STRATEGIC TIMBER TRUST INC, S-11/A, 1999-05-06

STRATEGIC TIMBER TRUST INC
S-11/A, 1999-05-06
REAL ESTATE INVESTMENT TRUSTS

Previous: WCM INVESTMENT MANAGEMENT/CA, 13F-HR, 1999-05-06

Next: DEUTSCHE RECREATIONAL ASSET FUNDING CORP, 305B2, 1999-05-06

<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1999

REGISTRATION NO. 333-71291
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

AMENDMENT NO. 3

TO
FORM S-11
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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

STRATEGIC TIMBER TRUST, INC.

(Exact name of registrant as specified in its governing instruments)

5 NORTH PLEASANT STREET
NEW LONDON, NEW HAMPSHIRE 03257
(603) 526-7800
(Address, including zip code, and telephone number, including area code, of
registrant's
principal executive offices)

C. EDWARD BROOM, PRESIDENT AND CHIEF EXECUTIVE OFFICER
STRATEGIC TIMBER TRUST, INC.
5 NORTH PLEASANT STREET
NEW LONDON, NEW HAMPSHIRE 03257
(603) 526-7800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

Copies to:

<TABLE>
<S> <C>
WILLIAM H. BRADLEY, ESQ. ROBERT V. JEWELL, ESQ.
THOMAS C. HERMAN, ESQ. CATHERINE S. GALLAGHER, ESQ.
SUTHERLAND ASBILL & BRENNAN LLP ANDREWS & KURTH L.L.P.
999 PEACHTREE STREET, N.E. 600 TRAVIS, SUITE 4200
ATLANTA, GEORGIA 30309-3996 HOUSTON, TEXAS 77002-3090
(404) 853-8000 (713) 220-4200
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
------------------

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED MAY 6, 1999

PROSPECTUS

<TABLE>
<S> <C> <C>
16,600,000 SHARES
[LOGO] STRATEGIC TIMBER TRUST, INC.
COMMON STOCK
$ PER SHARE
</TABLE>

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

Strategic Timber Trust, Inc. acquires, owns and manages timberlands and
sells timber. We expect to qualify as a real estate investment trust, or a REIT,
for federal income tax purposes.

This is an initial public offering. We currently expect the initial public
offering price to be between $19 and $21 per share. The common stock has been
approved for quotation on the Nasdaq National Market under the symbol "STTR."
The underwriters named in this prospectus may purchase up to 2,490,000
additional shares of common stock from us to cover over-allotments.

------------------
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 9 FOR MATERIAL RISKS THAT MAY AFFECT YOUR INVESTMENT IN THE
COMMON STOCK, INCLUDING:

- The volatility of timber prices may reduce our revenues.

- Forestry, environmental and endangered species regulations restrict
timber harvesting and may otherwise restrict our ability to conduct our
business.

- Tax laws do not require us to distribute any cash to you.

- We do not have a significant operating history, and we have incurred a
combined net loss of $23.5 million through March 31, 1999.

- Our management has never operated a REIT or a public company.
- We may not be able to achieve our intended growth.
- Acquisitions of additional timberlands involve numerous risks.

Tax laws and provisions of our organizational documents limit ownership of
our common stock by one person to 9.8% of all outstanding shares and may
otherwise restrict transfers of our common stock.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------

<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------- ------------
<S> <C> <C>
Initial Public Offering Price $ $
Underwriting Discount $ $
Proceeds to Strategic Timber (before expenses) $ $
</TABLE>

The underwriters are offering the shares subject to a number of conditions.
The underwriters expect to deliver the shares to purchasers on or about
, 1999.
------------------
SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
A.G. EDWARDS & SONS, INC.
WARBURG DILLON READ LLC
ABN AMRO ROTHSCHILD
A DIVISION OF ABN AMRO
INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
, 1999
<PAGE> 3

<PAGE> 4

[COMPANY LOGO] STRATEGIC TIMBER TRUST, INC.

[MAP DEPICTING LOCATION OF REGISTRANT'S TIMBERLANDS AND SURROUNDING
MARKETS APPEARS HERE]

<TABLE>
<CAPTION>
NUMBER OF
MILLS WITHIN
MARKET AREA OF
PROPERTY ACRES* PREDOMINANT SPECIES PROPERTY
-------- ------- ------------------- --------------------
<S> <C> <C> <C>
California:
Coastal 79,026 Second-growth redwood, Douglas-fir 22
Commander 43,313 Douglas-fir, white fir, ponderosa pine 20
Louisiana 81,991 Slash and loblolly pine 50
Oregon 230,323 Ponderosa pine, Douglas-fir, white fir 14
Washington 10,822 Douglas-fir, western hemlock, cedar 31
------- ---
Total 445,475 137
======= ===
</TABLE>

*As of March 31, 1999.

<PAGE> 5

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with additional or different
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information contained
in this prospectus is accurate as of any date other than the date on the front
of this prospectus.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY................................. 1
Strategic Timber Trust, Inc........... 1
Summary Risk Factors.................. 2
Structure and Formation of Strategic
Timber.............................. 4
Summary of Equity Ownership of
Strategic Timber.................... 5
Benefits to Related Parties........... 5
The Offering.......................... 7
Tax Status............................ 7
Summary Selected Pro Forma Financial
and Operating Information........... 8
RISK FACTORS............................ 9
The volatility of timber prices may
reduce our revenues................. 9
Forestry, environmental and endangered
species regulations restrict timber
harvesting and may otherwise
restrict our ability to conduct our
business............................ 9
Tax laws do not require us to
distribute any cash to you.......... 12
We do not have a significant operating
history, and we have incurred a
combined net loss of $23.5 million
through March 31, 1999.............. 12
Our management has never operated a
REIT or a public company............ 13
We may not be able to achieve our
intended growth..................... 13
Acquisitions of additional timberlands
involve numerous risks.............. 13
Our recently declared distribution
will be funded with borrowings under
our new credit facility............. 14
Our recognition of revenues depends on
when buyers harvest our timber...... 14
We may be required to refund some or
all of the advance payments we
receive from timber buyers.......... 14
Our financial results and cash flow
will change from season to season... 14
Losses of timber from fire and other
causes are not insured.............. 15
We will be taxed as a regular
corporation if we fail to qualify as
a REIT.............................. 15
Tax laws and provisions of our
organizational documents may delay
or prevent a change in our ownership
or management that may be in your
best interests...................... 15
Our actual timber inventory may be
less than our current estimates..... 16
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
We may invest in timberlands in
countries outside the United States,
which may be substantially riskier
than investments in domestic
timberlands......................... 16
You will incur immediate dilution of
your common stock................... 17
Our common stock has not had a prior
trading market and we do not know if
one will develop.................... 17
The market price of our common stock
could fluctuate significantly....... 17
Shares eligible for sale in the future
may reduce the market price of our
common stock........................ 17
Some members of our management and
other continuing investors could
have conflicts of interest.......... 18
We may change our investment,
financing and other policies without
your approval....................... 18
We are subject to risks associated
with our interest rate swap
agreements.......................... 18
An investment in the common stock
involves other tax issues........... 19
FORWARD-LOOKING STATEMENTS.............. 19
STRUCTURE AND FORMATION OF STRATEGIC
TIMBER................................ 20
Our Structure......................... 20
Our Formation......................... 20
Benefits to Related Parties........... 24
DISTRIBUTION POLICY..................... 25
USE OF PROCEEDS......................... 26
CAPITALIZATION.......................... 27
DILUTION................................ 28
SELECTED HISTORICAL FINANCIAL AND
OPERATING INFORMATION................. 29
PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION................. 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................ 44
Overview.............................. 44
Plan of Operation..................... 44
Historical Results of Operations...... 47
Liquidity and Capital Resources....... 53
Commitments and Contingencies......... 56
Year 2000............................. 57
Market Risk........................... 59
BUSINESS AND PROPERTIES................. 61
Overview.............................. 61
Business Strategy..................... 63
Our Competitive Strengths............. 66
</TABLE>

i
<PAGE> 6

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Timber Industry Overview.............. 68
Initial Timberland Properties......... 73
Harvest Methods....................... 90
Access and Limitations on Access...... 91
Federal and State Regulations......... 91
Our Customers......................... 99
Competition........................... 99
Insurance Coverage.................... 100
Legal Proceedings..................... 100
Employees............................. 100
POLICIES WITH RESPECT TO
CERTAIN ACTIVITIES.................... 101
Investment Policies................... 101
Financing Policies.................... 101
Working Capital Reserves.............. 102
Conflict of Interest Policies......... 102
Reports to Shareholders............... 103
Other Policies........................ 103
MANAGEMENT.............................. 105
Directors and Executive Officers...... 105
Management Relationships.............. 108
Committees of the Board of
Directors........................... 108
Executive Compensation................ 109
Compensation of Directors............. 109
1999 Incentive Plan................... 110
Employment and Non-Competition
Agreements.......................... 111
Compensation Committee Interlocks and
Insider Participation............... 112
TRANSACTIONS WITH RELATED PARTIES....... 113
PRINCIPAL SHAREHOLDERS.................. 114
DESCRIPTION OF CAPITAL STOCK............ 115
General............................... 115
Common Stock.......................... 115
Transfer Agent and Registrar.......... 115
Preferred Stock....................... 115
Restrictions on Ownership and Transfer
of Shares........................... 116
Nasdaq National Market Listing........ 117
MATERIAL PROVISIONS OF
GEORGIA LAW AND STRATEGIC TIMBER'S
ARTICLES OF
INCORPORATION AND BYLAWS THAT MAY HAVE
AN ANTI-TAKEOVER EFFECT............... 118
Ownership Limit....................... 118
Business Combination Provisions of
Georgia Law......................... 118
The Board of Directors................ 119
Special Meetings of Shareholders;
Consents............................ 119
Preferred Stock....................... 119
Advance Notice of Director Nominations
and New Business.................... 120
Supermajority Vote Requirements....... 120
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Amendment of Articles of Incorporation
and Bylaws.......................... 120
Limitation of Liability and
Indemnification..................... 120
Insurance Policies.................... 122
SHARES AVAILABLE FOR FUTURE SALE........ 123
General............................... 123
Registration Rights................... 124
THE PARTNERSHIP AGREEMENT............... 125
Powers of Strategic Timber Operating
Co., as General Partner............. 125
Power of Attorney..................... 125
Transfer of the General Partner's and
Strategic Timber's Interests........ 125
Amendments to the Partnership
Agreement........................... 125
Transfer of Partnership Units;
Substitute Limited Partners......... 126
Redemption of Partnership Units....... 126
Issuance of Additional Limited
Partnership Interests; Additional
Capital Contributions............... 126
Other Covenants....................... 126
Exculpation and Indemnification of
Strategic Timber and Strategic
Timber
Operating Co........................ 126
Cash Distributions.................... 127
Tax Matters........................... 127
Term.................................. 127
FEDERAL INCOME TAX
CONSEQUENCES.......................... 128
Legal Opinions........................ 128
Taxation of Strategic Timber.......... 129
Taxation of Taxable U.S.
Shareholders........................ 135
Taxation of Tax-Exempt Shareholders of
Strategic Timber.................... 137
Taxation of Non-U.S. Shareholders of
Strategic Timber.................... 137
Tax Aspects of Strategic Timber's
Ownership of Interests in Strategic
Timber Partners..................... 140
Other Taxes........................... 142
ERISA CONSIDERATIONS.................... 144
General............................... 144
Status of Strategic Timber and
Strategic Timber Partners under
ERISA............................... 145
UNDERWRITING............................ 147
EXPERTS................................. 149
LEGAL MATTERS........................... 149
WHERE YOU CAN FIND MORE
INFORMATION........................... 150
GLOSSARY OF SELECTED TIMBER INDUSTRY
TERMS................................. 151
INDEX TO FINANCIAL STATEMENTS........... F-1
</TABLE>

Until , 1999, all dealers that buy, sell or trade the common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

ii
<PAGE> 7

SUMMARY

This section summarizes information contained in other parts of this
prospectus. This summary does not contain all of the information you should
consider before investing in our common stock. You should read the entire
prospectus carefully before deciding to invest in our common stock.

We are a Georgia corporation. We operate our business through our operating
partnership, Strategic Timber Partners, LP, a Delaware limited partnership, and
its subsidiary, Pioneer Resources, LLC, an Oregon limited liability company. We
own all the stock of the sole general partner of Strategic Timber Partners, a
Delaware corporation called Strategic Timber Operating Co.

Unless we state otherwise, the information in this prospectus assumes that
the transactions described under "Structure and Formation of Strategic Timber"
are completed, the underwriters' over-allotment option is not exercised and the
initial public offering price is $20 per share, the mid-point of the range of
anticipated initial public offering prices. Unless we state otherwise, all share
and per share information in this prospectus has been adjusted to reflect a
36.59-for-1 common stock split, which will occur before completion of this
offering.

STRATEGIC TIMBER TRUST, INC.

We acquire, own and manage timberlands and sell standing trees, commonly
referred to as timber. We have been in business since April 1998. As of March
31, we owned approximately 445,000 acres of timberlands in the states of
California, Louisiana, Oregon and Washington. Our timberlands are located in
active and competitive timber markets. They contain a variety of species of
merchantable timber, which is timber that is suitable for sale in local markets
for commercial uses. Approximately 87% of our merchantable timber is of
sufficient size and quality to be manufactured into lumber or plywood, which is
more valuable than timber of the same species that can be converted only into
pulp, paper products or other wood products.

Our revenues come primarily from the sale of timber to purchasers who cut
the timber and then transport the cut timber, or logs, to mills that produce
lumber, plywood, paper or other wood products. Because we do not own any timber
conversion facilities, such as lumber mills or paper mills, we do not have the
cash operating expenses, working capital needs and capital expenditures
associated with these facilities. Our primary operating expense will be
depletion, which is a non-cash expense relating to the cost of timber harvested.
Accordingly, we expect the cash we generate from our operations to exceed our
earnings for accounting purposes. Some of the cash that we generate consists of
advance payments from our timber buyers, which are recorded as current customer
deposit liabilities. We reduce the deposit liabilities and record revenue as our
buyers cut timber. From our inception through March 31, 1999, and before
beginning full scale operations, our businesses incurred a combined net loss of
$23.5 million.

We will elect to be taxed as a REIT for federal income tax purposes. Most
of our net income will be treated as capital gains. The tax rules applicable to
REITs do not require us to distribute any of our capital gains to you. We intend
to use this flexibility, which is not available to REITs primarily earning
ordinary income, to retain a substantial part of the cash we generate to acquire
additional timberlands. We also expect to distribute a portion of our cash to
you. These distributions will generally be treated as either a return of capital
or as capital gains.

Our principal objective is to maximize long-term shareholder value. We
believe that we are well-positioned to achieve this objective because:

WE BELIEVE TIMBER IS AN ATTRACTIVE INVESTMENT ASSET

- Trees grow predictably, and generally become worth more per unit of
volume as they grow because the logs they produce have higher value
end uses.

- Timber owners have flexibility to harvest more trees when local
timber prices are high. When local timber prices are low, owners can
harvest less and let the trees continue to grow.

1
<PAGE> 8

- Historically, timber prices in the United States have risen faster
than inflation over the long term.

- We expect worldwide demand for wood products to increase over the
foreseeable future. By contrast, we expect that worldwide timber
supplies will be constrained relative to this demand.

OUR MANAGEMENT HAS SUBSTANTIAL EXPERIENCE IN ACQUIRING AND MANAGING
TIMBERLANDS

- Since 1985, members of our management have participated in a series
of timberland investments in the United States, Latin America and
New Zealand as principals, investment managers and investment
advisors.

WE BELIEVE THERE WILL BE INCREASING OPPORTUNITIES FOR US TO ACQUIRE
ADDITIONAL TIMBERLANDS

- We have observed a growing trend toward consolidation of timberland
ownership. We believe this trend will continue because of (1) the
desire of large forest products companies to recognize greater value
from their timberland assets and (2) the difficulties faced by
owners of smaller timberland tracts in efficiently managing their
timberlands.

WE BELIEVE WE CAN COMPETE EFFECTIVELY IN ACQUIRING TIMBERLANDS

- The tax rules do not require us to distribute most of our earnings
to our shareholders. This will permit us to retain a substantial
part of the cash we generate from the sale of timber for
acquisitions.

- Our structure allows a timberland owner to contribute timberlands to
us in exchange for interests in our operating partnership. This will
permit these owners to defer the tax on their gains while
diversifying and obtaining liquidity for their timberland assets.

- Forest products companies that operate mills may view us as a
preferred purchaser of their timberlands because we do not compete
with their manufacturing operations, since we do not own timber
conversion facilities.

HOW TO CONTACT US

Our principal executive offices are located at 5 North Pleasant Street, New
London, New Hampshire 03257, and our telephone number is (603) 526-7800.

SUMMARY RISK FACTORS

You should carefully consider, among other factors, the discussion under
"Risk Factors" in this prospectus before deciding whether to invest in our
common stock. We have summarized below some of these risk factors.

- The volatility of timber prices may reduce our revenues.

- Forestry, environmental and endangered species regulations restrict
timber harvesting and may otherwise restrict our ability to conduct our
business.

- Tax laws do not require us to distribute any cash to you.

- We do not have a significant operating history, and we have incurred a
combined net loss of $23.5 million through March 31, 1999.

- Our management has never operated a REIT or a public company.

- We may not be able to achieve our intended growth.

- Acquisitions of additional timberlands involve numerous risks.

- Our recently declared distribution will be funded with borrowings under
our new credit facility.

2
<PAGE> 9

- Our recognition of revenues depends on when buyers harvest our timber.

- We may be required to refund some or all of the advance payments we
receive from timber buyers.

- Our financial results and cash flow will change from season to season.

- Losses of timber from fire and other causes are not insured.

- We will be taxed as a regular corporation if we fail to qualify as a
REIT.

- Tax laws and provisions of our organizational documents may delay or
prevent a change in our ownership or management that may be in your best
interests. These provisions limit ownership of our common stock by one
person to 9.8% of all outstanding shares.

- Our actual timber inventory may be less than our current estimates.

- We may invest in timberlands in countries outside the United States,
which may be substantially riskier than investments in domestic
timberlands.

- By purchasing common stock in this offering, you will incur immediate
dilution of $4.85 per share, based on an initial public offering price of
$20 per share.

- Our common stock has not had a prior trading market and we do not know if
one will develop.

- The market price of our common stock could fluctuate significantly.

- Shares available for sale in the future may reduce the market price of
our common stock.

- Some members of our management and other continuing investors could have
conflicts of interest.

- We may change our investment, financing and other policies without your
approval.

- We are subject to risks associated with our interest rate swap
agreements.

- An investment in the common stock involves other tax issues.

3
<PAGE> 10

STRUCTURE AND FORMATION OF STRATEGIC TIMBER

We formed Strategic Timber and our operating partnership, Strategic Timber
Partners, in April 1998 to acquire property in southwest Louisiana that, as of
March 31, 1999, consisted of approximately 82,000 acres of timberland. We
financed the transaction through a combination of bank loans and the issuance of
units in our operating partnership to the sellers. In October 1998, companies
formed by our initial shareholders acquired Pioneer Resources, LLC, an entity
that held approximately 363,000 acres of timberland in the U.S. Pacific
Northwest as of March 31, 1999. The acquisition was financed through a
combination of bank loans, the issuance of units to the sellers, and an
additional equity contribution by a company affiliated with the sellers of the
Louisiana property. At the completion of this offering, the companies that
acquired Pioneer will be merged into our operating partnership. As a result, our
operating partnership will control all of our timberlands.

At the completion of this offering, we will have sold 16,600,000 shares of
common stock to the public and received net proceeds of $305.8 million, based on
an initial public offering price of $20 per share. We will use the net proceeds
of this offering, together with borrowings under a new credit facility,
primarily to (1) repay in full the amounts that we borrowed to acquire our
timberlands and finance our ongoing operations, and (2) redeem $47.0 million of
the existing units held by persons who sold timberland properties to us. See
"Use of Proceeds."

As a result of this offering and the transactions described above, our
structure will be as follows:

Public Shareholders (96.1%)
Continuing Investors (3.9%)

Strategic Timber Trust, Inc.

Common Stock Continuing
(100% of Shares) Investors

Strategic Timber Limited Partner Limited Partner
Operating Co. Interest (76.7%) Interest (22.3%)

General Partner
Interest (1.0%)

Strategic Timber Partners, LP
(holds all investment properties)

The percentages listed above do not reflect the potential issuance of
1,115,000 shares issuable upon the exercise of options we will grant at or
before the completion of this offering under our stock incentive plan. See
"Principal Shareholders" and "Management -- 1999 Incentive Plan."

4
<PAGE> 11

SUMMARY OF EQUITY OWNERSHIP OF STRATEGIC TIMBER

After we complete this offering and the formation transactions, the
ownership of Strategic Timber will be as follows:

<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------------------
PERCENTAGE BEFORE
CONVERSION OF UNITS PERCENTAGE ASSUMING
INTO COMMON CONVERSION OF ALL UNITS
STOCK INTO COMMON STOCK
------------------- --------------------------
<S> <C> <C>
OWNERSHIP OF STRATEGIC TIMBER
Public Shareholders.................................. 96.1% 74.7%
Management........................................... 3.6 7.2
Other Continuing Investors........................... 0.3 18.1
----- -----
100.0% 100.0%
===== =====
</TABLE>

BENEFITS TO RELATED PARTIES

Our executive officers and affiliates will benefit from this offering and
the formation transactions as follows:

- Our executive officers will hold shares of common stock and units valued
at $32.1 million, based on an initial public offering price of $20 per
share, as shown below.

<TABLE>
<CAPTION>
VALUE AT
SHARES AND VALUE OF COMPLETION
UNITS CONSIDERATION OF OFFERING
---------- ---------------------- -----------
<S> <C> <C> <C>
C. Edward Broom............................ 408,329 $ 290 $ 8,166,580
Christopher J. Broom....................... 408,329 290 8,166,580
Thomas P. Broom............................ 408,329 290 8,166,580
T. Yates Exley............................. 108,516 2,047,250 2,170,320
Nicholas C. Brunet......................... 90,740 6 1,814,800
Vladimir Harris............................ 90,740 65 1,814,800
Joseph E. Rendini.......................... 90,740 65 1,814,800
--------- ---------- -----------
Total................................... 1,605,723 $2,048,256 $32,114,460
========= ========== ===========
</TABLE>

The shares and units that we issued to these executives, other than T.
Yates Exley, were in consideration of services. Except for the shares
issued to Mr. Brunet, these shares and units were issued upon the
formation of Strategic Timber and Strategic Timber II. Mr. Brunet received
his shares as of June 15, 1998, when he joined us. When issued, the value
of these shares and units reflected the value of Strategic Timber and
Strategic Timber II. Mr. Exley received his units in connection with our
acquisition of Pioneer, as described below.

- Our executive officers will also receive options to acquire a total of
875,000 shares of our common stock at the initial public offering price.
These options will vest in equal amounts over the three years following
completion of this offering.

- We have employment agreements with Messrs. C. Edward Broom, Christopher
J. Broom, Thomas P. Broom, Kenneth L. Chute, Nicholas C. Brunet, Vladimir
Harris and Joseph E. Rendini.

- Louisiana Timber Partners, LLC, the company that sold us the right to
acquire the Louisiana property, will receive $12.9 million in cash in
redemption of a portion of its units, and will own 1,762,974 units upon
completion of this offering. Hanns A. Pielenz, who has agreed to serve on
our

5
<PAGE> 12

Board of Directors, and Larry J. Woodard are the principal owners of
Louisiana Timber. The units retained by Louisiana Timber will have a
value of $35.3 million, based on an initial public offering price of $20
per share. Louisiana Timber acquired its units in exchange for
contributing to our operating partnership a contract to acquire the
Louisiana property.

- Mach One Partners, LLC, a separate company owned equally by Messrs.
Pielenz and Woodard, will receive $10.0 million in cash and 100,110 units
at the completion of this offering in redemption of its interest in
Strategic Timber Partners II, LP. Strategic Timber Partners II is one of
the companies that will be merged into our operating partnership. Mach
One acquired its interest in Strategic Timber Partners II in exchange for
a cash contribution of $10.0 million that was used to finance our
acquisition of Pioneer, and the cash and units it receives will have a
value of $12.0 million, based on an initial public offering price of $20
per share. Mach One will receive these units in satisfaction of its right
to receive an annual return of 40% on its original investment under the
Strategic Timber Partners II limited partnership agreement.

- In connection with our acquisition of Pioneer, we paid $35.0 million in
cash and issued interests in Strategic Timber Partners II to the former
members of Pioneer, including Gregory M. Demers. Mr. Demers, together
with a company he owns and controls, beneficially owned 76.5% of Pioneer
at the time of the acquisition. Upon completion of this offering and the
merger of Strategic Timber Partners II into our operating partnership,
Mr. Demers and his company will receive $18.4 million in cash in
redemption of a portion of their interests in Strategic Timber Partners
II and will beneficially own 1,660,333 units. These units will have a
value of $33.2 million, based on an initial public offering price of $20
per share.

- In connection with our acquisition of Pioneer, T. Yates Exley, one of the
former members of Pioneer and one of our Vice Presidents, received an
interest in Strategic Timber Partners II. The value of this interest is
estimated to be $2,047,250, which represents the portion of the
acquisition price of Pioneer allocable to Mr. Exley's interest, net of
cash proceeds to be paid to Mr. Exley. Mr. Exley will receive $1.2
million in cash and, as indicated above, 108,516 units in redemption of
this interest upon completion of this offering. These units will have a
value of $2.2 million, based on an initial public offering price of $20
per share.

You should review "Management" and "Transactions with Related Parties" for
additional information concerning benefits to executive officers, directors and
other continuing investors.

6
<PAGE> 13

THE OFFERING

Common stock we are offering........ 16,600,000 shares

Common stock to be outstanding after
this offering....................... 17,271,770 shares

Common stock and units to be
outstanding after this offering..... 22,237,975 shares and units

Use of Proceeds..................... Primarily to repay indebtedness and to
redeem the interests of some of the
continuing investors.

Nasdaq symbol....................... The common stock has been approved for
quotation on the Nasdaq National Market
under the symbol "STTR."

Each unit is redeemable for cash or, at our option, for one share of our
common stock. The number of shares of common stock listed above excludes
1,115,000 shares issuable upon the exercise of options we will grant at or
before the completion of this offering under our stock incentive plan. See "The
Partnership Agreement," "Structure and Formation of Strategic Timber" and
"Management -- 1999 Incentive Plan."

TAX STATUS

We plan to elect to be taxed as a REIT for federal income tax purposes
beginning with our 1998 tax year. Sutherland Asbill & Brennan LLP has acted as
our counsel in connection with this offering and our election to be taxed as a
REIT. Based on assumptions and factual representations we made to it, Sutherland
Asbill & Brennan LLP is of the opinion that we will meet the requirements to
qualify as a REIT for federal income tax purposes, and that our proposed method
of operation will enable us to continue to meet the requirements for
qualification and taxation as a REIT. We have received favorable tax rulings
from the IRS that confirm the opinion of Sutherland Asbill & Brennan LLP that:

- Timberlands and timber qualify as real property and therefore as real
estate assets for purposes of the tax rules applicable to REITs; and

- Gross income from the type of timber cutting agreements we will use to
sell our timber is qualifying income for purposes of the tax rules
applicable to REITs.

As a REIT, we generally will not be subject to federal income taxes on the
portion of our net income that we distribute to you. We may, however, be subject
to certain federal income taxes and certain state and local taxes on our income
and property. See "Risk Factors -- We will be taxed as a regular corporation if
we fail to qualify as a REIT," " -- An investment in the common stock involves
other tax issues" and "Federal Income Tax Consequences."

7
<PAGE> 14

SUMMARY SELECTED PRO FORMA FINANCIAL AND OPERATING INFORMATION

In this section, we have provided you with a summary of the unaudited pro
forma financial information. The pro forma balance sheet information presents
our pro forma financial condition as if the formation transactions and this
offering had occurred as of March 31, 1999. The pro forma operating results for
the year ended December 31, 1998 and for the three months ended March 31, 1999
present our pro forma operating results as if this offering and the formation
transactions had occurred as of January 1, 1998, except as described below. The
pro forma operating results include:

- the historical results of Pioneer, our predecessor operation, as adjusted
to eliminate the results of operations and related assets and liabilities
we did not acquire;

- the historical results from our Louisiana property only from April 27,
1998, the date we purchased these timberlands; and

- the historical results from the Coastal forest portion of our Pacific
Northwest timberlands only from July 5, 1998, the date Pioneer purchased
these timberlands.

The pro forma operating results do not include the historical results of
the Louisiana property before we purchased these timberlands. We acquired these
timberlands from an unrelated group of families that did not actively manage the
property for commercial timber operations. The pro forma operating results also
do not include the historical results of the Coastal forest portion of the
Pacific Northwest timberlands before the purchase of these timberlands by
Pioneer in July 1998. We believe that there is limited continuity between the
operation of the Coastal forest before and after Pioneer acquired these
timberlands. Because of the lack of continuity of operations before and after
these purchases, we believe that inclusion of historical financial information
for the Louisiana property and the Coastal forest in the pro forma operating
results prior to the dates of acquisition would not be helpful to your
understanding of our business or operations.

This section is a summary. We have included more complete pro forma
financial information, as well as historical financial information, in other
parts of this prospectus. We urge you to read this summary together with
"Structure and Formation of Strategic Timber," "Pro Forma Condensed Consolidated
Financial Information," "Selected Historical Financial and Operating
Information" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," as well as with the historical financial statements
and accompanying notes located elsewhere in this prospectus.

The pro forma financial information does not necessarily indicate what our
financial condition or results of operations actually would have been if all of
our pro forma assumptions were correct. Furthermore, we do not believe that this
information is indicative of our financial position and results of operations in
the future.

<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
--------------------------------------
PRO FORMA
--------------------------------------
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ 37,567 $ 8,622
Depletion, depreciation and amortization.................... 14,742 5,148
Cost of timberland and property sold........................ 2,257 66
Cost of products sold....................................... 11,056 9
Selling, general and administrative expenses................ 8,809 1,393
Operating income............................................ 39 1,840
Interest expense............................................ 18,426 4,910
Minority interest........................................... 1,420 554
Loss from continuing operations............................. (16,922) (2,501)
Basic and diluted loss from continuing operations per
share..................................................... $ (0.98) $ (0.14)
Weighted average number of shares used in the calculation of
basic and diluted loss from continuing operations per
share..................................................... 17,271,770 17,271,770
BALANCE SHEET DATA (AT PERIOD END):
Timberlands................................................. $ 604,055
Total assets................................................ 616,186
Long-term debt.............................................. 269,215
Minority interest........................................... 61,722
Shareholders' equity........................................ 278,597
</TABLE>

8
<PAGE> 15

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should
carefully consider the following risk factors, as well as the other information
presented in this prospectus, in deciding whether to invest in our common stock.
Each of these factors could adversely affect the market price of our common
stock and our financial results.

THE VOLATILITY OF TIMBER PRICES MAY REDUCE OUR REVENUES

CHANGES IN SUPPLY AND DEMAND AFFECT TIMBER PRICES AND OUR REVENUES

The volatile nature of timber prices can reduce our revenues. The market
price for timber can change substantially, based on changes in supply and
demand, especially for a particular species or in a particular geographic area.
Decreases in demand, increases in supply, or both, may reduce prices for our
timber, which in turn could reduce our revenues and negatively affect our
financial results.

The industries that use wood products drive the demand for timber. The vast
majority of our timberlands are stocked with softwood sawtimber. The demand for
most softwood sawtimber depends on the level of construction, repair and
remodeling activity. Interest rates and other local, national and international
economic conditions affect the level of construction, repair and remodeling
activity. A slowdown in construction is likely to reduce demand for our timber,
which would reduce our revenues. Wood substitutes and products made from lower
quality wood increasingly compete with higher quality sawtimber, which may also
reduce demand for our timber.

The number of timber sellers and the volume of timber they have available
for sale determine the supply of timber. Historically, increases in timber
prices have caused owners of timberlands to cut more trees. This increase in
supply may reduce the amount of price increases. Some government agencies,
principally the United States Forest Service and the Bureau of Land Management,
own large amounts of timberlands. If these agencies choose to sell more timber
than they have been selling in recent years, timber prices could fall. The
supply of timber available for harvest is also affected by, among other things,
environmental and other legal restrictions on harvesting, self-imposed
restrictions on harvesting attributable to timberland management decisions, and
natural events that destroy trees or entire forests, such as insect infestation,
severe weather and fire. See "Business and Properties -- Timber Industry
Overview -- Timber Demand, Supply and Prices."

WEAK EXPORT MARKETS MAY REDUCE DEMAND FOR OUR TIMBER

Weak overseas markets for wood and wood products, including weak demand in
Asia due to its continuing economic problems, and the resulting increase in
domestic supply, have reduced and may continue to reduce the prices that we can
obtain for our timber.

FORESTRY, ENVIRONMENTAL AND ENDANGERED SPECIES REGULATIONS RESTRICT TIMBER
HARVESTING AND MAY OTHERWISE RESTRICT OUR ABILITY TO CONDUCT OUR BUSINESS

IF OUR REGULATORY FILINGS ARE DELAYED OR REJECTED, HARVESTING ON OUR
TIMBERLANDS COULD BE RESTRICTED

In connection with timber harvesting on our properties, we are required to
make regulatory filings with the Department of Forestry and Fire Protection in
California, the Department of Forestry in Oregon and the Department of Natural
Resources in Washington. We may also have to make regulatory filings with
similar agencies in other jurisdictions where we acquire property. Any of these
agencies could delay review of or reject any of our filings, including our
timber harvest plans. Any delay associated with a filing could result in a delay
in harvesting. In addition, the rejection of a filing could result in the
restriction or prohibition of harvesting. Any delay in or restriction on
harvesting could have an adverse affect on our operating results.

9
<PAGE> 16

NO TIMBER MAY BE CUT IN CALIFORNIA WITHOUT APPROVAL OF HARVEST PLANS BY
STATE OFFICIALS

Before any of our timber may be harvested in California, we must submit a
timber harvest plan to the California Department of Forestry and Fire Protection
and receive the Department's approval. The Department may indefinitely postpone
approval of our plan or require significant limitations. A state-registered
professional forester must prepare the plan and it must comply with the
Department's stringent forestry rules and requirements. On receipt of a plan,
the Department takes several steps to inform the public of the proposed harvest
plan and to solicit comment of any concerns regarding the plan. These steps
include notifying environmental groups and adjoining landowners.

An owner submitting a timber harvest plan must demonstrate that, over a
ten-year period, the owner will harvest no more timber than will grow in the
forest over the same period. The timber harvest plan must also reflect
applicable limitations on harvesting, such as limitations due to habitats for
endangered species, waterway buffer zones and highway scenic corridors.

REGULATORY RESTRICTIONS MAY PREVENT US FROM SELLING ALL THE COASTAL FOREST
TIMBER WE PLAN TO SELL

For the Coastal forest, which is part of our California timberlands and has
second-growth redwoods, we submit timber harvest plans under an "Option A"
timber management plan. "Option A" refers to the section in the California
Forest Practices Act regulations providing for a plan by which an owner will
demonstrate that its harvest will not exceed growth on a tract over a ten-year
measurement period. An Option A plan is a management tool and is not intended to
be in any way a timberland evaluation or appraisal.

The Option A plan under which we operate the Coastal forest was filed by a
prior owner in 1994 and took four years to be approved by the California
Department of Forestry and Fire Protection in its present form. During this
four-year period, the prior landowner engaged in extensive negotiations and
discussions with the Department regarding the procedures for estimating the
current tree volumes in the forest, as well as expected growth rates.
Environmental and silvicultural conditions were reviewed, revised and accepted
by the Department.

We report regularly to the Department on harvesting and silvicultural
activities conducted on the Coastal forest. The Department monitors growth
estimates and timber volumes remaining after current harvesting, as well as
wildlife protection and erosion control, and compares them to current figures in
the Option A plan. The Department's continuing process of monitoring our
activities may require us to revise our Option A plan and decrease the maximum
harvests shown in that plan. We recently revised our timber sales plan for our
Coastal forest to decrease the level of expected timber sales from the Coastal
forest over the next decade. Even with these lower projected current sales,
however, there can be no assurance that the Department, as it monitors, enforces
and revises our Option A plan, will approve the sales we have planned in each
year.

ENVIRONMENTAL GROUPS AND INTERESTED INDIVIDUALS MAY SEEK TO DELAY OR
PREVENT HARVESTING ON OUR TIMBERLANDS

We expect that environmental groups and interested individuals will
intervene with increasing frequency in the harvest permit process in the states
where we own timberlands. These challenges could materially delay or prevent
harvesting on our properties.

In California, for instance, the Coast Action Group, an environmental
advocacy organization, opposed the approval of a timber harvest plan we filed in
October 1998 for our Coastal forest. Coast Action raised numerous concerns
regarding erosion, soil loss and the intensity of our proposed logging. The
California Department of Forestry and Fire Protection delayed approval of our
timber harvest plan to consider Coast Action's objections.

In addition to intervention in regulatory proceedings, groups and
individuals may file or threaten to file lawsuits that seek to prevent us from
implementing our timber sales plans. These parties may sue to appeal approval of
a particular timber harvest plan by the California Department of Forestry and
Fire Protection or the similar agency in another state. For example, a coalition
of interested parties in California have threatened to sue the Department
challenging that agency's forestry standards under the federal Endangered
Species Act. Any lawsuit or even a threatened lawsuit could delay harvesting on
our

10
<PAGE> 17

timberlands. Among the remedies that could be enforced in a lawsuit is a
judgment entirely preventing or restricting harvesting on our timberlands. Any
delay in or restriction on harvesting due to the intervention of environmental
groups or interested individuals could have an adverse affect on our operating
results.

THE PRESENCE OF ENDANGERED OR THREATENED SPECIES RESTRICTS HARVESTING

Federal, state and local laws and regulations intended to protect
threatened and endangered species limit and may prevent timber harvesting, road
building and other activities on our lands. We have identified approximately
27,000 acres of our timberlands that are subject to some level of harvest
restriction, approximately 22,000 acres of which are affected by the presence of
threatened and endangered species on or near those timberlands. These threatened
and endangered species restrictions apply to activities that would kill, injure
or harass a protected species or significantly degrade its habitat. The habitat
of a protected species includes areas in which it lives, nests, shelters,
breeds, forages or feeds or areas that are for some other reason necessary for
the conservation of the protected species. The size of the area subject to
restriction will vary depending on the protected species at issue, the time of
year and other factors, but can range from less than one to hundreds of acres. A
number of species that naturally live on or near our timberlands, including the
peregrine falcon, bald eagle, northern spotted owl, red cockaded woodpecker,
marbled murrelet, bull trout and coho salmon, are protected under the federal
Endangered Species Act or similar state laws. See "Business and
Properties -- Initial Timberland Properties -- Methodology for Determining
Inventories -- Harvest Restrictions" and "-- Federal and State
Regulations -- Endangered Species Laws."

OTHER REGULATIONS AND ENVIRONMENTAL RISKS MAY ADVERSELY AFFECT US

Our operations and properties are also subject to laws and regulations
governing silvicultural practices, which include forestry operations, the
environment, and health and safety. Some of these laws and regulations could
impose significant costs, penalties and liabilities on us for violations or
existing conditions whether or not we caused or knew about them. Our lands are
also subject to laws and regulations designed to protect wetlands, which may
restrict future harvesting, road building and other activities to the extent
that these activities change a wetland area so that it no longer constitutes a
wetland. Compliance with, or damages or penalties for violating, current and
future laws and regulations could result in significant expense.

Our Louisiana property contains natural gas and oil wells and pipelines
that have been and will continue to be operated by third parties. The operation
of those wells and pipelines involves hazards such as well blowouts, cratering,
explosions, uncontrollable flows of oil or well fluids, fires, formations with
abnormal pressures, pollution, pipeline ruptures and spills, releases of toxic
gas and other environmental hazards and risks. The occurrence of any of these
events could cause us to incur substantial losses and could negatively affect
our financial results. In addition, we may be liable for any environmental
damage caused by operators of natural gas and oil wells and pipelines on our
Louisiana property.

WE MAY ACQUIRE PROPERTIES SUBJECT TO ENVIRONMENTAL AND OTHER LIABILITIES

We may acquire timberlands subject to environmental liabilities and certain
other existing or potential liabilities. We may not be able to recover any of
these liabilities from the sellers of these properties. In addition, we could be
subject to claims or losses under environmental laws for conditions that are not
revealed by investigations of those properties by environmental consultants.

THE NUMBER OF ACRES WE BELIEVE ARE CURRENTLY SUBJECT TO REGULATORY
RESTRICTIONS ON HARVESTING MAY BE UNDERESTIMATED

As mentioned above, we have identified approximately 27,000 acres of our
timberlands that are subject to some level of harvest restrictions. These
restrictions apply as a result of federal, state and local laws and regulations
governing threatened and endangered species, as well as waterways. These
restrictions limit and may prevent harvests on these timberlands. Consistent
with what we believe is standard practice

11
<PAGE> 18

in the timber industry, we have included the timber on these acres in our
inventory but excluded that timber, to the extent restricted, from our timber
sales plan. Our estimates of the number of restricted acres are based on
information acquired from prior owners, public sources and limited surveys
performed by ourselves and others. Before we authorize harvesting activities on
any of our properties, we survey the harvest area for the presence of threatened
and endangered species. As we gain additional information regarding the presence
of threatened or endangered species on our timberlands or if regulatory agencies
change the manner in which they apply related restrictions to our timberlands,
the number of our restricted acres could increase.

REGULATION IS LIKELY TO BECOME MORE RESTRICTIVE AND REDUCE THE AMOUNT OF
OUR TIMBER THAT IS AVAILABLE FOR HARVESTING

Laws, regulations and related judicial decisions and administrative
interpretations affecting our business are subject to change and new laws and
regulations that may affect our business are frequently introduced. These laws
and regulations may relate to, among other things:

- the protection of timberlands;
- endangered species;
- environmental protection;
- air and water quality; and
- timber harvesting practices.

During the last ten years, the number of environmental, endangered species
and forestry laws and regulations has increased markedly and the enforcement of
such regulations has generally intensified. This has resulted in an increase in
the number of acres subject to harvest restrictions. We believe that these laws
and regulations will become more restrictive over time, possibly resulting in a
significant increase in the number of our acres that may not be included in our
timber sales plan. For example, the number of species of salmon and other fish
designated as threatened or endangered has recently increased. As a result, we
anticipate that regulations concerning streams on some of our Pacific Northwest
properties may become more restrictive.

In general, changes in existing laws or regulations, which could be made by
the United States Congress, legislatures in states where we own timberlands, or
federal or state administrative agencies, could result in new or additional
restrictions on harvesting on our properties. In addition, California, Oregon
and Washington permit interested citizens to initiate state or local ballot
propositions by which voters may directly enact legislative measures. These
initiatives may be directed toward more stringent regulation of the timber
industry. In recent years, initiatives that, if enacted, would have
significantly affected our timber harvest practices have appeared on ballots in
both California and Oregon. New initiatives may appear on future ballots in
these states. We cannot assess the likelihood that one or more of these measures
will be adopted, and, if so, what effect this might have on our operations. See
"Business and Properties -- Federal and State Regulations -- Endangered Species
Laws."

TAX LAWS DO NOT REQUIRE US TO DISTRIBUTE ANY CASH TO YOU

We anticipate that our ongoing operations will produce net capital gains
and net ordinary losses. Unlike most existing REITs, we do not anticipate that
we will produce significant ordinary income. Accordingly, we do not anticipate
that we will be required to distribute any material amounts of cash to satisfy
the tax requirement that a REIT distribute 95% of its ordinary income. As a
result, we have more discretion over the amounts of distributions we make than
most other REITs. We intend to retain a substantial portion of the cash we
generate to acquire additional timberlands.

WE DO NOT HAVE A SIGNIFICANT OPERATING HISTORY, AND WE HAVE INCURRED A COMBINED
NET LOSS OF $23.5 MILLION THROUGH MARCH 31, 1999

under our management and some of our initial timberlands have no operating
history at all. For example, before our acquisition of the Louisiana property in
April 1998, these timberlands had not been actively managed as a commercial
timber property. In addition, before our acquisition of the Pacific Northwest
properties in October 1998, these timberlands were managed as part of Pioneer's
overall business, which included the operation of mills. Thus, the financial
statements contained in this prospectus may not be helpful to your understanding
of our business, operations or prospects.

Furthermore, although we believe our overall timber sales plan is
reasonable, we cannot have the same level of confidence in the plan that we
would have if we had operated our timberlands for a number of years.

Our businesses incurred combined net losses of approximately $23.5 million
for the period from inception through March 31, 1999. We expect that we will
continue to incur net losses in the near term. You should evaluate an investment
in Strategic Timber in light of the risks, expenses and difficulties frequently
encountered by companies in their early stages of development. We do not own or
operate mills or other timber conversion facilities, so we need to find
independent buyers for the timber we want to sell. Our ability to become and
stay profitable depends on a number of factors beyond our control, including our
ability to find buyers for as much timber as we want to sell.

OUR MANAGEMENT HAS NEVER OPERATED A REIT OR A PUBLIC COMPANY

Although some of our executive officers and directors have substantial
experience in the timber industry and managing timberlands held for investment,
none of the members of our management has prior experience operating a public
company or a REIT.

WE MAY NOT BE ABLE TO ACHIEVE OUR INTENDED GROWTH

Our business plan depends on our acquiring additional timberland
properties. Our ability to acquire any property will be subject to a number of
factors beyond our control, such as competition from other purchasers for timber
properties, our ability to obtain any financing we need to purchase the property
and the overall availability of timber properties.

We compete with traditional paper and forest products companies, other
public and private timber investment firms, governmental entities and
preservationist groups for U.S. timber properties. Many of our competitors have
substantially greater financial resources than we do. Competition for these
properties may increase prices and may make it difficult for us to acquire
timberlands at prices that are acceptable to us. Similar competitive forces may
make international timber properties more expensive. See "Business and
Properties -- Competition."

We intend to issue units in our operating partnership as payment for some
of our acquisitions because this would allow the sellers to defer taxes on their
gain from these sales. Any decrease in the market price of our common stock
could make it more difficult or more expensive for us to do this.

ACQUISITIONS OF ADDITIONAL TIMBERLANDS INVOLVE NUMEROUS RISKS

Any acquisition that we make will involve numerous risks, which could
include some or all of the following:

- incurrence of additional debt, repayment of which may adversely affect
our cash flow and financial results;

- issuance of more common stock or preferred stock or units in our
operating partnership, which may dilute the value of our outstanding
common stock;

- assumption of liabilities that we are unaware of at the time of the
acquisition, such as environmental liabilities;

- uncertainties associated with operating in new markets; and

13
<PAGE> 20

- difficulties in combining operations of the acquired company or
timberlands with our other operations.

