is required for five years. The remaining liability as of December 31, 2003 is expected to be adequate to cover remaining costs; however, if monitoring activities discover additional contamination, costs could exceed management’s current estimate.

General and Administrative (G&A)

        Fiscal Year 2003 compared to 2002. G&A costs decreased $1.1 million, or 26%, to $2.8 million from $3.9 million in 2002. The decrease is due to reductions in administrative headcount following the loss of the HTRG contract in December of 2002. G&A costs represented 11% of revenue for the year ended December 31, 2003 as compared to 12% of revenue for the comparable period in 2002.

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        Fiscal Year 2002 compared to 2001. G&A costs decreased $1.2 million, or 24%, to $3.9 million in 2002 from $5.1 million in 2001. The decrease is due to continued efforts to realize cost savings from our administrative departments following the sale of operations at Port Ludlow offset by $90,000 of restructuring charges incurred in 2002 following the loss of the HTRG contract. G&A costs represented 12% of revenue for the year ended December 31, 2002 as compared to 11% for the comparable period in 2001.

Taxes

        Fiscal Year 2003 compared to 2002. Income tax expense represents the tax expense associated with the Partnership’s taxable subsidiaries where third-party fee-for-service business is conducted. Tax expense in 2003 was $242,000 compared with a tax benefit of $788,000 in 2002. The income tax benefit in 2002 is the result of reducing the valuation allowance on a deferred tax asset relating to the realization of net operating losses from a subsidiary in Canada that was liquidated in the fourth quarter of 2002.

        Fiscal Year 2002 compared to 2001. An income tax benefit of $788,000 was recorded in 2002 compared to an expense of $0.4 million in 2001. The income tax benefit in 2002 resulted from the aforementioned realization of a tax benefit resulting from the Canadian subsidiary. Tax expense in 2001 resulted from income generated from the third-party fee-for–service business.

Minority Interest

        Minority interest represents Pope MGP, Inc.’s share of earnings from the Partnership’s IPMB. A description of IPMB can be found in the preceding discussion of operating results for the Timberland Management and Consulting segment.

        Fiscal Year 2003 compared to 2002. The minority interest charge decreased $100,000 in 2003 to $47,000 from $147,000 in 2002. The decline in minority interest is due to the loss of the HTRG contract in December 2002. Minority interest in 2003 was generated through commissions earned on the disposition of timberland properties for a timberland management customer.

        Fiscal Year 2002 compared to 2001. The minority interest charge decreased $24,000 to $147,000 in 2002 from $171,000 in 2001. The decrease in minority interest is due to the reduction in operating income from our timberland management activities following HTRG’s decision not to renew its management contract with ORMLLC.

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Supplemental Segment Information

        The following table provides quarterly comparative operating information for our segments:

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

        General. The Partnership’s cash position has been building since 2001 when we used a combination of timber mortgage debt and proceeds from the sale of Port Ludlow to acquire the Columbia tree farm. As of December 31, 2003 our cash position was $10.4 million, representing a $3.7 million increase from the December 31, 2002 balance of $6.6 million. In January 2004 we used $8.3 million of this cash balance to acquire 3,300 acres of timberland that is interspersed among the Columbia tree farm (a $250,000 earnest money deposit had been paid into escrow prior to year-end 2003). As a result of this acquisition, our timber harvest is expected to increase 25% to 58 MMBF in both 2004 and 2005 from 45 MMBF in 2003 and 2002, which will result in an increase in both net income and operating cash flows.

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        We generate operating cash flow through the sale of timber products, by providing timberland management and consulting services, and by selling land for development. An additional recurring source of cash is payments received on a note receivable from the purchaser of the Port Ludlow assets, which were sold in 2001. This note, secured by homes and lots in Port Ludlow, has a balance of $817,000 at December 31, 2003, and matures in August 2004. Significant recurring uses of cash include the following: replanting and fertilizing trees; maintaining an adequate road system on our tree farms; investing in our development properties; funding annual debt payments on timber mortgages and local improvement district debt; and funding quarterly cash distributions. As a general rule, management expects operating cash flows will be sufficient to cover the foregoing and to build up cash reserves. As discussed below, however, we may incur additional debt in the future to fund timberland purchases or significant capital improvements on our development properties if management determines operating cash flows or cash reserves are not sufficient to cover these expenditures. Management decided to not renew its line of credit in 2002 as the cash balance and short-term capital needs made the line of credit unnecessary. While credit markets are currently very favorable for the Partnership, management can make no assurance that if we need to obtain capital through borrowing in the future that financing will be available on terms acceptable to management.

        Operating cash flows. The table below provides the components of operating cash flows for each of the three years 2001, 2002, and 2003. Cash received from customers and paid to suppliers and employees results from the harvest and sale of forest products from our tree farms, timberland management and consulting services provided to timberland owners, and finally, the sale and management of our development properties.