Our acquisition strategy includes exploring acquisition opportunities
outside the United States, especially in undeveloped or underdeveloped markets.
In addition to the risks mentioned above, international acquisitions will
involve the risks described under "-- We may invest in timberlands in countries
outside the United States, which may be substantially riskier than investments
in domestic timberlands."

OUR RECENTLY DECLARED DISTRIBUTION WILL BE FUNDED WITH BORROWINGS UNDER OUR NEW
CREDIT FACILITY

Our recently declared cash distribution will be funded with borrowings
under our new credit facility. We have not previously made any cash
distributions on our common stock. Further, we can give you no assurance as to
when or if any distributions will be paid in the future, except for the
distribution described below.

On April 12, 1999, our Board of Directors declared a cash distribution on
our common stock that will be payable only if we complete the formation
transactions and this offering no later than June 30, 1999. Depending upon
whether we have earnings in 1999, this distribution may be a return of a portion
of the money paid by you for your shares. Neither our historical operations nor
our pro forma operations support this distribution. Our businesses on a combined
basis lost approximately $16.4 million for the period from April 21, 1998
through December 31, 1998 and approximately $7.1 million for the three months
ended March 31, 1999. Furthermore, our businesses incurred pro forma losses from
continuing operations of approximately $16.9 million and $2.5 million for the
year ended December 31, 1998 and the three months ended March 31, 1999,
respectively. Accordingly, we will have to borrow under our new credit facility
to make this distribution to you. See "Distribution Policy."

OUR RECOGNITION OF REVENUES DEPENDS ON WHEN BUYERS HARVEST OUR TIMBER

We enter into cutting contracts with timber buyers that, within limits, let
them choose when to harvest our timber. Contracts of two years or longer
generally require the buyer to cut minimum amounts of timber each year. For
accounting purposes, we recognize revenue at the time the buyer cuts and takes
title to the timber. Therefore, the buyer's timing of its timber harvest affects
our recognition of revenue.

WE MAY BE REQUIRED TO REFUND SOME OR ALL OF THE ADVANCE PAYMENTS WE RECEIVE FROM
TIMBER BUYERS

Many of our cutting contracts require the buyer to make advance payments at
the inception of the cutting contract. The aggregate advance payments under our
cutting contracts existing at March 31, 1999 represent approximately 13% of the
total expected 1999 annual payments for harvests under these contracts, and are
offset as the buyer harvests the timber. We do not escrow these advance payments
and are free to use them in our business for any purpose.

We may have to refund some or all of these advance payments in two
circumstances. First, if a casualty, such as fire, storm or disease, destroys so
much of the timber subject to the contract that the remaining balance of the
advance payment cannot be offset by the value of actual harvests, we will refund
this difference. Second, if the buyer breaches its contractual obligation to
harvest the timber, we will offset our damages from the buyer's breach of the
cutting contract against any remaining balance of advance payments and refund
any difference to the buyer. Our damages are sometimes specified as liquidated
damages in our contracts. In other cases, the refunds would be offset against
our actual damages. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business and Properties."

OUR FINANCIAL RESULTS AND CASH FLOW WILL CHANGE FROM SEASON TO SEASON

Rain in winter and our fire prevention measures in spring and summer limit
timber harvesting on our Louisiana property. Similarly, harvesting in the
Pacific Northwest is typically interrupted for periods during

14
<PAGE> 21

the winter and spring due to snow and melting snow and, occasionally, in the
late summer due to our fire prevention measures. Due to the less favorable
weather that generally prevails in the first and fourth quarters and the related
decreases in construction activity, we expect that our customers will harvest
less timber from our properties in those quarters than in the second and third
quarters. These seasonal limitations will reduce our revenues during those
periods, and may restrict our ability to distribute cash to you. If we acquire
additional properties in other locations, the seasonality of our operating
results may change.

LOSSES OF TIMBER FROM FIRE AND OTHER CAUSES ARE NOT INSURED

Fire, insect infestation, severe weather, disease, natural disasters and
other causes beyond our control may reduce the volume and value of timber that
can be harvested from our timberlands and hurt our financial results and cash
flow. As is typical in the industry, we do not maintain insurance for any loss
to our timber, including losses due to these causes.

WE WILL BE TAXED AS A REGULAR CORPORATION IF WE FAIL TO QUALIFY AS A REIT

We will elect to be taxed as a REIT for federal income tax purposes
beginning in 1998. Although we believe that we qualify as a REIT, it is possible
that future economic, market, legal, tax or other considerations may cause us to
fail to qualify as a REIT or may cause us to elect not to be taxed as a REIT.
The IRS could challenge our qualification as a REIT. Qualification as a REIT
involves highly technical and complex Internal Revenue Code provisions and there
are few authoritative interpretations of these provisions. The complexity of
these provisions and of the applicable income tax regulations under the Internal
Revenue Code is greater in the case of a REIT that holds its assets through a
partnership as we do. In addition, future legislation, regulations,
administrative interpretations or court decisions could significantly change the
tax laws with respect to qualification as a REIT or the federal income tax
consequences of REIT qualification. See "-- An investment in the common stock
involves other tax issues" and "Federal Income Tax Consequences."

If we fail to qualify as a REIT in any taxable year, we would not be
allowed a deduction for cash distributions to you in computing our taxable
income and would owe federal and state income tax on our taxable income at
regular corporate rates. The highest federal income tax rate for corporations
currently is 35.0%. The highest state income tax rate for corporations in a
state in which we currently own timberlands or maintain an office is
approximately 8.8%. With some exceptions, we would also be disqualified from
treatment as a REIT for the four taxable years after the year we first failed to
qualify. As a result, we would have significantly less money available to
purchase additional timberlands or distribute to you in each of the years in
which we were disqualified as a REIT, and any net income we could distribute
would be taxed as ordinary income to you.

TAX LAWS AND PROVISIONS OF OUR ORGANIZATIONAL DOCUMENTS MAY DELAY OR PREVENT A
CHANGE IN OUR OWNERSHIP OR MANAGEMENT THAT MAY BE IN YOUR BEST INTERESTS

Our Articles of Incorporation and Bylaws, the partnership agreement that
governs our operating partnership and Georgia law place restrictions on the
ownership and transfer of shares of common stock and units. These restrictions
are intended in part to ensure we comply with federal tax requirements
applicable to REITs, and in part to discourage a change in control of Strategic
Timber without the consent of our Board of Directors. These provisions could
delay or prevent a change in our ownership or removal of our existing
management, even where such a change could be beneficial to or desired by you.

Our Articles of Incorporation prohibit beneficial ownership by any person
of more than 9.8% of our outstanding shares of common stock or preferred stock,
if any, unless our Board of Directors waives the restriction. In addition, the
election of our Board of Directors is staggered over a three-year period, which
may have an anti-takeover effect because a potential acquiror cannot obtain
immediate control of our Board of Directors. See "Material Provisions of Georgia
Law and Strategic Timber's Articles of Incorporation and Bylaws That May Have an
Anti-Takeover Effect."

15
<PAGE> 22

Our Articles of Incorporation authorize the Board of Directors to issue
preferred stock with whatever rights and preferences it may choose, without your
approval. These rights and preferences could include, for example, dividend
rights, liquidation preferences, conversion rights or voting rights or other
provisions that could reduce your voting power or other rights. We could use
this preferred stock, under certain circumstances, as a method of discouraging,
delaying or preventing a change in our ownership or management, even when the
holders of a majority of our shares of common stock would approve or benefit
from the change in control. Although we have no current intention to issue any
shares of preferred stock, we may choose to do so in the future. See
"Description of Capital Stock -- Preferred Stock."

OUR ACTUAL TIMBER INVENTORY MAY BE LESS THAN OUR CURRENT ESTIMATES

Independent forestry consultants have estimated the total volume of our
timber inventories based on sampling techniques that cannot identify with
certainty the actual volume of timber on our lands. We believe these estimates
are reasonably accurate and we use them to calculate the amount of harvestable
timber from our timberlands. Our actual timber inventories may differ from these
estimates. If the volume of timber we actually own is less than these estimates,
the amount of harvestable timber would be less than we anticipate. This would
hurt our financial results and cash flow. See "Business and Properties --
Initial Timberland Properties."

WE MAY INVEST IN TIMBERLANDS IN COUNTRIES OUTSIDE THE UNITED STATES, WHICH MAY
BE SUBSTANTIALLY RISKIER THAN INVESTMENTS IN DOMESTIC TIMBERLANDS

Our business strategy includes investing in timberlands located outside the
United States when our management believes that these timberlands offer higher
potential returns after taking into account the increased risks involved. This
strategy may include acquiring timberlands in developed and developing countries
in South America, Asia, Eastern Europe and other regions.

The lack of infrastructure in undeveloped and underdeveloped markets
increases the risks of acquiring and operating timberlands in those markets.
This may include the absence of:

- mills and other timber buyers near the timberlands;

- roads or means of transportation needed to reach the timberlands for
harvesting and to ship logs to local mills or export markets; or

- labor to manage the timberlands and harvest timber.

Given the difficulties of evaluating properties outside the United States, the
returns on foreign investments may be less than we expect. Future changes in the
economic or political conditions in foreign countries in which we may acquire
timberlands could affect our ability to retain and sell timber for harvest from
those timberlands. Foreign governments may seek to take over or nationalize our
timberlands, renegotiate or nullify existing contracts or other rights, or
impose laws or regulations that might severely limit the harvesting of
timberlands and the import and export of wood and wood products. Foreign
governments may impose other policies that might negatively impact our
operations, such as production restrictions, price controls, export controls,
income and other taxes and environmental regulations. Other political risks,
such as changes in governments, civil unrest, war, insurrection, acts of
terrorism and diplomatic developments could also adversely affect us.

We may be subject to other financial risks of overseas investment,
including inflation, changing fiscal policies, general economic instability and
changing currency exchange rates. From time to time, we may attempt to lessen
the effect of changes in exchange rates through foreign currency hedging
transactions, but we may not be able to do so.

We also cannot predict whether U.S. customs, quotas, duties, taxes or other
charges, or changes in U.S. foreign trade and investment laws and regulations,
will affect the import and export of forest products in the future, or what
effects such actions could have on our financial condition or operations.

16
<PAGE> 23

YOU WILL INCUR IMMEDIATE DILUTION OF YOUR COMMON STOCK

We are offering our common stock at a price greater than our net tangible
book value. Net tangible book value equals the value of our tangible assets
minus the amount of our liabilities. Based on an initial public offering price
of $20 per share, our expected net tangible book value immediately following
this offering is $15.15 per share. Thus, by purchasing common stock in this
offering, you will incur immediate dilution of $4.85 per share. See "Dilution."

OUR COMMON STOCK HAS NOT HAD A PRIOR TRADING MARKET AND WE DO NOT KNOW IF ONE
WILL DEVELOP

Prior to this offering, our common stock has not been traded in any public
market. We do not know if investor interest will lead to the development of an
active trading market or how quickly you will be able to find a buyer for your
shares if you want to sell them.

Together with representatives of the underwriters, we will determine the
initial public offering price for the common stock. This initial price may bear
no relationship to the price at which the common stock will trade after
completion of this offering. See "Underwriting" for a description of the factors
we and the underwriters will consider in determining the initial public offering
price.

Even though our common stock has been approved for quotation on the Nasdaq
National Market, we will be subject to financial and market-related tests
established by the Nasdaq National Market to maintain our listing.

THE MARKET PRICE OF OUR COMMON STOCK COULD FLUCTUATE SIGNIFICANTLY

The market price of our common stock may fluctuate significantly due to a
number of factors, such as:

- changes in timber prices,

- changes in environmental or tax laws,

- the issuance or revisions of securities analysts' estimates regarding
us or the timber industry or

- announcements of changes in federal or state timber sales or timber
management policies.

The market price of our common stock could also be subject to significant
fluctuations in response to market forces, many of which are out of our direct
control. For instance, the price of our common stock may decrease if interest
rates increase. This could occur because an increase in interest rates could
cause some financial instruments, such as U.S. government bonds, to become
relatively more attractive investments than our common stock. Additionally, the
Nasdaq Stock Market and other stock markets have recently experienced
significant and sometimes rapid changes in both price and volume levels.

These and other factors have, from time to time, depressed the market
prices of stock in both forest products companies and REITs. Often, these
changes occur without regard to these companies' operating performances. These
forces could similarly affect the price of our common stock.

SHARES ELIGIBLE FOR SALE IN THE FUTURE MAY REDUCE THE MARKET PRICE OF OUR COMMON
STOCK

Our Articles of Incorporation authorize the issuance of a total of
200,000,000 shares of common stock without additional shareholder approval. See
"Description of Capital Stock." We will offer to the public 16,600,000 shares in
this offering. We have reserved a total of 2,224,000 shares of our common stock
for issuance under our stock incentive plan. We intend to register all of the
shares issuable under this plan for sale in the public market.

One year from the date of the completion of this offering, the continuing
investors may exchange their units for cash, or, at our option, for shares of
our common stock on a one-for-one basis. See "The Partnership
Agreement -- Redemption of Partnership Units." As of that date, we have also
agreed to

17
<PAGE> 24

register up to 4,966,205 shares of common stock issuable on redemption of units
owned by our continuing investors. See "Shares Available for Future Sale."

We intend to acquire additional timberlands in the future. We anticipate
funding these acquisitions through the sale of common stock, the issuance of
additional units, the issuance of debt or with cash we have retained, or a
combination of these methods. Efforts to raise additional capital through the
sale of common stock or additional units may cause the market price of our
common stock to decrease.

If we issue any additional shares of common stock, whether pursuant to
existing stock options or otherwise, the value of your common stock and your
relative voting power may decrease. Our Articles of Incorporation do not grant
you preemptive rights, which would allow you to purchase a pro rata portion of
any future common stock or securities convertible into common stock that we
issue. The market price of our common stock may decrease if the market perceives
that we may issue additional shares of common stock, even if we do not choose to
do so.

SOME MEMBERS OF OUR MANAGEMENT AND OTHER CONTINUING INVESTORS COULD HAVE
CONFLICTS OF INTEREST

Conflicts of interest create a risk that people will put other interests
ahead of our interests when making decisions that affect us.

Our President, Chief Executive Officer and Chairman of our Board of
Directors, C. Edward Broom, is on the Board of Directors of several privately
held timber investment funds. All but one of these funds have been fully
invested and no additional timberland investments can be made. The one fund that
has not been fully invested could compete with us in acquiring timberlands if we
decide to acquire timberlands outside the United States. Under the terms of his
employment agreement with us, Mr. Broom has agreed that if we wish to bid on a
property and a fund with which he is affiliated is either the seller of the
property or also wishes to bid on the property, he will not participate in the
transaction on behalf of the fund. We have agreed that Mr. Broom may spend up to
5% of his time working for these timber funds, which will reduce the amount of
time he devotes to our business.

Our continuing investors could compete with us in our efforts to sell
timber from our timberlands, as well as in our efforts to acquire additional
timberlands. Some of the continuing investors are engaged in the timber
business. In particular, a company controlled by Mr. Demers currently purchases
timber from our Oregon timberlands for use in its sawmills.

WE MAY CHANGE OUR INVESTMENT, FINANCING AND OTHER POLICIES WITHOUT YOUR APPROVAL

Our Board of Directors determines our investment, financing and other
significant operating policies. Although the Board of Directors has no present
intention to amend or revise these policies, the Board of Directors may do so at
any time without your approval. See "Policies with Respect to Certain
Activities."

WE ARE SUBJECT TO RISKS ASSOCIATED WITH OUR INTEREST RATE SWAP AGREEMENTS

Because our indebtedness bears interest at variable rates, we bear the risk
of increases in interest rates with respect to our indebtedness. To reduce the
risks of rising interest rates, our new credit agreement requires us to enter
into interest rate swap agreements that effectively fix the interest rate on
some of our indebtedness. In the event we desire or need to terminate our swap
agreements before the end of the contractual period, we may be required to make
cash payments to the counterparty. This would occur if interest rates at the
time of the termination were lower than the fixed rate we must pay under our
obligation. If we terminated our existing swap agreements on March 31, 1999, we
would have been required to make a cash payment of approximately $4.5 million.

We are also exposed to the risk that our hedging activities may not fully
or adequately protect us against rising interest rates. For example, we will
enter into swap agreements with a total notional amount that is less than our
total borrowings. This means that the interest payments we recover from the
counterparties to our swap agreements may be less than the additional interest
we must pay our lenders if

18
<PAGE> 25

interest rates increase. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Market Risk."

We are also exposed to risks of nonperformance of the interest rate swap
agreements by the counterparties. Should these counterparties be unable to
perform their obligations and upon an increase in interest rates, we would be
required to pay additional interest to our lenders and we would not receive any
offsetting payments under the swap agreements.

AN INVESTMENT IN THE COMMON STOCK INVOLVES OTHER TAX ISSUES

FEDERAL TAX LAW CHANGES MAY BE UNFAVORABLE

We are one of the first REITs to focus on timberland ownership and sales of
timber, and our business plan would not have been feasible before certain
changes to the Internal Revenue Code were enacted in 1997. Because the complex
REIT rules were not generally designed to accommodate investments in timber
properties, there is no established law governing the interplay of the tax rules
generally applicable to REITs and those applicable to timber operations. Over
time, the IRS, the Treasury Department or various courts may adopt new
interpretations governing this interplay, and these interpretations may be
unfavorable to us. See "Federal Income Tax Consequences."

STATE TAX LAWS MAY NOT CONFORM TO FEDERAL TAX LAW

Though we expect to qualify as a REIT for federal income tax purposes, our
qualification as a REIT under the laws of each individual state will depend,
among other things, on that state's conformity with federal tax law.

If you live in a state that does not conform to the federal tax treatment
of REITs, even if we do not do business in that state, cash distributions to you
will likely be characterized as ordinary income rather than capital gains for
purposes of computing your state taxes. You should consult with your tax advisor
concerning the state tax consequences of an investment in our common stock.

CAPITAL GAINS DISTRIBUTIONS TO NON-U.S. SHAREHOLDERS ARE GENERALLY SUBJECT
TO WITHHOLDING

We anticipate that substantially all of the amounts of cash we pay out to
you will generally be treated as either capital gains or a return of capital.
Under the provisions of the Foreign Investment in Real Property Tax Act, which
apply to non-U.S. shareholders, capital gain distributions are generally subject
to withholding at a rate of 35%.

FORWARD-LOOKING STATEMENTS

Some statements in this prospectus represent our expectations for Strategic
Timber and our common stock. These forward-looking statements are made only as
of the date of this prospectus. You can generally identify these forward-looking
statements by the use of the words "may," "will," "expects," "intends,"
"estimates," "anticipates" or "believes" or similar language.

We believe the expectations expressed in all forward-looking statements are
reasonable and accurate based on information we currently have. However, our
expectations may not prove to be correct. Important factors that could cause
actual results to differ from our expectations are disclosed under "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business and Properties" and in other parts of this
prospectus.

19
<PAGE> 26

STRUCTURE AND FORMATION OF STRATEGIC TIMBER

OUR STRUCTURE

At the completion of this offering, we will conduct our business through an
operating partnership called Strategic Timber Partners, LP, a Delaware limited
partnership, and through its wholly owned subsidiary, Pioneer Resources, LLC, an
Oregon limited liability company. After we refinance our existing bank credit
facility, we will contribute the net proceeds of this offering to Strategic
Timber Partners in exchange for a number of its partnership units equal to the
number of shares of common stock sold in this offering. Upon the sale of any
additional shares of common stock, we will contribute the net proceeds of the
sale to Strategic Timber Partners in exchange for a number of partnership units
equal to the number of shares sold. For a description of the partnership units,
see "The Partnership Agreement." Strategic Timber Operating Co., a Delaware
corporation and wholly owned subsidiary of Strategic Timber, is the sole general
partner of Strategic Timber Partners.

OUR FORMATION

On April 21, 1998, we organized Strategic Timber, Strategic Timber Partners
and Strategic Timber Operating Co. to acquire our Louisiana property, which, as
of March 31, 1999, consisted of approximately 82,000 acres of timberland in
southwest Louisiana.

Louisiana Timber Partners, LLC, a Georgia limited liability company,
contributed to Strategic Timber Partners a contract to acquire the Louisiana
property in exchange for a 19.6% limited partnership interest in Strategic
Timber Partners. We valued this contract at $50.0 million, which we believed to
be the difference between the value of the property and the purchase price under
the contract that Louisiana Timber held. Strategic Timber retained a 79.4%
limited partnership interest in the partnership and Strategic Timber Operating
Co. retained the remaining one percent general partner interest in the
partnership. The partnership then purchased the Louisiana property on April 27,
1998 for $205.0 million in cash. The partnership funded the purchase price of
the Louisiana property and related transaction costs by borrowing $125.8 million
under a $215.0 million bank revolving credit facility, and with a cash
contribution of $85.0 million by Strategic Timber. Strategic Timber borrowed
these funds under a bank bridge loan.

After we acquired the Louisiana property, our structure was:

<TABLE>
<S> <C> <C>
- -----------------------------------------------
Strategic Timber Trust, Inc.
- -----------------------------------------------

100% 79.4% limited
partner
interest

- ------------------------ ------------------------------------------
Strategic Timber
Operating Co. Louisiana Timber Partners, LLC
- ------------------------ -------------------------------------------

1.0% general 19.6% limited
partner partner
interest interest

---------------------------------------------------------------------------------------
Strategic Timber Partners, LP
---------------------------------------------------------------------------------------

Louisiana property

</TABLE>

20
<PAGE> 27

Our initial shareholders formed Strategic Timber Trust II, LLC, a Georgia
limited liability company, Strategic Timber Two Operating Co., LLC, a Georgia
limited liability company, and Strategic Timber Partners II, LP, a Georgia
limited partnership, in September 1998. Our initial shareholders formed these
entities to acquire Pioneer, which held approximately 363,000 acres of
timberland in the Pacific Northwest as of March 31, 1999.

Strategic Timber Partners II acquired all of the membership interests in
Pioneer from its members on October 9, 1998, in exchange for $35.0 million in
cash and a 59.1% interest in Strategic Timber Partners II, which we valued at
$65.0 million. Strategic Timber Partners II funded the cash portion of the
purchase price for Pioneer and related transaction costs with a cash
contribution of $35.0 million by Strategic Timber Two Operating Co. in exchange
for a 31.8% interest in Strategic Timber Partners II, and a cash contribution of
$10.0 million by Mach One Partners, LLC, an affiliate of Louisiana Timber, in
exchange for a 9.1% interest in Strategic Timber Partners II. To fund Strategic
Timber Two Operating Co.'s contribution, Strategic Timber II borrowed $35.0
million under a bank bridge loan. In connection with the acquisition, Pioneer
refinanced its existing bank debt, leaving approximately $255.0 million
outstanding under its credit facility.

After Strategic Timber Partners II acquired Pioneer, our structure included
the following additional entities:

<TABLE>
<S> <C> <C>
- ----------------------------------------
Strategic Timber Trust II, LLC
- ----------------------------------------

100%

------------------------- ------------------------- --------------------------
Strategic Timber Former Pioneer Mach One
Two Operating Co. Members Partners, LLC
------------------------- ------------------------- --------------------------

1.0% general 30.8% limited 59.1% limited 9.1% limited
partner partner partner partner
interest interest interest interest

------------------------------------------------------------------------------------------------------
Strategic Timber Partners II, LP
------------------------------------------------------------------------------------------------------

100%

----------------------------------
Pioneer Resources, LLC
----------------------------------

Pacific Northwest properties

</TABLE>

Upon completion of this offering, Strategic Timber II, Strategic Timber Two
Operating Co. and Strategic Timber Partners II will be merged into Strategic
Timber Partners, leaving Pioneer as a wholly owned subsidiary of Strategic
Timber Partners. In connection with this merger, the owners of the merging
entities will receive cash and units in Strategic Timber Partners.

21
<PAGE> 28

As of the completion of the offering and the merger of the entities
described above into Strategic Timber Partners, and assuming we sell 16,600,000
shares of common stock in the offering at a price of $20 per share, our
structure will be as follows:

<TABLE>
<S> <C> <C> <C> <C>
Public Shareholders (96.1%)
Continuing Investors (3.9%)

- ----------------------------------
Strategic Timber Trust, Inc.
- ----------------------------------

- ----------------- ------------------- -------------- -------------- -----------------
Strategic Timber 76.7% Limited Former Louisiana Former
Operating Co. partner interest Strategic Timber II Timber Mach One Pioneer
Members Partners, LLC Partners, LLC Members
- ----------------- ------------------- -------------- -------------- -----------------

1.0% general partner 4.2% limited 7.9% limited 0.4% limited 9.8% limited
interest partner interest partner interest partner interest partner interest

- -----------------------------------------------------------------------------------------------------------------------------
Strategic Timber Partners, LP
- -----------------------------------------------------------------------------------------------------------------------------

100% Louisiana property

- ---------------------------
Pioneer Resources, LLC
- ---------------------------

Pacific Northwest properties

</TABLE>

22
<PAGE> 29

The table below summarizes the amounts contributed in connection with the
formation transactions, and the amount and value of cash, common stock and
partnership units the parties to the formation transactions will receive as of
the completion of the offering. Amounts under "Aggregate Value To Be Received at
Completion of Offering" are based on an initial public offering price of $20 per
share.

<TABLE>
<CAPTION>
SHARES/UNITS AGGREGATE
ESTIMATED OR AND CASH TO BE VALUE TO BE
AGREED RECEIVED FOR RECEIVED AT RECEIVED AT
ORIGINAL VALUE AT ORIGINAL COMPLETION COMPLETION
NAME CONTRIBUTION CONTRIBUTION CONTRIBUTION OF OFFERING OF OFFERING
- ---- ------------ ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Louisiana Timber Purchase contract to $ 50,000,000 5,000 units of 1,762,974 units of $48,204,480
Partners acquire the Strategic Timber Strategic Timber
Louisiana property Partners Partners
and
$12,945,000 cash
Mach One Partners $10,000,000 $ 10,000,000 909 units of 100,110 units of $12,002,200
Strategic Timber Strategic Timber
Partners II Partners
and
$10,000,000 cash
Former Pioneer 100% of the $100,000,000 5,909 units of 2,170,086 units of $67,456,720
Members membership interests Strategic Timber Strategic Timber (not including
(collectively) in Pioneer Partners II Partners cash received
and and for original
$35,000,000 cash $24,055,000 cash contribution)
Strategic Timber Services $1,100 671,770 shares of 671,770 shares of $32,096,100
Management and Strategic Timber Strategic Timber
Other Original and and
Investors 2,810 units of 933,035 units of
(collectively) Strategic Timber II Strategic Timber
Partners
</TABLE>

At or immediately before the closing of this offering:

- We will sell 16,600,000 shares of common stock in the offering.

- Strategic Timber Partners will enter into a new $375.0 million credit
facility.

- We will use the net proceeds of this offering and will borrow
approximately $267.6 million under our new credit facility to repay in
full our outstanding bank debt and to redeem a portion of the partnership
units held by Louisiana Timber and a portion of the Strategic Timber
Partners II partnership units held by the former Pioneer members and Mach
One. See "Use of Proceeds."

- Strategic Timber Partners will issue 3,203,231 partnership units to the
owners of Strategic Timber II, the former Pioneer members and Mach One.

As a result of the formation transactions described above, Strategic Timber will
beneficially own 17,271,770 partnership units, which will represent an
approximate 77.7% interest in Strategic Timber Partners.

The terms of the formation transactions were determined after arm's-length
negotiations between representatives of Strategic Timber, Louisiana Timber,
Pioneer, the former Pioneer members and Mach One.

23
<PAGE> 30

BENEFITS TO RELATED PARTIES

Our executive officers and affiliates will benefit from this offering and
the formation transactions as follows:

- Our executive officers will hold shares of common stock and units valued
at $32.1 million, based on an initial public offering price of $20 per
share, as shown below.

<TABLE>
<CAPTION>
VALUE AT
SHARES AND VALUE OF COMPLETION
UNITS CONSIDERATION OF OFFERING
---------- ------------- -----------
<S> <C> <C> <C>
C. Edward Broom..................................... 408,329 $ 290 $ 8,166,580
Christopher J. Broom................................ 408,329 290 8,166,580
Thomas P. Broom..................................... 408,329 290 8,166,580
T. Yates Exley...................................... 108,516 2,047,250 2,170,320
Nicholas C. Brunet.................................. 90,740 6 1,814,800
Vladimir Harris..................................... 90,740 65 1,814,800
Joseph E. Rendini................................... 90,740 65 1,814,800
--------- ---------- -----------
Total..................................... 1,605,723 $2,048,256 $32,114,460
========= ========== ===========
</TABLE>

The shares and units that we issued to these executives, other than T.
Yates Exley, were in consideration of services. Except for the shares
issued to Mr. Brunet, these shares and units were issued upon the formation
of Strategic Timber and Strategic Timber II. Mr. Brunet received his shares
as of June 15, 1998, when he joined us. When issued, the value of these
shares and units reflected the value of Strategic Timber and Strategic
Timber II. Mr. Exley received his units in connection with our acquisition
of Pioneer, as described below.

- Our executive officers will also receive options to acquire an aggregate
of 875,000 shares of common stock at the initial public offering price.
These options will vest in equal amounts over the three years following
completion of this offering.

- We have employment and non-competition agreements with Messrs. C. Edward
Broom, Christopher J. Broom, Thomas P. Broom, Kenneth L. Chute, Nicholas
C. Brunet, Vladimir Harris and Joseph E. Rendini.

- Louisiana Timber will receive $12.9 million in cash in redemption of a
portion of its partnership units, and will own 1,762,974 partnership
units upon completion of this offering. Hanns A. Pielenz, who has agreed
to serve on our Board of Directors, and Larry J. Woodard are the
principal owners of Louisiana Timber. The partnership units retained by
Louisiana Timber will have a value of $35.3 million, based on an initial
public offering price of $20 per share. Louisiana Timber acquired its
partnership units in exchange for contributing to Strategic Timber
Partners a contract, valued by the parties at $50.0 million, to acquire
the Louisiana property.

- Mach One, which is owned equally by Messrs. Pielenz and Woodard, will
receive $10.0 million in cash and 100,110 partnership units at the
completion of this offering in redemption of its interest in Strategic
Timber Partners II. Mach One acquired its interest in Strategic Timber
Partners II in exchange for a cash contribution of $10.0 million that was
used to finance our acquisition of Pioneer, and the cash and units it
receives will have a value of $12.0 million, based on an initial public
offering price of $20 per share. Mach One will receive these units in
satisfaction of its right to receive an annual return of 40% on its
original investment under the Strategic Timber Partners II limited
partnership agreement.

- In connection with the Pioneer acquisition, Strategic Timber Partners II
paid $35.0 million in cash and issued partnership interests valued by the
parties at $65.0 million to the former Pioneer members, including Gregory
M. Demers. Mr. Demers, together with a company he owns and controls,
beneficially owned 76.5% of Pioneer at the time of the acquisition. Upon
completion of this offering and the merger of Strategic Timber Partners
II into Strategic Timber Partners, Mr. Demers and his company will
receive $18.4 million in cash in redemption of a portion of their
partnership interests in Strategic Timber Partners II, and will
beneficially own 1,660,333 partnership units. These partnership units
will have a value of $33.2 million, based on an initial public offering
price of $20 per share.

24
<PAGE> 31

- In connection with the Pioneer acquisition, T. Yates Exley, one of the
former Pioneer members and a Vice President of Strategic Timber, received
a partnership interest in Strategic Timber Partners II. The value of this
interest is estimated to be $2,047,250, which represents the portion of
the acquisition price of Pioneer allocable to Mr. Exley's interest, net
of cash proceeds to be paid to Mr. Exley. Mr. Exley will receive $1.2
million in cash and, as indicated above, 108,516 partnership units in
redemption of his partnership interest in Strategic Timber Partners II
upon the completion of this offering. The partnership units will have a
value of $2.2 million, based on an initial public offering price of $20
per share.

Additional information concerning benefits to executive officers, directors
and other continuing investors is set forth under "Management" and "Transactions
with Related Parties."

DISTRIBUTION POLICY

We have not previously made any cash distributions on our common stock.
Further, we can give you no assurance as to whether or when any distributions
will be paid in the future except for the distribution described below.

On April 12, 1999, our Board of Directors declared a cash distribution on
our common stock. This distribution will be payable only if we complete the
formation transactions and the offering no later than June 30, 1999. This
distribution will be based on a quarterly distribution of $0.175 per share, but
will be prorated for the partial quarter between the closing of this offering
and June 30, 1999. The distribution will be payable on July 15, 1999 to
shareholders of record as of June 30, 1999. If we complete the offering after
June 20, 1999, the record date for the distribution will be the 15th day
following the date of completion of the offering, and the distribution will be
paid 15 days after the record date. If we complete the offering on May 31, 1999,
the aggregate distribution payable would be approximately $996,000, or
approximately $1,140,000 if the underwriters exercise in full their
over-allotment option. Because the dividend was declared in April 1999, no
amount was accrued at March 31, 1999.

Neither our historical operations nor our pro forma operations support this
cash distribution. Our businesses incurred combined net losses of approximately
$16.4 million for the period from April 21, 1998 through December 31, 1998 and
approximately $7.1 million for the three months ended March 31, 1999.
Furthermore, our businesses incurred pro forma losses from continuing operations
of approximately $16.9 million and $2.5 million for the year ended December 31,
1998 and the three months ended March 31, 1999, respectively. Accordingly, the
cash payment of the distribution will be funded entirely with borrowings under
our new credit facility. The distribution is permitted under Georgia law and our
new credit facility and will not cause a default under the new credit facility.
Depending upon whether we have earnings in 1999, the distribution may be a
partial return to you of the amount you paid for your shares.

Our Board of Directors, in its sole discretion, will determine whether any
subsequent distributions will be made on our common stock. Our new credit
facility allows us to make distributions to shareholders so long as the
distributions do not cause us to default under provisions of the credit
agreement. For a description of the financial covenants contained in our new
credit facility, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources." Our
Board of Directors will base its determination on our financial results,
available cash flow, possible acquisitions and capital requirements, as well as
prevailing economic conditions. We intend to retain a substantial portion of the
cash we generate from operations to acquire additional timberlands rather than
distributing it to you. Because substantially all of our expected earnings will
be in the form of capital gains from the sale of standing timber, we do not
expect that we will be required to distribute any material amounts of cash to
satisfy the tax rule that generally requires a REIT to distribute to
shareholders 95% of its ordinary income. As noted above, we can give you no
assurance as to when or if any distributions will be paid, except for the
distribution discussed above.

25
<PAGE> 32

USE OF PROCEEDS

We estimate that we will receive net cash proceeds from this offering of
approximately $305.8 million after deducting estimated underwriting discounts
and commissions and estimated offering expenses and based on an initial public
offering price of $20 per share. If the underwriters exercise their
over-allotment option in full, we estimate that we will receive net cash
proceeds from this offering of approximately $352.1 million.

We will use the net proceeds of this offering, together with approximately
$267.6 million of borrowings under our new credit facility, as follows:

- approximately $517.3 million to repay in full debt described in the table
below and accrued interest on this debt;

- approximately $47.0 million to redeem partnership units and other
partnership interests held by our continuing investors;

- approximately $5.8 million for termination fees on some of our interest
rate swaps and related debt; and

- $3.3 million for financing costs on our new credit facility.

See "Structure and Formation of Strategic Timber."

The table below summarizes the debt to be repaid upon completion of this
offering, based on principal balances at March 31, 1999. The actual amounts
repaid may differ to the extent of any changes in the principal balance of loans
occurring subsequent to March 31, 1999.

<TABLE>
<CAPTION>
PRINCIPAL BALANCE AT
MARCH 31, 1999 INTEREST RATE MATURITY DATE
-------------------- ------------- ------------------
<S> <C> <C> <C>
Strategic Timber Partners credit
facility......................... $139,297,000 7.50%(1) April 25, 2003
Strategic Timber bridge loan....... 85,000,000 9.00%(1) October 27, 1999
Pioneer credit facility............ 252,950,000 7.57%(1) September 30, 2003
Strategic Timber II bridge loan.... 35,000,000 9.06%(2) October 27, 1999
------------ -----
Total/Weighted Average... $512,247,000 7.89%
============ =====
</TABLE>

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

(1) These loans each bear interest at a floating rate based on LIBOR or the
prime rate plus an applicable margin. The rates shown are interest rates at
March 31, 1999.

(2) In addition to the stated interest, on April 1, 1999, an additional payment
of $3.3 million became due on the Strategic Timber II bridge loan. We will
pay this amount at the closing of this offering.

Assuming an initial public offering price of $20 per share, after this
offering, we will have approximately $267.6 million of debt outstanding under
our new credit facility. For a description of the terms of our new credit
facility, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

If the underwriters exercise in full their over-allotment option to
purchase 2,490,000 additional shares of common stock, we expect to use the
additional net proceeds of approximately $46.3 million to reduce amounts
outstanding under our new credit facility.

Amounts outstanding under our operating partnership's credit facility, the
Strategic Timber bridge loan, the Pioneer credit facility and the Strategic
Timber II bridge loan were each incurred within the past year to pay for our
initial timberlands and to finance working capital requirements prior to
commencing full-scale operations.

Pending the uses described above, we will invest any unused portion of the
net proceeds in interest-bearing accounts or short-term, interest-bearing
securities, or both, which are consistent with our intention to qualify for
taxation as a REIT.

26
<PAGE> 33

CAPITALIZATION

The following table sets forth the combined historical capitalization of
Strategic Timber and Strategic Timber II as of March 31, 1999. As described in
"Structure and Formation of Strategic Timber," we currently conduct our
operations through two separate entities, Strategic Timber and Strategic Timber
II. Because these entities will be merged before the completion of this
offering, we believe it is meaningful to present the combined capitalization of
these entities as of March 31, 1999. The following table also sets forth our pro
forma capitalization as of March 31, 1999 assuming that we completed the
formation transactions and this offering and that we used the estimated net
proceeds of this offering and borrowings under our new credit facility as set
forth under "Use of Proceeds." You should read the following table in
conjunction with the financial statements and notes to the financial statements
included elsewhere in this prospectus, "Selected Historical Financial and
Operating Information," "Pro Forma Condensed Consolidated Financial Information"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------
STRATEGIC TIMBER AND
STRATEGIC TIMBER II COMBINED
----------------------------
ACTUAL PRO FORMA
-------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Bridge loans.............................................. $120,000 $ --
Current portion of long-term debt......................... 144,297 --
Long-term debt............................................ 247,950 269,215
Minority interest........................................... 116,516 61,722
Shareholders' equity:
Preferred Stock, $.01 par value(1)........................ -- --
Common Stock, $.01 par value(2)........................... 1 173
Additional paid-in capital................................ -- 311,980
Accumulated deficit....................................... (23,546) (33,556)
-------- --------
Total shareholders' equity (deficit).............. (23,545) 278,597
-------- --------
Total Capitalization.............................. $605,218 $609,534
======== ========
</TABLE>

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

(1) 50,000,000 shares of preferred stock will be authorized upon completion of
this offering. No shares of preferred stock are currently, or at the
completion of this offering will be, issued and outstanding.

(2) 200,000,000 shares of common stock will be authorized at the completion of
this offering. 671,770 actual shares of common stock are currently issued
and outstanding. 17,271,770 shares of common stock will be issued and
outstanding at the completion of this offering, excluding (a) 4,966,205
shares of common stock that we may issue to redeem partnership units; (b)
2,490,000 shares of common stock that the underwriters have the option to
purchase solely to cover over-allotments; and (c) 1,115,000 shares of common
stock issuable upon exercise of options to be granted under our 1999
Incentive Plan upon completion of this offering. We will reserve a total of
2,224,000 shares of common stock for issuance under the 1999 Incentive Plan.
See "The Partnership Agreement -- Redemption of Partnership Units,"
"Underwriting" and "Management -- 1999 Incentive Plan."

27
<PAGE> 34

DILUTION

The assumed initial public offering price of $20 per share exceeds the net
combined tangible book value per share of Strategic Timber and Strategic Timber
II. Therefore, if you purchase common stock in this offering, you will incur an
immediate dilution in the net tangible book value of your shares. The following
table illustrates the dilution to purchasers of shares of common stock sold in
this offering.

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $20.00
Net combined tangible book value per share before this
offering(1)............................................ $14.64
Increase in net combined tangible book value per share
attributable to this offering.......................... 0.51
------
Pro forma net tangible book value per share after this
offering(2)............................................ 15.15
------
Dilution per share purchased in this offering............. $ 4.85
======
</TABLE>

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

(1) Determined by subtracting the total liabilities of Strategic Timber and
Strategic Timber II from the total tangible assets of Strategic Timber and
Strategic Timber II and dividing the difference by the sum of the total
number of shares of common stock issued and outstanding immediately prior to
this offering and the number of shares of common stock issuable upon the
exchange of all partnership units issued or to be issued in connection with
the formation transactions.

(2) Determined by subtracting our total liabilities from our total tangible
assets and dividing the difference by the number of shares of common stock
and partnership units that will be outstanding after this offering. This
calculation is based on our pro forma condensed consolidated balance sheet.

The following table summarizes the number of shares of common stock we will
sell in this offering, the total price to be paid for these shares, the number
of shares of common stock and partnership units previously issued or to be
issued in the formation transactions, and the net tangible book value of the
average contribution per share based on total contributions. All amounts are
determined as if this offering and the formation transactions had been completed
on March 31, 1999.

<TABLE>
<CAPTION>
SHARES SOLD BY BOOK VALUE OF
STRATEGIC TIMBER AND CONTRIBUTIONS TO
PARTNERSHIP UNITS ISSUED STRATEGIC TIMBER/
BY STRATEGIC TIMBER STRATEGIC TIMBER PURCHASE PRICE/
PARTNERS PARTNERS BOOK VALUE OF
------------------------ ------------------ CONTRIBUTION
NUMBER PERCENT AMOUNT PERCENT PER SHARE/UNIT
------------ --------- -------- ------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE/UNIT DATA)
<S> <C> <C> <C> <C> <C>
New investors in this offering.......... 16,600,000 74.7% $332,000 97.6% $20.00
Common stock and partnership units
outstanding or to be issued in the
formation transactions................ 5,637,975 25.3 8,319 2.4 1.48
---------- ----- -------- -----
Total......................... 22,237,975 100.0% $340,319 100.0%
========== ===== ======== =====
</TABLE>

28
<PAGE> 35

SELECTED HISTORICAL FINANCIAL AND OPERATING INFORMATION

The following tables show the selected historical consolidated financial
and operating information for Strategic Timber, Strategic Timber II and Pioneer.
Pioneer is the predecessor to Strategic Timber II.

Information for Strategic Timber and Strategic Timber II is presented as of
and for the period ended December 31, 1998 and as of and for the three months
ended March 31, 1999. The information as of and for the period ended December
31, 1998 is derived from the audited historical financial statements of
Strategic Timber and Strategic Timber II, and should be read in conjunction with
those financial statements, which are included elsewhere in this prospectus. The
information shown for Strategic Timber for 1998 reflects the results of
operations for the period from April 21, 1998, the date of inception, to
December 31, 1998. Information shown for Strategic Timber II for 1998 reflects
the results of operations for the period from October 9, 1998, the date on which
Strategic Timber II acquired Pioneer, to December 31, 1998.

The information for Strategic Timber and Strategic Timber II as of and for
the three months ended March 31, 1999 is derived from unaudited historical
financial statements. In the opinion of management, each of the unaudited
financial statements includes all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of those statements. Operating
results for the three months ended March 31, 1999 may not be indicative of
results for an entire year.

Information is also presented for both Pioneer and its predecessor, Old
Pioneer Resources, LLC, which we will refer to as Old Pioneer. Old Pioneer was
formed in April 1994 for the purpose of acquiring certain timber-related assets.
The assets of Old Pioneer were contributed to Pioneer upon the formation of
Pioneer on January 3, 1996.

The selected historical financial and operating information of Pioneer as
of and for the years ended December 31, 1996 and December 31, 1997 and for the
period from January 1, 1998 to October 8, 1998 is derived from the audited
historical financial statements of Pioneer included elsewhere in this prospectus
and should be read in conjunction with those financial statements. Information
presented for Old Pioneer is derived from the audited historical financial
statements of Old Pioneer as of and for the year ended December 31, 1995.
Information presented for Old Pioneer as of and for the period from April 15,
1994, the date of inception, to December 31, 1994 is derived from unaudited
financial statements that were prepared on the same basis as those that were
audited.

The selected historical information presented for Strategic Timber and
Strategic Timber II is not comparable to the information presented for Pioneer
because the historical financial statements of Pioneer include the results of
conversion facilities and aircraft operations that were not acquired by
Strategic Timber II. In addition, the historical results of operations of
Strategic Timber during 1998 include one-time start-up costs of approximately
$140,000. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

The results of operations of Old Pioneer and Pioneer among the periods
presented are not comparable to one another because:

- financial information of Old Pioneer was prepared using a different basis
of accounting than that of Pioneer;

- financial and operating information of Pioneer were affected by several
acquisitions in 1996, 1997 and 1998, including the acquisition of the
assets of Old Pioneer on January 3, 1996, each of which was accounted for
under the purchase method of accounting; and

- Old Pioneer conducted different operations than Pioneer.

See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and the accompanying notes
to financial statements included elsewhere in this prospectus.

This financial and operating information is historical in nature.
Information may not be representative of how we plan to manage our operations
after this offering.

29
<PAGE> 36

STRATEGIC TIMBER TRUST, INC. AND STRATEGIC TIMBER TRUST II, LLC
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
STRATEGIC TIMBER STRATEGIC TIMBER II
AS OF AND FOR THE AS OF AND FOR THE AS OF AND FOR THE AS OF AND FOR THE
PERIOD FROM INCEPTION THREE MONTHS PERIOD FROM INCEPTION THREE MONTHS
(APRIL 21, 1998) TO ENDED (OCTOBER 9, 1998) TO ENDED
DECEMBER 31, 1998 MARCH 31, 1999 DECEMBER 31, 1998 MARCH 31, 1999
--------------------- ----------------- --------------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:......................... $ 507 $ 2,827 $ 9,018 $ 5,795
Operating Expenses:
Cost of timber and property
sold.......................... 403 2,793 5,746 2,410
Amortization of deferred
financing costs............... 1,743 654 499 546
General and administrative
expenses...................... 1,820 475 1,738 938
--------- --------- -------- --------
Operating income (loss)......... (3,459) (1,095) 1,035 1,901
Other Income (Expense):
Interest expense................ (13,781) (4,841) (5,657) (5,976)
Interest income................. 33 1 12 14
--------- --------- -------- --------
Loss before minority interest..... (17,207) (5,935) (4,610) (4,061)
Minority interest in loss of
subsidiary partnership.......... 2,863 701 2,587 2,115
--------- --------- -------- --------
Net loss.......................... $ (14,344) $ (5,234) $ (2,023) $ (1,946)
========= ========= ======== ========
CASH FLOW AND OTHER DATA:
EBITDDA(a)........................ $ (1,312) $ 2,354 $ 7,268 $ 4,800
Depletion......................... 403 2,793 5,703 2,337
Depreciation and amortization..... 1,744 656 530 562
Cash provided by (used in)
operating activities............ (6,913) (4,633) 5,268 170
Cash used in investing
activities...................... (205,235) (88) (295,218) (181)
Cash used in (provided by)
financing activities............ 212,458 5,510 295,793 (2,050)
BALANCE SHEET DATA (AT PERIOD
END):
Working capital (b)............... $(226,623) $(229,198) $(38,617) $(44,510)
Timberlands....................... 251,597 248,804 354,298 352,137
Total assets...................... 260,878 259,485 369,082 362,764
Total debt........................ 218,787 224,297 290,000 287,950
Minority interest................. 46,919 46,218 72,413 70,298
Shareholders'/members' deficit.... (14,343) (19,577) (2,023) (3,968)
OPERATING DATA (UNAUDITED):
Timber harvested.................. 10,923 tons 65,044 tons 11,601(c) 2,796(c)
Timber sold under timber deed..... -- -- 19,295(c) 14,884(c)
</TABLE>

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

(a) EBITDDA is defined as operating income (loss) plus depletion, depreciation
and amortization. You should not construe EBITDDA to be an alternative to
operating income, as an indicator of our operating performance, or as an
alternative to cash flow from operating activities, as a measure of our
liquidity. EBITDDA is not a financial measure determined in accordance with
generally accepted accounting principles and may not be comparable to
similarly titled measures of other companies.
EBITDDA is calculated as follows:

<TABLE>
<CAPTION>
STRATEGIC TIMBER STRATEGIC TIMBER II
FOR THE PERIOD FOR THE PERIOD
FROM INCEPTION FROM INCEPTION
(APRIL 21, 1998) TO THREE MONTHS (OCTOBER 9, 1998) TO THREE MONTHS
DECEMBER 31, 1998 ENDED MARCH 31, 1999 DECEMBER 31, 1998 ENDED MARCH 31, 1999
------------------- -------------------- -------------------- --------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Operating income
(loss)................. $(3,459) $(1,095) $1,035 $1,901
Depletion................ 403 2,793 5,703 2,337
Depreciation and
amortization........... 1,744 656 530 562
------- ------- ------ ------
$(1,312) $ 2,354 $7,268 $4,800
======= ======= ====== ======
</TABLE>

(b) The negative working capital of Strategic Timber is caused primarily by the
classification of all Strategic Timber debt as current. This classification
is due to the inclusion of clauses in the debt agreements that allow the
lenders to call the debt prior to its maturity in the event of a "material
adverse change" in the business of Strategic Timber. The negative working
capital of Strategic Timber II is attributable primarily to debt maturing
in less than one year, accrued interest on debt and obligations under
interest rate swap agreements.

30
<PAGE> 37

PIONEER RESOURCES, LLC

(PREDECESSOR TO STRATEGIC TIMBER II)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
OLD PIONEER PIONEER
--------------------------- ------------------------------------
PERIOD
FROM
APRIL 15, JANUARY 1,
1994 TO YEAR ENDED YEAR ENDED DECEMBER 31, 1998 TO
DECEMBER 31, DECEMBER 31, ----------------------- OCTOBER 8,
1994(A) 1995(A) 1996 1997 1998
------------ ------------ ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Log sales.................................. $ 42 $ 1,600 $ 25,901 $ 39,505 $ 23,097
Lumber and by-product sales................ 15,115 31,409 36,004 52,623 45,213
Timberland and property sales.............. 6,503 1,865 613 6,774 5,901
------- ------- -------- -------- ---------
Total revenues..................... 21,660 34,874 62,518 98,902 74,211
Operating Expenses:
Cost of products sold...................... 11,331 22,953 25,897 39,602 45,498
Cost of timberland and property sales...... 2,672 1,330 486 4,292 2,536
Depletion, depreciation and amortization... 2,907 2,982 15,366 25,259 12,966
Selling, general and administrative
expenses................................ 1,205 2,354 3,144 7,444 7,137
Write down of real estate investments...... -- -- -- -- 583
------- ------- -------- -------- ---------
Operating income................... 3,545 5,255 17,625 22,305 5,491
Other Income (Expense):
Interest expense........................... (1,871) (3,062) (6,070) (8,722) (12,505)
Interest income............................ 236 46 248 224 56
Other income (expense), net................ 239 343 -- 502 (780)
------- ------- -------- -------- ---------
Income (loss) from continuing operations
before income taxes and minority
interests.................................. 2,149 2,582 11,803 14,309 (7,738)
Income tax benefit (provision)............... -- -- (978) 355 336
------- ------- -------- -------- ---------
Income (loss) from continuing operations
before minority interest................... 2,149 2,582 10,825 14,664 (7,402)
Minority interest in loss of subsidiary...... -- -- 262 51 12
------- ------- -------- -------- ---------
Income (loss) from continuing operations..... 2,149 2,582 11,087 14,715 (7,390)
Discontinued operation, net(b)............... -- -- (48) (945) (897)
------- ------- -------- -------- ---------
Income (loss) before extraordinary item...... 2,149 2,582 11,039 13,770 (8,287)
Extraordinary item(c)........................ -- -- (780) -- (2,106)
------- ------- -------- -------- ---------
Net income (loss)............................ $ 2,149 $ 2,582 $ 10,259 $ 13,770 $ (10,393)
======= ======= ======== ======== =========
CASH FLOW AND OTHER DATA:
EBITDDA(d)................................... $ 9,363 $ 9,910 $ 33,477 $ 52,358 $ 20,213
Cash provided by operating activities........ (e) 16,451 26,806 24,749 7,767
Cash used in investing activities............ (e) (9,612) (58,110) (46,515) (162,297)
Cash provided by (used in) financing
activities................................. (e) (6,492) 35,733 18,699 153,168
BALANCE SHEET DATA (AT PERIOD END):
Working capital.............................. $(8,563) $(9,219) $ 1,167 $ 20,127
Timber, timberlands and timber cutting
rights..................................... 26,603 27,230 86,294 99,126
Total assets................................. 44,892 52,139 132,060 154,430
Total debt................................... 40,456 33,964 96,565 126,941
Members' equity.............................. 2,150 5,922 9,740 19,937
</TABLE>

31
<PAGE> 38

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

(a) Financial and operating data for the period from April 15, 1994 to December
31, 1994 and for the year ended December 31, 1995 for Old Pioneer are not
comparable to other periods presented in this table. See the financial
statements of Pioneer and accompanying notes included elsewhere in this
prospectus for additional information.

(b) Relates to the plywood operations of Lane Plywood, which were discontinued
in 1997.

(c) In 1996 and 1998, borrowings of Pioneer were refinanced, resulting in the
write-off of certain deferred financing costs as extraordinary, non-cash
charges.

(d) EBITDDA is defined as operating income plus other income (expense),
depletion, depreciation and amortization and cost of timberland and
property sales. Cost of timberland and property sales represents the cost
basis of timber and property sold. Similar costs are included in "Cost of
timber and property sold" for both Strategic Timber and Strategic Timber II
in the statements of operations and in "Depletion" in the statements of
cash flows. You should not construe EBITDDA to be an alternative to
operating income, as an indicator of Pioneer's operating performance, or as
an alternative to cash flow from operating activities, as a measure of
Pioneer's liquidity. EBITDDA is not a financial measure determined in
accordance with generally accepted accounting principles and may not be
comparable to similarly titled measures of other companies.

EBITDDA is calculated as follows:

<TABLE>
<CAPTION>
OLD PIONEER PIONEER
--------------------------- -----------------------------------------
PERIOD
FROM
APRIL 15, JANUARY 1,
1994 TO YEAR ENDED YEAR ENDED DECEMBER 31, 1998 TO
DECEMBER 31, DECEMBER 31, --------------------------- OCTOBER 8,
1994 1995 1996 1997 1998
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Operating income..................... $3,545 $5,255 $17,625 $22,305 $ 5,491
Other income (expense)............... 239 343 -- 502 (780)
Depletion, depreciation and
amortization....................... 2,907 2,982 15,366 25,259 12,966
Cost of timberland and property
sales.............................. 2,672 1,330 486 4,292 2,536
------ ------ ------- ------- -------
$9,363 $9,910 $33,477 $52,358 $20,213
====== ====== ======= ======= =======
</TABLE>

(e) Information regarding these amounts for the period from April 15, 1994 to
December 31, 1994 is not available.

32
<PAGE> 39

PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION

The following tables show, for the periods and dates indicated, pro forma
condensed consolidated financial information for Strategic Timber. The Pro Forma
Condensed Consolidated Balance Sheet presents our unaudited pro forma financial
condition as if the formation transactions and this offering had occurred as of
March 31, 1999. The Pro Forma Condensed Consolidated Statements of Operations
for the year ended December 31, 1998 and for the three months ended March 31,
1999 present our unaudited pro forma operating results as if this offering and
the formation transactions, except for our acquisitions of the Louisiana
property and the Coastal forest portion of the Pacific Northwest properties, had
occurred as of January 1, 1998.

The Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1998 includes the historical results of Pioneer for the
period from January 1, 1998 to October 8, 1998, as this entity represents our
predecessor business. These historical results of Pioneer have been adjusted to
eliminate results of operations and related assets and liabilities attributable
to Pioneer's timber conversion facilities and aircraft operations that we did
not acquire.

The Pro Forma Condensed Consolidated Statements of Operations, however, do
not include the historical results of the Louisiana property prior to our
purchase of these timberlands on April 27, 1998. These timberlands were acquired
from an unrelated family group that did not actively manage the property for
commercial timber operations. The Pro Forma Condensed Consolidated Statements of
Operations also do not include the historical results of the Coastal forest
portion of the Pacific Northwest properties prior to the purchase of these
timberlands by Pioneer in July 1998. We believe that there is limited continuity
between the prior operation of the Coastal forest and Pioneer's actual and our
intended forestry activities on these timberlands. Because of the lack of
continuity of operations before and after these purchases, we believe that
inclusion of historical financial information for the Louisiana property and the
Coastal forest in the Pro Forma Condensed Consolidated Statements of Operations
prior to the dates of acquisition would not be helpful to your understanding of
our business or operations.

The pro forma condensed consolidated financial information does not purport
to represent what our financial position or results of operations actually would
have been had the formation transactions occurred on the dates indicated. The
pro forma condensed consolidated financial information also does not purport to
project our financial position or results of operations at any future date or
for any future period. This information should be read in conjunction with the
following:

- Audited consolidated financial statements of Strategic Timber as of and
for the period from inception (April 21, 1998) to December 31, 1998 and
unaudited consolidated financial statements of Strategic Timber as of and
for the three months ended March 31, 1999,

- Audited consolidated financial statements of Strategic Timber II as of
and for the period from inception (October 9, 1998) to December 31, 1998
and unaudited consolidated financial statements of Strategic Timber II as
of and for the three months ended March 31, 1999,

- Audited consolidated financial statements of Pioneer as of and for the
years ended December 31, 1996 and 1997 and for the period from January 1,
1998 to October 8, 1998,

- "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and

- "Selected Historical Financial and Operating Information."

33
<PAGE> 40

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

MARCH 31, 1999

(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
HISTORICAL INTERCOMPANY
--------------------- ELIMINATIONS AND
STRATEGIC STRATEGIC PRO FORMA
TIMBER TIMBER II ADJUSTMENTS(A) PRO FORMA
--------- --------- ---------------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Current assets
Cash and cash equivalents.................. $ 1,100 $ 3,782 $ -- $ 4,882
Trade accounts receivable.................. 460 35 -- 495
Prepaid expenses........................... 1,934 157 (1,934)(b) 157
Due from affiliate......................... 154 -- (154)(c) --
-------- -------- --------- --------
Total current assets.................. 3,648 3,974 (2,088) 5,534
Timberlands.................................. 248,804 352,137 3,114(d) 604,055
Property and equipment, net.................. 102 175 -- 277
Land subject to repurchase................... 3,000 -- -- 3,000
Deferred financing costs, net................ 3,932 6,478 (10,410)(e) 3,320
3,320(e)
-------- -------- --------- --------
Total assets....................... $259,486 $362,764 $ (6,064) $616,186
======== ======== ========= ========
LIABILITIES:
Current liabilities
Bridge loans............................... $ 85,000 $ 35,000 $(120,000)(e) $ --
Current portion of long-term debt.......... 139,297 5,000 (144,297)(e) --
Accounts payable and other accrued
liabilities............................. 1,999 268 (1,934)(b) 333
Accrued interest........................... 1,888 4,746 (6,634)(e) --
Due to affiliates.......................... 798 154 (154)(c) 798
Deferred revenue........................... 3,863 -- -- 3,863
Obligations under interest rate swaps...... -- 3,316 (1,658)(e) 1,658
-------- -------- --------- --------
Total current liabilities............. 232,845 48,484 (274,677) 6,652
Long-term debt............................... -- 247,950 (247,950)(e) 269,215
269,215(e)
Minority interest............................ 46,218 70,298 (43,886)(d) 61,722
(2,640)(e)
(1,907)(f)
(6,361)(g)
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock............................... 1 -- 172(h) 173(h)
Additional paid-in capital................. -- -- 305,619(i) 311,980
(6,361) (g)
Accumulated deficit........................ (19,578) (3,968) (11,917)(e) (33,556)
1,907(f)
-------- -------- --------- --------
Total shareholders' equity
(deficit)........................ (19,577) (3,968) 302,142 278,597
-------- -------- --------- --------
Total liabilities and shareholders'
equity (deficit)................. $259,486 $362,764 $ (6,064) $616,186
======== ======== ========= ========
</TABLE>

The accompanying notes to pro forma condensed consolidated balance sheet
are an integral part of this balance sheet.

34
<PAGE> 41

NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

MARCH 31, 1999

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

(a) For purposes of this Pro Forma Condensed Consolidated Balance Sheet, the
following proceeds from this offering, and uses of these proceeds, are
assumed:

<TABLE>
<S> <C> <C>
Proceeds from offering:
Shares to be issued....................................... 16,600,000
Offering price per share.................................. $ 20
-----------
Gross proceeds from this offering......................... $332,000
Borrowings under new credit facility...................... 269,215(e)
--------
Total proceeds.................................... $601,215
========
Uses of proceeds:
Repayment of existing debt and accrued interest thereon... $ 518,881(e)
Debt financing costs on new credit facility............... 3,320(e)
Early termination payments on Strategic Timber II bridge
loan................................................... 3,300(e)
Termination of certain interest rate swaps................ 2,505(e)
Partial redemption of minority interests.................. 47,000(d)
Fees and expenses associated with this offering........... 26,209(i)
-----------
Total uses of proceeds............................ $601,215
========
</TABLE>

(b) Represents the reversal of offering expenses incurred and accrued as of
March 31, 1999. The recording of all expenses associated with this offering
is shown in note (i).

(d) As of March 31, 1999, the following units are held by minority unitholders
in Strategic Timber Partners and Strategic Timber Partners II,
respectively:

<TABLE>
<CAPTION>
UNITS OWNED % OF TOTAL UNITS
----------- ----------------
<S> <C> <C>
Strategic Timber Partners
Louisiana Timber.......................................... 5,000 19.6%
Strategic Timber Partners II
Former Pioneer Members.................................... 5,909 59.1%
Mach One.................................................. 909 9.1%
</TABLE>

In connection with this offering, these minority unitholders will receive
$47,000 representing a partial redemption of their current holdings as
shown below:

<TABLE>
<CAPTION>
UNITS TO BE CASH TO BE
REDEEMED RECEIVED
----------- ----------
<S> <C> <C>
Strategic Timber Partners
Louisiana Timber.......................................... 1,295 $12,945
Strategic Timber Partners II
Former Pioneer Members.................................... 2,187 24,055
Mach One.................................................. 909 10,000
-------
$47,000
=======
</TABLE>

This amount represents a $3,114 premium over the minority unitholders'
account balances at March 31, 1999. The premium represents additional
consideration related to Strategic Timber's

35
<PAGE> 42
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET -- (CONTINUED)

MARCH 31, 1999

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

purchase of the Louisiana property and Strategic Timber II's acquisition of
Pioneer. Accordingly, we have reflected this premium as an increase in
basis in our timberlands.

The remainder of these unitholders' ownership interests will be converted
into units of Strategic Timber Partners. After this conversion, these
unitholders will have the following ownership interest in Strategic Timber
Partners:

<TABLE>
<CAPTION>
UNITS OWNED % OF TOTAL UNITS
----------- ----------------
<S> <C> <C>
Louisiana Timber............................................ 1,762,974 7.9%
Former Pioneer Members...................................... 2,170,086 9.8%
Mach One.................................................... 100,110(f) 0.4%
--------- ------
4,033,170 18.1%
========= ======
</TABLE>

(e) In conjunction with this offering, we plan to repay all of our outstanding
debt and any accrued interest associated with this debt, as shown below:

<TABLE>
<S> <C>
Strategic Timber and Strategic Timber II bridge loans..... $120,000
Strategic Timber credit facility and current portion of
long term debt......................................... 144,297
Pioneer credit facility................................... 247,950
Accrued interest.......................................... 6,634
--------
$518,881
========
</TABLE>

Concurrently, we plan to enter into a new credit facility that provides for
a $200,000 term loan and a revolving line of credit of up to $175,000. We
expect to immediately borrow $269,215 on this facility. Of the amount
expected to be drawn under this facility, approximately $200,000 will relate
to the term loan bearing interest at a variable rate expected to initially
approximate 7.2% and which will be payable in quarterly installments through
May 31, 2004. The remaining $69,215 will relate to a revolving line of
credit bearing interest at a variable rate also expected to initially
approximate 7.2% and maturing on May 31, 2004. Unused commitment fees on the
new credit facility will approximate 0.5%. We expect to incur approximately
$3,320 in debt issuance costs associated with the new credit facility.

In connection with the early extinguishment of our existing debt
instruments, we will write-off unamortized debt issuance costs on our
existing debt totaling $10,410 at March 31, 1999. In addition, we will be
obligated to make an additional payment of approximately $3,300 on the early
retirement of the Strategic Timber II bridge loan. All other debt may be
retired prior to maturity without penalty.

We also anticipate that we will terminate interest rate swaps with a
notional principal of $50,000 at the date of this offering, while
maintaining swaps with a notional principal of $150,000 to mitigate interest
rate exposures on variable rate borrowings under our new credit facility. We
have estimated the cost to terminate these swaps to be $2,505, which
represents the fair value of these swaps as of March 31, 1999.

36
<PAGE> 43
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET -- (CONTINUED)

MARCH 31, 1999

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

As a result of the termination of our existing debt and interest rate swaps,
we will record an extraordinary loss from the early extinguishment of debt.
This loss is estimated to be approximately $14,557, of which $2,640 will be
allocated to minority interests, as shown below:

<TABLE>
<S> <C> <C>
Write-off of unamortized debt issuance costs......................... $10,410
Early termination fees............................................... 3,300
Termination of interest rate swaps, net of amount applied against
obligations under interest rate swaps of $1,658.................... 847
-------
Total extraordinary loss............................................. 14,557
Multiply by: minority interest percentage................... 18.1%
-------
Portion allocated to minority interests..................... 2,640
-------
Extraordinary loss................................................... $11,917
=======
</TABLE>

The actual amount of this loss may differ from this estimate.

(f) Mach One is entitled to a dividend of $1,907. Mach One has elected to
receive 100,110 units in Strategic Timber Partners in lieu of cash payment
of this dividend.

(g) Represents adjustment required to report initial minority interest of a
REIT, in accordance with Emerging Issues Task Force Issue 94-2, "Treatment
of Minority Interests in Certain Real Estate Investment Trusts."

(h) Represents 17,271,770 shares of common stock outstanding after this
offering with a par value of $0.01 per share.

(i) Amount is calculated as follows:

<TABLE>
<S> <C>
Proceeds from offering...................................... $332,000(a)
Less: portion applicable to common stock.................. (172)(h)
Less: Underwriters discounts and commissions.............. (21,082)
Less: Other fees and expenses, including legal,
accounting, financial advisory and listing fees and
printing costs...................................... (5,127)
--------
$305,619
========
</TABLE>

37
<PAGE> 44
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET -- (CONTINUED)

MARCH 31, 1999

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

(j) The following represents the historical balance sheet of Pioneer
immediately prior to its acquisition by Strategic Timber II. In addition,
this statement shows the adjustments required to the historical balance
sheet to show the cost basis of the net assets acquired by Strategic Timber
II on October 9, 1998.

<TABLE>
<CAPTION>
ELIMINATION OF
ASSETS NOT
ACQUIRED AND PRO FORMA NET
LIABILITIES ASSETS ACQUIRED
AS OF OCTOBER 8, NOT BY STRATEGIC
1998 ASSUMED TIMBER II
---------------- -------------- ---------------
<S> <C> <C> <C>
ASSETS:
Current assets
Cash and cash equivalents.......................... $ -- $ -- $ --
Trade accounts receivable.......................... 4,506 (4,506) --
Receivables, related party......................... 683 (683) --
Inventories........................................ 11,815 (11,815) --
Prepaid expenses and deposits...................... 55 -- 55
Real estate investments............................ 3,100 (3,100) --
Current portion of notes receivable................ 2,527 (2,527) --
Net current assets of discontinued operations...... 1,394 (1,394) --
-------- -------- --------
Total current assets....................... 24,080 (24,025) 55
Timber, timberlands and timber cutting rights........ 252,248 (22,181) 230,067
Real estate investments.............................. 6,532 (6,532) --
Property, plant and equipment, net................... 12,971 (12,812) 159
Other assets......................................... 2,645 (2,645) --
-------- -------- --------
Total assets............................... $298,476 $(68,195) $230,281
======== ======== ========
LIABILITIES:
Current liabilities
Accounts payable................................... $ 3,966 $ (3,966) $ --
Accrued liabilities................................ 2,882 (2,882) --
Deferred income taxes.............................. 385 (385) --
-------- -------- --------
Total current liabilities.................. 7,233 (7,233) --
Long-term debt....................................... 288,716 (288,716) --
Deferred income taxes................................ 1,689 (1,689) --
Minority interest.................................... 283 (283) --
-------- -------- --------
Net assets................................. $ 555 $229,726 $230,281
======== ======== ========
</TABLE>

38
<PAGE> 45

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------
PIONEER
STRATEGIC STRATEGIC (PREDECESSOR
TIMBER TIMBER II TO STRATEGIC
FOR THE PERIOD FOR THE PERIOD TIMBER II)
FROM FROM FOR THE PERIOD
INCEPTION INCEPTION FROM
(APRIL 21, (OCTOBER 9, JANUARY 1,
1998) TO 1998) TO 1998 THROUGH ELIMINATION OF
DECEMBER 31, DECEMBER 31, OCTOBER 8, NON-ACQUIRED PRO FORMA
1998 1998 1998 OPERATIONS(A) ADJUSTMENTS(B) PRO FORMA
-------------- -------------- -------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Timber and log sales....... $ 267 $ 9,018 $ 23,097 $ -- $ -- $ 32,382
Lumber and by-product
sales.................... -- -- 45,213 (45,213) -- --
Timberland and property
sales and other.......... 240 -- 5,901 (956) -- 5,185
-------- ------- -------- -------- ------- -----------
Total revenues...... 507 9,018 74,211 (46,169) -- 37,567
Operating Expenses:
Depletion, depreciation and
amortization............. 397 5,734 12,789 (6,787) 2,551(c) 14,742
58(d)
Cost of timberland and
property sold............ 7 -- 2,536 (957) 671(c) 2,257
Cost of products sold...... -- 43 45,498 (34,485) -- 11,056
Amortization of deferred
financing costs.......... 1,743 499 177 -- (1,755)(e) 664
Selling, general and
administrative
expenses................. 1,819 1,707 7,137 (1,854) --(f) 8,809
Write down of real estate
investments.............. -- -- 583 (583) -- --
-------- ------- -------- -------- ------- -----------
Operating income
(loss)................. (3,459) 1,035 5,491 (1,503) (1,525) 39
Other Income (Expense):
Interest expense........... (13,781) (5,657) (12,505) -- 13,517(e) (18,426)
Interest income............ 33 12 56 (56) -- 45
Other income (expense),
net...................... -- -- (780) 780 -- --
-------- ------- -------- -------- ------- -----------
Income (loss) from
continuing operations
before income taxes and
minority interest...... (17,207) (4,610) (7,738) (779) 11,992 (18,342)
Income tax (provision)
benefit.................... -- -- 336 -- (336)(g) --
-------- ------- -------- -------- ------- -----------
Income (loss) from
continuing operations
before minority
interest............... (17,207) (4,610) (7,402) (779) 11,656 (18,342)
Minority interest............ 2,863 2,587 12 (12) (4,030)(h) 1,420(h)
-------- ------- -------- -------- ------- -----------
Income (loss) from
continuing
operations............. $(14,344) $(2,023) $ (7,390) $ (791) $ 7,626 $ (16,922)
======== ======= ======== ======== ======= ===========
Basic and diluted loss from
continuing operations per
share: $ (0.98)(i)
===========
Weighted average number of
shares used in the
calculation of basic and
diluted loss from
continuing operations per
share: 17,271,770(i)
===========
</TABLE>

The accompanying notes to pro forma condensed consolidated statements of

operations are an integral part of this statement.

39
<PAGE> 46

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 1999

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)

<TABLE>
<CAPTION>
HISTORICAL
---------------------
STRATEGIC STRATEGIC PRO FORMA
TIMBER TIMBER II ADJUSTMENTS(B) PRO FORMA
--------- --------- -------------- -----------
<S> <C> <C> <C> <C>
Revenues:
Timber sales................................ $ 2,694 $ 5,032 $ -- $ 7,726
Property sales and other.................... 133 763 -- 896
------- ------- ------- -----------
Total revenues...................... 2,827 5,795 -- 8,622
Operating Expenses:
Depletion, depreciation and amortization.... 2,795 2,353 -- 5,148
Cost of property sold....................... -- 66 -- 66
Cost of products sold....................... -- 9 -- 9
Amortization of deferred financing costs.... 654 546 (1,034)(e) 166
Selling, general and administrative
expenses................................. 473 920 --(f) 1,393
------- ------- ------- -----------
Operating income (loss)............. (1,095) 1,901 1,034 1,840
Other Income (Expense):
Interest expense............................ (4,841) (5,976) 5,907(e) (4,910)
Interest income............................. 1 14 -- 15
------- ------- ------- -----------
Income (loss) from continuing
operations before minority
interest.......................... (5,935) (4,061) 6,941 (3,055)
Minority interest............................. 701 2,115 (2,262)(h) 554(h)
------- ------- ------- -----------
Income (loss) from continuing
operations........................ $(5,234) $(1,946) $ 4,679 $ (2,501)
======= ======= ======= ===========
Basic and diluted loss from continuing
operations per share: $ (0.14)(i)
===========
Weighted average number of shares used in the
calculation of basic and diluted loss from
continuing operations per share: 17,271,770(i)
===========
</TABLE>

The accompanying notes to pro forma condensed consolidated statements of

operations are an integral part of this statement.

40
<PAGE> 47

NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31,
1999

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

(a) Amounts represent the elimination of revenues and expenses associated with
operations of Pioneer that were not acquired by Strategic Timber II. These
operations primarily include Pioneer's timber conversion facilities and
aircraft operations.

Certain reclassifications have been made to the historical statements of
operations of Strategic Timber and Strategic Timber II to conform with the
presentation of the historical Pioneer statement of operations.

(b) For purposes of these Pro Forma Condensed Consolidated Statements of
Operations, the following proceeds from this offering, and uses of these
proceeds, are assumed:

<TABLE>
<S> <C> <C>
Proceeds from offering:
Shares to be issued....................................... 16,600,000
Offering price per share.................................. $ 20
-----------
Gross proceeds from this offering......................... $332,000
Borrowings under new credit facility...................... 269,215(e)
--------
Total proceeds.................................... $601,215
========
Uses of proceeds:
Repayment of Strategic Timber II debt and accrued interest
thereon................................................ $ 292,696(e)
Debt financing costs on new credit facility............... 3,320(e)
Early termination payments on Strategic Timber II bridge
loan................................................... 3,300(e)
Termination of certain interest rate swaps................ 2,505(e)
Partial redemption of minority interests.................. 47,000
Fees and expenses associated with this offering........... 26,209 375,030
----------- --------
Excess cash proceeds................................. $226,185
========
</TABLE>

Excess cash proceeds arise due to certain assumptions regarding the timing
of this offering and the purchase of the Louisiana property. Specifically,
the accompanying Pro Forma Condensed Consolidated Statements of Operations
assume that the formation transactions and this offering occur on January
1, 1998, but do not reflect the historical financial results of the
Louisiana property until after our acquisition of these timberlands on
April 27, 1998. We have assumed the following related to these excess cash
proceeds:

- For the period from January 1, 1998 until our acquisition of the
Louisiana property on April 27, 1998, we utilized $69,215 of these excess
proceeds to pay down the revolving line of credit portion of the new
credit facility initially borrowed in connection with this offering. See
note (e).

- On April 27, 1998, we then re-borrowed the $69,215 in excess proceeds and
used this amount, together with the remaining excess cash proceeds, to
purchase the Louisiana property.

- We have not recognized any interest income on any excess proceeds as we
do not expect to maintain this level of cash after this offering.

(c) Represents adjustment to reflect additional depletion expense after
stepping-up the basis in the timberlands we acquired from Pioneer,
resulting from the application of purchase accounting.

(d) Amount represents depreciation expense on property and equipment acquired
from Pioneer. This property and equipment will be depreciated over periods
ranging from three to five years.

(e) In conjunction with this offering, we plan to repay all of our outstanding
debt and any accrued interest associated with this debt. Concurrently, we
plan to enter into a new credit facility that provides for a

41
<PAGE> 48

NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31,
1999 -- (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

$200,000 term loan and a revolving line of credit of up to $175,000. We
expect to immediately borrow $269,215 on this facility. Of the amount
expected to be drawn under this facility, approximately $200,000 will
relate to the term loan bearing interest at a variable rate expected to
initially approximate 7.2% and which will be payable in quarterly
installments through May 31, 2004. The remaining $69,215 will relate to a
revolving line of credit bearing interest at a variable rate also expected
to initially approximate 7.2% and maturing on May 31, 2004. Unused
commitment fees on the new credit facility will approximate 0.5%.

Based on expected levels of debt to be outstanding under this facility,
expected interest costs would be $18,426 for the year ended December 31,
1998 and $4,910 for the three months ended March 31, 1999. The adjustments
shown on the accompanying Pro Forma Condensed Consolidated Statements of
Operations are calculated as follows:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
<S> <C> <C>
Expected interest expense................................... $ 18,426 $ 4,910
Less: previously recognized interest expense of:
Strategic Timber..................................... (13,781) (4,841)
Strategic Timber II.................................. (5,657) (5,976)
Pioneer.............................................. (12,505) --
-------- -------
$(13,517) $(5,907)
======== =======
</TABLE>

An increase in the interest rates of 1/8% would yield additional annual
interest expense of approximately $337, based on the level of debt we
expect to be outstanding after this offering.

We expect to incur approximately $3,320 in debt issuance costs associated
with the new credit facility. Such costs will be amortized over a period of
five years. The adjustments shown on the accompanying Pro Forma Condensed
Consolidated Statements of Operations are calculated as follows:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
<S> <C> <C>
Pro forma amortization expense.............................. $ 664 $ 166
Less: previously recognized amortization expense of:
Strategic Timber..................................... (1,743) (654)
Strategic Timber II.................................. (499) (546)
Pioneer.............................................. (177) --
------- -------
$(1,755) $(1,034)
======= =======
</TABLE>

As a result of the termination of our existing debt and some of our
interest rate swaps, we will record an extraordinary loss from the early
extinguishment of debt. This loss would approximate $14,557 using
historical amounts reported in the Strategic Timber and Strategic Timber II
consolidated financial statements as of March 31, 1999. The actual amount
of this loss may differ from this estimate. This loss has not been
reflected in the Pro Forma Condensed Consolidated Statement of Operations
for the year ended December 31, 1998, which shows only pro forma income
(loss) from continuing operations.

42
<PAGE> 49

NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31,
1999 -- (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

(f) Historical selling, general and administrative expenses have not been
adjusted to reflect the reductions in such costs anticipated by management
after this offering. Such reductions are anticipated primarily due to:

- expected cost savings from the reduction of personnel due to the
consolidation of all current operations, net of additional costs
associated with being a public company and

- changes in the way we plan to operate our Pacific Northwest properties.

(g) Represents the elimination of all historical taxes recorded by Pioneer
because we expect to qualify as a REIT and, thus, we expect to be subject
only to nominal state taxes.

(h) Represents the minority interest charges, assuming minority ownership in
Strategic Timber Partners of 18.1% after the formation transactions and
this offering. Amounts are calculated as follows:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ -------------
<S> <C> <C>
Loss from continuing operations before minority interest
expense................................................... $(18,342) $(3,055)
Multiply by: minority interest percentage................... 18.1% 18.1%
-------- -------
Minority interest before dividends.......................... 3,327 554
Less: Dividend on minority interests........................ (1,907) --
-------- -------
Minority interest........................................... $ 1,420 $ 554
======== =======
</TABLE>

One of the minority unitholders, Mach One, will be entitled to a dividend
of $1,907 based upon contractual commitments with the Company. Mach One has
elected to receive 100,110 partnership units in lieu of cash payment of
this dividend.

(i) For the year ended December 31, 1998 and for the three months ended March
31, 1999, basic loss from continuing operations per share is calculated by
dividing loss from continuing operations by the weighted average shares
outstanding during the period. It is assumed that 17,271,770 shares were
outstanding during the entirety of both reporting periods.

Diluted loss from continuing operations per share is calculated by dividing
loss from continuing operations by the weighted average shares outstanding
during the period plus the weighted average of potentially dilutive
securities outstanding during the period. Approximately 4,966,205
partnership units, which are convertible on a share for share basis into
shares of our common stock, have not been included in these calculations
because these potential shares are antidilutive in periods in which a loss
from continuing operations is reported. Diluted loss from continuing
operations per share also does not include the effects of stock options to
be granted under the 1999 Incentive Plan, as such stock options will be
granted on the date of this offering with an exercise price equal to the
offering price.

43
<PAGE> 50

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

This section contains management's discussion and analysis of the
historical financial condition and results of operations of Strategic Timber,
Strategic Timber II and Pioneer, the predecessor to Strategic Timber II. The
following also presents our pro forma financial condition and results of
operations after giving effect to the formation transactions and this offering.
See "Structure and Formation of Strategic Timber."

The discussions of historical results are based on the historical financial
statements of

- Strategic Timber as of and for the period from inception (April 21, 1998)
to December 31, 1998 and as of and for the three months ended March 31,
1999,

- Strategic Timber II as of and for the period from inception (October 9,
1998) to December 31, 1998 and as of and for the three months ended March
31, 1999 and

- Pioneer as of and for the years ended December 31, 1996 and 1997 and for
the period from January 1, 1998 to October 8, 1998,

and should be read in conjunction with those financial statements contained
elsewhere in this prospectus. Discussions of our plan of operation are based, in
part, on information contained in "Pro Forma Condensed Consolidated Financial
Information."

The following discussion first addresses our expected operating plan after
giving effect to the formation transactions and this offering. Following this
section are analyses of the historical operating results of Strategic Timber,
Strategic Timber II and Pioneer, and discussions of our historical and
anticipated liquidity and capital resources, commitments and contingencies, Year
2000 compliance plans and market risks.

PLAN OF OPERATION

GENERAL

The following discussion is based, in part, on the pro forma information
contained in "Pro Forma Condensed Consolidated Financial Information." We
believe that the pro forma financial information, as presented, will not be
comparable to the results of operations and cash flows that we will derive in
the remainder of 1999 and beyond. The primary reason for this belief is that the
1998 pro forma results for the Louisiana property and certain California
timberlands, which together represent the majority of our merchantable timber
inventory, include only partial years of operations. In addition, the 1998 pro
forma results are based on actual harvest levels during the period, which are
well below expected future levels. The pro forma results for the three months
ended March 31, 1999 are also based on actual harvest levels, which are somewhat
below expected future levels because we had only recently begun marketing
efforts for our timber.

The pro forma condensed consolidated statements of operations include
results of operations of the Louisiana property only for the period from its
acquisition on April 27, 1998. The results of operations prior to April 27, 1998
are not included in the 1998 Pro Forma Condensed Consolidated Statement of
Operations due to a lack of continuity of operations and a fundamental change in
the management of the Louisiana property after acquisition. Because the
Louisiana property had not been operated as a commercial forest prior to our
acquisition of these timberlands, the age of the timber located on the Louisiana
property is disproportionately weighted to over-mature timber that has remained
standing beyond its economic rotation age -- that is, the age at which the
timber should be optimally harvested. In the southern United States, economic
rotation age varies by species but generally approximates 30 to 32 years.
Starting in 1999, we are actively focusing on the sale of this over-mature
timber. Accordingly, we expect harvest volumes and revenues to be much greater
than historical amounts.

Furthermore, from the date of the acquisition of the Louisiana property
through December 31, 1998, we conducted only limited operations on the Louisiana
property, while preparing the property for active commercial timber operations.
These preparations included conducting a complete timber inventory,
44
<PAGE> 51

detailed mapping, preparation of timber sales plans and initiation of commercial
marketing activities. We incurred significant one-time preparatory expenses
totaling approximately $140,000 prior to the commencement of the commercial
operation of the Louisiana property that will not occur in future periods. These
expenses have been recorded as a component of general and administrative
expenses in the historical 1998 financial statements of Strategic Timber.

The 1998 pro forma condensed consolidated statement of operations also
excludes the historical financial results of certain California timberlands
prior to the date of acquisition by Pioneer in July 1998 due to a lack of
continuity of operations. These California timberlands, known as the Coastal
forest, were recently managed in a substantially different manner by the prior
owners than we expect to manage them. Before Pioneer acquired the Coastal
forest, the previous owners held these timberlands primarily to seek capital
appreciation. Harvests were conducted at relatively low levels in recent years
with the objectives of thinning and extraction of hardwood species from softwood
tracts. Also, Pioneer postponed planned harvesting of the Coastal forest in
anticipation of the eventual sale of Pioneer to Strategic Timber II.

In May 1998, shortly before Pioneer's acquisition of the Coastal forest,
the prior owners received approval of an "Option A" timber management plan for
the Coastal forest from the California Department of Forestry and Fire
Protection. The Option A timber management plan was developed pursuant to a
California regulatory process that establishes long-term growth and sustainable
harvest for a specified forest. This Option A plan establishes a
decade-by-decade harvesting model for the Coastal forest. Under the Option A
plan, we must file with the Department timber harvest plans with respect to
specific tracts from which we propose to sell timber for harvest. The Department
reviews these timber harvest plans for compliance with our Option A plan, and
for other matters such as erosion control and effects on wildlife, in connection
with its approval process. The Department's continued review of the Option A
plan may result in revisions of maximum harvests currently shown in that plan.
Even though our timber sales plan calls for significantly lower cutting and
sales in the Coastal forest than the maximum harvests currently shown in the
Option A plan, we cannot be sure that the Department, as it monitors, enforces
and revises the Option A plan, will approve the sales we have planned in each
year. See "Risk Factors -- Forestry, environmental and endangered species
regulations restrict timber harvesting and may otherwise restrict our ability to
conduct our business," "Business and Properties -- Initial Timberland
Properties -- The California Timberlands" and "-- Federal and State
Regulations -- State Forestry Regulations."

For a description of our timber sales plan, see "Business and
Properties -- Initial Timberland Properties -- Timberland Management Strategy."

REVENUES

In 1999 and beyond, we intend to execute a timber sales plan that will
enable us to generate an increasing revenue stream. This plan primarily will
involve the harvesting of mature timber on our timberlands. For example, timber
on the Louisiana property is weighted to over-mature timber as the prior owners
allowed the timber to remain standing beyond its economic rotation age.
Similarly, components of the Commander forest in California and the Washington
property consist of mature, high-value timber that is at its optimal harvest
age. Our timber sales plan for these tracts calls for removing this low-growth
timber and replanting with seedlings selected for superior genetic
characteristics to increase growth rates. While this plan will involve immediate
harvests of over-mature tracts, we believe that it will allow us to develop a
sustained yield forestry management approach on a long-term basis. In selecting
tracts to be sold for harvesting in a given year, we will evaluate our holdings
on an overall basis, taking into account the relative maturity levels and
current productivity of tracts available for harvest, the strength of local
markets and the desirability of reforesting a particular area so that we can
increase the growth rate of our timber and better balance the age class
distribution of our holdings. Our timber sales plan will be modified
periodically to adjust for changes in growth patterns, future acquisitions of
timberlands, unforeseen events and general economic conditions.

We enter into cutting contracts under which the buyer, at its expense, will
be required to cut and haul the purchased timber to its own conversion facility,
or to another purchaser to whom it is reselling. Our contracts extend for up to
six years, and we may enter in longer-term contracts in the future. Contracts

45
<PAGE> 52

with terms of two or more years provide for price adjustments at least annually
and typically require the buyer to cut minimum amounts of timber each year.
Within these limits, the buyer has discretion as to when it harvests our timber.
We recognize revenue at the time the buyer cuts and takes title to the timber.
Therefore, the buyer's discretion as to the timing of its timber harvest affects
our recognition of revenue.

In addition to cutting contracts, we also expect to derive revenues from
several other sources. We will grant hunting, grazing, camping and other rights
of access to approved hunting clubs and individuals. These hunting leases and
other rights will both produce revenues and provide us with assistance in
maintaining and protecting our properties. We expect that approximately $1.0
million of our 1999 revenues will be derived from the issuance of hunting,
grazing, camping and other rights. From time to time, we expect to make
incidental sales of portions of our properties that have a higher and better use
than the long-term production of timber. See "Business and Properties."

EXPENSES

Our primary operating expense will be depletion, which is a non-cash
expense relating to the cost of timber harvested. Depletion will be calculated
based on the capitalized cost of the timber harvested, including cost of
acquisition and any silvicultural activities, divided by available timber volume
based on timber surveys. Timber surveys are expected to be performed annually to
assess available merchantable timber volumes. Accordingly, depletion rates will
be adjusted at that time and applied prospectively. Based on our projected
harvest levels, as well as current depletion rates, our expected 1999 depletion
expense will be approximately $48.8 million.

We expect that 1999 selling, general and administrative costs will be
approximately one-third lower than pro forma selling, general and administrative
costs for the year ended December 31, 1998. This decline is attributable to the
anticipated cost savings from the reduction of personnel due to the
consolidation of all current operations, net of additional costs associated with
being a public company, as well as changes in the way we plan to operate the
Pacific Northwest properties. In the past, Pioneer focused on log sales from the
Pacific Northwest properties. Pioneer was responsible for cutting timber and
converting it into logs prior to sale. We plan to focus our sales efforts on
sales of standing timber, where customers will be responsible for cutting and
hauling timber. This change in business strategy will mitigate or eliminate
previously incurred administrative costs associated with maintaining sorting
areas, log yards and other facilities to convert timber into logs.

SEASONALITY

Rain in winter and our fire prevention measures in spring and summer limit
timber harvesting on the Louisiana property. Similarly, harvesting on our
timberlands in the Pacific Northwest has been interrupted for periods during the
winter and spring due to snow and melting snow, and occasionally in the late
summer due to our fire prevention measures. Due to the more favorable weather
that generally prevails in the second and third quarters and the related
increases in construction activity, we expect that our customers will harvest
more timber from our properties in those quarters than in the first and fourth
quarters. Accordingly, our results of operations may fluctuate on a quarterly
basis due to the seasonal nature of harvesting activities, as follows:

<TABLE>
<CAPTION>
QUARTER EFFECT
------- ------
<S> <C>
First/Fourth Rain in the southeast and snow in the northwest could affect
all harvesting activities.
Second/Third Our fire prevention measures limit harvesting on our
Louisiana property and could limit harvesting on our
Pacific Northwest properties.
</TABLE>

EFFECTS OF INFLATION

Prices for our timber will be subject to cyclical fluctuations due to
market or other economic conditions, including the level of construction and
remodeling activity. Although timber prices in the U.S. have historically risen
faster than inflation over the long-term, these prices generally do not directly
follow short-term inflationary trends. Costs of forest operations and general
and administrative expenses do tend to reflect inflationary trends.

46
<PAGE> 53

HISTORICAL RESULTS OF OPERATIONS

The following discussion focuses on the historical operating results of
Strategic Timber, Strategic Timber II and Strategic Timber II's predecessor,
Pioneer. This discussion is historical in nature and may not be representative
of how we plan to manage our operations after this offering and the formation
transactions. See "-- Overview," "-- Plan of Operation" and "Structure and
Formation of Strategic Timber."

STRATEGIC TIMBER TRUST, INC.

Strategic Timber and Strategic Timber Partners were formed in April 1998 to
acquire the Louisiana property, which now consists of approximately 82,000 acres
of timberland. Louisiana Timber contributed to Strategic Timber Partners a
contract to acquire the Louisiana property in exchange for a 19.6% limited
partnership interest valued at $50.0 million. This value represented the
difference between the fair value of the Louisiana property and the purchase
price under the contract contributed by Louisiana Timber. Strategic Timber
retained a 79.4% limited partnership interest in Strategic Timber Partners and
Strategic Timber Operating Co., Strategic Timber's wholly owned subsidiary,
retained the remaining 1.0% general partner interest. The partnership then
purchased the Louisiana property on April 27, 1998 for $205.0 million in cash.
The partnership funded the purchase price of the Louisiana property and related
transaction costs by borrowing $125.8 million under a $215.0 million bank
revolving credit facility, and with a cash contribution of $85.0 million by
Strategic Timber. Strategic Timber borrowed these funds under a bank bridge
loan.

The historical financial statements of Strategic Timber include the results
of operations for the period from inception, April 21, 1998, to December 31,
1998 and for the three months ended March 31, 1999. For the majority of 1998,
Strategic Timber deferred active harvesting on these timberlands to prepare for
full-scale commercial operations. During that time, Strategic Timber conducted a
detailed timber inventory, mapped its property, prepared timber sales plans and
initiated marketing activities for timber to be sold from the property. For
1998, the operating results reflect only limited harvesting operations,
including the sale of salvage timber and thinning. Expenses incurred relate
primarily to interest expense on bank debt, amortization of deferred financing
costs and depletion on timber harvested.

Strategic Timber will elect to be treated as a REIT under provisions of the
Internal Revenue Code beginning with the tax year ended December 31, 1998. As a
result, Strategic Timber is not subject to federal income taxes on distributed
income but, instead, Strategic Timber's shareholders are taxed. No benefit for
income taxes has been provided on the loss since inception, as the benefit is
not currently "more likely than not" to be realized by Strategic Timber due to
its limited operating history. Strategic Timber's net operating loss is
approximately $21.4 million at March 31, 1999.

Three Months Ended March 31, 1999

Revenues from timber sales for the three months ended March 31, 1999
totaled approximately $2.7 million. These revenues reflect that we began
commercial operations on the Louisiana property at the end of 1998 and began
actively marketing in the first quarter of 1999. Entering the first quarter, we
did not have any significant backlog of cutting contracts. Revenues were also
affected by winter weather, which limits harvesting and construction activity.

In addition, we recognized approximately $133,000 of revenues from hunting,
grazing and farming leases issued on the Louisiana property.

Cost of timber and property sold of approximately $2.8 million for the
three months ended March 31, 1999 represents depletion on timber harvested. The
calculation of depletion is based on the capitalized cost of the harvested
timber, including cost of acquisition and any silvicultural activities, divided
by available timber volume based on an initial timber survey. Merchantable
timber volumes are adjusted for growth and harvest annually. Depletion rates
will be adjusted at that time and applied prospectively.

Amortization of deferred financing costs of approximately $654,000 for the
three months ended March 31, 1999 represent the amortization of costs incurred
to obtain financing used for our acquisitions

47
<PAGE> 54

and working capital requirements. These costs are being amortized over the term
of the underlying debt, ranging from one to five years.

General and administrative expenses of approximately $475,000 for the three
months ended March 31, 1999 are comprised primarily of salaries and forestry
management fees. Forestry management fees represent costs paid to outside
vendors for managing and tracking available timber. For the three months ended
March 31, 1999, these fees totaled approximately $115,000.

Interest expense of approximately $4.8 million for the three months ended
March 31, 1999 primarily represents interest costs on Strategic Timber's
existing debt, net of the effect of an interest rate swap used to hedge certain
exposures to variable interest rates. See "-- Market Risk."

Minority interest of approximately $701,000 for the three months ended
March 31, 1999 is the share of the operating partnership's income and losses
attributable to the minority unitholders of the operating partnership.

Period from April 21, 1998 (Inception) to December 31, 1998

During the reporting period, Strategic Timber sold salvage timber and
property for approximately $323,000. In addition, Strategic Timber recognized
approximately $184,000 of revenues related to hunting, grazing and farming
leases issued on the Louisiana property.

Cost of timber sold of approximately $403,000 represents depletion on
timber harvested.

Amortization of deferred financing costs of approximately $1.7 million for
the period represents the amortization of costs incurred to obtain financing
used for our acquisition and working capital requirements.

General and administrative expenses of approximately $1.8 million for the
period are composed primarily of consulting and forestry management fees and
corporate salaries. These expenses also include one-time costs totaling $140,000
associated with preparing the Louisiana property for active commercial timber
operations. Such preparations included the conducting of a complete timber
inventory, detailed mapping, preparation of harvest plans and implementation of
commercial marketing activities.

Interest expense of approximately $13.8 million for the period represents
interest costs on Strategic Timber's existing debt, net of the effects of an
interest rate swap used to hedge certain exposures to variable interest rates.
See "-- Market Risk."

Minority interest of approximately $2.9 million for the period is the share
of the operating partnership's losses attributable to the minority unitholders
of the operating partnership.

STRATEGIC TIMBER TRUST II, LLC

Our initial shareholders formed Strategic Timber II in September 1998 to
acquire Pioneer, which held approximately 363,000 acres of timberland in the
Pacific Northwest as of March 31, 1999. Strategic Timber II acquired all of the
membership interests in Pioneer from its members on October 9, 1998, in exchange
for $35.0 million in cash and a 59.1% interest in Strategic Timber Partners II,
which we valued at $65.0 million. Strategic Timber Partners II funded the cash
portion of the purchase price for Pioneer and related transaction costs with a
cash contribution of $35.0 million by Strategic Timber Two Operating Co. in
exchange for a 31.8% interest in Strategic Timber Partners II, and a cash
contribution of $10.0 million by Mach One, in exchange for a 9.1% interest in
Strategic Timber Partners II. To fund Strategic Timber Two Operating Co.'s
contribution, Strategic Timber II borrowed $35.0 million under a bank bridge
loan. In connection with the acquisition, Pioneer refinanced its existing bank
debt, leaving approximately $255.0 million outstanding under its credit
facility.

48
<PAGE> 55

Strategic Timber II accounted for this acquisition under the purchase
method of accounting. The following summarizes the fair value of interests held
by the former members of Pioneer and Mach One immediately following the
application of purchase accounting:

<TABLE>
<CAPTION>
FAIR VALUE FAIR VALUE
OF INTEREST NUMBER OF UNITS PER UNIT
----------- --------------- ----------
<S> <C> <C> <C>
Former Members of Pioneer........................ $65,000,000 5,909 $11,000
Mach One......................................... 10,000,000 909 11,000
</TABLE>

The historical financial statements of Strategic Timber II include the
results of operations for the period from inception, October 9, 1998, to
December 31, 1998 and for the three months ended March 31, 1999. The operating
results through December 31, 1998 reflect only limited harvesting activities, as
Strategic Timber II primarily focused on transitioning systems and personnel in
the months immediately following the acquisition. Operating results for the
first quarter of 1999 reflect that Strategic Timber II began commercial
operation of most of the Pacific Northwest properties other than the Coastal
forest.

Three Months Ended March 31, 1999

For the three months ended March 31, 1999, Strategic Timber II recognized
revenues of approximately $5.8 million. Approximately $4.1 million relates to
amounts recognized under a timber deed with Sierra Pacific Industries, Inc.
Under this timber deed, Sierra Pacific obtained the right to harvest on a 7,623
acre tract on our Commander forest. Sierra Pacific paid approximately $4.1
million for this right, none of which is refundable. Sierra Pacific bears the
risk of loss of the timber for the duration of the contract, which expires on
October 15, 2000. In accordance with our accounting policies, we recognized
revenues for the entire value of the contract when the contract was signed. See
"-- Commitments and Contingencies."

We also recorded revenues of approximately $982,000 related to the sales of
timber on our Commander forest and our Oregon and Washington timberlands.
Excluding amounts harvested under the timber deed with Sierra Pacific, harvests
for the first quarter of 1999 were approximately 2.8 million board feet. Future
harvest levels are expected to increase in the near-term as the winter rainy
season subsides and we continue to integrate the newly acquired properties into
our on-going operations.

In March 1999, we sold 2,300 acres of grasslands and timberlands on our
Oregon property for approximately $737,000. These lands contained a nominal
amount of timber. We also recognized approximately $26,000 of revenues during
the three months ended March 31, 1999 from hunting, grazing and farming leases
issued on our Pacific Northwest properties.

Subsequent to the end of the first quarter, we sold 9,771 acres of ranch
lands on our Oregon property for $700,000. Mason, Bruce & Girard has confirmed
that these lands contained no merchantable timber.

Cost of timber sold of approximately $2.2 million for the three months
ended March 31, 1999 primarily represents depletion on timber harvested. The
calculation of depletion is based on the capitalized cost of the harvested
timber, including cost of acquisition and any silvicultural activities, divided
by available timber volume based on timber surveys. Merchantable timber volumes
are adjusted for growth and harvest annually. Depletion rates will be adjusted
at that time and applied prospectively.

Cost of property sold of approximately $181,000 for the three months ended
March 31, 1999 primarily represents the cost basis of the timberlands we sold
and closing costs on these sales.

Amortization of deferred financing costs of approximately $546,000 for the
three months ended March 31, 1999 represent the amortization of costs incurred
to obtain financing used for our acquisitions and working capital requirements.
These costs are being amortized over the term of the underlying debt, ranging
from one to five years.

General and administrative expenses of approximately $938,000 for the three
months ended March 31, 1999 are comprised primarily of salaries, professional
fees, property taxes and reimbursement of expenses incurred by Strategic Timber
on behalf of Strategic Timber II. Reimbursed costs include

49
<PAGE> 56

Strategic Timber II's portion of certain shared expenses, such as rent,
utilities and insurance, which initially were paid by Strategic Timber.
Reimbursed costs also represent fees for management services provided by
Strategic Timber on behalf of Strategic Timber II. During the three months ended
March 31, 1999, Strategic Timber II recognized expenses of approximately
$337,000 for reimbursed costs.

Interest expense of approximately $6.0 million for the three months ended
March 31, 1999 represents interest costs on Strategic Timber II's existing debt,
net of the effect of three interest rate swaps used to hedge certain exposures
to variable interest rates. See "-- Market Risks."

Minority interest of approximately $2.1 million for the three months ended
March 31, 1999 is the share of the operating partnership's income and losses
attributable to the minority unitholders of the operating partnership.

Period from October 9, 1998 (Inception) to December 31, 1998

During the reporting period, Strategic Timber II recorded revenues of
approximately $9.0 million. Approximately $5.6 million of this amount relates to
revenues recognized under a timber deed with Kinzua Resources. See
"-- Commitments and Contingencies." The remaining $3.4 million represents sales
of timber from our Commander forest and our Oregon and Washington properties.
Excluding amounts harvested under the timber deed, approximately 11.6 million
board feet were harvested during the period from inception to December 31, 1998.

Cost of timber sold of approximately $5.7 million for the period primarily
represents depletion on timber harvested.

Amortization of deferred financing costs of approximately $499,000 for the
period represent the amortization of costs incurred to obtain financing used for
our acquisition and working capital requirements.

General and administrative expenses of approximately $1.7 million for the
period are composed primarily of salaries, consulting fees and reimbursement of
expenses incurred by an affiliate, Strategic Timber, on Strategic Timber II's
behalf. Consulting fees totaling approximately $261,000 represent fees paid to
outside vendors for managing and tracking available timber. Reimbursed costs
include Strategic Timber II's portion of certain shared expenses, such as rent,
utilities and insurance, which initially were paid by Strategic Timber.
Reimbursed costs also represent allocations of Strategic Timber salaries and
other expenses for management resources dedicated to the operations of Strategic
Timber II. During the period from inception to December 31, 1998, Strategic
Timber II recognized expenses of approximately $624,000 for reimbursed costs.

Interest expense of approximately $5.7 million for the period represents
interest costs on Strategic Timber II's existing debt, net of the effect of
three interest rate swaps used to hedge certain exposures to variable interest
rates. See "-- Market Risk."

Minority interest of approximately $2.6 million for the period is the share
of the operating partnership's losses attributable to the minority unitholders
of the operating partnership.

PIONEER RESOURCES, LLC

The historical financial statements of Pioneer are presented as Pioneer is
the predecessor to Strategic Timber II. In addition to the Pacific Northwest
properties, these financial statements include the operating results of
Pioneer's timber conversion facilities and aircraft operations, neither of which
were acquired by Strategic Timber II. See "Pro Forma Condensed Consolidated
Financial Information" for a discussion of pro forma adjustments required to be
made to the historical Pioneer financial statements to reflect the results of
operations that Strategic Timber II acquired.

The predecessor to Pioneer, Old Pioneer, was originally formed in 1994.
Pioneer and Old Pioneer, directly or through affiliated companies, have
completed a number of significant timberland and other asset acquisitions since
inception. In addition, Pioneer has engaged, on a small scale, in the sale or
disposal of

50
<PAGE> 57

timberlands not integral to its operations. These acquisitions are described in
more detail below and in the notes to the financial statements of Pioneer, which
are included elsewhere in this prospectus.

Each acquisition by Pioneer was accounted for using the purchase method of
accounting. Accordingly, the historical financial and operating results vary
significantly as a result of the inclusion in the later periods of the effects
of these acquisitions and, therefore, are not necessarily comparable and are not
indicative of future results of operations. The following table identifies
Pioneer's significant acquisitions. Information regarding acreage and
merchantable timber are given as of the date of acquisition.

<TABLE>
<CAPTION>
MERCHANTABLE
ACQUISITION ACREAGE TIMBER SELLER DATE CONSIDERATION
- ----------- ------- ------------ ----------------- -------------- -------------
(BOARD FEET
IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Kinzua (East Oregon) 175,525 781.7 Kinzua April 1994 $130.0
Lane Plywood (West Oregon) 3,130 31.9 Lane Plywood May 1996 10.0
Pilot Rock (East Oregon) 130,207 188.6 Louisiana Pacific June 1996 34.0
Commander (California) 43,313 313.7 Louisiana Pacific September 1997 25.0
Skelly Panther and Swamp Creek
(West Oregon) 1,194 14.2 Weyerhaeuser December 1997 7.4
Riffe Lake (West Washington) 4,899 63.3 Weyerhaeuser February 1998 15.1
Aloha (West Washington) 5,922 70.5 Weyerhaeuser May 1998 17.0
Coastal forest (California) 79,026 839.2 Coastal Forest July 1998 130.0
</TABLE>

Period From January 1, 1998 to October 8, 1998

Effective July 2, 1998, Pioneer completed its acquisition of the Longview
and Willits Woods timberlands in California. Together, these timberlands are
referred to as the Coastal forest. Prior to this acquisition, the operations of
Pioneer consisted primarily of timberlands and sawmills in Oregon, California
and Washington. The Coastal forest acquisition, as with all of Pioneer's other
acquisitions, was accounted for under the purchase method of accounting.

Revenues for the period ended October 8, 1998 were $74.2 million.
Approximately 61% of revenues were derived from lumber and by-product sales,
which due to a backlog of delayed sales deliveries in the second half of 1997,
were shipped in the first six months of 1998.

The volume of lumber sold during the period was 112.2 million board feet.
The Heppner sawmill increased volume to 63.9 million board feet due to capital
improvement projects and productivity gains resulting from an increased work
shift that was instituted in the later half of 1997. The Pilot Rock sawmill
increased volume to 48.3 million board feet due to productivity gains from
capital improvement projects implemented in the later half of 1997.
Additionally, sales volumes for both mills were affected by the delay in sales
deliveries in the latter half of 1997 discussed above.

Pioneer's average lumber prices for the period from January 1, 1998 to
October 8, 1998 decreased by 26% from the comparable period of 1997 due to the
industry-wide price declines associated with the Asian export market. Pioneer's
average lumber prices were consistent with the lumber market during this time.

Revenues from the sale of logs totaled $23.1 million on sales volume of 42
million board feet. Revenues from log sales, on an annualized basis, were less
than 1997 levels due to a general decrease in the market price of logs
compounded with a decrease in the volume of Asian export quality logs harvested
from the Western Oregon timberlands. Pioneer's management made the decision in
1997 to harvest the majority of the Western Oregon timberlands acquired in May
1996 from Lane Plywood in anticipation of a declining export log market.

Boise Cascade reduced harvesting on its timber contracts during the period
ended October 8, 1998 over prior period levels. The Boise Cascade contracts
generated revenues of $2.3 million for the period ended October 8, 1998 and
$16.2 million for the nine months ended September 30, 1997.

51
<PAGE> 58

Revenues from the sale of non-strategic parcels of timberland and other
property sold during the period was $5.9 million. During this period, Pioneer's
land management staff actively sought higher and better uses for strategic
parcels of property.

Excluding timber and property sales and depletion, depreciation and
amortization, cost of products sold was 67% of net revenues for the period ended
October 8, 1998. Annualized gross margin during the period, in dollars and as a
percentage of sales, declined from 1997 levels due to a variety of factors, the
most important of which was the decrease in lumber prices during the period. For
the period ended October 8, 1998, Pioneer's lumber mills experienced an
operating loss of $1.2 million compared to an operating profit of $5.4 million
in the nine month period ended September 30, 1997.

Depletion, depreciation and amortization was $13.0 million for the period
ended October 8, 1998. Depletion, depreciation and amortization, on an
annualized basis, declined from 1997 levels due to a small overall decrease in
logs harvested and a substantial decrease in the harvest from the more highly
valued Western Oregon timberlands acquired from Lane Plywood. In 1998, Pioneer
did not harvest any volumes from these timberlands, which have higher depletion
rates than those of its other timberlands.

Selling, general, and administrative expenses were $7.1 million for the
period ended October 8, 1998. Selling general and administrative expenses
primarily consisted of salary expense and consulting and legal expenses
associated with Pioneer's acquisitions and expanded operations.

During the reporting period, Pioneer recorded non-cash charges of
approximately $1.3 million related to write-downs of assets to estimated
realizable value. Pioneer wrote down the value of one of its real estate
investments by $583,000, based on Pioneer's current assessment of the fair value
of this property. This investment was not among the properties purchased by
Strategic Timber II as part of its acquisition of Pioneer on October 9, 1998. In
addition, Pioneer wrote down approximately $700,000 of inventory at its Lane
Plywood facility to the lower of cost or market. This charge was recorded as a
component of the loss on the disposal on this discontinued operation.

Interest expense during the period totaled $12.5 million, resulting from
increased debt associated with Pioneer's timberland acquisitions.

Other expense consisted of $780,000 in expenses during the period ended
October 8, 1998. The majority of this amount relates to land and property
Pioneer donated to a trust for public lands.

Income taxes relate to Lane Plywood, the only taxable entity within the
combined group, and are not material to the combined results of operations.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Revenues for 1997 increased by 58% compared to 1996, from $62.5 million to
$98.9 million. Revenues from the sale of lumber and by-products increased by 46%
from $36.0 million to $52.6 million. These increases are due primarily to a full
year of operations for the Pilot Rock lumber mill. The Pilot Rock lumber mill
operations which Pioneer acquired from Louisiana Pacific in June 1996, generated
revenues of $9.8 million and $23.8 million respectively, for the years ended
December 31, 1996 and 1997.

The volume of lumber sold increased 49% from 71 million board feet to 106
million board feet. This increase in sales volume was due to the full year of
operations for the Pilot Rock sawmill facility that had volumes of 20 million
board feet in 1996 and 50 million board feet in 1997, respectively. The Heppner
sawmill also increased volume from 51 million board feet in 1996 to 56 million
board feet in 1997. The increased volumes are due to gains achieved from capital
improvement projects and productivity gains resulting from an increased work
shift that was instituted in August 1997.

Pioneer's average lumber prices remained approximately the same for both
1996 and 1997, and were consistent with the lumber market during this time.
There was an improvement in lumber prices starting in the first part of 1996
which peaked in the first quarter of 1997. By year-end 1997, prices had declined
to comparable levels of those at the beginning of 1996.

52
<PAGE> 59

Revenues from the sale of logs increased by 53% from $25.9 million to $39.5
million. The volume of logs sold increased from 56 million board feet in 1996 to
83 million board feet in 1997. The increased volume was a result of Pioneer's
decision to increase contracted harvesting with Boise Cascade and to increase
harvest volumes of export quality logs. The Boise Cascade contracts generated
volumes of 32 million board feet in 1996 and 65 million board feet in 1997.
Pioneer decided to increase harvesting on the Western Oregon timberlands
acquired in May 1996 from Lane Plywood in anticipation of a declining export log
market. The Western Oregon timberland sales volumes were 9 million board feet in
1996 and 18 million board feet in 1997. Pioneer's overall average price of logs
sold increased during this period due to an increased mix of the higher valued
export quality logs. The export quality logs had an average price decrease of
16% during this period, which was consistent with industry-wide decreases in log
prices.

The Boise Cascade contracts generated revenues of $12.3 million and $26.6
million, respectively, for the years ended December 31, 1996 and 1997. The
Western Oregon timberlands that Pioneer acquired from Lane Plywood generated
revenues of $7.3 million and $12.3 million, respectively, for the years ended
December 31, 1996 and 1997.

Revenues from sales of non-strategic parcels of timberland and other
property sold during the period increased significantly from $0.6 million in
1996 to $6.8 million in 1997. The increased 1997 revenues were attributed to
Pioneer's staffing addition of an experienced land management group that was put
in place in late 1996. During 1997, the Company sold a total of 6,222 acres in
approximately 20 separate transactions.

Excluding timberland and other property sales and depletion, depreciation
and amortization, cost of products sold remained relatively consistent at 42% of
net revenues for 1996 and 43% of net revenues in 1997. Both the Pilot Rock and
Heppner lumber mills maintained comparable operating margins for both 1996 and
1997.

Depletion, depreciation and amortization increased 64% from $15.4 million
for 1996 to $25.3 million in 1997 due to several factors affecting depletion.
First, Pioneer harvested 19 million board feet more timber in 1997 than in 1996.
Second, Pioneer harvested 9 million board feet more timber in 1997 than in 1996
from the Western Oregon timberlands that Pioneer acquired from Lane Plywood. The
depletion rate on these export quality timberlands was more than that on the
other timberlands. Depreciation and amortization were generally consistent
between these periods.

Selling, general and administrative expenses increased 137% from $3.1
million in 1996 to $7.4 million in 1997. The increase in selling, general and
administrative expenses was due to salary expenses associated with staff
increases and additional consulting and legal expenses associated with Pioneer's
expanded operations.

Interest expense increased 44% from $6.1 million in 1996 to $8.7 million in
1997. Most of this increase resulted from the increased debt associated with the
1997 timberland acquisitions.

Other income and expense consisted of $0.5 million of income in 1997. This
income consisted mainly of the gain associated with the sale of an aircraft.

Income taxes are related to Lane Plywood, the only taxable entity within
the combined group, and are not material to the combined results of operations.

LIQUIDITY AND CAPITAL RESOURCES

HISTORICAL

Strategic Timber has financed its operations through commercial loans. At
March 31, 1999, Strategic Timber had borrowings under a bridge loan of $85.0
million. At March 31, 1999, Strategic Timber Partners had borrowings under its
revolving credit facility of approximately $139.3 million. The Strategic Timber
bridge loan bears interest at a variable rate based on LIBOR plus an applicable
margin (9.00% as of March 31, 1999) and matures on October 27, 1999. We reduced
the commitment under the operating partnership credit facility from $215.0
million to $155.0 million effective March 17, 1999. The commitment remains
subject to a borrowing base calculation described in the credit agreement. The

53
<PAGE> 60

borrowing base is based on the value of merchantable timber on the Louisiana
property, as estimated by Strategic Timber's lenders. The operating partnership
credit facility bears interest at a variable rate based on LIBOR plus an
applicable margin (7.50% as of March 31, 1999) and terminates on April 25, 2003.

Strategic Timber II has financed its acquisition of the Pacific Northwest
properties by issuing $290.0 million in debt instruments. At March 31, 1999,
Strategic Timber II had borrowings under the Strategic Timber II bridge loan in
the amount of $35.0 million, and under the Pioneer credit facility, which
consists of a term loan of $200.0 million and a revolving credit facility of
$53.0 million. The Strategic Timber II bridge loan bears interest at a fixed
rate of 9.06% and matures on October 27, 1999. The term loan bears interest at
adjusted LIBOR plus an applicable margin (7.57% at March 31, 1999) and matures
on September 30, 2003. Term loan payments must be made in quarterly installments
and will commence on December 31, 1999. The maximum borrowing allowed under the
revolving credit facility is $70.0 million, of which approximately $35.0 million
can be used for letters of credit. A portion of the revolving credit facility
bears interest at LIBOR plus an applicable margin (7.57% at March 31, 1999),
while the remaining portion bears interest at the base rate plus an applicable
margin (7.50% at March 31, 1999). The revolving credit facility terminates on
September 30, 2003.

Strategic Timber and Strategic Timber II are required to meet certain
financial and non-financial covenants under each of the debt instruments,
including restrictions on additional borrowings, the maintenance of financial
ratios and limitations on capital spending, investments, and asset sales. The
bridge loans generally prohibit Strategic Timber and Strategic Timber II from
making shareholder distributions while the loans are outstanding. At March 31,
1999, the companies were in compliance with all covenants and expect to remain
in compliance in the immediate future. All borrowings are secured by the
companies' interests in the operating partnerships, as well as the assets of
those partnerships.

Until the completion of the formation transactions and this offering,
Strategic Timber and Strategic Timber II expect to finance their on-going
operations with cash flows from harvesting activities on their timberlands, as
well as by additional borrowings under the Strategic Timber Partners revolving
credit facility and the revolving credit facility portion of the Pioneer credit
facility. After that time, we plan to extinguish all existing debt using
proceeds from this offering as well as funds from a new credit facility.

We will be required to pay additional costs of approximately $3.3 million
in connection with our expected repayment in full of the existing debt
agreements. Additionally, assuming that the repayment occurs on May 31, 1999, we
expect to recognize an extraordinary loss of approximately $12.9 million, before
allocation to minority interests, associated with the extinguishment of existing
debt instruments prior to their maturity dates.

In connection with the formation transactions, we have the option to
terminate all existing interest rate swaps and to enter into replacement swap
agreements required by the new credit facility. We have elected to terminate
some of our existing swaps with a notional principal of $50.0 million. Assuming
the terminations had occurred on March 31, 1999, we would have recognized a loss
of approximately $2.5 million, before allocation to minority interests,
associated with the terminations.

NEW CREDIT FACILITY

In connection with this offering, we have entered into a five year $375.0
million credit facility with ABN AMRO Bank, N.V., NationsBank, N.A. and Societe
Generale, as agents on behalf of a syndicate of commercial banks and other
lending institutions.

The new credit facility, to close at the same time as this offering, will
include both a single-advance term loan of $200.0 million and a revolving line
of credit of $175.0 million. The closing of the new credit facility is
conditioned on the completion of this offering. Assuming net proceeds from the
initial public offering of $305.8 million, we expect to borrow at the time of
closing approximately $67.6 million under the revolving line of credit and all
$200.0 million of the term loan. Strategic Timber will use this credit facility
to repay all existing debt, fund future acquisitions and provide for ongoing
working capital requirements.

54
<PAGE> 61

The new credit facility will have a five-year term. No repayment of
principal will be required prior to maturity, though the percentage we may
borrow against merchantable timber will be reduced on each anniversary of the
facility closing. Both the term and revolving line of credit portions of the
facility, together with any related interest rate swap obligations, will be
secured by first liens on all of our assets, including all of our interests in
Strategic Timber Partners, Pioneer and Strategic Timber Operating Co.

The amount we will be able to borrow under the $175.0 million revolving
line of credit will be limited to agreed-upon percentages of a borrowing base.
The borrowing base is comprised of the value of merchantable timber and of
timber sale contracts containing terms approved by the lenders. Initially, we
may borrow up to the sum of 60% of independently valued merchantable timber and
80% of the amounts owed to us under eligible timber sale contracts, less amounts
outstanding under the term loan. At each anniversary of the closing of the
credit facility, the percentage that we may borrow against merchantable timber
will be reduced by 2%, so that during the final year of the five-year loan, we
will be able to borrow only 52% of the value of merchantable timber.

Interest rates under the new credit facility and a commitment fee on unused
portions of the revolving line of credit will be adjusted each quarter.
Adjustment will be based on the ratio of our total debt at the end of the
quarter to cash flows achieved in the four-quarter period concluding at the end
of the quarter. We will have the option to borrow on the basis of rates tied
either to LIBOR or a bank prime rate. Interest rates could vary under the
adjustment formulas between a margin of 175 and 300 basis points for advances
borrowed on a LIBOR-rate basis. Interest rates could vary between a margin of 25
and 150 basis points for advances borrowed on a prime rate basis. The unused
commitment fee could vary between 37.5 and 50 basis points, determined on an
annual basis. Interest and commitment fees will be paid quarterly.

Our operations will have to produce a minimum ratio of EBITDDA to interest
expense, measured at the end of each fiscal quarter for the prior twelve months.
The required minimum EBITDDA to interest ratio is 2.00 to 1 at the end of each
fiscal quarter through March 31, 2000, 2.25 to 1 at the end of each fiscal
quarter during the period commencing April 1, 2000 through June 30, 2000 and
increasing to 2.50 to 1 for each later fiscal-quarter end. We also must maintain
a minimum ratio of EBITDDA to the sum of expenditures for interest, shareholder
distributions and capital purchases, measured at the end of each fiscal quarter
for the prior twelve months. This ratio must exceed 1.00 to 1 at the end of each
fiscal quarter through June 30, 2000 and must exceed 1.25 to 1 at the end of
later fiscal quarters.

The new credit facility will require us to stay below a maximum ratio of
outstanding debt to EBITDDA generated during the prior twelve months. The
maximum ratio is 6.00 to 1 at the end of each fiscal quarter through June 30,
2000, 5.50 to 1 at the end of each fiscal quarter during the period commencing
July 1, 2000 through September 30, 2001 and 5.00 to 1 for each later quarter.

We expect the provisions of the new credit facility to provide us with
significant operating flexibility. There will be no restriction on acquisitions
of timberlands within the United States, as long as the acquisitions do not
cause us to be out of compliance with borrowing base and financial covenant
terms contained in the credit agreement. Timberland acquisitions outside the
United States will require lender approval.

Any significant decline in the prices we expect to realize from sales of
our timber or any significant reduction in the volume of our sales, or both,
could cause us not to comply with our financial covenants in the new credit
facility. This could preclude us from making distributions or utilizing funds
for acquisitions.

The new credit facility will allow us to make shareholder distributions, so
long as they do not cause us to default under other terms of the credit
agreement. Because we intend to conduct our business with minimal cash on hand,
we intend to fund the entire amount of our recently declared distribution with
borrowings under our new credit facility. See "Distribution Policy."

We will be able to make up to $5.0 million in capital expenditures each
year and execute capitalized leases with total payments aggregating less than
$1.0 million annually. We will be able to execute operating leases with payments
aggregating less than $1.0 million annually.

55
<PAGE> 62

Borrowing limitations under the new credit facility will not be as
restrictive as those currently applicable to Strategic Timber and Strategic
Timber II. We will be able to borrow outside the new credit facility on an equal
basis, so long as these borrowings do not contain more restrictive covenants or
require principal repayment prior to the five-year maturity of the new credit
facility. We expect to be allowed to secure these other borrowings with first
liens on certain of our timberland and other properties.

We expect costs of entering into the new credit facility will be
approximately $3.3 million.

We believe that our initial working capital, together with cash flow from
operations and borrowings under the new credit facility, will provide us
adequate liquidity to fund our current activities during the five-year term of
the new credit facility. However, although we may have substantial availability
under the new credit facility immediately after this offering, we may still need
to obtain additional financing. In particular, one of our principal business
strategies is to acquire additional timberlands. The implementation of this
strategy may require us to obtain external financing in addition to the new
credit facility.

COMMITMENTS AND CONTINGENCIES

To date, we have entered into contracts providing for harvests for 1999
valued at approximately $33.0 million. We have recognized $9.1 million under
these contracts for harvests that have been conducted to date. We have contracts
with nine separate buyers, including Boise Cascade Corporation, Hunt Forest
Products, Inc., Louisiana-Pacific Corp., Sierra Pacific Industries, Inc. and
Temple-Inland Inc. These contracts provide for 1999 harvests of up to 408,000
tons of timber from the Louisiana property and up to 53.3 million board feet of
timber from our Pacific Northwest properties.

On December 29, 1998, Strategic Timber II entered into a contract granting
Kinzua Resources, LLC the right to harvest timber on a tract in the Pacific
Northwest properties (approximately 42,000 acres). The contract is in the form
of a timber deed where risk of loss passed to Kinzua Resources for the duration
of the contract. The contract expires September 30, 1999. Kinzua Resources may
harvest any timber on the defined acreage during the period of the contract.
After the contract expires, any standing timber on the tract reverts to
Strategic Timber II. Kinzua Resources paid approximately $5.6 million for these
rights, none of which is refundable. Accordingly, Strategic Timber II recognized
revenues for the full value of the contract during the period ended December 31,
1998. Kinzua Resources, which operates sawmills, is controlled by Gregory M.
Demers, a continuing investor. See "Transactions with Related Parties."

In March 1999, Strategic Timber II entered into a timber deed granting
Sierra Pacific Industries, Inc. the right to harvest on a 7,623 acre tract on
our Commander forest. Similar to the timber deed with Kinzua Resources, Sierra
Pacific may harvest designated timber on the defined acreage during the period
of the contract, but upon expiration of the contract, any standing timber on the
tract reverts back to Strategic Timber II. Sierra Pacific bears the risk of loss
of the timber for the duration of the contract, which expires on October 15,
2000. Sierra Pacific paid approximately $4.1 million for these rights, none of
which is refundable. Accordingly, Strategic Timber II recognized revenues for
the full value of this contract during the three months ended March 31, 1999.

Strategic Timber also entered into an agreement in December 1998 with its
President and Chief Executive Officer, C. Edward Broom, to sell to Mr. Broom for
$3.0 million approximately 6,700 acres of agricultural land that was acquired as
part of the Louisiana property without any separate determination of cost. The
sale was effected to provide a source of cash for Strategic Timber to make
required payments of bank debt. Mr. Broom and other members of management
determined this purchase price to produce the necessary funds to make these
payments. The purchase price does not necessarily reflect the price Strategic
Timber might have been able to obtain if the property had been fully prepared
for sale and exposed to the market for a sufficient period of time to produce
the highest price. To protect Strategic Timber's economic interest in the
property, Mr. Broom has agreed that Strategic Timber may repurchase the property
at any time before December 31, 2000 at the price paid by Mr. Broom, plus a pro
rata annual increase at the rate of 8%, compounded annually. See "Transactions
with Related Parties."

56
<PAGE> 63

Revenues, net income and cash flow from our operations will be dependent to
a significant extent on our ability to harvest timber at adequate levels. Among
other factors, conditions that may restrict harvesting of our timberlands
include insect infestation, severe weather, fire, natural disasters and other
causes beyond our control. As is typical in the forest products industry we do
not, and likely will not, maintain insurance coverage with respect to damage to
our timberlands. Even if such insurance was available, the cost would be
prohibitive.

The harvesting of timber is also subject to a variety of state and federal
laws and regulations, including environmental, threatened and endangered species
and habitat for such species, and air and water quality. These laws and
regulations are modified from time to time and are subject to judicial and
administrative interpretation. Pending regulatory and legal matters or future
governmental regulations, legislation or judicial or administrative decisions
may have a material adverse effect on our financial position, results of
operations or liquidity. See "Risk Factors -- Forestry, environmental and
endangered species regulations restrict timber harvesting and may otherwise
restrict our ability to conduct our business" and "Business and
Properties -- Federal and State Regulations."

Strategic Timber and Strategic Timber II have made limited capital
expenditures to date. Upon the completion of this offering and the formation
transactions, we plan to make capital expenditures in the form of reforestation
and silvicultural activities on all of our timberlands. These activities will
include thinning, the planned conversion of uneven-aged pine forests to
even-aged plantations, and road building and maintenance. We made capital
expenditures of approximately $108,000 in the first quarter of 1999. We expect
to make additional capital expenditures of approximately $1.9 million during the
remainder of 1999. In addition, we have engaged Mason, Bruce & Girard, Inc., an
independent forestry consultant, for a fee of approximately $1.3 million to
develop timber harvest plans with respect to our Coastal forest to be submitted
to the California Department of Forestry and Fire Protection. See "Business and
Properties -- Initial Timberland Properties."

On April 12, 1999, our Board of Directors declared a $0.175 distribution
per share of common stock, prorated for the partial quarter between the closing
of this offering and June 30, 1999. The distribution will be payable only if we
complete the formation transactions and this offering no later than June 30,
1999. Assuming we complete this offering on May 31, 1999, the aggregate amount
that we would distribute to our shareholders would approximate $996,000, or
$1,140,000 if the underwriters exercise in full their over-allotment option.
Because we intend to conduct our business with minimal cash on hand, we intend
to fund this distribution with borrowings under our new credit facility. The new
credit facility permits borrowing to fund distributions. The distribution will
not cause a default under our new credit facility.

YEAR 2000

The Year 2000 issue refers to the problems that may arise from the improper
processing of dates and date-sensitive calculations by computers and
microprocessors embedded in other systems as the year 2000 approaches and is
reached. Historically, most computer hardware and software and other systems
have used two digits to determine the year in a date. For example, the year 1975
would be identified by 75. Therefore, some systems cannot distinguish dates in
the 2000s from dates in the 1900s.

To address this issue, we have taken an inventory of all of our information
technology, or IT, systems, such as computer hardware and software, and non-IT
systems, such as fire alarms, and have assessed the readiness of these systems
for the year 2000.

We use personal computers and personal computer-based applications in our
daily operations. Because we purchased most of the hardware and software for
these systems during 1998, we believe that most of our IT systems should already
be Year 2000 compliant. We have received assurances from the manufacturer that
the personal computers we purchased are Year 2000 compliant. To verify this, we
have tested our hardware, all of which appears to be Year 2000 compliant. In
addition, we have begun to assess the readiness of software packages we use,
including our geographic information system. In most cases, we

57
<PAGE> 64

have received assurances from the manufacturers of these software packages that
the programs are Year 2000 compliant. We are currently in the process of
obtaining these assurances in writing. We expect that testing on software
applications will be completed by the end of the second quarter of 1999.

Due to our recent formation, and because of Pioneer's historical methods of
operations, there are a limited number of non-IT systems requiring assessment.
Accordingly, our Year 2000 compliance plans involve assessing and testing IT
systems first and non-IT systems second. The Year 2000 compliance of non-IT
systems has not yet been assessed. We expect to assess these systems beginning
in the second quarter of 1999.

We rely on our customers for revenue and rely on vendors for services,
including inventory tracking, reforestation, and other services. Inadequate Year
2000 compliance programs by these parties could have an adverse effect on our
operations. For instance, if customers become unable to pay, our receivable
balances would increase, affecting cash flows. If vendors provided inaccurate
inventory data, our harvest plans would not be optimized. Our most significant
vendors are independent scaling bureaus in the Pacific Northwest that measure
the volume of timber harvested by our customers. They record and transmit data
relating to measured volumes electronically using computer software. If this
software is not Year 2000 compliant, measurements could be inaccurate or we
would have to rely on manual calculation and delivery of measurement data. We
are currently writing to the scaling bureaus and other key vendors, suppliers
and customers to determine the status of their Year 2000 compliance programs. We
expect to have all responses accumulated by the end of the second quarter. We
have not developed any contingency plans in the event any of our key vendors is
not compliant at this time. We will develop contingency plans, if needed, after
assessing the responses we receive from our vendors and suppliers.

On a combined basis, we have spent less than $10,000 through March 31, 1999
on our Year 2000 compliance programs. We expect to spend approximately $15,000
during the remainder of 1999 to address the Year 2000 issue.

We believe that our most reasonably possible worst case scenario related to
the Year 2000 issue is that our key information systems, such as our geographic
information system, will not be Year 2000 compliant. We also would have
operational difficulties if the parties who measure the volumes of timber
harvests, which may be our customers or independent scaling bureaus, are unable
to record and transmit data because they are not Year 2000 compliant. If this or
any other component of our Year 2000 compliance plan is not adequately completed
prior to January 1, 2000, we can operate our businesses manually until such time
as all systems become compliant. We do not expect that the short-term manual
operation of our businesses would have a material adverse effect on the
financial condition or results of operations.

We cannot be certain that we have identified all potential Year 2000 issues
or that we will be Year 2000 compliant by January 1, 2000. Non-compliance by us
or our key vendors and customers could have a material adverse effect on our
future results of operations or financial condition.

58
<PAGE> 65

MARKET RISK

Financial market risk is the risk of loss from adverse changes in financial
market prices and rates. Our principal financial market risk is related to
changes in interest rates because we borrow money based upon variable rates of
interest. For debt obligations as of March 31, 1999, the table below presents
principal cash flows and related weighted average interest rates by expected
maturity dates.

<TABLE>
<CAPTION>
INTEREST
RATE
AT MARCH 31,
1999 2000 2001 2002 2003 TOTAL 1999
----------- ----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Debt:
Strategic Timber II bridge
loan...................... $35,000,000 $ -- $ -- $ -- $ -- $ 35,000,000 9.06%
=========== =========== =========== =========== ============ ============
Interest rate............... 9.06% --% --% --% --% 9.06%
=========== =========== =========== =========== ============ ============
Variable Rate Debt:
Strategic Timber bridge
loan...................... $85,000,000 $ -- $ -- $ -- $ -- $ 85,000,000 9.00%
Strategic Timber Partners
credit facility........... -- -- -- -- 139,297,034 139,297,034 7.50%
Strategic Timber II term
loan...................... 2,500,000 13,750,000 27,500,000 36,250,000 120,000,000 200,000,000 7.57%
Strategic Timber II
revolving credit
facility.................. -- -- -- -- 52,950,000 52,950,000 7.55%
----------- ----------- ----------- ----------- ------------ ------------
Total variable rate debt.... $87,500,000 $13,750,000 $27,500,000 $36,250,000 $312,247,034 $477,247,034
=========== =========== =========== =========== ============ ============
Weighted average interest
rate...................... 8.96% 7.57% 7.57% 7.57% 7.54% 7.80%
=========== =========== =========== =========== ============ ============
</TABLE>

The carrying value of our debt approximates its fair value. None of these
debt obligations mature after 2003.

Maturities of debt obligations at March 31, 1999 were not significantly
different from those at December 31, 1998. The table below reflects the weighted
average interest rates, by maturity date, at March 31, 1999 and December 31,
1998 for our variable rate debt:

<TABLE>
<CAPTION>
MATURITY MARCH 31, 1999 DECEMBER 31, 1998
- -------- -------------- -----------------
<S> <C> <C>
1999........................................................ 8.96% 9.21%
2000........................................................ 7.57% 7.85%
2001........................................................ 7.57% 7.85%
2002........................................................ 7.57% 7.85%
2003........................................................ 7.54% 7.85%
</TABLE>

To lessen our risks associated with changing interest rates, we have
entered into interest rate swap agreements. Under our swap agreements, we must
pay a third party, often called a counterparty, a fixed interest rate on a
specific amount of money, or notional amount. In turn, the counterparty pays us
interest on the notional amount at a rate that is tied to a fluctuating market
rate. The fluctuating rate is calculated on periodic calculation dates based on
a three month maturity of LIBOR. In most instances under our swap agreements,
the net amount that we either pay or receive is determined on each calculation
date and then we either receive or make a payment three months after the
calculation date.

Swap agreements serve to protect us against rising interest rates and the
counterparty against falling interest rates. If interest rates rise, then the
amount that we receive from the counterparty increases. We use this additional
amount to pay the increased market rate for borrowings under our credit
facility. If interest rates decrease, then the amount that the counterparty
would receive from us increases. We would be required to pay the counterparty
interest on the notional amount equal to the difference between the higher fixed
rate and the lower market rate. The lower market rate of interest on our credit
facility would offset our payments to the swap counterparty. Although the swap
agreement limits our risk to rising interest rates, it also minimizes our
benefit if interest rates decrease.

59
<PAGE> 66

However, swap agreements do not completely protect us from increases in
interest rates. At March 31, 1999, the total notional amount represented by all
of our swap agreements was $200.0 million, although we had $512.2 million in
total borrowings under our debt instruments as of that date. The table below
presents notional amounts, maturities, interest rates and fair values for all of
Strategic Timber's and Strategic Timber II's interest rate swap obligations at
March 31, 1999. The fair value of the swap represents the amount that Strategic
Timber or Strategic Timber II would have to pay to terminate the swap.

<TABLE>
<CAPTION>
VARIABLE RATE AT
MARCH 31, 1999 FAIR VALUE
NOTIONAL FIXED --------------------- OF SWAP AT
AMOUNT MATURITY DATE RATE RATE BASED ON MARCH 31, 1999
- ------------------- ------------------ ----- ----- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Strategic Timber
$100,000,000 May 13, 2002 5.99% 5.00% 3 Month LIBOR ($1,555,728)
Strategic Timber II
$25,000,000 October 14, 2003 6.69% 5.06% 3 Month LIBOR (1,299,048)
$25,000,000 October 14, 2003 6.69% 5.06% 3 Month LIBOR (1,206,329)
$50,000,000 September 30, 2003 5.77% 5.06% 3 Month LIBOR (424,215)
-----------
($4,485,320)
===========
</TABLE>

The aggregate fair value of our swaps was approximately ($7.6 million) at
December 31, 1998.

Our new credit facility will require us to enter into swap agreements for
at least $100.0 million in total notional amount. Accordingly, we will terminate
some of our existing swap agreements with aggregate notional principal amounts
of $50.0 million. Assuming that we terminated these agreements on March 31,
1999, we would have recognized a loss of approximately $2.5 million before
allocation to minority interests.

It is likely that the total notional amount of our remaining swaps will be
less than the total borrowings under the new credit facility. This means that
the interest payments we recover from all counterparties under our swap
agreements may be much less than the total amount of any additional interest we
must pay to our lenders if interest rates increase. Despite any shortfall in
interest rate protection, we would be required to pay the excess interest to the
lender whenever a payment is due under the terms of the credit facility.

Our protection under our interest swap agreements may be limited further by
the timing of interest rate calculations between the swaps and our credit
facility. The floating interest rate under our swap agreements is usually
determined three months in advance. However, under our new credit facility, our
interest rate may be based on the prime lending rate, which is recalculated
every day. If interest rates climb in the short term, the interest we pay on the
credit facility may increase without any immediate adjustment to the payments we
receive from our counterparties under our swap agreements. Ultimately, the
expense associated with our swaps may be greater than the benefit. If we desire
to terminate them, we may be unable to do so because the terms of our new credit
facility will require us to maintain swaps with at least $100.0 million in
notional amount during the life of the facility.

When we enter into swap agreements, we are subject to a risk called
counterparty credit risk. This term refers to the risk that the counterparty
will not be able to perform its obligations under the swap agreement. We limit
our exposure to counterparty credit risk by entering into swap agreements only
with recognized dealer banks and financial institutions. We expect these
institutions will be able to perform their obligations under our swap
agreements.

Borrowers who enter into swap agreements are also subject to the risk that
the swap agreement may be legally unenforceable. However, we attempt to minimize
this risk by entering into swap agreements governed by state or U.S. law with
large U.S. banks. Currently, none of the counterparties to our existing swaps
has sold any of them to a third party.

Strategic Timber and Strategic Timber II incurred $254,827 and $189,108,
respectively, of net interest expense in 1998 relating to swap agreements. For
the three months ended March 31, 1999, these amounts were $208,056 and $281,571,
respectively.

60
<PAGE> 67

BUSINESS AND PROPERTIES

Timber industry terms used in this section are defined in "Glossary of
Selected Timber Industry Terms" beginning on page 151 of this prospectus. In
this section we refer to timber volumes in terms of board feet, which is the
standard for measurement in the western United States, and tons, which is the
standard in the southeastern United States. To aggregate our holdings, we have
in some cases converted board feet or tons to cunits. Each cunit is equal to 100
cubic feet of timber. We convert one thousand board feet of timber to 2.25
cunits, and one ton of timber to 0.3525 cunits.

Where indicated, information contained in this section was provided to us
by Mason, Bruce & Girard, Inc. and Canal Forest Resources, Inc., independent
forest resource consulting firms. We paid these firms for their services.
Reports of Mason, Bruce & Girard and Canal Forest Resources have been filed as
exhibits to the registration statement of which this prospectus is a part.

OVERVIEW

WE OWN AND SELL TIMBER

We acquire, own and manage timberlands and sell timber. We intend to
acquire additional timberlands and capitalize on the growing trend toward
consolidation of timberland ownership.

As of March 31, 1999, we owned approximately 445,000 acres of timberlands
in the states of California, Louisiana, Oregon and Washington. Our timberlands
contain a variety of species of merchantable timber. Merchantable timber is an
inventory classification. Timber is considered merchantable in a particular
timber market when it meets the minimum size, length and usable volume that is
suitable for sale for commercial uses in that market.

According to Mason, Bruce & Girard and Canal Forest Resources,
approximately 87% of our merchantable timber is sawtimber. Sawtimber is timber
that is of sufficient size and quality to be manufactured into lumber or
plywood. Commercial uses for higher-quality sawtimber include production of
lumber or veneer, which can be remanufactured into specialty uses such as
furniture, moldings and flooring. The remaining 13% of our merchantable timber
can be sold for less valuable commercial uses than our sawtimber. Less mature
timber, or timber that contains substantial defects, may be processed into pulp
and paper or used to manufacture plywood substitutes. Smaller trees may be used
for fence poles or agricultural stakes. Other commercial applications include
split wood products and firewood.

The fact that timber is included in our volumes as "merchantable" does not
mean that we either could or would want to harvest it immediately. Timber
included in our merchantable inventory may be subject to restrictions that would
prevent immediate harvesting, or, because of current market conditions, may not
produce a profit for us if it is cut immediately. In general, we intend to
manage our forests so that we do not harvest timber that meets only minimum
standards of merchantability. Our plans will call for allowing most of our
timber to grow into larger size classifications, so we can realize greater
value. From time to time, however, we will thin a given timber stand by removing
crooked, unhealthy or lower value trees. We will do this to improve the health
of the remaining trees and to provide more space for them to grow. We will sell
timber that is harvested through thinning for lower value uses, even though
these sales may not produce a profit for us.

Our timberlands contain substantial inventories of premium species and
grades of timber with a variety of end uses. When we refer to "premium" species
of timber, we mean species whose market value is among the highest in the
specific geographic area where it is located. This market value is based upon
the size, quality and end uses of the species. Approximately 70.3% of our total
merchantable timber volume consists of premium softwood species, such as
Douglas-fir, second-growth redwood, southern pine, ponderosa pine and cedar.
Approximately 18.2% of our merchantable timber volume consists of other softwood
species and the remainder consists of hardwood species.

Our timberlands are located near approximately 137 mills, called timber
conversion facilities, that convert the timber we sell into wood products, such
as lumber, plywood, paper and wood pulp. Some of

61
<PAGE> 68

these mills are owned by forest products companies that also own standing
timber. Based on market surveys that Mason, Bruce & Girard prepared for us and
our own assessment of markets in Louisiana, annual total consumption of timber
within the markets that we serve is over 7.2 billion board feet. Over each of
the next five years, we plan to sell approximately 3% of this amount from our
initial timberlands. Based on these facts, we believe that our timberlands are
located in active and competitive markets for timber, including sawtimber.

WE FOCUS ON GENERATING CASH

Our revenues will come primarily from the sale of timber. We do not have
the cash operating expenses, working capital needs and capital expenditures
associated with lumber mills, paper mills or other timber conversion facilities.

As timber is harvested under timber cutting contracts, we will record
revenues. Accounting rules require us to reduce recorded income by a non-cash
depletion charge against our investment in the harvested timber. This depletion
charge will materially reduce any income that can be recorded for accounting
purposes from the sales of timber in years immediately following our acquisition
of timberlands. However, this charge will not reduce cash available to us for
distribution or reinvestment. As a result, we believe the cash we generate from
our operations will exceed our earnings for accounting purposes.

We will elect to be taxed as a REIT for federal income tax purposes.
Because most of our net income will be treated as capital gains, the tax rules
that generally require REITs to distribute 95% of their ordinary income to
shareholders will not affect us. We intend to use this flexibility to retain a
substantial part of the cash we generate to acquire additional timberlands.

HOW WE OPERATE AND RECOGNIZE REVENUE

We sell standing timber rather than delivered logs, which are the cut
segments of the tree. We enter into timber cutting contracts with third parties
that require them to harvest and pay for standing timber. These parties include
forest products companies and, less frequently, brokers and loggers.

In selecting timber to be sold for harvesting, we evaluate all of our
timberlands as a whole. We take into account, among other factors, the relative
maturity levels and current productivity of tracts available for harvest, the
strength of local markets and the desirability of reforesting a particular area.
This approach allows us to increase the overall growth rate of our timber and
better balance the age class distribution of our holdings. Once we have
identified specific timber tracts to be offered for harvest, we will either seek
sealed bids from prospective buyers or negotiate a purchase with one or more
buyers. After we have found a suitable buyer, we will enter into a cutting
contract with the buyer.

Under cutting contracts, the buyer, at its expense, is required to cut the
purchased timber and haul the logs to its own conversion facility, or to another
purchaser to whom it is reselling. Our contracts with auction buyers typically
range from three to 18 months in length. We currently have negotiated contracts
which extend for up to six years, and we may enter into longer term contracts in
the future. Contracts with terms of two years or more provide for price
adjustments at least annually and typically require the buyer to cut minimum
amounts of timber each year. Within these limits, the buyer has discretion as to
when it harvests our timber, although buyers typically begin their harvests as
soon as practicable after entering into contracts with us. Title to and risk of
loss of the timber passes from us to the buyer when the timber is cut.

For accounting purposes, we recognize revenue at the time the buyer cuts
and takes title to the timber. Under our cutting contracts, the buyer generally
pays us when it cuts the timber. Many of the contracts require the buyer to pay
us a portion of the expected value of the timber at the inception of the
contract. The aggregate advance payments under our cutting contracts existing at
March 31, 1999 represent approximately 13% of the total expected 1999 annual
payments for harvests under these contracts, and are offset as the buyer
harvests the timber. We do not escrow these advance payments and are free to use
them in our business for any purpose.

62
<PAGE> 69

We may have to refund some or all of these advance payments in two
circumstances. First, if a casualty, such as fire, storm or disease, destroys so
much of the timber subject to the contract that the remaining balance of the
advance payment cannot be offset by the value of actual harvests, we will refund
this difference. Second, if the buyer breaches its contractual obligation to
harvest the timber, we will offset our damages from the buyer's breach of the
cutting contract against any remaining balance of advance payments and refund
any difference to the buyer. Our damages are sometimes specified as liquidated
damages in our contracts. In other cases, the refunds would be offset against
our actual damages. If our damages exceed the remaining balance of advance
payments, the buyer will remain liable to us for this difference.

We expect our revenues will be seasonal. Rain in winter and our fire
prevention measures in spring and summer limit timber harvesting on the
Louisiana property. Similarly, harvesting on the Pacific Northwest properties is
typically interrupted for periods during the winter and spring due to snow and
melting snow, and occasionally in the late summer due to fire prevention
measures. We expect that our financial results in the first and fourth quarters
may be materially affected by winter rain and snow. Our financial results in the
second and third quarters may be materially affected by the risks of fire.

In addition to cutting contracts, we also expect to derive revenues from
several other sources. We will grant hunting, grazing, camping and other rights
of access to approved hunting clubs and individuals. These hunting leases and
other rights will both produce revenues and help us to maintain and protect our
properties. From time to time, we expect to make incidental sales of portions of
our properties that have a higher and better use than the long-term production
of timber.

After a timber tract has been harvested, we reforest the tract as soon as
practicable, generally within the next twelve months. We reforest using
independent contractors working under our supervision. The costs of
reforestation represent the majority of our capital expenditures.

OUR OPERATING COSTS ARE LOW

We have a low-cost operation because we perform few of the "on the ground"
functions required to harvest timber. We sell standing timber and do not cut
timber directly or hire third-party loggers to cut our timber. Instead, buyers
under cutting contracts are responsible for cutting and transporting timber. By
limiting our expenses, we expect to maintain higher operating margins on our
timber sales than if we cut and removed timber ourselves.

Most of our operating costs are fixed and consist of employee salaries and
benefits and the costs of our facilities and supplies. Until recently, we
utilized a third-party forest management firm to manage our Louisiana property.
Currently, our employees manage all of our timberlands. However, we may engage
third-party forest management firms for consulting services. We believe that our
current staffing and facilities are sufficient to manage our current timberland
holdings as well as additional timberlands that we may acquire within the next
few years.

BUSINESS STRATEGY

OUR OBJECTIVE IS TO MAXIMIZE LONG-TERM SHAREHOLDER VALUE

We intend to:

- focus on owning timberlands and selling timber for harvest, not on owning
or operating lumber mills or other timber conversion facilities;

- acquire additional timberlands that will increase our ability to generate
cash and enhance the overall value of our timberlands;

- actively manage our timberlands to enhance timber growth; and

- develop timber selling and reforestation plans to increase the long-term
value of our timberland portfolio.

63
<PAGE> 70

WE FOCUS ON OWNING AND SELLING TIMBER

We intend to focus on timberland ownership and selling timber for harvest,
which we believe will enable us to:

- avoid the conflicts that frequently arise within the paper and forest
products industry between providing consistent timber supplies to captive
mills and managing a forest for growth in order to increase timberland
value; and

- increase the value realized from our timber resources by selling our
timber to the highest bidder in each market in which we participate
rather than to captive mills.

WE ACQUIRE TIMBERLANDS TO GENERATE CASH AND ENHANCE LONG-TERM VALUE

As an owner of timberlands and a seller of timber, as opposed to an owner
or operator of timber conversion facilities, we are a natural acquiror of
timberlands from a variety of potential sellers. We believe that U.S. timberland
ownership will continue its recent trend of consolidation. Specifically, we
believe that timberland ownership will continue to shift from forest products
companies that also own mills to companies that solely own and manage
timberlands. Furthermore, we expect to see some small landowners sell their
timberlands to larger organizations that have greater financial resources and
can provide professional management of the timberlands.

We believe that forest products companies frequently view their timberland
assets as a means of assuring supply to, and profitability of, their mills
without considering separately the current value of their timber resources. We
believe that these companies are under increasing pressure to realize the value
of their timberland assets by selling or monetizing them. We believe that we may
be viewed by these companies as a preferred purchaser of their timberlands
because we do not compete with their manufacturing operations.

Smaller private timberland owners who seek to diversify their timberland
ownership and obtain liquidity also present us with acquisition opportunities.
We believe that small timberland owners lack the scale of operations needed to
efficiently manage their timberland assets. Private landowners may be reluctant
to make outright sales of their timberlands, even if they would like additional
liquidity, because sales may trigger taxes or be inconsistent with their estate
plans. These issues can often be compounded by irregular cash flow from smaller
timberland tracts.

According to the most recent U.S. Forest Service estimates, approximately
490 million acres of timberlands in the United States are owned by
non-government owners. The largest non-government owner holds less than 3% of
all U.S. timberlands. We believe this fragmented ownership of timberlands
presents us with a wide variety of potential timberland acquisition candidates.
We intend to take advantage of these acquisition opportunities by:

- retaining a significant portion of our internally generated cash for
timber acquisitions;

- maintaining financial flexibility through a conservative capital
structure with a target debt-to-total market capitalization ratio of
approximately 40%, which we believe will better enable us to fund
acquisitions when opportunities arise;

- using units in our operating partnership as a form of consideration for
acquisitions, an approach that will permit the seller to defer taxes and
achieve liquidity and professional management; and

- accessing capital markets to provide additional funds for acquisitions.

64
<PAGE> 71

Through acquisitions of timberlands, we intend to broaden and enhance the
value, marketability and diversity of our timber portfolio. We evaluate each
proposed acquisition based on the specific characteristics of the property. Our
evaluation criteria include:

- volume of merchantable and premerchantable timber on the property;

- productivity of the property's soils;

- growth rates of timber on the property;

- regional market supply and demand factors affecting the property;

- the proportion of sawtimber on the property;

- whether the acquisition will enhance the mix of species or diversify the
ages of timber in our timber portfolio; and

- environmental and endangered species conditions, including restrictions
on harvesting that could limit the amount of timber that can be cut.

We look for properties that present opportunities to increase cash flow and
derive more value from the property than the seller is obtaining. We seek to
derive additional cash flow and value by:

- modifying a property's timber selling plan in ways that may not be
feasible for the seller given the size and composition of the seller's
timber portfolio or the seller's purpose in holding the
timberlands -- for example, as a source of raw material supply for a
given mill;

- targeting high-value uses for our timber -- for example, selling tall,
straight trees to be used for poles rather than for sawtimber or pulp;

- developing an industry brand name based on the size and quality of our
timber portfolio;

- implementing cost saving opportunities available by managing the acquired
timberlands as a component of our total portfolio; and

- leasing tracts for recreation, grazing, hunting and other activities not
related to timber production and selling tracts which are suited for
better and more valuable uses, such as for residential or commercial
development.

Based on the substantial prior timberland acquisition experience of our
management, we believe that we can acquire timberland properties on more
favorable terms through private negotiations rather than through competitive
auctions. Accordingly, we intend to pursue privately negotiated acquisitions as
our principal means of acquiring timberlands.

Our principal focus for acquisitions will be on timberlands located within
developed markets in the continental United States. Developed markets are areas
with a number of independent lumber mills, paper mills or other timber
conversion facilities sufficient to create competition for our timber.

We also intend to explore potential timberland acquisition opportunities in
Latin America and in other active timber growing regions of the world. We
currently intend to limit our ownership of non-U.S. timberlands to no more than
20% of our asset portfolio. We intend to seek non-U.S. timberlands with values
that are depressed relative to those in the United States. Prices of non-U.S.
timberlands may be depressed due to undeveloped or underdeveloped forestry
management plans, markets or infrastructure. Based on the experience of our
management, we believe many timberland acquisition opportunities outside of the
United States can provide higher risk-adjusted returns due to low-cost labor,
land, and energy, fertile soils and favorable climates, in combination with the
introduction of modern forestry practices and improved product marketing.

65
<PAGE> 72

WE EMPLOY ACTIVE FOREST MANAGEMENT PRACTICES TO ENHANCE TREE GROWTH

Tree growth is a major driver of timberland returns. We employ advanced
forest management practices, also called silviculture, to enhance this growth,
improve the quality of our timber and reduce the time required for a tree to be
ready for harvesting. The application of silvicultural practices such as
choosing seedlings with superior genetic characteristics, fertilizing, pruning,
thinning and controlling pests and diseases, can improve both tree growth rates
and wood quality. We employ professional forest managers who are experts in
applying these silvicultural techniques to our local forests and tree species.

WE DEVELOP HARVEST AND REFORESTATION PLANS THAT INCREASE LONG-TERM
PORTFOLIO VALUE

We believe that good silvicultural practices will produce both financial
and environmental benefits. Our strategy is to design forest management plans to
bring each of our forests into a balanced state. A balanced forest contains a
roughly equal number of acres of trees of each age class from newly planted
seedlings to mature trees. Once a forest reaches a balanced state, we intend to
manage it to generate predictable, consistent and sustainable annual timber
harvests and cash flow. An additional benefit of active forest management is
that the actively managed forest is more resistant to the threats of fire, pests
and disease than a forest left purely in its natural state.

We intend to develop operating plans for each of our properties. These
operating plans include site-and species-specific harvest and reforestation
plans. While we establish plans for our portfolio as a whole, we maintain the
flexibility to increase or decrease harvest levels and alter the species mix and
location on each of our timberlands in response to local market conditions.
Finally, to enhance values in the future, we engage in an active reforestation
program, planting species well suited for local soils and markets.

We use a computer system called a geographic information system in the
management of our timberlands. A geographic information system is a computerized
database and mapping system that links physical locations on a map with
associated data. This integrated database can then be used as a decision tool
and a mapping tool in the forest management process. Our geographic information
system data, which we will continue to compile, includes detailed topographical
field maps for our timberlands describing the characteristics, including age,
species, size and other characteristics of our timber.

With the aid of our geographic information system, we will be able to
manage our timberland portfolio actively, track inventory and develop
site-specific harvest plans. We will also be able to monitor other critical
aspects of our timberlands as required, such as the location of roadways or
wildlife nesting areas. We expect to use our geographic information system to
analyze the impact that new legislation may have on our timberlands by modeling
the effect of the legislation on our timberland portfolio. We will also use our
geographic information system to evaluate potential acquisition opportunities.

Many of our competitors and smaller timberland owners do not utilize a
geographic information system, mainly due to the relatively high initial cost
and to the length of time necessary to collect sufficient data to optimize its
use. Thus, we believe our geographic information system will give us an
advantage over our competitors who do not use this system.

OUR COMPETITIVE STRENGTHS

WE HAVE EXPERIENCED MANAGEMENT WITH SIGNIFICANT OWNERSHIP

C. Edward Broom, Christopher J. Broom, Thomas P. Broom, Vladimir Harris and
Joseph E. Rendini founded Strategic Timber in April 1998. These individuals
collectively have substantial experience in acquiring, owning and managing
timberland assets. Since 1985, they have collectively participated in a series
of timberland investments in the United States, Latin America and New Zealand,
as principals, investment managers and investment advisors.

Our founders have hired both former colleagues and advisors with whom they
have worked successfully in the past. These individuals have diverse experience
and expertise in our key areas of timberland acquisition, operation and
management.

66
<PAGE> 73

Upon completion of this offering, management will beneficially own
1,605,723 shares of common stock and partnership units, representing 7.2% of the
shares of common stock and partnership units that will be outstanding. We
believe that management's equity ownership in Strategic Timber and Strategic
Timber Partners aligns the interests of management and shareholders.

OUR PORTFOLIO OF TIMBERLANDS IS WELL DIVERSIFIED BY GEOGRAPHIC LOCATION,
SPECIES AND END USES

Geographic Location. Our initial portfolio of timberlands is well
diversified by geographic region. Approximately 35% of our merchantable timber
is located in Louisiana, 34% in coastal California, 14% in Oregon, 12% in
interior California, and 5% in Washington. We intend to enhance this geographic
diversity through acquisitions by increasing our ownership in less dominant
regions and expanding to new areas.

Species. Our timberlands support a variety of species, including
Douglas-fir, southern pine, second-growth redwood, western pine, hemlock, red
cedar and hardwood. Southern pine and Douglas-fir each account for about
one-quarter of our merchantable timber, and second-growth redwood and ponderosa
pine account for approximately 16% and 7% of our merchantable timber,
respectively. Other softwood species account for approximately 15% and hardwood
accounts for approximately 11% of our total merchantable timber portfolio.

End Use Market. We sell timber for a variety of end uses. Our pine
sawtimber in Louisiana and Douglas-fir in the western states is usually
converted into lumber for construction purposes. Our California and Oregon
ponderosa pines are processed into construction lumber, but also are used to
make molding, doors, windows and furniture. Second-growth redwoods produce
highly durable lumber, which is used for decks and patios. Most of our hardwood
inventory is processed into wood pulp and, ultimately, into various paper
products. Because our timber can be used in many applications, we can sell our
trees to a variety of different timber conversion facilities.

WE FOCUS ON OWNING AND MANAGING TIMBERLANDS

We own and manage timberlands but do not own or operate timber conversion
facilities. Paper and forest products companies that have substantial timberland
holdings may view us as a preferred purchaser when considering the disposition
of their timberlands, because we do not directly compete with their
manufacturing operations.

OUR REIT STRUCTURE WILL BENEFIT OUR SHAREHOLDERS

We intend to operate as an umbrella partnership real estate investment
trust, known as an UPREIT, which means we will own timberlands indirectly
through our operating partnership. We believe the UPREIT structure will offer
the following benefits to our shareholders:

- TAX EFFICIENCY -- Our REIT structure, coupled with our focus on
timberland holdings, will provide substantial tax advantages, including:

- a single tax on virtually all, if not all, of our taxable income whether
or not distributed, rather than a tax at both the corporate and
shareholder levels;

- a substantial timber depletion allowance that will reduce our taxable
income, without reducing our cash flow;

- treatment of distributions to our shareholders either as tax-free return
of capital or as capital gain;

- flexibility to retain and reinvest cash primarily for timber
acquisitions, rather than making tax-mandated distributions to
shareholders; and

- generally, no unrelated business taxable income to our tax-exempt
shareholders.

- ATTRACTIVE ACQUISITION CURRENCY -- We may be able to structure timber
acquisitions in a way that will permit a seller to obtain liquidity by
exchanging timberland for operating partnership units
67
<PAGE> 74

without incurring tax at the time of the disposition. This may enhance
our ability to complete acquisitions on terms that are more favorable to
us.

TIMBER INDUSTRY OVERVIEW

TIMBER AS AN ASSET CLASS

We believe that timber represents an attractive asset class for a number of
reasons, including the following:

- REGENERATION -- Timber is a growing and renewable asset, unlike natural
resources such as minerals, oil and natural gas.

- PREDICTABLE GROWTH -- Trees grow predictably and, as they grow, they
become worth more per unit of volume because they have higher value end
uses. For example, solidwood products, which are made from larger trees,
are a higher value end use for timber as compared to pulp or paper
products, which are typically made from smaller trees.

- HARVEST FLEXIBILITY -- As an independent timberland owner, we have
substantial flexibility to enter into new cutting contracts to generate
additional timber sales when local timber prices are high. When local
timber prices are low, we can avoid entering into new cutting contracts
and let our timber continue to grow.

- FAVORABLE LONG-TERM WORLDWIDE SUPPLY/DEMAND FUNDAMENTALS -- According to
the 1997 State of the World's Forests report prepared by the United
Nations' Food and Agricultural Organization, demand for wood and wood
products has historically been correlated to population growth, economic
development and standards of living, which are forecast to continue to
increase. By contrast, we expect that worldwide timber supplies will be
constrained relative to demand.

- HISTORICAL REAL PRICE APPRECIATION -- Domestic timber prices have, over
the long term, increased at rates in excess of inflation. The U.S. Forest
Service estimates that, from 1967 to 1997, prices for Douglas-fir,
ponderosa pine and loblolly pine increased at average rates of between 7%
and 9% per year, or between 2% and 4% per year after adjusting for
inflation.

PRODUCTS AND MARKETS

We sell the timber harvested from our timberlands for processing as either
sawtimber or pulpwood by facilities located generally in close proximity to our
timberlands. Sawtimber typically is converted into lumber, plywood and other
solidwood products. The harvested timber that is of insufficient size or quality
to be converted into lumber or other solidwood products is sold for conversion
into pulp, paper and engineered wood products. The lumber, pulp, paper and other
wood products are then distributed in domestic and international markets. Timber
markets, while regional in terms of purchasers of timber, are impacted by the
availability and cost of timber from other regions and by global economic
conditions.

All timber that we categorize as merchantable is suitable for sale for some
commercial purpose, but we do not intend to harvest all of our merchantable
timber immediately. Over time, we intend to control the continued growth and
harvest of trees in our forests to manage them responsibly in accordance with
accepted forest practices and regulations. For example, on appropriate sites, we
intend to allow trees that are merchantable for lower value uses, such as pulp,
to grow into higher-value timber, such as sawtimber. We also include trees in
our merchantable timber volumes that are not immediately available for harvest
under applicable law. Mason, Bruce & Girard and Canal Forest Resources have
confirmed with us that our practices for determining merchantable timber volumes
in each of our market areas are consistent with industry practice. See
"-- Initial Timberland Properties -- Methodology for Determining Inventories"
and "-- Federal and State Regulations."

Based on inventories prepared by Mason, Bruce & Girard and Canal Forest
Resources, approximately 87% of our merchantable timber inventory is in the form
of sawtimber that can be manufactured into solidwood products. The remaining 13%
is timber that we can sell as pulpwood. Our objective is to sell

68
<PAGE> 75

sawtimber instead of pulpwood. We achieve this goal by allowing our trees to
mature into sawtimber instead of cutting them for sale as pulpwood. However, we
may cut and sell pulpwood as part of our thinning and forest management
practices.

TIMBER DEMAND, SUPPLY AND PRICES

Demand. Demand for timber depends upon the markets for wood products,
including lumber, plywood, pulp and engineered wood products. Because these
markets are impacted by changes in domestic and international economic
conditions, demand for these products can experience significant fluctuations.
Regional timber demand can also fluctuate due to changes in operating rates or
the number and size of wood conversion facilities within the region.

Our timber portfolio consists primarily of softwood timber. Douglas-fir,
southern pine, second-growth redwood, ponderosa and sugar pine, hemlock, cedar
and white fir are the most prevalent softwood species on our timberlands.
Currently, approximately 11% of the volume of our merchantable timber consists
of hardwoods.

A substantial portion of softwood timber is converted into lumber. Demand
for lumber is primarily impacted by the home construction, repair and remodeling
markets and the industrial construction market. Because of the structural
strength and stability of Douglas-fir and southern pine lumber, their most
important use is for construction lumber. Douglas-fir is particularly well-known
for its appearance and hard surface quality. Sugar and ponderosa pines are used
primarily for new construction as well as for decorative purposes such as
molding, doors, windows and furniture. These pines are recognized for their
strength, durable surface and appearance. Second-growth redwood is also
converted into premium-grade lumber used primarily in applications where
appearance and durability are important, such as residential porches and decks.
Second-growth redwood is known for its natural beauty, superior ability to
retain paints and finishes and resistance to decay, insects and chemicals. As a
result, second-growth redwood is not generally used to produce lumber for
construction and its price has historically been less volatile than that of
other premium softwood species.

The most common applications for hardwood sawtimber include furniture,
flooring and moldings. Thus, demand for hardwood sawtimber is generally less
susceptible than softwood timber to fluctuations in construction activity. Most
of the hardwood timber on our initial timberlands is pulpwood, usable for paper
and other commodity applications rather than specialty applications such as
furniture.

Some timber species grown on the U.S. west coast, such as Douglas-fir and
hemlock, have historically experienced significant demand in the Japanese
markets. These products have strength, appearance and stability characteristics
that have historically been highly valued in Japan and, as a result, have
attracted higher prices than would have been realized if sold in the domestic
market.

U.S. log exports have declined steadily over the past eight years,
generally a result of increased competition from European producers, and more
recently the deteriorating economic and financial conditions in Asia. According
to U.S. Forest Service data, log exports from the United States decreased from
approximately 7.5 million cunits in 1989 to approximately 3.3 million cunits in
1997.

Supply. The Pacific Northwest and the Southeast are the two principal
timber producing regions in the United States.

The supply of logs available for purchase in the Pacific Northwest has been
significantly affected in recent years by reductions in the volume of timber
harvested from public lands. This reduction is primarily a result of increased
governmental policy emphasis toward protection of endangered species, habitat
preservation, conservation and recreation. According to U.S. Forest Service
data, the timber harvested from federal lands in California, Oregon and
Washington in 1997 was approximately 1.4 billion board feet, a decline of 80%
from the approximately 6.7 billion board feet harvested in 1988. We expect that
the amount of timber harvested from federal lands will remain at current levels
or continue to decline. This trend changes the supply emphasis to the private
sector and thus strengthens our position as a private seller of timber. Timber
harvests have declined more in the western United States than in the
southeastern United States because public timberland ownership in the West
represents a substantially greater proportion of the total than it does in the
Southeast.

69
<PAGE> 76

Timber harvests can fluctuate regionally depending upon factors such as
changes in weather conditions, harvest strategies of local forest products
industry participants and prevailing timber prices. Rising timber prices often
lead to increased harvests on private timberlands. Timber prices are also
affected by lumber prices, which depend upon a number of factors, including the
level of domestic lumber consumption and production, conditions in export
markets and lumber imports from Canada and other countries. U.S. imports of wood
products have historically been limited by freight costs and, since April 1996,
by the five-year United States-Canada lumber trade agreement. However, these
limitations on U.S. imports have been partially mitigated by reduced U.S. lumber
and log exports and increased lumber imports from Canada, Europe and other
regions.

Lumber imports also compete indirectly with timber harvested in the United
States. Because a large portion of logs are converted into lumber, imports of
lumber into the United States reduce the demand for logs at U.S. conversion
facilities. U.S. Forest Service data indicate that lumber imports represented
36% of the United States consumption of softwood lumber in 1997.

According to U.S. Forest Service data, log imports into the United States
historically have not been significant. Small volumes of logs are imported from
Canada into the states of Washington and Maine for conversion into lumber and
pulp, but the volumes do not materially impact the regional markets. Global log
markets can, however, affect the prices paid for U.S. log exports because U.S.
exporters face strong competition in their key markets.

Prices. Short term timber prices have historically been cyclical as a
result of supply and demand imbalances. However, timber prices have increased at
rates above inflation over the long term. The U.S. Forest Service estimates that
between 1967 and 1997, timber prices for Douglas-fir, ponderosa pine and
loblolly pine timber experienced average annual increases of 7.2%, 8.7% and
7.2%, respectively, compared to an average inflation rate of 5.2%.

The reduction in log supply from public lands that occurred at the
beginning of this decade caused prices for logs to increase significantly,
reaching peak levels during late 1993 and early 1994. Forest industry
publications indicate that, since 1996, exports of Douglas-fir logs and lumber
to Japan have been greatly reduced. These trends likely have reduced prices for
Douglas-fir and some pine species in the Pacific Northwest. However, strong
domestic construction and repair and remodeling markets continue to support
softwood log prices.

70
<PAGE> 77

The graph below illustrates historical price indices for representative
species of timber sold in the areas in which we currently operate. Mason, Bruce
& Girard and Canal Forest Resources have determined the price indices for
timber. The price indices for timber are based upon average delivered log prices
adjusted to exclude typical logging and transportation costs for timber in those
operating areas. The consumer price index, or CPI, is based on data compiled by
the U.S. Bureau of Labor Statistics.

HISTORICAL PRICE INDICES OF SELECTED TIMBER SPECIES
(1990 = 100)
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
California Coastal - Redwood 100.0 88.0 144.0 223.8 252.7 184.8 163.4 146.6 161.0
Louisiana - Pine Sawtimber 100.0 101.2 126.6 143.1 176.6 203.3 173.8 231.3 227.8
Washington - Douglas-fir 100.0 100.6 146.1 210.1 200.2 206.6 217.4 193.6 141.9
CPI 100.0 103.0 105.9 109.0 111.9 114.7 118.5 120.6 122.9
</TABLE>

71
<PAGE> 78

The table below provides estimated average prices and costs for timber as
of March 31, 1999, based on market surveys of similar species conducted by our
independent forestry consultants, Mason, Bruce & Girard on the California,
Oregon and Washington properties, and Canal Forest Resources on the Louisiana
property. These prices reflect current estimated average prices for timber on
our timberlands. Prices for standing trees and logs vary by the size of trees
cut as well as the diameter and length of logs that can be cut from the trees.
Our independent forestry consultants have taken into account the size
distribution of the trees in our forests to estimate the average prices for
timber on our timberlands. The tree prices in the following table are generally
consistent with our sales of standing trees in each area by species. These
prices are lower than the mill-delivered prices that form the basis for most
published timber pricing, because mill-delivered prices include the costs of
cutting timber and transporting it to the mill. The difference between
mill-delivered prices and standing timber prices will vary based on the terrain
and weather on the property and how far the property is from mills. All prices
are expressed in dollars per thousand board feet, except the price for Louisiana
pine timber, which is in dollars per ton.

<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
------------------------------------
STANDING TREE LOGGING DELIVERED
PRICES COSTS LOG PRICES
------------- ------- ----------
<S> <C> <C> <C>
CALIFORNIA -- COASTAL FOREST
Second-growth redwood....................................... $508 $282 $790
Douglas-fir................................................. 238 282 520
CALIFORNIA -- COMMANDER FOREST
Ponderosa pine.............................................. 285 245 530
Douglas-fir................................................. 275 245 520
LOUISIANA
Pine........................................................ 48 -- --
OREGON
Ponderosa pine.............................................. 286 184 470
Douglas-fir................................................. 278 182 460
WASHINGTON
Douglas-fir................................................. 471 180 651
Western hemlock............................................. 368 144 512
Cedar....................................................... 835 135 970
</TABLE>

For our California, Oregon and Washington timberlands, Mason, Bruce &
Girard estimated the average standing tree prices by subtracting the logging
costs for timber from the delivered log prices. To compute the delivered log
prices, Mason, Bruce & Girard analyzed log purchases by mills and export yards
in these areas for trees comparable to ours. Mason, Bruce & Girard estimated
logging costs based on tract-specific topography, costs of cutting, loading,
hauling, road maintenance and construction, timber taxes and silvicultural
activities. These costs vary in each area depending on these factors. See
"-- Harvest Methods."

For our Louisiana timberlands, Canal Forest Resources estimated the average
standing tree prices by analyzing comparable timber sales and the published
timber prices indices of the Louisiana Department of Agriculture and Forestry,
the Texas Forest Service and Timber-Mart South, a non-profit industry
publication. Canal Forest Resources also analyzed prices paid by mills in the
market area for the Louisiana timberlands. These analyses involved the direct
comparison of the timber in our forest to similar timber that was sold recently
in the same market, in terms of tree diameter and height, site operability and
distance to markets. In Louisiana, timber is commonly sold as standing trees,
without reference to logging costs. For this reason, the preceding table does
not include delivered log prices and logging costs.

We have used the methods set forth above to determine prices for timber in
our markets, rather than using prices from our own timber cutting contracts, due
to our limited operating history. Thus, the prices set forth in the table should
only be considered an approximation of the prices we would have received as of
March 31, 1999. Historical prices have fluctuated in the long term and in the
short term and therefore the prices shown in the table above should not be
considered indicative of the prices we will receive in the future.

72
<PAGE> 79

INITIAL TIMBERLAND PROPERTIES

We have summarized below our initial timber portfolio, as of March 31,
1999, based on acreage, predominant species, and local units and cunits of
volume.

<TABLE>
<CAPTION>
MERCHANTABLE TIMBER VOLUME
-------------------------------------------------
PROPERTY ACRES PREDOMINANT SPECIES LOCAL UNITS(A) CUNITS(A)
- -------- ------- ------------------- ------------------------------- -----------
<S> <C> <C> <C> <C>
California:
Coastal 79,026 Second-growth 856 million board feet(b)(c) 1,927,000
redwood, Douglas-fir
Commander 43,313 Douglas-fir, white 288 million board feet(b) 647,000
fir, ponderosa pine
Louisiana 81,991 Slash and loblolly 5.7 million tons (d) 1,996,000
pine
Oregon 230,323 Ponderosa pine, 371 million board feet(b)(e) 835,000
Douglas-fir, white
fir
Washington 10,822 Douglas-fir, western 129 million board feet(b) 290,000
hemlock, cedar
------- ---------
Total 445,475 5,688,000
======= =========
</TABLE>

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

(a) We maintain and track timber volumes in the units used in local markets.
For purposes of summarizing data regarding our portfolio, we convert local
units into one common unit, or cunit. One cunit equals 100 cubic feet. We
use conversion rates of 0.3525 cunits per ton for timber on the Louisiana
property and 2.25 cunits per thousand board feet for timber on the Pacific
Northwest properties.

(b) Verified by Mason, Bruce & Girard at the time of purchase of the tracts
that make up the Pacific Northwest properties, as adjusted for growth to
December 31, 1998 and for harvest to March 31, 1999.

(c) Merchantable timber volume on our Coastal forest includes timber with a
minimum diameter of at least 5 inches, measured at the top of the cut
segment. If we used a 6-inch minimum diameter top specification,
merchantable timber volume for the Coastal forest would be approximately
713 million board feet. See "-- Methodology for Determining
Inventories -- The Pacific Northwest Properties."

(d) Verified by Canal Forest Resources in July 1998, as adjusted for harvest
and growth to March 31, 1999.

(e) Includes approximately 15.2 million board feet, or approximately 34,306
cunits of merchantable timber volume under Oregon timber deeds. Under these
timber deeds, we have the right to sell timber located on lands not
belonging to us. All of the land as to which we have timber deeds is owned
by private individuals. See " -- Initial Timberland Properties -- The
Oregon Timberlands."

METHODOLOGY FOR DETERMINING INVENTORIES

The calculation of merchantable timber inventory involves making a series
of judgments regarding appropriate classification of standing timber. We rely
upon independent forestry consultants and our understanding of local markets to
assist us in reaching these judgments and to permit us to estimate our inventory
using a consistent approach from year to year in each of our operating regions.
The size of the logs that local mills process can vary from year to year based
on changes in lumber prices and processing technology. We do not expect changes
in local size requirements to be so significant as to affect our timber sales
plans.

None of the trees included in our inventory is physically impossible to
harvest, but trees are included in inventory even if they cannot currently be
harvested because of a regulatory restriction or a practical limitation on
immediate access. Practical limitations on immediate access to a particular
tract may occur, for example, if we have recently harvested an area adjacent to
the site and are required, either by regulation or by good forestry practices,
to wait until these recently cut areas are fully stocked with established trees
before harvesting the tract. Similarly, endangered species restrictions may
require adjacent

73
<PAGE> 80

timber stands to develop into suitable habitat before we can harvest a
particular tract. These limitations may extend for three years or longer. Our
inclusion in our inventory of trees that are subject to these limitations on
harvest is in accordance with industry standards for calculating timber
inventories, which recognize that large timber stands cannot be harvested at
once. A tree is included as merchantable timber if it impacts the amount of
timber available for harvest from the remainder of the property. For instance,
some trees in waterway buffer zones may not currently be cut, but they provide
shade and regulate stream temperature and wildlife habitat, which will allow for
the harvest of trees at another location. In some instances, trees may become
available for harvest through the change in location of endangered species or
when density of surrounding stands change.

The Pacific Northwest Properties

Mason, Bruce & Girard estimated our merchantable timber inventories on the
Pacific Northwest properties. These estimates of merchantable timber volume were
determined based on sampling methods and standards customarily used in the
Pacific Northwest.

In calculating merchantable timber volumes, Mason, Bruce & Girard has
confirmed that it used standards of length and diameter recognized in each of
the markets of our Pacific Northwest properties. Recognized standards for
determining merchantable timber volumes require that the minimum diameter of
standing trees, measured inside the tree bark at the top of the cut segment, be
at least 5 inches, measured to the nearest whole inch.

The log specifications demanded by mills in our market areas change from
time to time. In general, as log and lumber prices increase, mills accept
smaller diameter logs. The mills in each of our California, Oregon and
Washington markets, except for the Coastal market area, are currently actively
purchasing logs with a 5-inch minimum diameter top, which is the standard we use
for our inventories throughout the region. In the Coastal market area, most
mills are currently specifying logs with a minimum 6-inch diameter top for logs
they purchase from outside sources, although many of these same mills use
smaller logs produced from their own timberlands. Mills throughout the Coastal
market area have historically purchased logs with as small as a 5-inch top, and
two mills are currently purchasing logs of that size. Our current timber sales
plan contemplates harvest of timber from the Coastal forest that will produce at
least one log with a minimum of a 6-inch diameter top.

Mason, Bruce & Girard has used the 5-inch minimum diameter top in
estimating merchantable timber volumes for all of our Pacific Northwest forests.
That firm used a 6-inch minimum diameter top when it estimated merchantable
timber volumes for a prior owner of the Coastal Forest in connection with its
1996 Option A submission to the California Department of Forestry and Fire
Protection, as this was an accepted specification used in growth and harvest
modelling at the time. Mason, Bruce & Girard has confirmed that this 5-inch
diameter merchantability specification is in accord with industry standards
currently employed by timber owners and professional foresters and appraisers in
determining merchantable timber volumes in the Coastal forest area. If we used a
6-inch specification on our Coastal forest, we would show our merchantable
timber volumes for that forest to be approximately 713 million board feet,
instead of 856 million board feet using the 5-inch diameter top standard.

Merchantability length specifications vary in the Washington market from
our other three Pacific Northwest markets, where length merchantability
specifications are similar. In the Washington market, a tree is merchantable and
included in inventory if it will produce at least one log that is 32 feet long
with a 5-inch minimum diameter top. For our California and Oregon markets, a
tree is merchantable and is included in our inventory if it contains at least
one 16-foot log with a minimum 5-inch diameter top. In addition, in each of our
Pacific Northwest markets, volumes for the portion of a tree's trunk above the
merchantable first log will be included if the additional piece beyond the
merchantable first log exceeds a minimum length of 12 feet.

74
<PAGE> 81

As is the common practice involving transactions of large acreage tracts of
timber with diverse species and locations, Mason, Bruce & Girard did not perform
a complete re-inventory of our Pacific Northwest properties. Instead, Mason,
Bruce & Girard confirmed the timber volumes by sampling or observing portions of
the properties which had previously been inventoried by themselves or by other
qualified forest experts from 1994 through 1998. Each inventory estimate was
adjusted for actual harvests and estimated growth before inclusion. These sample
inventories (including some re-inventories of the same areas) covered an
aggregate of approximately 216,000 acres in Oregon, 11,000 acres in Washington,
75,000 acres in the Coastal forest and 43,000 acres in the Commander forest in
California. The inventories were established to customary standards. These
standards ranged from plus or minus 5% at a 95% confidence interval to plus or
minus 10% at a 90% confidence interval. This means that, at the 95% confidence
interval, 95 times out of 100, if the property were reinventoried using the same
sampling procedure and specifications, the resulting volumes would vary by no
more than the standard of 5% or 10%, as the case may be. Similarly, at the 90%
confidence interval, 90 times out of 100 the reinventoried volumes would vary by
no more than 5% or 10%, as the case may be. These statistical reliability
indicators relate to total volume and not to the volume for individual species.

No statistical tests were performed to determine the reliability of volume
estimates for each species. These tests would be unusual and, to the knowledge
Mason, Bruce & Girard, have not been done for any industrial forestland
inventory. The species volume estimates are part of the total and reflect the
species only as they appear in the samples. This is customary and knowledgeable
timber analysts recognize these methodologies.

Inventory reductions are calculated periodically using actual harvests on
each property. Growth is added periodically using stand projection systems that
determine growth rates for representative samples of each of the properties.
Stand projection systems are computer-generated growth models commonly used by
forestry professionals to forecast specific tree stand growth. These projections
are based on historical growth data of tree stands and species in specific soil
types and climates. Mason, Bruce & Girard used its proprietary Stand Projection
System to project growth on our Washington and Oregon properties. For the
Commander tract, growth is based on commonly accepted growth rates typical of
similar California properties.

Growth rates on the Coastal property were determined as part of the Option
A process using a computer model accepted in the industry and by the California
Department of Forestry and Fire Protection for projecting Coastal tree growth.
This model is called the Cooperative Redwood Yield Project Timber Output
Simulator. Mason, Bruce & Girard applied to this model relevant site fertility
statistics and harvest, hardwood removal, silvicultural and thinning data
provided by prior owners of the Coastal forest to project the forest's future
growth. The Option A plan requires that we establish sample plots to monitor
tree growth. The results we obtain from monitoring these plots are used as the
basis for possible adjustments in the volume projections in the Option A plan,
as well as possible adjustments in the management of the Coastal forest. Tree
growth depends, among other factors, on hardwood removal, which is required
under timber harvest plans. We have not timely completed hardwood removal under
some of our timber harvest plans. We are in the process of reviewing hardwood
treatment areas to ensure future compliance with these requirements.

As is common practice for large acreage commercial timber owners, we plan
to conduct physical re-inventory of about 10% of our properties annually. This
will provide us with a complete re-inventory every 10 years, and a routine
confirmation and adjustments of actual volumes of merchantable timber.

The Louisiana Property

Canal Forest Resources' estimate of merchantable timber volume was
determined using customary sampling methods and standards used in Louisiana. The
estimate provides an inventory of timber volume by tree species and age. The
sampling error for this inventory estimate was plus or minus 5% at a 95%

75
<PAGE> 82

confidence interval. All timber volume estimates were calculated in tons and
included only trees that met the following specifications:

<TABLE>
<CAPTION>
MINIMUM
DIAMETER MINIMUM
AT 4 1/2' TOP MINIMUM
PRODUCT HEIGHT DIAMETER HEIGHT
- ------- --------- -------- -------
<S> <C> <C> <C>
Pine pulpwood............................................... 4.6" 3" 25'
Pine small sawtimber........................................ 8.6" 6" 16'
Pine sawtimber.............................................. 11.6" 7" 16'
Pine poles.................................................. 11.0" 5" 35'
Hardwood pulpwood........................................... 5.6" 4" 25'
Hardwood sawtimber.......................................... 12.6" 9" 16'
</TABLE>

Minimum top diameter is measured inside the tree bark at the top of the log
cut, to the nearest whole inch. We classify poles, a premium-priced form of
timber, as sawtimber.

Canal Forest Resources completed its initial timber inventory in July 1998.
Canal Forest Resources used 6,323 sample plots on approximately 62,900 acres to
provide the 95% confidence level. To verify that sample plots were accurately
measured, Canal Forest Resources audited 146 check plots, which were distributed
randomly but representative of the sample.

Canal Forest Resources updated its initial inventory estimate to account
for timber sales activity and to include timber growth for the nine months
between June 30, 1998 and March 31, 1999. Canal Forest Resources estimated
growth for each individual stand of the property based on specific
characteristics of site quality, age, current forest density and species, using
customary growth projection models.

Acceptance of Our Merchantable Timber

The mills in each of our market areas are capable of processing our
merchantable timber, and we consider them all to be prospective buyers of our
timber. These mills produce particular wood products, such as lumber, paper and
wood fiber board. Similarly, our merchantable timber is used for different
applications, and is sold based on its ultimate end use. For example, we
generally sell timber that can be processed as sawtimber to a sawmill, whereas
we sell pulpwood to a paper mill or another type of mill that can use wood chips
or pulp. A single mill generally does not purchase and process all forms of
merchantable timber in its market areas, and generally we would not expect any
single mill in any of our market areas to buy all of the types of timber we are
selling in that market area. Our independent forestry consultants, Mason, Bruce
& Girard and Canal Forest Resources, have confirmed that the demand for logs in
the relevant market areas for our Pacific Northwest and Louisiana properties is
sufficient to accommodate our planned sales and resulting harvest volumes
without adversely affecting the prices we can obtain for our timber in any of
these markets.

Harvest Restrictions

Consistent with industry practice, in determining the amount of
merchantable timber in our inventory, we have included approximately 27,000
acres of timberland that are subject to some level of harvest restrictions.
These restrictions limit and may prevent harvests on these timberlands, as set
forth in the tables below. We have not included timber from these restricted
acres in our timber sales plan to the extent these restrictions prohibit
harvesting. Our estimates of the number of restricted acres are based on
information acquired from prior owners, public sources and limited surveys
performed by ourselves and others. Before we authorize harvesting activities on
any of our properties, we survey the harvest area for the presence of threatened
and endangered species. As we gain additional information regarding the presence
of threatened or endangered species on our timberlands, if regulatory agencies
change the manner in which they apply related restrictions to our timberlands,
or if regulations become more restrictive, the number of our restricted acres
could increase. See "Risk Factors -- Forestry, environmental and endangered
species regulations restrict timber harvesting and may otherwise restrict our
ability to conduct our business" and "-- Federal and State
Regulations -- Endangered Species Laws."

76
<PAGE> 83

The following tables indicate the number of acres on our timberlands, by
property, that are subject to harvest restrictions due to the presence of
waterway buffer zones, unstable soils or wildlife known to be present on or near
the property. The first table shows the number of acres on each property that
cannot be harvested today. The second table shows the number of acres on each
property where harvesting is not entirely prohibited, but is currently
restricted -- for instance at specified times of the year, to protect mating
seasons, or with volume limitations, to preserve minimum shade or nesting areas.

<TABLE>
<CAPTION>
HARVESTING CURRENTLY PROHIBITED
--------------------------------------------------------
WATERWAY TOTAL
BUFFER ZONE UNSTABLE SOILS WILDLIFE BY PROPERTY
----------- -------------- -------- -----------
<S> <C> <C> <C> <C>
California -- Coastal........................ 1,708 480 396 2,584
California -- Commander...................... -- 40 155 195
Louisiana.................................... -- -- -- --
Oregon....................................... 2,165 -- 80 2,245
Washington................................... -- -- 20 20
----- --- ----- -----
Totals............................. 3,873 520 651 5,044
===== === ===== =====
</TABLE>

<TABLE>
<CAPTION>
HARVESTING CURRENTLY RESTRICTED
--------------------------------------
WATERWAY TOTAL
BUFFER ZONE WILDLIFE BY PROPERTY
----------- -------- -----------
<S> <C> <C> <C>
California -- Coastal....................................... 4,656 1,074 5,730
California -- Commander..................................... 2,334 541 2,875
Louisiana................................................... 4,486 -- 4,486
Oregon...................................................... 8,231 -- 8,231
Washington.................................................. 977 -- 977
------ ----- ------
Totals............................................ 20,684 1,615 22,299
====== ===== ======
</TABLE>

Waterway buffer zone restrictions include restrictions due to chinook and coho
salmon, and bull and steelhead trout. All wildlife prohibited or restricted
acres for the Coastal and Commander forests are due to the northern spotted owl,
except for 5 acres for a peregrine falcon in the Coastal forest. Wildlife
prohibited acres for the Oregon and Washington timberlands are due to bald
eagles.

TIMBERLAND MANAGEMENT STRATEGY

Our existing timberland holdings complement one another well. This is
exemplified by the fit between the Louisiana property and the Coastal forest in
California. A substantial portion of the Louisiana property contains over-mature
sawtimber. While these trees are expected to command a premium price in the
marketplace due to their size and quality, the overall growth rate of these
stands is below the potential of the land given the fertile soils and site
characteristics. Accordingly, once these slower-growing, mature trees are
harvested and reforestation activities are completed, stand growth on the
Louisiana property will substantially increase. By contrast, the Coastal forest
is relatively immature and is growing at its peak rate. Our operating plan over
the next few years for the two forests calls for substantial harvesting on the
Louisiana property to reinvigorate growth and for less harvesting of the Coastal
forest in order to maintain the rapidly growing base of timber there. By
operating these properties as part of an integrated whole, we anticipate that we
can enhance the productivity of our overall portfolio.

Similarly, components of the Commander forest in California and the
Washington property consist of mature, high-value timber that is at its optimal
harvest age. Our timber selling plan for the Commander and Washington properties
calls for removing this low-growth timber and replanting with seedlings selected
for superior genetic characteristics to increase the stands' total growth rates.
The Eastern Oregon properties consist primarily of uneven-aged stands which
contain a significant volume of premerchantable timber. The operating plan for
the Eastern Oregon tract reflects moderate initial harvests over the next five
years to allow the younger trees to mature and to maintain the property's
overall balanced condition.

77
<PAGE> 84

The table below reflects our approximate planned sales of timber from our
initial timberlands from 1999 through 2003 by region, in local units (million
board feet or thousand tons) and in thousands of cunits. This table shows our
current timber sales plan, which has been reviewed and confirmed by Mason, Bruce
& Girard for the Pacific Northwest properties and by Canal Forest Resources for
our Louisiana property. This timber sales plan is subject to change on account
of local market conditions, regulatory restrictions or other reasons, and we
expect to make frequent adjustments in our plan to take account of these
factors. California, Oregon and Washington require us to submit an application
or harvest plan to the appropriate state agency prior to harvesting. We
currently have obtained regulatory approval to harvest in 1999 4.7 million board
feet of timber from our Coastal forest, 32.1 million board feet from our
Commander forest and 32.8 million board feet from our Washington property. In
accordance with customary practice in Oregon, we will file required notices with
the Oregon Department of Forestry prior to allowing harvests on our Oregon
property. We have applied or are preparing our submissions for regulatory
approval for the balance of harvest volumes planned for 1999. See "-- Federal
and State Regulations -- State Forestry Regulations."

Timber cutting contracts that we have and will enter into permit buyers to
remove the contracted amount of timber over the life of the contract. Our
ability to recognize income from cutting contracts will depend upon the buyer's
decision to harvest timber under the terms of these contracts. Because we may
not be able to precisely control the timing of timber sales under multiple year
cutting contracts, the volume of timber actually harvested in any given year may
differ from our sales plan. The contracts provide for specified amounts to be
cut in each year of the contract.

TIMBER SALES PLAN

<TABLE>
<CAPTION>
1999 2000 2001 2002 2003
---------------- ---------------- ---------------- ---------------- ----------------
LOCAL THOUSAND LOCAL THOUSAND LOCAL THOUSAND LOCAL THOUSAND LOCAL THOUSAND
UNITS CUNITS UNITS CUNITS UNITS CUNITS UNITS CUNITS UNITS CUNITS
----- -------- ----- -------- ----- -------- ----- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
California (million board
feet):
Coastal.................... 9 20 13 30 18 40 24 55 24 60
Commander.................. 47 105 40 90 27 60 13 30 13 30
Louisiana (thousand tons).... 695 245 738 260 780 275 780 275 823 290
Oregon (million board
feet)...................... 22 50 22 50 33 75 33 75 33 75
Washington (million board
feet)...................... 33 75 24 55 20 45 16 35 11 25
--- --- --- --- ---
Total................ 495 485 495 470 480
=== === === === ===
</TABLE>

Due to a substantial amount of mature timber on some of our timberlands,
and consistent with prudent forest management practices, we plan to sell a
volume of timber from our initial timberlands from 1999 to 2008 that is
materially greater than the volume we plan to sell in subsequent periods. Our
future timber sales plans are subject to change due to regulatory restrictions,
changes in demand for our timber, timber growth, acquisitions of additional
timberlands, or other reasons. Based on our current assessment of these issues,
we anticipate that the timber sales from our initial timberlands will average
approximately 435,000 cunits per year from 1999 to 2008. We expect timber sales
from these timberlands for the period from 2009 to 2018 to average approximately
255,000 cunits per year. Under our timber sales plan, we expect the growth on
our initial timberlands to increase from approximately 350,000 cunits in 1999 to
approximately 430,000 cunits in 2009 and to average approximately 485,000 cunits
per year in the ten year period beginning in 2009. We further expect that total
timber inventory on these lands will decline from approximately 6.8 million
cunits in 1999 to approximately 6.3 million cunits in 2009, but will increase to
approximately 8.2 million cunits in 2018. As part of our growth strategy, we
intend to acquire additional timberlands in order to augment our current timber
sales plan.

To date, we have entered into contracts providing for harvests for 1999
valued at approximately $33.0 million. We have recognized $9.1 million under
these contracts for harvests that have been conducted to date. We have contracts
with nine separate buyers, including Boise Cascade Corporation, Hunt Forest
Products, Inc., Louisiana-Pacific Corp., Sierra-Pacific Industries, Inc. and
Temple-Inland Inc. These contracts provide for 1999 harvests of up to 408,000
tons of timber from the Louisiana property and up to 53.3 million board feet of
timber from our Pacific Northwest properties.

78
<PAGE> 85

Some of our timberlands may have greater value if used for ranching,
farming or recreational purposes or for residential or commercial development.
We will sell these properties to others when it is in our financial interest to
do so. We also may exchange lands with significant environmental and
recreational values for lands that are more suitable for commercial timber
production.

Strategic Timber and our operating partnership were formed in April 1998
and neither entity has any significant operating history. Some of our initial
timberlands have relatively short or no operating history under our management
and some of our initial timberlands have no operating history at all.
Furthermore, although we believe our overall timber sales plan is reasonable, we
cannot have the same level of confidence in the plan that we would have if we
had operated our timberlands for a number of years.

THE LOUISIANA PROPERTY

As of March 31, 1999, the Louisiana property consisted of approximately
82,000 acres located in southwest Louisiana. According to Canal Forest
Resources, approximately 79% of the acreage of the Louisiana property contains
merchantable timber. Canal Forest Resources estimates that approximately 83% of
all pine sawtimber on the Louisiana property is mature pine. Mature timber, or
timber over 35 years in age, tends to be sufficiently large, in height and
diameter, to be used to make poles, lumber or veneer, which are the highest
value end uses for Southern pine sawtimber.

Additionally, these timberlands possess characteristics that foster tree
growth, including, among other things:

- relatively flat ground;

- soils that have a high level of nutrients and retain water; and

- a warm climate with substantial rainfall.

We believe that, due to the substantial amount of mature timber on the Louisiana
property, the property is well suited for immediate harvest and replanting to
take advantage of superior growing conditions.

Our Louisiana property is categorized as set forth below, as verified by
Canal Forest Resources as of March 31, 1999:

LOUISIANA PROPERTY
ACREAGE BY TYPE

<TABLE>
<CAPTION>
TYPE ACRES PERCENTAGE
- ---- ------ ----------
<S> <C> <C>
Merchantable timber......................................... 64,820 79.0%
Pre-merchantable timber..................................... 13,754 16.8%
------ ------
Total Timberland Acreage.......................... 78,574 95.8%
Agricultural land........................................... 473 0.6%
Open/non-forested........................................... 2,944 3.6%
------ ------
Total Acreage..................................... 81,991 100.0%
====== ======
</TABLE>

Before our acquisition of this property, it was not actively managed for
commercial timber production. As a result, it now contains a substantial
inventory of mature timber, including approximately 3.8 million tons of pine
sawtimber. This pine sawtimber represents over 67% of the property's
merchantable timber volume, and approximately 83% of the property's merchantable
pine volume. Since most of the timber on this property has been allowed to
remain standing past the age that a commercial timber company would normally
have harvested it, there is now an abundance of mature timber that is ready for
harvest.

Until recently, we have conducted only limited harvesting operations on our
Louisiana property, while preparing the property for active commercial
operations. We conducted a complete timber inventory and detailed mapping of the
property, prepared timber sales plans and initiated commercial marketing
activities for timber to be sold from the property. See "-- Our Customers."

79
<PAGE> 86

Estimated timber volumes on the Louisiana property are as set forth below,
as verified by Canal Forest Resources as of March 31, 1999.

LOUISIANA PROPERTY
MERCHANTABLE TIMBER BY PRODUCT

<TABLE>
<CAPTION>
TIMBER INVENTORY AMOUNT PERCENTAGE
---------------- --------- ----------
(TONS)
<S> <C> <C>
Pine sawtimber.............................................. 3,809,882 67.3%
Pine pulpwood............................................... 787,661 13.9%
Hardwood sawtimber.......................................... 513,165 9.1%
Hardwood pulpwood........................................... 550,566 9.7%
--------- -----
Total............................................. 5,661,274 100.0%
========= =====
</TABLE>

Pine species on the Louisiana property include both slash and loblolly
pine, which are interchangeable for commercial purposes. Canal Forest
Resources's estimate of merchantable timber inventory was determined based on
sampling methods and standards customarily used in the southeastern United
States. See "-- Methodology for Determining Inventories -- The Louisiana
Property."

80
<PAGE> 87

Timber buyers in southwest Louisiana predominantly seek quality pine
sawtimber used for lumber and plywood. Hardwood sawtimber and both pine and
hardwood pulpwood markets exist, but these markets are less competitive. There
are 34 mills within 170 truck miles of the property that annually consume 13.6
million tons of sawtimber. There are 16 additional mills within 170 truck miles
of the property that annually consume 16.8 million tons of pulpwood. Our planned
1999 timber sales would represent approximately 2% of this consumption amount.
The following map depicts the location of mills near the Louisiana property:

[GRAPHIC DEPICTING LOCATION OF LOUISIANA TIMBERLANDS AND CONVERSION
FACILITIES IN MARKET REGION OF LOUISIANA TIMBERLANDS APPEARS HERE]

We will consider selling or exchanging parcels from the Louisiana property
that may have greater value if not used for timber production. In particular,
the Louisiana property includes over 50 individual parcels of less than 200
acres each, which may have a greater value to neighboring landowners than to us.
The Louisiana property also includes several parcels that are in close proximity
to the Grand Coushatta Casino and Hotel. These parcels may accommodate future
commercial development.

In December 1998, we sold approximately 6,700 acres of agricultural land
from the Louisiana property that had previously been used for rice farming. See
"Transactions with Related Parties."

We do not own the mineral rights to the Louisiana property. The owners of
the mineral rights operate oil and natural gas wells on the property. We do not
expect the oil and natural gas operations to interfere

81
<PAGE> 88

with timber harvesting or with our management of the property. See "-- Federal
and State Regulations -- Environmental Laws."

THE CALIFORNIA TIMBERLANDS

Our California timberlands consist of two distinct operating areas, the
Coastal forest and the Commander forest, which together contained approximately
122,000 acres as of March 31, 1999.

The Coastal forest is located in Mendocino and Sonoma Counties, California,
and consists of two blocks. Together, they included approximately 79,000 acres
of coastal timberland as of March 31, 1999.

According to Mason, Bruce & Girard, there are 22 mills in the North Coast
resource area, the market area for our Coastal forest. These mills consume an
estimated 887 million board feet annually. Our planned timber sales in 1999 from
our Coastal forest would represent 4.0% of this amount. The following map
depicts the location of conversion facilities within this market area:

[GRAPHIC DEPICTING LOCATION OF COASTAL PROPERTY AND CONVERSION
FACILITIES IN MARKET REGION OF COASTAL FOREST APPEARS HERE]
(COASTAL PROPERTY MAP)

82
<PAGE> 89

Our Coastal forest is categorized as set forth below, as verified by Mason,
Bruce & Girard as of March 31, 1999:

COASTAL FOREST

ACREAGE BY TYPE

<TABLE>
<CAPTION>
TYPE ACRES PERCENTAGE
---- ----- ----------
<S> <C> <C>
Merchantable and pre-merchantable timber.................... 77,366 97.8%
Open/non-forested........................................... 1,660 2.2%
------ ------
Total Acreage.......................................... 79,026 100.0%
====== ======
</TABLE>

Because the Coastal forest has not been managed as a plantation in the
past, there are few acres that are dedicated to or that contain only
pre-merchantable timber as a separate age class. All forested acres have
multiple age categories that could be classified as merchantable or
pre-merchantable timber.

The Coastal forest contains a blend of species as shown below, as verified
by Mason, Bruce & Girard as of March 31, 1999:

COASTAL FOREST
MERCHANTABLE TIMBER BY SPECIES

<TABLE>
<CAPTION>
SPECIES BOARD FEET PERCENTAGE
------- ----------------- ----------
(IN THOUSANDS)
-----------------
<S> <C> <C>
Second-growth redwood.................................... 398,249 46.5%
Douglas-fir.............................................. 276,826 32.3%
Hardwoods................................................ 113,766 13.3%
Sugar pine............................................... 52,397 6.1%
Whitewoods............................................... 15,072 1.8%
------- ------
Total.......................................... 856,310 100.0%
======= ======
</TABLE>

Mason, Bruce & Girard's estimate of merchantable timber inventory for the
Coastal forest was determined based on sampling methods and standards
customarily used in California. The above amounts include timber with a minimum
diameter at the top of the cut segment of at least 5 inches. Mason, Bruce &
Girard has confirmed that this 5-inch diameter merchantability specification is
in accord with industry standards currently employed by timber owners and
professional foresters and appraisers in determining merchantable timber volumes
in the Coastal forest area. In the Coastal forest market area, most mills are
currently purchasing logs with a minimum 6-inch diameter top, although many of
these same mills are processing smaller logs produced from their own
timberlands. Our current timber sales plan contemplates harvest of timber from
our Coastal forest that will produce at least one log with a minimum of a 6-inch
diameter top. If we used a 6-inch specification, we would show merchantable
timber inventory for the Coastal forest of approximately 713 million board feet.
See "-- Methodology for Determining Inventories -- The Pacific Northwest
Properties."

The determination of merchantability on the Coastal forest is based on
specifications for sawtimber. We contemplate selling all of the timber from the
Coastal forest other than hardwoods as sawtimber. The current market for
hardwood timber from the Coastal forest is primarily for wood chips. Chipping
generates a lower price per board foot than sale of hardwood sawtimber. We plan
to remove hardwoods in this forest so we can convert these areas to grow more
valuable conifers even though the hardwood sales may not produce a profit for
us.

Second-growth redwood timber is the predominant species in our Coastal
forest. Second-growth redwood timber commands a premium price in the market and
experiences a lower degree of price volatility than many other softwood species
due to its durability, specialty applications, distinctive coloring and its
relative scarcity. Second-growth redwood grows exclusively in the climatic
conditions unique to the

83
<PAGE> 90

limited coastal range from central California to southernmost Oregon due to the
soil characteristics, substantial rainfalls and persistent fog. Approximately
32% of the merchantable inventory on the Coastal forest consists of Douglas-fir,
which also grows well under these same conditions and has historically commanded
a premium in the marketplace due to its durability, strength and aesthetic
characteristics.

The Coastal forest is managed under an "Option A" timber management plan
approved by the California Department of Forestry and Fire Protection in May
1998. Coastal Forestlands, Ltd., the prior owner of the property, with the
assistance of Mason, Bruce & Girard, developed the Option A timber management
plan pursuant to a California regulatory process that establishes long-term
growth and sustainable harvest for a specified timberland. The Option A plan is
a management tool that establishes a decade-by-decade harvesting model for the
Coastal forest. Under the Option A plan, we must file timber harvest plans with
respect to specific tracts from which we propose to sell timber for harvest with
the Department. The Department reviews these timber harvest plans for compliance
with our Option A plan, and for other matters such as erosion control and
effects on wildlife, in connection with its approval process. Harvests may not
exceed 10% of the acreage of the property in one year. We intend to manage the
property in accordance with the Option A plan. We expect to increase harvesting
volumes and revenues from the Coastal forest as compared with recent historical
results, while limiting our harvests over a ten-year measurement period to
growth within that same period. See "-- Federal and State Regulations -- State
Forestry Regulations."

Most of the Coastal forest is productive timberland that we intend to
continue to manage for timber production. A portion of the property may be
suitable for use as a vineyard or orchard, and the former owner has the option
to acquire up to 10,000 acres of the property at a price of $2,000 per acre.
Under the option agreement, we would retain rights to the timber growing on any
land we sell, but we would not be entitled to reforest any land sold under the
option or otherwise use it for future timber production. Sale of the full 10,000
acres subject to the option would result in a long-term reduction of
approximately 13% of estimated potential timber volume on the Coastal forest
because of our loss of the right to reforest the acreage sold. The former owner
may exercise this option only if the property sold will be used for vineyards or
orchards, and we are not obligated to re-convey the property if, in our
reasonable discretion, we determine that the sale will adversely affect our
operation of the Coastal forest as a tree farm. Any disagreement between
ourselves and the former owner as to whether a proposed exercise of the option
would adversely affect our operation of the Coastal forest as a tree farm will
be resolved by binding arbitration.

As of March 31, 1999, the Commander forest consisted of approximately
43,000 acres and is located in Glenn, Tehama, Lake and Mendocino counties in the
coastal range of northern California. The Commander forest is located entirely
within the Mendocino National Forest. The merchantable timber inventory in the
Commander forest is approximately 45% Douglas-fir and 45% various pine and fir
species. We intend to harvest over-mature timber to reinvigorate stand growth in
the Commander forest.

Our Commander forest is categorized as set forth below, as verified by
Mason, Bruce & Girard as of March 31, 1999:

COMMANDER FOREST

ACREAGE BY TYPE

<TABLE>
<CAPTION>
TYPE ACRES PERCENTAGE
- ---- ------ ----------
<S> <C> <C>
Merchantable and pre-merchantable timber.................... 39,771 91.9%
Open/non-forested........................................... 3,542 8.1%
------ -----
Total Acreage.......................................... 43,313 100.0%
====== =====
</TABLE>

Because the Commander forest has not been managed as a plantation in the
past, there are few acres that are dedicated to or that contain only
pre-merchantable timber as a separate age class. All forested acres have
multiple age categories that could be classified as merchantable or
pre-merchantable timber.

84
<PAGE> 91

The Commander forest contains a blend of species as shown below, as
verified by Mason, Bruce & Girard as of March 31, 1999. All of the merchantable
timber inventory shown for the Commander forest is sawtimber.

COMMANDER FOREST
MERCHANTABLE TIMBER BY SPECIES

<TABLE>
<CAPTION>
SPECIES BOARD FEET PERCENTAGE
- ------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C>
Douglas-fir................................................. 130,155 45.3%
White fir................................................... 70,260 24.4%
Ponderosa pine.............................................. 36,008 12.5%
Incense cedar............................................... 27,629 9.6%
Sugar pine.................................................. 23,019 8.0%
Other pine.................................................. 539 0.2%
------- ------
Total............................................. 287,610 100.0%
======= ======
</TABLE>

Mason, Bruce & Girard's estimate of merchantable timber inventory for the
Commander forest was determined based on sampling methods and standards
customarily used in California. See "-- Methodology for Determining
Inventories -- The Pacific Northwest Properties."

We do not expect to sell any significant parcels from the Commander forest
for higher and better uses. However, because the property contains a number of
tracts of less than 100 acres, there may be opportunities to sell some of these
small tracts to recreational or other users.

According to Mason, Bruce & Girard, there are 20 mills in the northern
interior and Sacramento resource areas of California, which is the market area
for the Company's Commander forest. These mills consume an estimated 1.06
billion board feet of timber annually. Our planned timber sales in 1999 from the
Commander forest would represent 4.8% of this amount.

85
<PAGE> 92

[GRAPHIC DEPICTING LOCATION OF COMMANDER FOREST AND CONVERSION
FACILITIES IN MARKET REGION OF COMMANDER FOREST APPEARS HERE]
(COMMANDER FOREST MAP)

The Commander forest is currently managed under an annual timber management
plan filed with and approved by the California Department of Forestry and Fire
Protection. We plan to file an "Option A" timber management plan for the
Commander forest, similar to the type of plan filed for the Coastal forest, with
the California Department of Forestry and Fire Protection by the end of 1999.
See "-- Federal and State Regulations -- State Forestry Regulations."

THE OREGON TIMBERLANDS

As of March 31, 1999, our Oregon timberlands consisted of approximately
230,000 acres located to the east of the Cascade Mountains in Grant, Morrow,
Umatilla, Union and Wheeler counties. These timberlands also include a 280-acre
tract in Columbia County in southeastern Washington. These timberlands contain
approximately 356 million board feet of merchantable timber, which can be
marketed for many different uses. The predominant species are ponderosa pine and
Douglas-fir, representing approximately 40% and 31% of the total merchantable
timber volume, respectively, on our Oregon timberlands. We intend to harvest
selectively and thin the Oregon timberlands over the next 15 years to allow the
substantial inventory of premerchantable trees to grow into higher value age
classes.

86
<PAGE> 93

In addition to the 356 million board feet of timber on land that we own in
eastern Oregon, we also own approximately 15.2 million board feet of
merchantable timber under timber deeds in Oregon and southeastern Washington.
Under our timber deeds, we own timber without owning the land itself. Private
individuals own all of the lands relating to our timber deeds.

Our Oregon property is categorized as set forth below, as verified by
Mason, Bruce & Girard as of March 31, 1999:

OREGON TIMBERLANDS

ACREAGE BY TYPE

<TABLE>
<CAPTION>
TYPE ACRES PERCENTAGE
---- ------- ----------
<S> <C> <C>
Merchantable and premerchantable timber..................... 204,502 88.8%
Open/non-forested........................................... 25,821 11.2%
------- -----
Total Acreage..................................... 230,323 100.0%
======= =====
</TABLE>

Because our Oregon property has not been managed as a plantation in the
past, there are few acres that are dedicated to or that contain only
pre-merchantable timber as a separate age class. All forested acres have
multiple age categories that could be classified as merchantable or
pre-merchantable timber.

The Oregon timberlands, including timber we own under timber deeds, contain
a blend of species as shown below, as verified by Mason, Bruce & Girard as of
March 31, 1999. 99.5% of the merchantable timber inventory shown for the Oregon
timberlands is sawtimber.

OREGON TIMBERLANDS AND TIMBER DEEDS
MERCHANTABLE TIMBER BY SPECIES

<TABLE>
<CAPTION>
SPECIES BOARD FEET PERCENTAGE
- ------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C>
Ponderosa pine.............................................. 148,084 39.9%
Douglas-fir................................................. 119,064 32.1%
White fir................................................... 62,707 16.9%
Western larch............................................... 29,815 8.0%
Lodgepole pine.............................................. 9,742 2.6%
Other....................................................... 1,892 0.5%
------- ------
Total............................................. 371,304 100.0%
======= ======
</TABLE>

Mason, Bruce & Girard's estimate of merchantable timber inventory for our
Oregon timberlands was determined based on sampling methods and standards
customarily used in Oregon. See "-- Methodology for Determining
Inventories -- The Pacific Northwest Properties."

Throughout the western United States, harvest levels have been reduced from
public lands over the past ten years. Private owners of timberland have become
the beneficiaries of reduced timber supplies from public lands and the resulting
competitive market for timber. Many mills in eastern Oregon have closed during
the last decade, mostly due to the drastic reduction of timber sales from
federal lands. However, many of the remaining mills have increased capacity
through mill improvements. Mill capacity is adjusting to accommodate the
available supply of eastern Oregon timber. According to Mason, Bruce & Girard,
the current annual log consumption by the 14 mills within the market area of our
Oregon timberlands is estimated to be 492 million board feet. Our planned timber
sales in 1999 from Oregon timberlands would represent 9.9% of this amount.

87
<PAGE> 94

[GRAPHIC DEPICTING LOCATION OF OREGON TIMBERLANDS AND
CONVERSION FACILITIES IN MARKET REGION OF
OREGON TIMBERLANDS APPEARS HERE]

We are currently evaluating our Oregon timberlands to identify parcels that
have a higher and better use than growing timber. We have identified over 15,500
acres from our Oregon timberlands that could be sold, consistent with our
long-term investment strategy of focusing our activities on timber production.
The properties that could be sold include parcels that may be suitable for
grazing, recreational uses or for exchange with the Bureau of Land Management
for timberland.

In March 1999, we sold 2,300 acres of grasslands and timberlands on our
Oregon property. In April 1999, we sold 9,771 acres of ranch lands on our Oregon
property. These two tracts contained nominal amounts of timber.

THE WASHINGTON TIMBERLANDS

Our Washington timberlands are located in Lewis and Grays Harbor counties
and consisted, as of March 31, 1999, of approximately 11,000 acres containing
approximately 129 million board feet of merchantable timber. The timber on the
Washington timberlands is in even-aged stands with well-defined harvesting
programs in place.

88
<PAGE> 95

Our Washington property is categorized as set forth below, as verified by
Mason, Bruce & Girard as of March 31, 1999:

WASHINGTON TIMBERLANDS

ACREAGE BY TYPE

<TABLE>
<CAPTION>
TYPE ACRES PERCENTAGE
---- ----- ----------
(IN THOUSANDS)
<S> <C> <C>
Merchantable timber......................................... 5,611 51.8%
Pre-merchantable timber..................................... 4,153 38.4%
Open/non-forested........................................... 1,058 9.8%
------ -----
Total Acreage..................................... 10,822 100.0%
====== =====
</TABLE>

The Washington timberlands contain a blend of species as shown below, as
verified by Mason, Bruce & Girard as of March 31, 1999. 97.3% of the
merchantable timber inventory shown for the Washington timberlands is sawtimber.

WASHINGTON TIMBERLANDS
MERCHANTABLE TIMBER BY SPECIES

<TABLE>
<CAPTION>
SPECIES BOARD FEET PERCENTAGE
- ------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C>
Western hemlock............................................. 56,980 44.2%
Douglas-fir................................................. 30,789 23.9%
Red and incense cedar....................................... 16,066 12.5%
Other conifers.............................................. 13,168 10.2%
Red alder................................................... 8,348 6.5%
Other hardwoods............................................. 3,415 2.7%
------- ------
Total............................................. 128,766 100.0%
======= ======
</TABLE>

Mason, Bruce & Girard's estimate of merchantable timber inventory for our
Washington timberlands was determined based on sampling methods and standards
customarily used in Washington. See "-- Methodology for Determining
Inventories -- The Pacific Northwest Properties."

Historically, a significant amount of logs produced from privately held
timberland in Washington has been sold in the export market, principally due to
the demand for Douglas-fir in Asia, and Japan in particular. The export market
has weakened considerably since early 1997, however, and many logs that would
have previously been exported are now being sold to domestic mills.

According to Mason, Bruce & Girard, there are a total of 31 mills within
the market area served by our Washington timberlands, with a total annual log
consumption of approximately 979 million board feet. Our planned timber sales
from our Washington timberlands in 1999 would represent approximately 1.4% of
this amount. Large industrial timberland owners dominate this market. In
addition to providing a large portion of the annual timber supply, these
companies also generate demand for the resource by operating their own sawmills,
export facilities, and, in some cases, pulp mills.

89
<PAGE> 96

[GRAPHIC DEPICTING LOCATION OF WASHINGTON TIMBERLANDS AND CONVERSION

FACILITIES IN MARKET AREA OF WASHINGTON TIMBERLANDS APPEARS HERE].

[WASHINGTON TIMBERLANDS MAP]

HARVEST METHODS

Harvest methods for our timberlands will vary depending upon geography,
topography and soil characteristics. Generally, crawling tractors and wheeled
ground skidders will be used on relatively level terrain. Steep terrain will
generally dictate the use of more expensive cable or tower logging methods. The
Louisiana property, which has comparatively flat terrain, is expected to be
harvested using these ground-based skidder and tractor methods. Portions of the
Coastal and Commander forests have comparatively steep terrain and are expected
to require more cable or tower logging methods. The remaining properties,
containing both level and steep terrain, are expected to be harvested using a
combination of methods.

On the Louisiana property, we intend to thin the productive pine
timberlands, generally twice prior to final harvest. Thinning is employed both
to maintain the optimal stocking density and to improve the quality and health
of the remaining timber. Thinning will be conducted using either mechanical
harvesters or ground crews. We intend to conduct a final harvest of pine
plantations when the timber reaches a mature condition, usually between the ages
of 26 and 34. These management and harvest guidelines are accepted forestry
practice in the southeastern United States and are intended to replicate the
natural

90
<PAGE> 97

ecological lifecycle of the southern pine. Following final harvest, we will
regenerate the site through replanting with appropriate genetically selected
seedlings.

On our Pacific Northwest properties, we will employ a variety of management
and harvest techniques. Consistent with prudent forest management, commonly
accepted forestry practices, and applicable law, harvest practices will include
both partial cutting and clear cutting depending on the specific forest
characteristics. For example, in western Washington, Douglas-fir timber stands
on steeper slopes should be clear-cut and replanted in order to minimize soil
damage and encourage the regeneration of a productive forest. However, in the
ponderosa pine forests of eastern Oregon or California, a multiple stage partial
harvest will encourage natural regeneration of pine, minimize risks (such as
insect infestation) and maintain wildlife habitat.

ACCESS AND LIMITATIONS ON ACCESS

Substantially all of the timberlands in our timberland portfolio are
accessible by a system of established public and private roadways. When
maintenance or new roads are needed, third-party road crews typically conduct
road and bridge construction under the supervision of our personnel or
contracted forest managers. We are also a party to reciprocal road-use and
cost-sharing agreements with private landowners and with governmental agencies.
See "-- Federal and State Regulations -- Other Regulatory Matters."

FEDERAL AND STATE REGULATIONS

BACKGROUND AND APPROACH

Our operations are subject to numerous federal, state and local laws and
regulations, including those relating to the environment, endangered species,
our forestry activities, and health and safety. Endangered species,
environmental and other laws restrict our operations and could impose
significant delays, costs, damages, penalties and liabilities on us. We expect
that endangered species and environmental laws will become more restrictive over
time. Due to the significance of regulation to our business, we plan to
integrate wildlife, habitat and watershed management into our resource
management practices.

Consistent with industry practice, in determining the amount of
merchantable timber in our inventory, we have included approximately 27,000
acres of our timberlands that are subject to harvest restrictions. These
restrictions limit and may prevent harvests on these timberlands. We have not
included timber from these restricted acres in our timber sales plan, to the
extent that these restrictions prohibit harvesting. We expect environmental,
forestry and wildlife regulations to become more restrictive in the future,
possibly resulting in the withdrawal of a significant number of additional acres
from our timber sales plan.

ENDANGERED SPECIES LAWS

The Federal Endangered Species Act and similar state laws and regulations
protect wildlife species threatened with possible extinction. A number of
species indigenous to the southern and northwestern United States have been, are
and in the future will be, protected under these laws and regulations. These
laws generally prohibit activities that would kill, injure, or harass a
protected species or significantly degrade its habitat. The habitat of a
protected species includes areas in which it lives, nests, shelters, breeds,
forages or feeds or areas that are for some other reason necessary for the
conservation of the protected species.

91
<PAGE> 98

We have identified a total of approximately 2,300 acres of our timberlands
that are subject to some level of harvest restrictions due to the presence of
threatened and endangered species, excluding fish, on or near those timberlands.
In addition, approximately 20,000 acres of our timberlands, subject to some
level of harvest restrictions to maintain waterway buffer zones, include
restrictions to protect threatened or endangered fish. The table below shows,
based on limited surveys by Mason, Bruce & Girard, Canal Forest Resources and
ourselves of the portions of our timberlands we intend to harvest, each species
found on our timberlands that is presently identified by federal or appropriate
state authorities as threatened or endangered, and the approximate total number
of acres restricted and prohibited for each property. These surveys were
performed for the purpose of harvesting specific tracts and were conducted in
accordance with U.S. Fish & Wildlife Service specifications and state forestry
regulations. For example, the survey process for northern spotted owls includes
obtaining information from state agencies and adjacent landowners, determining
the habitat type using aerial photographs, estimating the impact on the habitat
under the proposed silvicultural plan, preparing a layout for the survey based
on the foregoing information, and conducting the surveys on the ground. The
column entitled "Approximate Number of Known Restricted Acres" includes all
acres known by us to be subject to some restriction, even if the restriction is
seasonal or temporary.

<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF APPROXIMATE NUMBER OF
PROPERTY SPECIES KNOWN TO BE PRESENT KNOWN RESTRICTED ACRES KNOWN PROHIBITED ACRES
- -------- --------------------------- ---------------------- ----------------------
<S> <C> <C> <C>
California -- Coastal
Forest.................... Coho salmon
American peregrine falcon
Northern spotted owl
5,730 2,104
California -- Commander
Forest.................... Steelhead trout
Bald eagle
American peregrine falcon
Northern spotted owl
2,875 155
Louisiana................... None 0 0
Oregon...................... Bull trout
Bald eagle
8,231 2,245
Washington.................. Bald eagle
Coho salmon
Steelhead trout
977 20
------ -----
Total............. 17,813 4,524
</TABLE>

To the extent required by law, we survey our timberlands for the presence
of endangered or threatened species before we harvest any specific tract of
timberland. A wildlife biologist reviews the survey and determines whether our
harvesting activities will affect any endangered or threatened species. We
believe that we are managing our harvesting operations in the areas affected by
protected species in compliance with applicable federal and state regulations.
We do not believe that the presence of any protected species on our lands will
materially restrict our ability to proceed with our current harvest plans and
other silvicultural activities and operations. Our harvest plans take into
account any potential restrictions for endangered or threatened species of which
we are aware. If we discover endangered or threatened species on a particular
tract, we have the flexibility to adjust our harvest plans in an effort to avoid
any significant reduction in yield. We can choose to sell timber from a
different tract or have the timber cut at a different time of the year to avoid
disturbing the habitat of an endangered or threatened species. We can exercise
this flexibility because we harvest only a small percentage of our timberlands
each year. Nonetheless, the presence of protected species on or near our
timberlands may significantly affect our operations, including restricting or
prohibiting timber harvesting, road building, access across federal lands and
silvicultural activities on the affected areas of our timberlands.

The detection of a protected species on a tract does not always permanently
remove acreage from harvesting because the protected species may move. If a
protected species moves, its move does not have to be permanent. However, in
some cases, we will be restricted from harvesting acres until the species has

92
<PAGE> 99

been gone for some specified period of time that varies from species to species.
For example, if a northern spotted owl moves from our restricted acres, we will
not be able to harvest those acres until three years after the last siting. In
addition, harvest restrictions may apply only during limited periods of time,
such as during a species' breeding or mating seasons. In general, during the
mating season of each endangered bird, the size of the restricted area and the
nature of activities restricted is greater than outside of the mating season.
These restrictions apply to us because of the endangered birds found on or near
our timberlands. During the mating season of the northern spotted owl, which
generally occurs between March and August of each year, and the mating season of
the American peregrine falcon, which generally occurs between April and August
of each year, no harvest activity can take place within the related restricted
area.

Protected species may be discovered in significant numbers on or around our
timberlands. These species could be or become present on our properties in
sufficient numbers to restrict our timber sales plan materially. Additionally,
future legislative, administrative or judicial activities related to protected
species may adversely affect us, our ability to continue our operations as
currently conducted or our ability to implement our business strategy.

The states of California, Oregon and Washington have rules and regulations
that regulate our timber harvest activities to protect endangered species. The
California Forest Practice Rules, the California Endangered Species Act, the
Washington Forest Practices Act, the Oregon Forest Practices Act and related
regulations all have specific provisions governing habitat protection for the
northern spotted owl, bald eagle, marbled murrelet, coho salmon, steelhead trout
and other threatened or endangered species. At present, Louisiana has not
adopted any endangered species requirements that affect our Louisiana
operations.

Pacific Northwest Properties. Recent surveys of our Pacific Northwest
properties by Mason, Bruce & Girard identified the presence of the northern
spotted owl, the bald eagle and other endangered or threatened species. We
engaged Mason, Bruce & Girard to provide information about our timberlands to
our lenders. In connection with this process, Mason, Bruce & Girard surveyed the
presence of wildlife on our properties.

In 1990, the U.S. Fish and Wildlife Service listed the northern spotted owl
as a threatened species throughout its range in California, Oregon and
Washington. At the time of the listing, the U.S. Fish and Wildlife Service
issued suggested guidelines to be followed by landowners in order to comply with
the Endangered Species Act's prohibition against harming or harassing owls. The
guidelines recommend several measures, including habitat management and the
restriction of harvest activities in areas within a certain proximity of known
owl activity centers.

The surveys conducted in the first quarter of 1998 showed that there were
approximately 110 northern spotted owl activity centers that affect our
Commander forest, though many of these activity centers are located on adjacent
properties. Although there have been incidental observations of bald eagles,
American peregrine falcons, golden eagles and northern goshawk in the Commander
forest, no nesting or roosting sites have been found. Steelhead trout and fall
chinook salmon have been observed in streams in the Commander forest and it is
likely that streams in that forest will be subject to restrictions for these
species and for coho salmon.

Mason, Bruce & Girard has also conducted surveys as part of our timber
harvest planning process on our Coastal forest. These surveys showed that there
were approximately 12 pairs or single spotted owls on the Longview tract in the
Coastal forest. These surveys also showed that the Longview tract is within the
range of the bald eagle, peregrine falcon and marbled murrelet, though none of
these species is currently known to reside on the property. The range of a
species is broader than the species's current habitat. Streams within the
Longview tract support coho salmon, steelhead trout and chinook salmon. We
currently comply with restrictions to protect and restore the habitat of these
fish. The nature and scope of restrictions to conserve fish populations may
increase over time. For example, the size of buffer zones along streams on our
property may have to be widened and the number of streams subject to buffer
requirements may increase. Road construction and maintenance requirements may
also become more

93
<PAGE> 100

burdensome. A similar survey conducted on our Willits Woods/Williams Ranch tract
in the Coastal forest showed that there were approximately 10 pairs or single
spotted owls and one peregrine falcon nest on the property. The survey also
showed that the Willits Woods/Williams Ranch tract is within the range of the
bald eagle and the marbled murrelet, though neither of these species is
currently known to reside on the property. Streams within the Willits
Woods/Williams Ranch tract contain coho salmon and steelhead trout. Some chinook
salmon have also been reported. We comply with the same protective measures with
respect to streams on this tract as with the Longview tract.

Only two federally listed species, the bald eagle and the bull trout, are
known to occur on our Oregon timberlands. Mason, Bruce & Girard noted six
observations of bald eagle and 19 observations of bull trout on the property.

One bald eagle nest was found on our Riffe Lake tract in Washington. The
surveys noted that the range of the marbled murrelet and the northern spotted
owl include our Riffe Lake tract, though neither species is currently known to
reside on the property. Mason, Bruce & Girard also noted that coho salmon and
steelhead trout are likely present on the property.

Louisiana Property. In connection with our acquisition of the Louisiana
property, we conducted a Phase I environmental site assessment in April 1998.
This Phase I assessment identified red cockaded woodpecker nests that were
apparently abandoned on approximately two acres. The Louisiana property has in
the past been, and may still be, inhabited by the red cockaded woodpecker,
though none is currently known to reside on the property. Although no endangered
species surveys are required prior to harvesting in Louisiana, there are strict
regulations requiring us to halt harvest operations in specific areas where
evidence of endangered species is observed. If we do observe protected species,
we would begin biological studies to determine appropriate responses to
protected species present on the property.

STATE FORESTRY REGULATIONS

In operating our Pacific Northwest properties, we must comply with state
statutes and regulations that regulate forestry operations. These laws address
many growing, harvesting and other activities on forest lands. Among other
requirements, these laws restrict the size and spacing of harvest units and
impose reforestation obligations on the owners of forest lands. State laws and
regulations also limit timber slash burning, operations during fire hazard
periods, logging activities affecting or utilizing water courses or in proximity
to ocean and inland shore lines, water degradation and grading and road
construction activities.

California. Before a private landowner can harvest timber in California,
the California Forest Practices Act and Forest Practice Rules require the
landowner to submit a timber harvest plan to the California Department of
Forestry and Fire Protection for its approval. A timber harvest plan must be
prepared by a registered professional forester and filed on a tract-by-tract
basis within a particular forest. The plan must comply with California's
forestry rules and legal requirements, which are perhaps the most stringent in
the United States. Generally, the timber harvest plan must include, among other
things, a description of:

- how the harvest will be done;
- the silvicultural techniques to be used;
- proposed replanting and reforestation activities;
- the measures that will be taken to prevent erosion and maintain water
quality;
- the measures that will be taken to protect wildlife and plant habitats;
and
- methods of sustaining other forest resources.

The Forest Practice Rules also require a timber harvest plan to demonstrate
that a forest is being harvested in a manner that will not exceed maximum
sustained production. Maximum sustained production for a forest means that, over
a ten-year period, the owner will harvest an amount of timber in the forest no
greater than the growth of timber in that forest for that period. The Forest
Practice Rules provide three options for demonstrating the ability to achieve
maximum sustained production. These optional methods are called Option A, Option
B and Option C.

94
<PAGE> 101

Coastal Forest. We manage our Coastal forest under an "Option A" timber
management plan originally submitted by an unaffiliated prior owner of the
Coastal forest. The landowner files with the timber harvest plan its analysis
and plan to achieve maximum sustained production for a specific forest over a
period of time, generally 10 years. We expect to increase harvesting volumes and
revenues from the property as compared with recent historical results, while
limiting our harvests over a 10-year measurement period to growth within that
same period. The Option A plan is a management tool and is not intended to be in
any way a timberland evaluation or appraisal. It:

- provides a detailed survey of the volume and species of timber in the
forest,

- provides an estimate of the timber that can be harvested in the period
and the long-term sustained yield plan for the forest, while accounting
for limits imposed by consideration of other factors, such as
environmental and wildlife concerns.

The Option A plan was originally submitted in 1994 and took four years to
be approved by the California Department of Forestry and Fire Protection in its
present form. During this four-year period, the prior landowner engaged in
extensive negotiations and discussions with the Department regarding the
procedures for estimating the current tree volumes in the forest, as well as
expected growth rates. Environmental and silvicultural conditions, particularly
requirements on reducing levels of hardwoods in the forest, were reviewed,
revised and accepted by the Department.

The Option A plan establishes a decade-by-decade harvesting model for the
Coastal forest. Under the Option A plan, we must file timber harvest plans with
respect to specific tracts from which we propose to sell timber for harvest with
the Department. The Department reviews these timber harvest plans for compliance
with the Option A plan, and for other matters such as erosion control and
effects on wildlife, in connection with its approval process.

The Option A plan contemplates the harvest of up to approximately 40
million board feet of timber from the Coastal forest per year on average through
2006. Harvests also may not exceed 10% of the acreage of the property in one
year. Actual harvest plans will be separately reviewed by the Department to
ensure overall compliance with the purpose of the plan. We currently have
obtained approval to harvest up to 4.7 million board feet from our Coastal
forest. For the decade following 2006, the Option A plan, under current
inventory levels and growth projections, would allow approximately 56 million
board feet to be harvested each year at the Coastal forest. In order to ensure
our objective and the state's goal of maximum sustained production of
high-quality timber products on our forest, we plan to conduct a new inventory
of the entire Coastal forest this year. This data will be used to adjust future
levels of harvest as appropriate. Meanwhile, we have reduced our current harvest
plans to allow for the data to be collected and analyzed. These harvest levels
are reflected in our Timber Sales Plan. See "-- Timberland Management Strategy."
The California Department of Forestry and Fire Protection and we want a
sustained yield to be realized on this property, and the Department has agreed
that a reduced current harvest level, new inventory and modification to future
harvest levels based on the new inventory will achieve this objective.

Sales and harvest levels are dependent on many factors, not all of which
are within our control, including market prices, technological and product
developments, forestry and environmental regulation, and buyer needs. All of
these factors are expected to change during the first decade of the operation of
Option A. They may also change in different respects for each of our properties,
including the Coastal forest.

An Option A plan is reviewed annually by the Department. If the Department
determines that the inventory is no longer consistent with the Option A plan
projections, the Department may request a modification of the plan or it may
suspend or terminate the effectiveness of the plan. The Option A plan requires
that we establish sample plots to monitor tree growth. The results we obtain
from monitoring these plots are used as the basis for possible adjustments in
the volume projections in the Option A plan, as well as possible adjustments in
the management of the Coastal forest. Tree growth depends, among other factors,
on hardwood removal, which is required under timber harvest plans. We have not
timely

95
<PAGE> 102

completed hardwood removal under some of our timber harvest plans. We are in the
process of reviewing hardwood treatment areas to ensure future compliance with
these requirements.

The Option A plan required us to submit the first data results from our
monitoring of these sample plots by March 1, 1999. When we revisited the sample
plots to collect the necessary data, we could not find all the trees in the
sample that had been tagged with tree identification numbers, and, for that
reason, we were not able to collect the necessary data. We responded to this
problem by working with the Department to develop a new sampling design. We used
this new design to perform a more intense inventory than would have been
possible under the original design. This process delayed our submission of data
until April 22, 1999.

During the period from March 1, 1999 until April 22, 1999, the Option A
plan could not have been used as the basis for submitting timber harvest plans
for the Coastal forest. By letter dated May 4, 1999, the Department confirmed
that our submission of the inventory data reinstates the Option A plan as a
basis for submission of further timber harvest plans for the Coastal forest.

Commander Forest. We operate our Commander forest under Option C. Under
Option C, we have not submitted a comprehensive maximum sustained production
plan for the Commander forest. Instead, we submit to the California Department
of Forestry and Fire Protection timber harvest plans for specific tracts within
the Commander forest containing sustained production and environmental impact
analyses. We currently have obtained approval to harvest up to 32.1 million
board feet from our Commander forest. We are required to comply with the
restocking requirements under the California Forestry Practice Rules on the
harvested tracts. We intend to submit an Option A plan for the Commander forest
by the end of 1999.

Oregon. Under the Oregon Forest Practices Act, a landowner must notify the
Oregon Department of Forestry no less than 15 days prior to beginning a timber
harvest. The notice must describe the activities to be conducted, including
estimated harvest volumes and proximity to sensitive areas. A landowner must
also submit a written harvest plan if harvesting operations will be conducted
within:

- 100 feet of a large lake or stream, or

- 300 feet of any "resource site," which is defined to include sensitive
bird sites, significant wetlands and sites used by threatened or
endangered species,

or if a clear-cut will exceed 120 acres or a planned road fill is over 15 feet
deep for permanent stream crossings. A landowner may not commence harvesting
until the Department of Forestry approves the notice and, if applicable, the
harvest plan. The Department of Forestry has 5 working days after expiration of
the 15-day notice period to approve, object to or request more information
regarding a notice or a harvest plan. Failure by the Department of Forestry to
issue a decision within this 5-day period is deemed approval to begin
harvesting. A person who is adversely affected by a harvest plan and files
comments on the harvest plan may request a hearing before the Oregon State Board
of Forestry. In accordance with customary practice in Oregon, we will file
required notices with the Department of Forestry prior to allowing harvests on
our Oregon property.

Washington. The Washington Forest Practices Act classifies forestry
practices into four classes. Most commercial harvesting, such as that conducted
on our Washington timberlands, falls within Class III forestry practices. Before
a Class III harvest may be conducted, we must submit an application to the
Washington Department of Natural Resources. The Department of Natural Resources
must act upon the application within 30 days of submission. Class IV forest
practices have a potential for substantial impact on the environment and require
the Department of Natural Resources to determine whether an environmental impact
statement must be submitted. If the Department of Natural Resources requires the
landowner to submit an environmental impact statement, it must act on the
application within 60 days of submission. A landowner may not commence
harvesting until the Department of Natural Resources approves the application.
If the Department of Natural Resources does not issue a decision on an
application by the end of the 30- or 60-day period, the application is deemed
approved. Harvesting operations on our Washington timberlands generally will not
fall within either Class I or Class II forest

96
<PAGE> 103

practices, which are applicable to forest practices having no impact or less
than ordinary impact, respectively, on natural resources. We currently have
obtained approval to harvest up to 32.8 million board feet from our Washington
property.

Louisiana. Louisiana does not currently have any statutes or regulations
we believe would materially restrict our forestry operations.

We may acquire timberlands in jurisdictions with forest practices acts that
are considerably more restrictive than the best management practices currently
utilized by many foresters. Many states are considering or are expected to
consider laws and regulations governing forest practices.

ENVIRONMENTAL LAWS

Timber operations involve the use and storage of various materials such as
herbicides, pesticides, fertilizers and gasoline, and may result in air
emissions, releases to soil or groundwater, or discharges of potentially
hazardous materials into streams and other bodies of water. Accordingly, we must
comply with federal, state and local environmental laws and regulations relating
to the protection of the environment. Environmental laws and regulations have
changed substantially and rapidly over the last 20 years, and we expect them to
become increasingly stringent. Although we believe that we are in substantial
compliance with these requirements, these laws and regulations may lead to
significant costs, penalties and liabilities, including those related to claims
for damages to property or natural resources. These laws and regulations could
also impose restrictions on timber harvesting and other silvicultural
activities. We are not aware of any pending legislative, administrative or
judicial action relating to the protection of the environment that we believe
could materially and adversely affect us.

Some environmental statutes, such as the Federal Comprehensive
Environmental Response, Compensation and Liability Act and comparable state
laws, impose strict liability, regardless of the lack of negligence or fault on
the part of the person held liable. Under various laws and regulations, an owner
or operator of real property may become liable for the costs of removal or
remediation of certain hazardous substances released on, from or in its
property, often without regard to whether the owner or operator knew of, or was
responsible for, the release of the substances. The presence of these
substances, or the failure to remediate them properly, may adversely affect the
owner's ability to sell contaminated real estate or to use it as collateral.

The Louisiana property contains active and inactive natural gas and oil
wells and pipelines, which have been and will continue to be operated by third
parties. The operation of natural gas and oil wells involves risks, such as well
blowouts, cratering, explosions, uncontrollable flows of oil or well fluids,
fires, formations with abnormal pressures, pollution, pipeline ruptures and
spills, and releases of toxic gas. The operators of these natural gas and oil
wells and pipelines are primarily responsible for any environmental hazards
associated with these activities. Other past activities on the Louisiana
property are evidenced by an abandoned asphalt plant, an abandoned sawmill and
abandoned landfills. We do not believe that these past activities have caused
any material environmental impacts.

Our operations involve only owning and selling timberlands, Pioneer and
related entities have in the past owned timber processing facilities associated
with the Pacific Northwest properties. In some circumstances, past owners may
incur environmental liability. Additionally, a property connected with our
Oregon timberlands was previously the site of an equipment maintenance
operation. Remedial activities have been conducted on this property, and we
believe that no material contamination remains at the site. A company affiliated
with the sellers of Pioneer has agreed to indemnify us against environmental
liabilities arising out of the Pacific Northwest properties relating to
conditions that existed at the time of the acquisition.

We may acquire timberlands subject to potential environmental or other
liabilities. We are not aware of any activities or any conditions on our initial
timberlands that would likely result in material liability for remediation or
other environmental costs. However, we may not know about material environmental
conditions on our lands that may have been created by us, a prior owner or
operator of our land or an

97
<PAGE> 104

adjacent landowner. In addition, our operations could result in material
liabilities, fines, costs and restrictions under current or future environmental
laws and regulations.

The Federal Clean Air Act and Clean Water Act, and their state equivalents,
control our on-site preparation activities such as slash burning and regulatory
programs designed to reduce runoff discharged into bodies of water. For example,
the U.S. Environmental Protection Agency and its state counterparts have
designated bodies of water as "water quality impaired," triggering a requirement
to establish Total Maximum Daily Loads, or TMDLs, for those bodies of water. The
TMDL process could result in additional limitations on harvesting activities in
some or all of the states where we operate. Our California timberlands are in
watersheds that have been designated as water quality impaired. As the TMDL
process is completed for these watersheds, we must take precautions to prevent
erosion, and we may need to monitor water quality during our harvesting
operations. California regulators analyze the impact of TMDLs on our properties
there, and Mason, Bruce & Girard has estimated that 24,400 acres of our
California timberlands may be subject to these limitations and obligations. We
expect that this will increase the time required to obtain approval of our
timber harvest plans in California because the state will consider TMDL issues
such as runoff generated by harvesting activities on our properties when
deciding whether to approve a particular timber harvest plan. We will also
factor TMDL planning into our timber harvest plans. Because the TMDL regulatory
process is still being developed, we cannot yet determine the full extent to
which this will restrict our ability to sell timber from our California
timberlands in accordance with our timber sales plan.

In addition, our business is affected by federal and state laws designed to
protect wetlands. The Federal Clean Water Act authorizes the regulation of
wetland areas. Access to timberlands located within or beyond a protected
wetlands area may be limited, and we may be required to pay for the protection
of wetland areas. Alternatively, we may have to stop harvesting in wetland
areas. Based on existing governmental surveys and supplemental data that
identify wetland areas, we have identified approximately 4,500 acres of wetlands
on our Louisiana property. Consistent with local forestry practice, we are
harvesting timber in these wetland areas only to a limited extent.

OTHER REGULATORY MATTERS

Our operations will be subject to various other federal and state
regulations. For example, the Federal Insecticide, Fungicide, and Rodenticide
Act regulates the use of pesticides used in forestry practices. We must also
comply with the federal Occupational Safety and Health Act and comparable state
statutes relating to the health and safety of employees. We believe that we are
in compliance with OSHA regulations, including general industry standards,
permissible exposure levels for toxic chemicals and record-keeping requirements.

A portion of our Pacific Northwest properties consists of sections of land
that are intermingled with or adjacent to sections of federal land managed by
the U.S. Forest Service and the Bureau of Land Management. Removal of trees from
those portions of the Pacific Northwest properties requires trucks to carry logs
across logging and general purpose roads. In many cases, access is only, or most
economically, achieved through a road or roads built across adjacent federal
land and available to us pursuant to a reciprocal right-of-way agreement.

Recent litigation not involving us before the U.S. Court of Appeals for the
Ninth Circuit held that the Bureau of Land Management was not required to
consult with the U.S. Forest and Wildlife Service, the agency that 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 reciprocal
right-of-way entered into prior to the enactment of the Endangered Species Act.
The Court found that the Bureau of Land Management did not have discretion to
disapprove a road segment due to endangered species concerns. However, future
federal law or regulation requiring the Bureau of Land Management to consult
with the U.S. Forest and Wildlife Service in connection with a reciprocal
right-of-way could prevent us from harvesting the affected portion of the
Pacific Northwest properties.

To the extent that we acquire new timberlands that require access through
federal lands, we may need to enter into new reciprocal right-of-way agreements
with the Bureau of Land Management or other

98
<PAGE> 105

federal agencies which would require consultation with the U.S. Forest and
Wildlife Service. In addition, the Bureau of Land Management previously
attempted to revise regulations governing reciprocal right-of-way agreements.
These regulations attempted to expand the Bureau of Land Management's
consideration of environmental and cultural factors in granting, issuing or
renewing rights-of-way, provide the Bureau of Land Management 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. Future attempts to so revise the applicable
regulations, if successful, could affect our ability to harvest timber
activities on the Pacific Northwest properties.

OUR CUSTOMERS

We currently are in the process of building a customer base for timber from
the Louisiana property that will enable us to meet our planned timber sales
program. We have entered into and will continue to enter into cutting contracts
with respect to the Louisiana property in the ordinary course of our business.
We plan to offer timber for sale to major industrial companies, and to develop
marketing relationships with timber brokers and independent logging companies in
the southeastern United States.

Our eastern Oregon timberlands have historically been a raw material
supplier for two previously affiliated sawmills located nearby. Although it is
expected that these two mills will continue to be major purchasers of timber
from these lands, we have initiated a marketing program to diversify our
customer base within the region.

Until mid-1998, our western Washington timberlands had been managed as part
of a much larger industrial land base, with the bulk of the harvested timber
being converted at affiliated facilities. In the future, we intend to take
advantage of the diverse market for timber in the region. These potential new
markets include many large industrial timber companies as well as brokers and
exporters.

Historically, the previous owner of our Commander forest dealt exclusively
with the most prominent lumber producer in northern California with respect to
sales of timber from that forest. We intend to develop relationships with other
wood users in the region. In the redwood region of northern California, we
anticipate doing business with a diverse group of potential timber customers.
Currently, we are in the process of building a customer base for timber from our
Coastal forest.

To date, we have entered into contracts providing for harvests for 1999
valued at approximately $33.0 million. We have recognized $9.1 million under
these contracts for harvests that have been conducted to date. We have contracts
with nine separate buyers, including Boise Cascade Corporation, Hunt Forest
Products, Inc., Louisiana-Pacific Corp., Sierra-Pacific Industries, Inc. and
Temple-Inland Inc. These contracts provide for 1999 harvests of up to 408,000
tons of timber from the Louisiana property and up to 53.3 million board feet of
timber from our Pacific Northwest properties.

Even though the number of our customers is currently relatively small
compared to the market, we do not believe that we are dependent on any
particular customer due to the number of timber buyers in each market area in
which we operate.

COMPETITION

COMPETITION IN TIMBER SALES

Due to transportation costs, domestic timber conversion facilities tend to
purchase raw materials within relatively confined geographic areas. Currently in
the United States, we and our competitors all benefit from the relatively close
proximity of numerous conversion facilities. Additional competitive factors
within a market area generally will include species, quality, and consistency in
meeting customers' specifications and delivery requirements.

Within the United States, we compete with numerous private timber owners.
In addition, we compete with the U.S. Forest Service and other governmental or
public agencies with timber holdings. The level of competition will also tend to
vary depending upon prevailing timber prices. Rising timber prices often lead

99
<PAGE> 106

to increased harvesting on private timberlands, including lands not previously
made available for commercial timber operations.

Internationally, we expect competitive situations and factors similar to
those in the United States. Where we seek to develop the timber resource in a
growing locality, it may also experience competition for or limitations on
labor, energy, skilled professionals or other resources. Relatively new markets
and markets which are not yet fully developed for a particular product may
experience sluggish sales due to a lack of market competition, as there may be a
limited or undeveloped pool of buyers for a particular product.

Global price fluctuations may adversely affect demand for particular
species, grades, or products or could make substitute species, products or
materials economically competitive. Price fluctuations could also bring certain
supplies of standing timber to market which have until now been unprofitable to
harvest. We believe, however, that our current diversified portfolio and our
global investment strategy will dampen the negative effects of depressed markets
in any given region.

COMPETITION FOR TIMBERLAND PROPERTIES

Competition for high-quality timberland within the United States and in
certain other countries has intensified, often requiring a flexible approach to
identification, negotiation, and completion of successful acquisitions. We
believe that our competitive strengths will enhance our success in acquisitions
despite the greater financial resources of certain of our competitors. See "Risk
Factors -- We may not be able to achieve our intended growth."

INSURANCE COVERAGE

Certain types of losses, such as damage to our timberlands and associated
lost revenues due to fires, ice storms, pests, disease and other natural
disasters, are uninsurable at commercially justifiable rates. Accordingly, as is
typical in the industry, we do not carry insurance for these losses. See "Risk
Factors -- Losses of timber from fire and other causes are not insured."

LEGAL PROCEEDINGS

Although we may, from time to time, be involved in litigation and claims
arising out of our operations in the normal course of business, we are not
currently a party to any material legal proceedings.

EMPLOYEES

Upon the closing of the formation transactions described in "Structure and
Formation of Strategic Timber," our employees will include the persons currently
employed by Strategic Timber Operating Co. and Strategic Timber Two Operating
Co. As of April 30, 1999, these entities employed 34 salaried full-time
employees. Of these employees, eight are part of senior management, 18 are in
forestry operations and eight hold administrative and clerical positions.

All of our senior management are located at our headquarters office in New
London, New Hampshire.

None of our employees are represented by unions or covered by any
collective bargaining agreements. We have not experienced a work stoppage and
our management believes that we maintain good relations with our employees.

100
<PAGE> 107

POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

This section summarizes our current investment objectives and policies,
disposition and financing policies and policies with respect to other
activities. Our Board of Directors established these policies, and it may amend
or revise them from time to time without a shareholder vote. However, we cannot
affirmatively take any action intended to terminate Strategic Timber's
qualification as a REIT without the approval of the holders of a majority of our
outstanding common stock.

INVESTMENT POLICIES

Our investment objective is to maximize the total return from our entire
portfolio consistent with our long-term policy of increasing sustainable yield.
We will seek to accomplish our objective primarily through managing our initial
portfolio of timberlands and acquiring additional timberlands.

Our initial portfolio of timberlands included, as of March 31, 1999, a
total of approximately 445,000 acres in California, Louisiana, Oregon and
Washington. We intend to acquire additional timberlands in these states,
elsewhere within the United States and abroad. Our current policy, however, is
to limit investments outside the United States to no more than 20% of the total
value of our assets.

We will focus on long-term ownership of timberlands. However, we may
purchase or lease properties for long- or short-term investment. We will finance
our investments as described below under "-- Financing Policies." We may cause
our operating partnership to hold or sell any or all of its initial portfolio
when circumstances warrant, subject to the restrictions on sale in the
partnership agreement. We also may participate with other entities in property
ownership, through joint ventures or other types of co-ownership. Equity
investments may be subject to existing mortgage financing and other indebtedness
that has priority over our equity interest in those properties. To enhance the
value of timberlands located in undeveloped or underdeveloped markets, we may
invest in limited conversion, transport or export facilities to stimulate the
growth and competition of local timber markets or provide access to export
markets.

While we intend to emphasize equity investments in timberlands, we may, in
our sole discretion, invest in forest products-related mortgages, partnerships
and other interests in timberlands. We may invest in securities of companies
engaged in timberland activities, subject to the gross income and asset tests
necessary for REIT qualification. We may acquire securities or assets of other
timber owning companies when consistent with our investment policies.

There are currently no other limitations on

- the percentage of our assets that we may invest in any one property,
venture or type of security,

- the number of properties in which we may invest or

- the concentration of our investments in a single geographic region.

Our Board of Directors may establish other limitations, and other policies, as
it deems appropriate from time to time.

FINANCING POLICIES

We intend to target a ratio of debt to total market capitalization,
assuming the exchange of all partnership units for common stock, of
approximately 40%. Our Board of Directors may, however, reconsider this policy
from time to time and reduce or increase this ratio accordingly. Assuming an
initial offering price of $20 per share, following the completion of this
offering and the use of net proceeds from this offering, we will have
approximately $267.6 million of indebtedness, or $221.3 million if the
underwriters exercise in full their over-allotment option. This will constitute
approximately 37.6% of our total market capitalization after giving effect to
this offering, or 30.9% if the underwriters exercise in full their
over-allotment option. Before this offering, we have financed our activities
primarily through bank loans and equity investments. See "Structure and
Formation of Strategic Timber."

101
<PAGE> 108

Generally, we will determine all of our financing policies in light of
then-current economic conditions and timber prices, relative costs of debt and
equity capital, market values of properties, growth and acquisition
opportunities and other factors. If the Board of Directors determines that
additional funding is desirable, we may raise funds through additional equity
offerings, debt financings, retention of cash we generate from our operations or
a combination of these methods.

If the Board of Directors determines to raise additional equity capital, it
has the authority, without your approval, to issue additional shares of
authorized common stock or preferred stock on terms it deems appropriate,
including in exchange for property. Our then-existing shareholders will have no
preemptive right to purchase any of these shares. If the Board of Directors
determines to raise additional equity capital, Strategic Timber will contribute
funds raised to Strategic Timber Partners in return for additional partnership
units. In addition, Strategic Timber may issue additional shares of common stock
in redemption of partnership units on the exercise of the limited partners'
exchange rights under the partnership agreement. See "The Partnership
Agreement."

The Board of Directors, through its control of Strategic Timber Operating
Co., also has the authority to cause Strategic Timber Partners to issue
additional partnership units in any manner as it deems appropriate, including in
exchange for property. See "The Partnership Agreement -- Issuance of Additional
Limited Partnership Interests; Additional Capital Contributions." Strategic
Timber may also purchase shares of its common stock, subject to restrictions
under Georgia law applicable to shareholder distributions. If a holder of
partnership units surrenders its units for exchange, Strategic Timber may, at
its discretion, cause Strategic Timber Partners to redeem those partnership
units for cash rather than common stock. See "The Partnership Agreement."

We anticipate that borrowings will be made through Strategic Timber
Partners. Strategic Timber also may incur indebtedness and lend borrowed funds
to Strategic Timber Partners on the same or similar terms and conditions on
which Strategic Timber borrowed the funds. Debt may be in the form of purchase
money obligations to sellers of timberlands to Strategic Timber Partners,
publicly or privately placed debt instruments, or financing from banks,
institutional investors or other lenders. Any of this debt may be unsecured or
may be secured by mortgages or other interests in the assets of Strategic
Timber, Strategic Timber Partners or any newly created property-owning
partnership. Any number or amount of mortgages may be placed on a particular
property. The proceeds from any borrowings may be used for the payment of
distributions, for working capital, to pay the exchange price payable for
partnership units under the partnership agreement, to refinance indebtedness, to
finance acquisitions or for other purposes deemed appropriate by the Board of
Directors.

WORKING CAPITAL RESERVES

We will maintain working capital reserves in amounts that our Board of
Directors determines to be adequate to meet normal contingencies in connection
with the operation of our business.

CONFLICT OF INTEREST POLICIES

EMPLOYMENT AGREEMENTS

C. Edward Broom serves on the Board of Directors, or the equivalent
management body, of several privately held timber investment funds arising from
his previous employment with Resource Investments, Inc. Only one of these funds
has committed funds that have not yet been invested. This fund could compete
with us in acquiring timberlands. Because this fund's investment policies are to
invest exclusively outside the United States and typically to make larger
investments than we plan to make, we do not expect conflicts to arise. In his
employment agreement, Mr. Broom has agreed that if we wish to bid on a property
and any fund with which he is affiliated is either the seller of the property or
also wishes to bid on the property, he will not participate in the transaction
on behalf of the fund. Mr. Broom may not compete against us during the term of
his employment and for a period of one year thereafter in North America, Central
America and South America, Mr. Broom may not solicit purchasers of our timber or
prospective sellers of timberlands with which he had contact during the term of
his employment for a

102
<PAGE> 109

period of one year thereafter. Mr. Broom has also agreed to spend no more than
5% of his time devoted to his interests in these timber funds.

We also have an employment and non-competition agreement with each of
Messrs. Christopher J. Broom, Thomas P. Broom, Kenneth L. Chute, Nicholas C.
Brunet, Vladimir Harris and Joseph E. Rendini effective as of the consummation
of this offering. Each of these employment agreements prohibits the employee
from competing against us during the term of his employment and for a period of
one year thereafter in North America, Central America and South America. It also
prohibits the employee from soliciting purchasers of our timber or prospective
sellers of timberlands with which he had contact during the term of his
employment for a period of one year thereafter. See "Management -- Employment
and Non-Competition Agreements."

OTHER POLICIES GOVERNING COMPETING WITH STRATEGIC TIMBER

Under Georgia law, each of our directors and executive officers must carry
out his duties in a manner he believes in good faith to be in the best interests
of Strategic Timber, and with the care an ordinarily prudent person in a like
position would exercise under similar circumstances. In addition, under Georgia
law, a transaction between Strategic Timber and any of our directors or between
Strategic Timber and a corporation, firm or other entity in which one of our
directors has a significant interest may not be challenged on the basis of the
director's conflicting interest if the transaction is fair to Strategic Timber.
This type of transaction also could not be challenged on the basis of the
director's conflict of interest if, after the director discloses the material
facts concerning his or her interest and the transaction, a majority of our
disinterested directors or a majority of our shareholders approves the
transaction. For shareholder approval, shares held or controlled by a director
with a conflicting interest would not count.

Our policies restrict all employees from investing in timberlands, directly
or indirectly, for their own accounts. This policy does not apply to timberlands
owned by employees at the time they became our employees. Our non-employee
directors may only invest in timberlands, directly or indirectly, if the
director first offers the opportunity to us on the same terms and conditions
available to the director. The Audit Committee of the Board of Directors
administers this policy, and can make exceptions.

Our Articles of Incorporation and Bylaws do not further restrict our
directors, officers, shareholders or affiliates from having an interest in
investments that we acquire or sell, or acting for their own accounts in
investing in timberlands or engaging in other businesses in which we engage.

THE PARTNERSHIP AGREEMENT

The partnership agreement gives Strategic Timber Operating Co., as general
partner, full and exclusive responsibility to manage and control the business of
Strategic Timber Partners, subject to limited exceptions described under "The
Partnership Agreement." The limited partners in Strategic Timber Partners have
agreed that Strategic Timber Operating Co. is not required to consider the
separate interests of the limited partners, including tax consequences to the
limited partners, in conducting the partnership's business. Strategic Timber
owns all of the equity interests in Strategic Timber Operating Co.

REPORTS TO SHAREHOLDERS

We intend to send you annual reports containing audited consolidated
financial statements and an independent public accounting firm's opinion on the
financial statements. We also intend to send you quarterly reports for the first
three quarters of each fiscal year containing unaudited financial information.
See "Where You Can Find More Information."

OTHER POLICIES

We intend to operate in a manner that will permit Strategic Timber to
qualify for taxation as a REIT under the Internal Revenue Code. We could decide
not to operate to qualify as a REIT if the Board of Directors decides that,
because of changes in economic circumstances or tax rules, it is no longer in
Strategic Timber's best interests to qualify as a REIT, and a majority of our
shareholders approves this
103
<PAGE> 110

decision. We also intend to operate in a manner that will not subject Strategic
Timber to regulation under the Investment Company Act of 1940, as amended. We
have not invested and do not intend to invest in the securities of other
issuers, other than Strategic Timber Partners and Strategic Timber Operating Co.
and other than in connection with timberland acquisitions, for the purpose of
exercising control over those issuers. We have not traded, underwritten or sold
securities of other issuers. We do not intend to underwrite securities of other
issuers or trade actively in loans or other investments.

We may make investments other than those described above, although we
currently do not intend to do so. We may repurchase or otherwise reacquire
common stock or any other securities we may issue. We have no present intention
to repurchase any of our common stock. If we do repurchase shares, we will only
do so in accordance with applicable federal and state laws and the requirements
for qualifying as a REIT under the Internal Revenue Code and the Treasury
Regulations. We have not issued common stock or any other securities in exchange
for property except in connection with our formation transactions. We also have
not reacquired any of our common stock or any other securities. See "Structure
and Formation of Strategic Timber." We may make loans to third parties,
including our officers and directors.

104
<PAGE> 111

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Our Board of Directors will be expanded effective immediately upon
completion of this offering to include the director nominees named below, each
of whom has been nominated for election and has consented to serve. We believe
that an independent Board of Directors, whose interests are aligned with those
of the shareholders, is essential to the creation of long-term shareholder
value. Upon completion of this offering, four of seven of our directors will not
be employed by, or otherwise affiliated with, Strategic Timber.

In connection with the expansion of the Board of Directors, and upon
completion of this offering, the Board of Directors will be divided into three
classes. The initial terms of the first, second and third classes will expire in
2000, 2001 and 2002, respectively. Beginning in 2000, directors of each class
will be chosen for three-year terms upon the expiration of their current terms
and each year one class of directors will be elected by the shareholders. We
believe that classification of the Board of Directors will help to assure the
continuity and stability of our business strategies and policies as determined
by the Board of Directors. Holders of common stock will have no right to
cumulative voting in the election of directors. Consequently, at each annual
meeting of shareholders, the holders of a plurality of shares of common stock
will be able to elect all of the successors of the class of directors whose term
expires at that meeting.

Information concerning our current directors, director nominees and
executive officers is set forth below.

<TABLE>
<CAPTION>
TERM EXPIRES
NAME AGE POSITION (DIRECTORS ONLY)
- ---- --- -------- ----------------
<S> <C> <C> <C>
C. Edward Broom............. 70 President, Chief Executive Officer and Chairman of 2002
the Board of Directors
Christopher J. Broom........ 38 Executive Vice President, Chief Investment Officer 2001
and Director
Thomas P. Broom............. 39 Executive Vice President, Chief Operating Officer and 2000
Director
Kenneth L. Chute............ 54 Senior Vice President and Chief Financial Officer
Nicholas C. Brunet.......... 36 Senior Vice President and Director of Forest
Operations
Vladimir Harris............. 42 Senior Vice President and Director of Acquisitions
Joseph E. Rendini........... 44 Secretary, General Counsel and Vice President
T. Yates Exley.............. 38 Vice President -- Strategy and Development
Starling W. Childs, II...... 45 Director+ 2000
Jay S. Lucas................ 44 Director+ 2001
Hanns A. Pielenz............ 59 Director+ 2002
Richard P. Urfer............ 62 Director+ 2002
</TABLE>

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

+ Each of these individuals has agreed to serve as a director upon being elected
to the Board of Directors. Each of these individuals has been elected as a
director effective upon completion of this offering.

CURRENT DIRECTORS AND EXECUTIVE OFFICERS

C. Edward Broom has been the President and Chief Executive Officer of
Strategic Timber since its inception and Chairman of the Board of Directors
since January 1999. Mr. Broom is responsible for our overall corporate strategy
and direction. Mr. Broom was a co-founder of Resource Investments, Inc., a
timberland investment advisory firm, and served as its Chairman and Chief
Executive Officer from its

105
<PAGE> 112

founding in 1983 until the firm was acquired by the Union Bank of Switzerland in
1995. Mr. Broom organized Resource Investments Advisors, Inc. in June 1995 after
Resource Investments, Inc. was acquired by the Union Bank of Switzerland, and
has served as the President, Chief Executive Officer and controlling shareholder
of Resource Investments Advisors since that time. Resource Investments Advisors
is a timberland investment management firm that performs some of the same
services previously offered by Resource Investments, Inc. In 1997, Mr. Broom
co-founded Strategic Timber Investments LLC, which was created as a new
timberland investment management firm and succeeded to a portion of the business
of Resource Investments Advisors, but was subsequently dissolved when Strategic
Timber was formed. Mr. Broom currently serves on the board of directors or
management committee of each of Resource Investments, Inc.'s joint ventures.

Christopher J. Broom has served as Executive Vice President and Chief
Investment Officer of Strategic Timber since its inception and a Director since
January 1999. Mr. Broom has primary responsibility for the development of
investment opportunities, capital development, and investor relations. From 1997
to 1998, Mr. Broom served as Executive Vice President and Director of Marketing
and Product Development for Strategic Timber Investments, which he co-founded.
From 1995 to 1997, he served as a Director of UBS Resource Investments, Inc.,
the successor to Resource Investments, Inc. after its acquisition by the Union
Bank of Switzerland, and had overall responsibility for new product development
and marketing of the firm's timberland investment services to institutional
investors. Mr. Broom previously served Resource Investments, Inc. as Senior Vice
President of New Product Development, Client Services and Marketing and
Principal from 1988 to 1995.

Thomas P. Broom has served as Executive Vice President and Chief Operating
Officer and a Director of Strategic Timber since its inception. Mr. Broom has
primary responsibility for management and administration of our timberland
portfolio. From 1997 to 1998, Mr. Broom served as Executive Vice President and
Director of Operations and Finance for Strategic Timber Investments, which he
co-founded. From 1995 to 1997, he served as Director of Finance and
Administration and Fund Manager of UBS Resource Investments, and had
responsibility for its administrative matters, including accounting, insurance,
auditing, personnel and facilities management. Mr. Broom previously served as
Vice President of Administration of Resource Investments, Inc. from 1992 to
1995. During that time, Mr. Broom also served as the fund manager of Resource
Investments, Inc.'s Tasman Chile Ltd. joint venture and was responsible for new
investment activities for Resource Investments, Inc. in South America.

Kenneth L. Chute has served as Senior Vice President and Chief Financial
Officer of Strategic Timber since January 1999, and is responsible for our
financial, accounting, treasury and tax functions, credit facilities,
information systems, and human resources. Mr. Chute has over 20 years experience
in financial management, auditing, accounting systems, mergers, acquisitions,
and disposals. From 1979 to 1998, he served as Chief Financial Officer and Vice
President of Finance and Administration for Sprague Energy Corp., a diversified
energy company located in Portsmouth, New Hampshire. He began his career as an
auditor at Arthur Andersen, LLP. Mr. Chute is a Certified Public Accountant and
is a member of the American Institute of CPAs, the New Hampshire Society of
CPAs, the Institute of Management Accountants and the Financial Executives
Institute.

Nicholas C. Brunet has served as Senior Vice President and Director of
Forest Operations of Strategic Timber since June 1998, and is responsible for
forestry operations of our timberland holdings. From 1996 until the time he
joined us, Mr. Brunet served as Area Manager for Green Crow Corporation, a land
investment and log brokerage firm located in Port Angeles, Washington. From 1995
to 1996, Mr. Brunet served as a Vice President of UBS Resource Investments,
where he was Fund Manager for U.S. timberlands. From 1990 to 1995, Mr. Brunet
served in the same capacity for Resource Investments, Inc., UBS Resource
Investments' predecessor.

Vladimir Harris has served as Senior Vice President and Director of
Acquisitions of Strategic Timber since its inception. Mr. Harris has primary
responsibility for timberland acquisitions. From February to April 1998, Mr.
Harris served as Senior Vice President and Chief Investment Officer of Strategic
Timber Investments. From June 1988 through January 1998, he was an officer and a
Managing Director of

106
<PAGE> 113

Baldwin & Clarke Corporate Finance, Inc. and Baldwin & Clarke Capital Markets,
Inc., which are affiliated financial advisory and investment banking firms based
in Bedford, New Hampshire. In these capacities, he specialized in mergers and
acquisitions and served as a consultant to UBS Resource Investments from 1995 to
1997, and to Resource Investments, Inc., UBS Resource Investments' predecessor,
from 1990 to 1995.

Joseph E. Rendini has served as Secretary, General Counsel and Vice
President of Strategic Timber since its inception. From 1997 to 1998, Mr.
Rendini served as Vice President and General Counsel of Strategic Timber
Investments. From 1994 to 1997, Mr. Rendini engaged in a private civil
litigation practice in Boston, Massachusetts. From 1993 through 1994, Mr.
Rendini served as Managing Attorney for United States Fidelity + Guaranty
Insurance Company for eastern Massachusetts. Prior to joining USF+G, Mr. Rendini
engaged in a private civil litigation practice in Boston, Massachusetts and New
York, New York.

T. Yates Exley has served as Vice President -- Strategy and Development of
Strategic Timber since October 1998. Mr. Exley is responsible for the
development and structure of acquisition vehicles and investment partnerships.
Mr. Exley served as Executive Vice President of Pioneer from 1997 to 1998. From
1989 to 1997, he was a Senior Vice President at Dillon, Read & Co., Inc.,
located in San Francisco, California, where he headed that firm's West Coast
forest practice business and worked on a wide range of financings, acquisitions,
and divestitures within the forest and paper product sector.

DIRECTORS WHO HAVE AGREED TO SERVE AS OF THE COMPLETION OF THIS OFFERING

Starling W. Childs, II will become a director of Strategic Timber upon the
completion of this offering. Since 1997, Mr. Childs has served as a Partner and
sales representative for Optimum Yield, Incorporated, a distributor of forestry
and agricultural soil additives and fertilizers. Since 1988, Mr. Childs has
served as the Chairman of the Board of S. W. Childs Management Corporation, a
privately-held brokerage firm located in New York, New York, and served as a
director of that firm from 1978 to 1988. Since 1988, Mr. Childs has also served
as the Principal of Ecological and Environmental Consulting Services, Inc., an
environmental, ecological and forest resource consulting firm located in Lyme,
Connecticut.

Jay S. Lucas will become a director of Strategic Timber upon the completion
of this offering. Since 1991, Mr. Lucas has served as the President and Managing
Director of The Lucas Group, a corporate strategy consulting firm located in New
London, New Hampshire that he founded in 1991. From 1982 to 1990, Mr. Lucas was
a Vice President and partner at Bain & Company, a leading international
corporate strategy consulting firm based in Boston, Massachusetts. Mr. Lucas
currently serves as a director of Wolverine (Massachusetts) Corporation, an
international manufacturer of industrial ovens, and MIJA Industries, Inc., the
leading manufacturer of pressure gauges for the fire protection industry.

Hanns A. Pielenz will become a director of Strategic Timber upon the
completion of this offering. Since 1968, Mr. Pielenz has been the Chief
Executive Officer and Chairman of Amann Group, a textile manufacturing company
based in Germany. Mr. Pielenz also serves as a director of Interglas A.G., a
German fiberglass manufacturer. Mr. Pielenz is a resident and citizen of
Germany.

Richard P. Urfer will become a director of Strategic Timber upon the
completion of this offering. Since 1997, Mr. Urfer has served as the Chief
Executive Officer of BW Capital Markets, Inc., the U.S. affiliate of
Baden-Wurttembergische Bank AG, the largest privately held commercial bank in
the State of Baden-Wurttemberg, Germany. From 1995 to 1997, Mr. Urfer served as
an Executive Vice President of Resource Investments Advisors. In 1987, Mr. Urfer
founded R.P. Urfer & Co., Inc., a corporate finance consulting firm located in
Morristown, New Jersey, and served as its Managing Director until 1995. Mr.
Urfer currently is a director of Anesta Corp., a pharmaceutical company located
in Salt Lake City, Utah, and BW Capital Markets, Inc.

107
<PAGE> 114

MANAGEMENT RELATIONSHIPS

C. Edward Broom, our President, Chief Executive Officer and Chairman of the
Board of Directors, is the father of both Christopher J. Broom, our Executive
Vice President, Chief Investment Officer and a Director, and Thomas P. Broom,
our Executive Vice President, Chief Operating Officer and a Director.

COMMITTEES OF THE BOARD OF DIRECTORS

AUDIT COMMITTEE

Promptly following the completion of this offering, our Board of Directors
will establish an Audit Committee that will at all times consist of three
independent directors. The Audit Committee will make recommendations concerning
the engagement of independent public accountants, review with the independent
public accountants the plans and results of the audit engagement, approve
professional services provided by the independent public accountants, review the
independence of the independent public accountants, consider the range of audit
and non-audit fees and review the adequacy of our internal accounting controls.
The initial members of the Audit Committee will be Messrs. Childs, Lucas and
Pielenz.

EXECUTIVE COMMITTEE

Promptly following the completion of this offering, our Board of Directors
will establish an Executive Committee. The Executive Committee will set and
execute corporate strategy and policy, and will generally exercise all other
powers of the Board of Directors except as prohibited by law. The initial
members of the Executive Committee will be Messrs. C. Edward Broom, Christopher
J. Broom and Thomas P. Broom.

COMPENSATION COMMITTEE

Promptly following the completion of this offering, our Board of Directors
will establish a Compensation Committee that will at all times consist of at
least two independent directors. The Compensation Committee will review and make
recommendations to the full Board of Directors concerning proposals by
management with respect to compensation, bonuses, employment agreements and
other benefits and policies respecting such matters for our executive officers.
The Compensation Committee will also administer our stock incentive plan and
other benefit plans. The initial members of the Compensation Committee will be
Messrs. Lucas and Urfer.

108
<PAGE> 115

EXECUTIVE COMPENSATION

The following table shows total compensation paid in 1998 and compensation
expected to be paid in 1999 by Strategic Timber to C. Edward Broom, our
President and Chief Executive Officer, and our other most highly compensated
executive officers. Kenneth L. Chute, our Senior Vice President and Chief
Financial Officer, was not with us in 1998, but is included because we expect
him to be one of the four most highly compensated executive officers in 1999.
Because Strategic Timber was formed in April 1998, no compensation was paid in
any prior completed year and the amounts indicated below for 1998 reflect
compensation for a partial year. Salaries for 1999 are current annual base
salaries.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)
- --------------------------- ---- --------- -------- ------------
<S> <C> <C> <C> <C>
C. Edward Broom...................................... 1998 $168,750(1) -- --
President and Chief Executive Officer 1999 225,000 (2) 150,000(3)
Christopher J. Broom................................. 1998 $131,250(1) -- --
Executive Vice President and Chief Investment 1999 175,000 (2) 150,000(3)
Officer
Thomas P. Broom...................................... 1998 $131,250(1) -- --
Executive Vice President and Chief Operating 1999 175,000 -- 150,000(3)
Officer
Kenneth L. Chute..................................... 1998 -- -- --
Senior Vice President and Chief Financial Officer 1999 $150,000 (2) 137,500(3)
Vladimir Harris...................................... 1998 $101,250(1) -- --
Senior Vice President and Director of Acquisitions 1999 135,000 (2) 137,500(3)
</TABLE>

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

(1) Salaries for 1998 include the following amounts that were earned but not
paid in 1998: C. Edward Broom, $18,750; Christopher J. Broom, $56,250;
Thomas P. Broom, $62,250; and Vladimir Harris, $33,750. We expect to pay
these amounts prior to the completion of this offering.

(2) Bonuses for 1999 will be determined by the Board of Directors in its sole
discretion, upon recommendation from the Compensation Committee.

(3) We will grant these options to purchase common stock at the completion of
this offering. The exercise price of all of these options will be the
initial public offering price. One-third of the options granted will vest on
each of the first, second and third anniversaries of the completion of this
offering. We did not grant any stock options or stock appreciation rights
during 1998, and we do not anticipate granting any stock appreciation rights
during 1999.

COMPENSATION OF DIRECTORS

We will pay our directors who are not employees fees for their services as
directors. Each non-employee director will receive an annual retainer of
$12,000. In addition, each non-employee director will receive a fee of $1,000
for each meeting of the Board of Directors attended in person, $500 for each
such meeting attended by telephone, and $500 for each committee meeting
attended. Each non-employee director will also be reimbursed for all expenses
incurred in connection with attending Board of Directors and committee meetings
in person. Upon the completion of this offering, each non-employee director will
receive options to purchase 10,000 shares of common stock at an exercise price
equal to the initial public offering price. These options will vest over a
three-year period, with the first vesting to occur on the first anniversary of
the completion of this offering. Any future issuance of stock options to
non-employee directors will be in accordance with the terms of our stock
incentive plan.

109
<PAGE> 116

1999 INCENTIVE PLAN

The Board of Directors and shareholders of Strategic Timber have approved
the 1999 Strategic Timber Trust Omnibus Incentive Plan.

Under the 1999 Incentive Plan, we may grant to employees and non-employee
directors stock options, stock appreciation rights, restricted stock and other
stock-based awards, as well as cash-based annual and long-term incentive awards.
We believe that the 1999 Incentive Plan will form an important part of our
overall compensation program. The 1999 Incentive Plan will support our ongoing
efforts to attract and retain talented employees and directors and will give us
the ability to provide employees with incentives that are directly linked to our
profitability and increases in shareholder value.

Eligibility. All employees of Strategic Timber, its subsidiaries and its
affiliates as well as non-employee directors of Strategic Timber, its
subsidiaries, and its affiliates, will be eligible to receive awards under the
1999 Incentive Plan. For convenience, both employees and non-employee directors
eligible to receive awards under the 1999 Incentive Plan are referred to as
employees.

Administration. The 1999 Incentive Plan will be administered by the
Compensation Committee. The Compensation Committee will make recommendations to
the full Board of Directors as to the individuals to whom awards will be granted
and the terms of the awards. The Compensation Committee can delegate its
authority under the 1999 Incentive Plan to our officers, subject to approval by
the Board of Directors, with respect to employees who are not executive
officers. The Board of Directors will determine the terms of any awards to
members of the Compensation Committee under the 1999 Incentive Plan.

Shares Reserved. We may issue up to 2,224,000 shares of common stock under
the 1999 Incentive Plan, representing, upon the completion of this offering,
approximately 10% of the outstanding shares of common stock and partnership
units. The shares of common stock subject to any award that terminates, expires
or is cashed out without payment being made in the form of common stock will
again be available for distribution under the 1999 Incentive Plan.

Options to purchase an aggregate of 1,115,000 shares of common stock will
be granted to some of our executive officers, directors and employees as of the
completion of this offering, at an exercise price equal to the initial public
offering price. These options will vest over a three-year period, with the first
vesting to occur on the first anniversary of the completion of this offering.
Messrs. C. Edward, Christopher J. and Thomas P. Broom will each receive options
to purchase 150,000 shares of common stock, Messrs. Chute and Harris will each
receive options to purchase 137,500 shares of common stock, and Messrs. Brunet
and Rendini will each receive options to purchase 75,000 shares of common stock.

Cash-Based Annual and Long-Term Incentive Awards. Cash-based annual and
long-term incentive awards may be granted under the 1999 Incentive Plan. These
awards will be earned only if corporate, business unit or individual performance
objectives over performance cycles established by or under the direction of the
Compensation Committee are met. The performance objectives may vary from
participant to participant, group to group and period to period. Performance
objectives for awards will be based upon criteria established by the
Compensation Committee. No annual incentive award paid to a participant with
respect to a performance cycle may exceed $1,000,000, and no long-term incentive
award paid to a participant may exceed $1,000,000 times the number of years in
the performance cycle.

Stock-Based Awards. The 1999 Incentive Plan will permit the granting of
incentive stock options, which qualify for special tax treatment, and
nonqualified stock options. The exercise price for incentive stock options will
not be less than the fair market value of common stock on the date of grant, as
determined under the 1999 Incentive Plan. The 1999 Incentive Plan permits the
Compensation Committee to cancel an option upon exercise by the holder and pay
the holder, in cash or common stock, the difference between the fair market
value of the shares covered by the option and the exercise price.

We may also grant stock appreciation rights either singly or in combination
with underlying stock options. Stock appreciation rights entitle the holder upon
exercise to receive an amount in any combination of cash or common stock, as
determined by the Compensation Committee, equal in value to the excess of

110
<PAGE> 117

the fair market value of the shares covered by the right over the grant price.
The Compensation Committee will determine the grant price and other terms of
stock appreciation rights.

We may also award shares of restricted common stock. The restricted stock
vests and becomes transferable upon the satisfaction of conditions set forth in
the applicable award agreement. Restricted stock awards may be subject to
forfeiture if, for example, the recipient's employment terminates before the
award vests. Except as specified at the time of grant, holders of restricted
stock will have voting rights and the right to receive dividends on their
restricted shares.

The 1999 Incentive Plan also provides for other awards that are denominated
in, valued by reference to, or otherwise based on or related to common stock.
These awards may include performance shares and restricted stock units that
entitle the recipient to receive, upon satisfaction of performance goals or
other conditions, a specified number of shares of common stock or the cash
equivalent.

Under the 1999 Incentive Plan, the total number of shares of restricted
common stock and other shares of common stock subject to or underlying incentive
stock options, nonqualified stock options, stock appreciation rights and other
stock-based awards granted to any plan participant may not exceed 25% of the
total shares of common stock that may be issued under the 1999 Incentive Plan.

Change in Control Provisions. The 1999 Incentive Plan provides that, in the
event of a significant change in our ownership or Board of Directors, the Board
of Directors may:

- make all stock options and stock appreciation rights immediately
exercisable,

- remove the restrictions applicable to outstanding restricted stock and
other stock-based awards,

- cash out the value of outstanding stock options, stock appreciation
rights, restricted stock and other stock-based awards on the basis of the
highest price paid or offered during the preceding 60-day period, and

- vest all outstanding incentive awards and pay out these awards on a
prorated basis, based on the maximum award opportunity of the awards and
the number of months elapsed compared with the total number of months in
the performance cycle.

Adjustments for Share Dividends, Mergers and Similar Events. The Board of
Directors will make appropriate adjustments in outstanding awards under the 1999
Incentive Plan to reflect common stock dividends, splits and similar events. In
the event of a merger, liquidation, sale of the business or similar event, the
Board of Directors, in its discretion, may provide for substitution or
adjustment of outstanding awards, or may terminate all awards with payment of
cash or in-kind consideration.

Amendments and Termination. The Board of Directors may at any time amend or
discontinue the 1999 Incentive Plan. The Compensation Committee may at any time
amend outstanding awards for the purpose of satisfying changes in law or for any
other lawful purpose. However, no action may be taken that materially and
adversely affects any rights under an outstanding award without the holder's
consent. Further, amendments to the 1999 Incentive Plan may be subject to
approval by our shareholders if and to the extent required by the Internal
Revenue Code to preserve the qualified status of incentive stock options or to
preserve tax deductibility of compensation earned under options.

EMPLOYMENT AND NON-COMPETITION AGREEMENTS

We have employment agreements with each of Messrs. C. Edward Broom,
Christopher J. Broom, Thomas P. Broom, Kenneth L. Chute, Nicholas C. Brunet,
Vladimir Harris and Joseph E. Rendini effective as of the consummation of this
offering.

The employment agreement with C. Edward Broom provides for his employment
as President and Chief Executive Officer of Strategic Timber for a period of
four years and automatically renews for successive one-year periods. Mr. Broom's
employment agreement provides for an initial annual base salary of $225,000. Mr.
Broom's employment agreement contains provisions relating to his involvement in
several privately held timber investment funds. If we wish to bid on a property
and any fund with which
111
<PAGE> 118

Mr. Broom is affiliated is the seller of the property or also wishes to bid on
the property, Mr. Broom will not participate in the transaction on behalf of
that fund. In addition, Mr. Broom has agreed to spend no more than 5% of his
time devoted to his interests in these timber funds. The employment agreement
otherwise prohibits Mr. Broom from competing against us during the term of his
employment under the agreement and for a period of one year thereafter in North
America, Central America and South America, and from soliciting purchasers of
our timber or prospective sellers of timberlands with which he had contact
during the term of his employment for a period of one year thereafter. The
employment agreement may be terminated by mutual agreement, voluntarily by Mr.
Broom or by us without cause upon six months' prior written notice during the
first two years of the employment term and upon ninety days' notice thereafter,
and immediately by us for cause or upon the death or disability of Mr. Broom.
Mr. Broom or his heirs are entitled to one year's compensation if Mr. Broom
terminates his employment for good reason, or we terminate without cause.

Each of Messrs. Christopher J. Broom, Thomas P. Broom, Chute, Brunet,
Harris and Rendini have entered into employment agreements with us on
substantially similar terms. Each employment agreement provides for an initial
minimum annual base salary for each executive officer as follows: Mr.
Christopher J. Broom, $175,000; Mr. Thomas P. Broom, $175,000; Mr. Chute,
$150,000; Mr. Brunet, $90,000; Mr. Harris, $135,000; and Mr. Rendini, $100,000.
The employment agreement with each executive provides for his employment as an
officer of Strategic Timber for a period of four years and automatically renews
for successive one-year periods. Each employment agreement prohibits the
executive from competing against us during the term of his employment under the
agreement and for a period of one year thereafter in North America, Central
America and South America, and from soliciting purchasers of our timber or
prospective sellers of timberlands with which he had contact during the term of
his employment for a period of one year thereafter. The employment agreement may
be terminated by mutual agreement, voluntarily by the executive or by us without
cause upon six months' prior written notice during the first two years of the
employment term and upon ninety days' notice thereafter, and immediately by us
for cause or upon the death or disability of the executive. Each executive or
his heirs are entitled to one year's compensation if the executive terminates
his employment for good reason, or we terminate without cause.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1998, we did not have a compensation committee. Thomas P. Broom, who
was our sole director from inception until January 1999 and who is our Executive
Vice President and Chief Operating Officer, previously determined compensation
of executive officers. C. Edward Broom, our President and Chief Executive
Officer, and Christopher J. Broom, our Executive Vice President and Chief
Investment Officer, assisted Thomas P. Broom in determining executive officer
compensation for 1998.

112
<PAGE> 119

TRANSACTIONS WITH RELATED PARTIES

In December 1998, we concluded a transaction with our President and Chief
Executive Officer, C. Edward Broom, in which Mr. Broom purchased for $3.0
million approximately 6,700 acres of agricultural land in Louisiana that we had
leased to third parties principally for rice farming. This property was included
in the purchase of the Louisiana property without any separate determination of
cost. We determined that this property was ancillary to our ongoing business of
timber production. We sold this property to provide a source of cash to make
payments of our bank debt. Mr. Broom and other members of senior management
determined this purchase price to produce the necessary funds to make these
payments. The purchase price does not necessarily reflect the price we might
have been able to obtain if the property had been fully prepared for sale and
exposed to the market for a sufficient period of time to produce the highest
price. To protect our economic interest in the property, Mr. Broom has agreed
that we may repurchase the property at any time before December 31, 2000, at the
price paid by Mr. Broom plus a pro-rata annual increase at the rate of 8%,
compounded annually.

In December 1998, we sold some of our eastern Oregon timber to Kinzua
Resources, LLC, a sawmill company controlled by Gregory M. Demers, a beneficial
owner of more than 5% of our common stock, for $5.6 million. We executed timber
deeds conveying approximately 19.3 million board feet of timber, consisting of a
variety of species. Kinzua Resources has regularly acquired and used wood from
the eastern Oregon timberlands in the past, and we anticipate that we will
continue to sell timber from these lands to Kinzua in the ordinary course of
business in the future.

Hanns A. Pielenz, who has agreed to serve as a director on or before the
completion of this offering, owns a 50% interest in each of Louisiana Timber and
Mach One. In April 1998, Louisiana Timber contributed to Strategic Timber
Partners a contract to acquire the Louisiana property in exchange for
partnership units, which the parties valued at $50.0 million. In October 1998,
Mach One invested $10.0 million cash in exchange for an interest in Strategic
Timber Partners II, in connection with our acquisition of Pioneer. As of the
completion of the offering, Louisiana Timber will receive partnership units and
cash valued at $48.2 million, and Mach One will receive partnership units and
cash valued at $12.0 million, in each case assuming an offering price of $20 per
share of common stock.

After the completion of this offering, we will pay approximately $798,000
to Broom Resource Investments, LLC. This amount includes reimbursement of
approximately $320,000 in expenses paid on behalf of Strategic Timber, $440,000
in fees due to BRI in connection with our acquisition of the Louisiana property
and approximately $38,000 in interest, based on a simple interest rate of 5.5%
per annum. BRI's fees relate to the services it performed before the formation
of Strategic Timber in acquiring from Louisiana Timber the contract to purchase
the Louisiana property. BRI is owned by Messrs. C. Edward Broom, Christopher J.
Broom and Thomas P. Broom, who are executive officers and directors of Strategic
Timber.

We rent our headquarters office in New London, New Hampshire, from Broom
Properties, LLC, a company controlled by Messrs. C. Edward and Thomas P. Broom.
We rent this space for $5,250 per month under a two year lease entered into in
January 1999. In 1998, payments to Broom Properties, LLC for this space totaled
$40,000.

113
<PAGE> 120

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of common stock and partnership units exchangeable for common stock by
our directors and prospective directors, our most highly compensated executive
officers, all of our directors, prospective directors and executive officers as
a group and each person who is known to be the beneficial owner of more than 5%
of the outstanding shares of common stock. This table assumes that all of the
formation transactions and this offering have been completed and that the
underwriters do not exercise their over-allotment option and gives effect to a
36.59-for-1 stock split, which will occur prior to completion of this offering.
The second column in the table below assumes that the identified person and no
other person redeems all partnership units the identified person beneficially
owns for shares of common stock.

<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK PERCENTAGE PERCENTAGE
AND PARTNERSHIP OF ALL SHARES OF ALL SHARES OF
UNITS BENEFICIALLY OF COMMON COMMON STOCK AND
NAME AND ADDRESS OF OWNER OWNED STOCK PARTNERSHIP UNITS
------------------------- ------------------ ------------- --------------------
<S> <C> <C> <C>
Hanns A. Pielenz............................... 1,863,084 9.7% 8.4%
740 Manatee Cove
Vero Beach, FL 32963
Larry J. Woodard............................... 1,863,084 9.7% 8.4%
1089 Lighthouse Two
Hilton Head Island, SC 29928
Gregory M. Demers.............................. 1,660,333 8.8% 7.5%
25310 Jeans Road
Veneta, OR 97487
C. Edward Broom................................ 408,329 2.3% 1.8%
Christopher J. Broom........................... 408,329 2.3% 1.8%
Thomas P. Broom................................ 408,329 2.3% 1.8%
Kenneth L. Chute............................... -- -- --
Vladimir Harris................................ 90,740 * *
Jay S. Lucas................................... -- -- --
Starling W. Childs, II......................... -- -- --
Richard P. Urfer............................... -- -- --
All directors, prospective directors and
executive officers as a group (12 persons)... 3,468,807 17.2% 15.6%
</TABLE>

- ---------------
* Less than 1%

Unless otherwise indicated, the address of each person listed in the table
above is 5 North Pleasant Street, New London, New Hampshire 03257. Shares and
units shown as owned by Hanns A. Pielenz and Larry J. Woodard include 1,762,974
partnership units held of record by Louisiana Timber and 100,110 partnership
units held of record by Mach One. Hanns A. Pielenz, a prospective director, and
Larry J. Woodard each may be deemed to beneficially own the partnership units
held by Louisiana Timber and Mach One.

114
<PAGE> 121

DESCRIPTION OF CAPITAL STOCK

The description of our capital stock set forth below and elsewhere in this
prospectus does not purport to be complete and is qualified in its entirety by
reference to our Amended and Restated Articles of Incorporation and Amended and
Restated Bylaws, each of which will be adopted shortly before completion of this
offering. Copies of the Amended and Restated Articles of Incorporation and
Amended and Restated Bylaws are exhibits to the registration statement of which
this prospectus is a part.

GENERAL

Under the Articles of Incorporation, the Board of Directors has the
authority to issue up to 200,000,000 shares of common stock, par value $.01 per
share, and 50,000,000 shares of preferred stock, par value $.01 per share. Upon
completion of this offering, 17,271,770 shares of common stock will be issued
and outstanding and no shares of preferred stock will be issued or outstanding.
19,761,770 shares will be issued and outstanding if the underwriters'
over-allotment option is exercised in full.

COMMON STOCK

Holders of common stock are entitled to one vote per share on all matters
to be voted on by shareholders and are not entitled to cumulative voting in the
election of directors. Generally, matters to be approved by shareholders must be
voted for by holders of a majority of the shares of common stock represented in
person or by proxy at a meeting, subject to any contractual or other rights of
security holders, such as any special rights of holders of preferred stock, none
of which is currently outstanding. A plurality of the shares of common stock is
needed to elect directors. For certain other matters affecting or relating to
voting rights of holders of shares of common stock, including election of
directors and supermajority voting requirements, see "Material Provisions of
Georgia Law and Strategic Timber's Articles of Incorporation and Bylaws That May
Have an Anti-Takeover Effect."

Subject to any preferential rights granted by the Board of Directors in
connection with the future issuance of preferred stock, holders of shares of
common stock are entitled to share ratably in any dividends and distributions
Strategic Timber declares and pays and in any distribution to shareholders upon
dissolution of Strategic Timber.

Holders of common stock have no preemptive or other subscription or
conversion rights, and there are no redemption or sinking fund provisions with
respect to these shares. As discussed below, if shares of common stock are
converted into shares of excess stock, the rights attributable to the shares
will be substantially limited.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.

PREFERRED STOCK

The Board of Directors has the authority, without further shareholder vote,
to issue preferred stock in one or more series and to fix its rights,
preferences and limitations, including dividend rights, conversion rights,
sinking fund provisions, voting rights, rights to elect a specified number of
directors, terms and rights of redemption and liquidation preferences. These
rights and preferences could include the right to receive specified dividend
payments and payments on liquidation prior to any payments being made to the
holders of common stock. The Board of Directors could authorize the issuance of
preferred stock with terms and conditions that could discourage a takeover or
other transaction that holders of common stock might believe to be in their best
interests. See "Material Provisions of Georgia Law and Strategic Timber's
Articles of Incorporation and Bylaws That May Have an Anti-Takeover
Effect -- Preferred Stock." As of the date of this prospectus, no shares of
preferred stock are outstanding and we have no current plans to issue any
preferred stock.

115
<PAGE> 122

RESTRICTIONS ON OWNERSHIP AND TRANSFER OF SHARES

To qualify as a REIT under the Internal Revenue Code, among other things,
not more than 50% in value of our outstanding capital stock may be owned,
directly or indirectly, by five or fewer persons during the last half of a
taxable year. This "five or fewer" requirement does not apply during the first
year for which we elect to be treated as a REIT. Also, shares of our capital
stock must be beneficially owned by 100 or more persons during at least 335 days
of a taxable year of 12 months, other than the first year or during a
proportionate part of a shorter taxable year. See "Federal Income Tax
Consequences."

To protect us from losing our status as a REIT and to protect us from a
concentration of ownership among our shareholders, the Articles of
Incorporation, subject to certain exceptions, provide that no person may
beneficially own more than 9.8% of the lesser of the aggregate number or the
value of the outstanding shares of common stock or any series of preferred
stock. Under the Articles of Incorporation, a person generally beneficially owns
shares for this purpose if the person would be treated as an owner of common
stock or preferred stock either directly or indirectly under section 542(a)(2)
of the Internal Revenue Code, taking into account, for this purpose, applicable
constructive ownership rules. When two or more persons act as a partnership or
similar group for the purpose of acquiring, holding or disposing of securities,
the group is considered a single person under the Articles of Incorporation. The
Board of Directors may waive the ownership limit as to any person upon receipt
of a ruling from the IRS, an opinion of counsel or other evidence acceptable to
the Board that ownership by that person will not cause Strategic Timber to lose
its REIT status.

Any transfer of shares of common stock or preferred stock is void, and the
intended transferee will acquire no rights to the shares of capital stock, if
the transfer would do any of the following:

- cause any person to beneficially own shares of common stock or preferred
stock in excess of the ownership limit not otherwise permitted as
provided above;

- result in the shares of common stock or preferred stock being
beneficially owned by fewer than 100 persons;

- result in Strategic Timber being "closely held" within the meaning of
section 856(h) of the Internal Revenue Code;

- result in Strategic Timber constructively owning 10% or more of the
ownership interests in a tenant of Strategic Timber within the meaning of
section 856(d)(2)(B) of the Internal Revenue Code;

- result in Strategic Timber failing to qualify as a "domestically
controlled REIT" within the meaning of section 897(h)(4)(B) of the
Internal Revenue Code; or

- otherwise cause Strategic Timber to fail to qualify as a REIT.

These restrictions on transferability and ownership will not apply if the Board
of Directors adopts a resolution recommending that Strategic Timber terminate
its status as a REIT, and the resolution is approved by the holders of a
majority of the outstanding shares of common stock.

If any attempted transfer of common stock or preferred stock or other event
resulting in an increase in any holder's percentage interest in common stock or
preferred stock would cause a purported transferee or holder to be in violation
of any of the restrictions described in the previous paragraph, then the
purported transferee or holder will not acquire, or will cease to own, the
shares in excess of the highest number of shares that could be held in
compliance with these restrictions. The excess stock will be converted
automatically into an equal number of shares of stock and transferred
automatically, by operation of law, to a trust, the beneficiary of which will be
a qualified charitable organization selected by Strategic Timber.

As soon as practical after the transfer of shares to the trust, the trustee
of the trust will be required to sell the excess stock to a person or entity who
could own the shares without violating the ownership restrictions. In the case
of excess stock resulting from a transfer for value, the trustee must distribute
to the prohibited owner the lesser of the price paid by the prohibited owner for
the shares or the sales

116
<PAGE> 123

proceeds received by the trust for the shares. In the case of excess stock
resulting from any event other than a transfer for value, the trustee will be
required to sell the excess stock to a qualified person and distribute to the
prohibited owner the lesser of the market price of the excess stock or the sales
proceeds received by the trust for the excess stock. Once shares become excess
stock, they lose their voting rights until they are held in compliance with the
ownership limit in the Articles of Incorporation, subject to any voting rights
that may be afforded by Georgia law.

Excess stock held in trust is deemed to be offered for sale to Strategic
Timber at the lesser of the price per share in the transaction that created the
excess stock, or the market price. Strategic Timber has the right to accept the
offer for 90 days.

All certificates representing shares of common stock will bear a legend
referring to the restrictions described above.

Any person who beneficially owns more than 5% of the outstanding shares of
any class or series of our capital stock is required to provide a written
statement to us containing ownership information by January 31 of each year. In
addition, upon our request, each record and beneficial owner of common stock or
preferred stock is required to disclose to us in writing information we consider
necessary to determine our status as a REIT and to ensure compliance with the
ownership restrictions in the Articles of Incorporation.

The ownership restrictions described above could have the effect of
delaying, deferring or preventing a change of control in which holders of common
stock might receive a premium for their shares over the then prevailing market
price. For additional matters that could have the effect of delaying, deferring
or preventing a change of control, see "Material Provisions of Georgia Law and
Strategic Timber's Articles of Incorporation and Bylaws That May Have an
Anti-Takeover Effect."

NASDAQ NATIONAL MARKET LISTING

Prior to the date of this prospectus, there has been no public trading
market for the common stock. The common stock has been approved for quotation on
the Nasdaq National Market under the symbol "STTR."

117
<PAGE> 124

MATERIAL PROVISIONS OF GEORGIA LAW AND STRATEGIC TIMBER'S ARTICLES OF
INCORPORATION AND BYLAWS THAT MAY HAVE AN ANTI-TAKEOVER EFFECT

This section discusses the material provisions of our Articles of
Incorporation and Bylaws, and of Georgia law, that may have an anti-takeover
effect. This section summarizes portions of the Georgia Business Corporation
Code and the Articles of Incorporation and Bylaws and is not a complete
description of any of them. Copies of the Articles of Incorporation and Bylaws
have been filed as exhibits to the registration statement of which this
prospectus is a part.

Certain provisions of the Georgia Business Corporation Code and the
Articles of Incorporation and Bylaws, summarized in the following paragraphs,
may discourage a takeover attempt that you might consider to be in your best
interest. This could include a takeover that would result in payment of a
premium over the market price of shares.

OWNERSHIP LIMIT

The Articles of Incorporation contain restrictions on the number of shares
of capital stock that individual shareholders can own. These restrictions are
intended to ensure that shareholders do not acquire significant shareholdings in
a manner that could jeopardize Strategic Timber's ability to remain qualified as
a REIT for tax purposes. Transfers that would disqualify Strategic Timber from
REIT status are treated as void. These restrictions and the consequences of
violating them are discussed above under "Description of Capital
Stock -- Restrictions on Ownership and Transfer of Shares."

BUSINESS COMBINATION PROVISIONS OF GEORGIA LAW

Our Bylaws subject us to provisions of the Georgia Business Corporation
Code restricting our ability to engage in business combination transactions with
significant shareholders. These provisions prohibit business combinations
between a corporation and any person who has acquired beneficial ownership of
10% or more of the voting stock of the corporation. The prohibition applies for
a period of five years from the date the shareholder acquired the 10% interest.
The prohibitions do not apply if:

- prior to the time the shareholder acquired the 10% interest, the Board of
Directors of the corporation approved either the business combination or
the transaction that resulted in the person becoming an interested
shareholder.

- the shareholder became the beneficial owner of at least 90% of the
outstanding shares of voting stock of the corporation in the same
transaction in which the interested shareholder acquired the 10%
interest. In computing the percentage of shares owned by the interested
shareholder, shares owned by persons who are directors or officers, their
affiliates or associates and by subsidiaries of the corporation and
employee stock plans are excluded.

- the shareholder, subsequent to acquiring the 10% interest, became the
beneficial owner of at least 90% of the voting stock of the corporation
and the business combination was approved by holders of a majority of the
voting stock entitled to vote, excluding voting stock beneficially owned
by the shareholder or by persons who are directors or officers, their
affiliates or associates and by subsidiaries of the corporation and
employee stock plans. In computing the percentage of shares owned by the
interested shareholder, shares owned by persons who are directors or
officers, their affiliates or associates and by subsidiaries of the
corporation and employee stock plans are excluded.

Our Bylaws also subject us to "fair price" provisions of the Georgia
Business Corporation Code that further restrict business combination
transactions with 10% shareholders. These provisions require the consideration
paid for stock acquired in the business combination to meet specified tests,
which are designed to ensure that shareholders receive at least fair market
value for their shares in the business

118
<PAGE> 125

combination. A business combination with a 10% shareholder does not need to meet
these tests if either of the following apply:

- The continuing directors unanimously approve the business combination,
provided there are at least three continuing directors. A continuing
director is any member of the Board of Directors who is not an affiliate
or associate of a 10% shareholder or any of its affiliates, and who was a
director prior to the date the 10% shareholder first acquired the 10%
interest, or a successor to such a director in certain circumstances.

- Two-thirds of the continuing directors recommend the business combination
and a majority of the voting stock entitled to vote approves the business
combination. For purposes of this vote, voting stock beneficially owned
by the interested shareholder is excluded.

THE BOARD OF DIRECTORS

Our Board of Directors is divided into three classes of directors serving
staggered three-year terms. The term of office of the first class of directors
will expire at the 2000 annual meeting of shareholders; the term of the second
class of directors will expire at the 2001 annual meeting of shareholders; and
the term of the third class of directors will expire at the 2002 annual meeting
of shareholders. At each annual meeting of shareholders, the class of directors
to be elected at the meeting will be elected for a three-year term, and the
directors in the other two classes will continue in office. Because shareholders
will have no right to cumulative voting for the election of directors, at each
annual meeting of shareholders the holders of a plurality of the shares of
common stock will be able to elect all of the successors to the class of
directors whose term expires at that meeting. Classification of the Board of
Directors expands the time required to change the composition of a majority of
directors, which may discourage an acquisition proposal. The Articles of
Incorporation provide that the number of directors shall be fixed by resolution
of the Board of Directors, but shall not be less than three unless the Articles
of Incorporation are amended to delete the classification of the Board of
Directors.

The Articles of Incorporation also provide that, except for any directors
who may be elected by holders of preferred stock, directors may be removed only
for cause by the affirmative vote of shareholders holding at least a majority of
the votes entitled to be cast by all shareholders in the election of directors.
Vacancies on the Board of Directors, however occurring, may be filled only by a
majority vote of the remaining directors. Directors elected by the Board of
Directors to fill vacancies continue until the next election of the class for
which they have been chosen, except for directors elected to fill vacancies
resulting from an increase in the number of directors, who continue until the
next election of directors by the shareholders. A vote of shareholders holding
at least two-thirds of all the votes entitled to be cast is required to amend or
repeal these classified board and director removal provisions. These provisions
make it more difficult and time-consuming to change majority control of the
Board of Directors and make it more difficult for shareholders to remove
incumbent directors and fill the vacancies with their own nominees. These
provisions may reduce our vulnerability to an unsolicited takeover proposal or
the removal of incumbent management.

SPECIAL MEETINGS OF SHAREHOLDERS; CONSENTS

The Bylaws provide that special meetings of shareholders may be called only
by the Chairman of the Board of Directors, the President, a majority of the
Board of Directors or holders of outstanding stock having not less than 75% of
the votes entitled to be cast by all of the outstanding shares of our capital
stock. Also, shareholders may act without a meeting only by unanimous written
consent, which makes shareholder action without a meeting highly unlikely. These
provisions make it more difficult for the shareholders to take action without
the sanction of our management.

PREFERRED STOCK

Under the Articles of Incorporation, the Board of Directors has the power,
without a shareholder vote, to establish the preferences and rights of one or
more series of preferred stock and to issue these shares.
119
<PAGE> 126

The Board of Directors can grant the holders of any series of preferred stock
preferences, powers and rights, voting or otherwise, that have priority over the
rights of holders of common stock. The issuance of preferred stock could
discourage a change in control or acquisition of Strategic Timber. As of the
date of this prospectus, no shares of preferred stock are outstanding, and we
have no current plans to issue any preferred stock.

ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS

The Bylaws contain provisions requiring shareholders to notify us in
advance of their nominations of candidates for election to the Board of
Directors who are not nominated by the Board of Directors, and their proposals
for business to be conducted at the annual meeting of shareholders. Without
compliance with these provisions, any nominations or business proposed by
shareholders without approval by the Board of Directors cannot be considered by
the shareholders at a meeting.

SUPERMAJORITY VOTE REQUIREMENTS

Under the Articles of Incorporation and the Bylaws, some matters require
approval by a two-thirds vote, rather than merely a majority vote. A vote of
two-thirds of shareholders is required to amend the provisions of the Articles
of Incorporation and the Bylaws concerning classification of the Board of
Directors and removal and replacement of directors. A vote of two-thirds of
shareholders is required to amend the Articles of Incorporation to permit
shareholders to act by majority written consent rather than unanimous written
consent. Approval by two-thirds of the continuing directors and a majority of
shareholders, excluding certain persons, is required to amend the Bylaws to
eliminate the applicability of the provisions of the Georgia Business
Corporation Code restricting business combinations between Strategic Timber and
significant shareholders.

AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS

The Articles of Incorporation cannot be amended without the affirmative
vote of at least a majority of the shares of outstanding capital stock entitled
to vote, voting together as a group. Some provisions of the Articles of
Incorporation cannot be amended without the approval of the holders of
two-thirds of the shares of outstanding capital stock entitled to vote, voting
together as a single class. The Bylaws can generally be amended by the Board of
Directors or a majority of the shares cast at a shareholders meeting. Some
bylaws may be amended only by the shareholders, and some of those may only be
amended by a vote of greater than a majority of shares entitled to vote. See
" -- Supermajority Vote Requirements."

LIMITATION OF LIABILITY AND INDEMNIFICATION

Our officers and directors are indemnified against liabilities in
accordance with Georgia Business Corporation Code, the Articles of
Incorporation, the Bylaws and the indemnification agreements described below.

GEORGIA BUSINESS CORPORATION CODE

Section 14-2-851 of the Georgia Code empowers a corporation to indemnify a
director, including a former director and including a director who is or was
serving another entity at the request of the corporation against liability
arising from official acts if the director acted in good faith and reasonably
believed that his or her conduct was in the best interests of the corporation.
For all other acts, the corporation may indemnify a director who acted in good
faith and reasonably believed that the conduct was not opposed to the best
interests of the corporation. The corporation may indemnify a director with
respect to criminal proceedings if the director acted in good faith and had no
reasonable cause to believe the conduct was unlawful. A corporation may not
indemnify a director adjudged liable for conduct involving receipt of an
improper personal benefit.

In addition, section 14-2-856 of the Georgia Business Corporation Code
permits the articles of incorporation, bylaws, a contract, or resolution
approved by the shareholders to authorize the corporation to
120
<PAGE> 127

indemnify a director against claims to which the director was a party, including
claims by the corporation or shareholder derivative actions. However, the
corporation may not indemnify the director for liability to the corporation for
any appropriation of a corporate opportunity, intentional misconduct or knowing
violation of law, unlawful distributions or receipt of an improper benefit.

Section 14-2-852 of the Georgia Business Corporation Code provides for
mandatory indemnification against reasonable expenses incurred by a director who
is wholly successful in defending an action to which the director was a party
due to his or her status as a director. Section 14-2-854 allows a court, upon
application by a director, to order indemnification and advance of expenses if
it determines that the director is entitled to indemnification under the Georgia
Business Corporation Code or if it determines that indemnification is fair and
reasonable even if the director has failed to meet the statutory standard of
conduct under section 14-2-851. However, the court may not order indemnification
in excess of reasonable expenses for liability to the corporation or for receipt
of an improper benefit.

Section 14-2-857 of the Georgia Business Corporation Code permits a
corporation to indemnify an officer, including a former officer and including an
officer who is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, to the same extent as a director. A corporation may indemnify an
officer who is not a director to a further extent by means of articles of
incorporation, bylaw, board resolution, or contract. However, the corporation
may not indemnify an officer for liability arising from conduct involving
appropriation of a corporate opportunity, intentional misconduct or knowing
violation of law, unlawful distributions, or receipt of an improper personal
benefit. An officer who is not a director is also entitled to mandatory
indemnification and may apply for court-ordered indemnification.

Section 14-2-858 of the Georgia Business Corporation Code permits a
corporation to purchase and maintain insurance on behalf of directors and
officers against liability incurred by them in their capacities or arising out
of their status as directors and officers of the corporation, regardless of
whether the corporation would have the power to indemnify or advance expenses to
the director or officer for the same liability under the Georgia Business
Corporation Code.

ARTICLES OF INCORPORATION

Article V of the Articles of Incorporation exculpates our directors from
personal liability for money damages to us or our shareholders to the fullest
extent permitted by the Georgia Business Corporation Code, as it may be amended
from time to time. Currently, the directors are exculpated from all liability to
us or our shareholders except for liability arising from conduct involving
appropriation of a corporate opportunity, intentional misconduct or knowing
violation of law, unlawful distributions, or receipt of an improper personal
benefit. The Articles of Incorporation also provide that any repeal or
modification of Article V of the Articles of Incorporation by the shareholders
will not reduce any right or protection of a director existing at the time of
the repeal or modification.

BYLAWS

Article VI of the Bylaws requires Strategic Timber to indemnify to the
fullest extent permitted under the Georgia Business Corporation Code any person
who is or was a director or an officer, including a director or an officer who
is or was serving another entity at our request.

Repeal or modification of Article VI of the Bylaws or of any relevant
provisions of the Georgia Business Corporation Code does not reduce the rights
to indemnification under the Bylaws with respect to any previous occurrences.
The indemnification and advancement of expenses provided by the Bylaws are not
exclusive of any other rights permitted by applicable law to which a person
seeking indemnification or advancement of expenses may be entitled. All rights
to indemnification under Article VI of the Bylaws continue as to a person who
has ceased to be a director or officer.

121
<PAGE> 128

INDEMNIFICATION AGREEMENTS

We intend to enter into indemnification agreements with each of our
directors and executive officers prior to completion of this offering, and
intend to enter into similar agreements with prospective directors upon
completion of this offering. The indemnification agreements require us to
indemnify directors and executive officers to the fullest extent permitted by
law and advance to the directors and executive officers all related expenses,
subject to reimbursement if it is subsequently determined that indemnification
is not permitted. Under these agreements, we must also indemnify and advance all
expenses incurred by directors and executive officers seeking to enforce their
rights under the indemnification agreements. Although the form of
indemnification agreement offers essentially the same scope of coverage afforded
by the Georgia Code and the Articles of Incorporation and the Bylaws, it
provides greater assurance to directors and executive officers that
indemnification will be available, because, as a contract, it cannot be modified
unilaterally in the future by the Board of Directors or the shareholders to
eliminate the rights it provides.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling Strategic
Timber, we have been informed that in the opinion of the SEC this type of
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.

INSURANCE POLICIES

We intend to purchase a policy of insurance providing reimbursement of
indemnification payments to officers and directors and reimbursement of
liabilities incurred by directors and officers in their capacities as such, to
the extent that they are not otherwise indemnified by Strategic Timber.

122
<PAGE> 129

SHARES AVAILABLE FOR FUTURE SALE

GENERAL

Before this offering, there has been no public market for our common stock,
and we have no way of knowing what the trading price will be after the offering.
As described below, only the shares sold in the offering will be available for
sale shortly after the offering due to contractual and legal restrictions on
resale of the shares and partnership units outstanding prior to the offering.
Nevertheless, sales of substantial amounts of common stock in the public market
after the restrictions lapse could cause the prevailing market price of the
common stock to drop. Limited partners of Strategic Timber Partners may be
entitled under certain circumstances to exchange partnership units for shares of
common stock. This could result in a large number of common shares eligible for
immediate resale in the public market. See "The Partnership
Agreement -- Redemption of Partnership Units."

Upon completion of this offering, we will have 17,271,770 outstanding
shares of common stock. We will have 19,761,770 shares of common stock issued
and outstanding if the underwriters exercise their over-allotment option in
full. The shares of common stock being sold in the offering will be freely
tradeable by persons other than our affiliates without restriction or
registration under the Securities Act, subject to the limitations on ownership
in our Articles of Incorporation. See "Description of Capital
Stock -- Restrictions on Ownership and Transfer of Shares." Under the rules of
the Securities Act, an "affiliate" is a person that controls, is controlled by,
or is under common control with Strategic Timber. Determining who is an
affiliate is subjective based on determining "control," but each of our
directors and executive officers would generally be considered an affiliate of
Strategic Timber. We sold the remaining outstanding shares in private
transactions, and these shares are eligible for public sale if registered under
the Securities Act or sold in accordance with Securities Act Rule 144.

Holders of our common stock and partnership units have agreed, subject to
limited exceptions, that for a period of one year from the completion of this
offering, they will not, without the prior written consent of Salomon Smith
Barney Inc., dispose of or hedge any shares of common stock or any partnership
units or any securities convertible into, or exercisable or exchangeable for,
common stock or partnership units.

On and after the first anniversary of the completion of this offering,
Strategic Timber Partners will be obligated to exchange each partnership unit at
the request of the holder for, at our option, either one share of common stock
or cash equal to the fair market value of one share of common stock at the time
of the exchange. See "The Partnership Agreement -- Redemption of Partnership
Units."

In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of privately placed shares from
Strategic Timber or any of its affiliates, the holder is entitled to sell within
any three-month period a number of shares that does not exceed the greater of 1%
of the then outstanding common stock or the average weekly trading volume of the
common stock during the four calendar weeks immediately preceding the date on
which notice of the sale is filed with the SEC. Sales under Rule 144 are subject
to other requirements, in particular that they be made through stock brokers,
that a notice of sale be filed by the selling shareholder, and that Strategic
Timber have filed with the SEC all of its required public company reports at the
time of the sale.

If two years have elapsed since the date of acquisition of privately placed
shares from Strategic Timber or from any affiliate of Strategic Timber, and the
acquiror or subsequent holder thereof is deemed not to have been an affiliate of
Strategic Timber at any time during the three months immediately preceding a
sale, such person is entitled to sell these shares in the public market under
Rule 144(k) without regard to the volume limitations, manner of sale provisions,
public information requirements or notice requirements of Rule 144.

123
<PAGE> 130

REGISTRATION RIGHTS

We intend to issue options to purchase approximately 1,115,000 shares of
common stock to executive officers, directors and employees upon completion of
this offering, and have reserved additional shares for future issuance under the
1999 Incentive Plan. We intend to file one or more registration statements under
the Securities Act to register the shares of common stock reserved for issuance
under the 1999 Incentive Plan. These registration statements will become
effective immediately upon filing. Commencing one year after this offering, we
will also be obligated to file one or more registration statements under the
Securities Act to register the shares of common stock issuable upon redemption
of partnership units for shares of common stock. See "Management -- 1999
Incentive Plan" and "The Partnership Agreement -- Redemption of Partnership
Units."

124
<PAGE> 131

THE PARTNERSHIP AGREEMENT

This summary of Strategic Timber Partners' limited partnership agreement
describes the material provisions of that agreement as it will be in effect
immediately after completion of this offering. This summary and the other
descriptions of provisions of the partnership agreement included in this
prospectus are qualified in their entirety by reference to the partnership
agreement, which is filed as an exhibit to the registration statement of which
this prospectus is a part.

The following provisions of the partnership agreement are summarized
elsewhere in the prospectus:

- With regard to our management, see "Management."

- With regard to formation, see "Structure and Formation of Strategic
Timber."

- With regard to tax allocations and other tax issues, see "Federal Income
Tax Consequences."

Upon consummation of this offering, Strategic Timber will hold
approximately 76.7% of the limited partnership units in Strategic Timber
Partners.

POWERS OF STRATEGIC TIMBER OPERATING CO., AS GENERAL PARTNER

Under the partnership agreement, Strategic Timber Operating Co., a wholly
owned subsidiary of Strategic Timber, is the sole general partner of Strategic
Timber Partners. Strategic Timber Operating Co. generally will have full and
exclusive responsibility and discretion in the management, operation and control
of Strategic Timber Partners. These powers include the ability to cause
Strategic Timber Partners to enter into major transactions, such as cutting
contracts, acquisitions and dispositions of timberland. Limited partners have no
right to manage or control the business of Strategic Timber Partners.

POWER OF ATTORNEY

Each limited partner, and each person who acquires a unit from a limited
partner, grants to the general partner a power of attorney to execute and file
documents that it deems appropriate for the qualification, continuance or
dissolution of Strategic Timber Partners. The power of attorney also grants the
authority for the amendment of, and to make consents and waivers under the
partnership agreement, as well as other matters incidental to the management of
the partnership.

TRANSFER OF THE GENERAL PARTNER'S AND STRATEGIC TIMBER'S INTERESTS

Under the partnership agreement, the limited partners cannot remove
Strategic Timber Operating Co. as the general partner of Strategic Timber
Partners. Strategic Timber may not transfer, including in connection with
mergers and other business combinations involving Strategic Timber, any of its
partnership units unless:

- a majority of the units held by the partners, including Strategic Timber,
approve the transaction, or

- substantially all of the assets of the other entity are contributed to
Strategic Timber Partners.

These transfer restrictions do not prohibit Strategic Timber from transferring
units to affiliates, or in connection with its pledge of its shares of Strategic
Timber Operating Co. to our lenders.

AMENDMENTS TO THE PARTNERSHIP AGREEMENT

Generally, the partnership agreement may be amended by Strategic Timber
Operating Co., as general partner. Some amendments that would adversely affect a
limited partner's rights must be approved by each partner that would be
adversely affected. These include amendments that would

- convert a limited partner's interest into a general partner's interest,

- modify the limited liability of a limited partner,

- alter the interest of any partner in profits or losses or the right to
receive distributions other than as a result of dilution to account for
additional capital contributions being made by a new or existing partner,
or

- alter or modify the redemption right described below.

125
<PAGE> 132

TRANSFER OF PARTNERSHIP UNITS; SUBSTITUTE LIMITED PARTNERS

The partnership agreement provides that the limited partners, other than
Strategic Timber, generally may transfer the economic interests in a partnership
unit without the consent of any other person. However, a transferee may be
substituted as a limited partner only if Strategic Timber Operating Co. consents
and the transferee agrees to be bound by the terms and conditions of the
partnership agreement. In addition, limited partners may not transfer units in
any event until the one-year anniversary of the offering. In addition, limited
partners may not transfer partnership units in violation of regulatory and other
restrictions set forth in the partnership agreement.

REDEMPTION OF PARTNERSHIP UNITS

On and after the first anniversary of the completion of this offering, at
the request of a holder of partnership units, Strategic Timber Partners will be
obligated to redeem each partnership unit for cash equal to the fair market
value of one share of common stock at the time of the redemption. However, at
its option, Strategic Timber can assume Strategic Timber Partners' obligation
and elect to acquire any partnership unit presented for redemption for either
one share of common stock or an amount of cash of the same value. With each
acquisition of partnership units, Strategic Timber's percentage ownership
interest in the partnership will increase.

ISSUANCE OF ADDITIONAL LIMITED PARTNERSHIP INTERESTS; ADDITIONAL CAPITAL
CONTRIBUTIONS

Generally, Strategic Timber Operating Co., is authorized, without the
consent of the limited partners, to cause Strategic Timber Partners to issue
additional partnership units to Strategic Timber, to the limited partners or to
other persons on terms and conditions determined by Strategic Timber Operating
Co.

For additional partnership units to be issued to Strategic Timber by
Strategic Timber Partners:

- Strategic Timber must issue additional shares of common stock and
contribute to Strategic Timber Partners the entire net proceeds received
by Strategic Timber from the issuance, or

- Strategic Timber Partners must issue additional partnership units to all
partners in proportion to their respective interests in Strategic Timber
Partners.

In addition, Strategic Timber Operating Co., as the general partner, may cause
Strategic Timber Partners to issue to Strategic Timber additional partnership
units in different series or classes, which may be senior to the partnership
units, in conjunction with an offering of securities of Strategic Timber having
substantially similar rights, if the net proceeds of the offering are
contributed to Strategic Timber Partners. Consideration for additional
partnership units may be cash or other assets, including timber assets. No
limited partner has preemptive, preferential or similar rights with respect to
additional capital contributions to Strategic Timber Partners or the issuance or
sale of any partnership units.

Other than as described above with respect to Strategic Timber, no limited
partner is required to make any additional capital contributions to Strategic
Timber Partners.

OTHER COVENANTS

The partnership agreement provides that Strategic Timber Partners cannot
effect any transaction that would

- adversely affect the ability of Strategic Timber to qualify as a REIT
under the Internal Revenue Code,

- subject Strategic Timber to federal income taxes, other than for capital
gains that it has elected to retain, or

- violate any law or regulation applicable to Strategic Timber or Strategic
Timber Partners.

EXCULPATION AND INDEMNIFICATION OF STRATEGIC TIMBER AND STRATEGIC TIMBER
OPERATING CO.

The partnership agreement generally provides that neither Strategic Timber
Operating Co., as general partner of Strategic Timber Partners, nor Strategic
Timber will have liability for monetary or other

126
<PAGE> 133

damages to Strategic Timber Partners or any limited partner for losses sustained
or liabilities incurred as a result of errors in judgment or any act or omission
if it is in good faith, and not the result of intentional misconduct or a
knowing violation of law. In addition, Strategic Timber Operating Co. is not
liable for any misconduct or negligence on the part of its agents, provided that
the agents were appointed by Strategic Timber Operating Co. in good faith. By
executing the partnership agreement, the limited partners have agreed that, in
fulfilling the fiduciary duties owed by Strategic Timber Operating Co. to the
limited partners, Strategic Timber Operating Co. is not required to consider the
separate interests of the limited partners, including tax consequences to them.

The partnership agreement provides for indemnification of Strategic Timber,
Strategic Timber Operating Co., and the directors and officers of Strategic
Timber, as well as any other persons Strategic Timber Operating Co., as general
partner, may designate. Strategic Timber Partners shall indemnify any of these
indemnitees against any damages and expenses arising from the operations of the
partnership or Strategic Timber unless it is established that:

- the act or omission of the indemnified person was material to the matter
giving rise to the proceeding and either was committed in bad faith or
was the result of active and deliberate dishonesty;

- the indemnified person actually received an improper personal benefit in
money, property or services; or

- in the case of any criminal proceeding, the indemnified person had
reasonable cause to believe that the act or omission was unlawful.

This indemnification is limited to the assets of Strategic Timber Partners
and no partner in the partnership is personally liable for this indemnification.
Strategic Timber Partners may reimburse reasonable expenses incurred by any
indemnitee in defense of an action relating to the operations of the
partnership, if the partnership receives a written affirmation from the
indemnitee that the indemnitee has satisfied the requisite standard of conduct,
and an agreement that the indemnitee will repay the expenses advanced if it is
ultimately determined that the standard of conduct was not met. Strategic Timber
Partners may purchase and maintain insurance on behalf of indemnitees against
liabilities incurred by them in connection with the partnership's activities,
regardless of whether the partnership would have the power to indemnify the
indemnitee for the same liability under the partnership agreement.

CASH DISTRIBUTIONS

Strategic Timber Operating Co. will determine the timing and amount of cash
distributions made by Strategic Timber Partners. When authorized by Strategic
Timber Operating Co., cash will be distributed among the partners in proportion
to their ownership interests.

TAX MATTERS

Strategic Timber Operating Co. will be the tax matters partner of the
partnership and, as such, will generally have the authority to make tax
elections under the Internal Revenue Code on behalf of the partnership. See
"Federal Income Tax Consequences -- Tax Aspects of Strategic Timber's Ownership
of Interests in Strategic Timber Partners."

TERM

Under the partnership agreement, Strategic Timber Partners will continue as
a limited partnership until December 31, 2099 or until sooner dissolved under
the terms of the partnership agreement.

127
<PAGE> 134

FEDERAL INCOME TAX CONSEQUENCES

This section is a summary of the federal income tax consequences that may
be relevant to our shareholders. As described under the heading "Legal
Opinions," this section is the opinion of our counsel, Sutherland Asbill &
Brennan LLP. In a private letter ruling issued to us, the IRS has confirmed the
opinion of counsel on several issues. These issues and the IRS ruling are
described below. The IRS ruling is filed as an exhibit to the registration
statement of which this prospectus is a part.

This section is based on the Internal Revenue Code, as it is currently in
effect, existing, temporary, and currently proposed Treasury Regulations
thereunder, the legislative history of the Internal Revenue Code, existing
administrative interpretations and practices of the IRS, and judicial decisions.
All of these authorities are subject to change either prospectively or
retroactively, and any changes in them may adversely affect the tax consequences
described below.

The discussion below does not address all federal income tax matters
affecting us or our shareholders. It does not address the tax consequences that
may be relevant to particular shareholders that are subject to special treatment
under the federal income tax laws, such as dealers in securities, banks,
insurance companies, tax-exempt organizations or non-United States persons. Tax
consequences to tax-exempt organizations and non-U.S. persons are discussed only
to a limited extent under the headings "-- Taxation of Tax-Exempt Shareholders
of Strategic Timber" and "-- Taxation of Non-U.S. Shareholders of Strategic
Timber." The discussion also does not address any consequences arising under the
laws of any state, locality or foreign jurisdiction except to the extent
discussed under the heading "Other Taxes".

We urge prospective purchasers of shares of common stock to consult their
own tax advisors regarding the specific tax consequences to them of the
ownership and disposition of these shares in light of their specific tax and
investment situations, the specific federal, state, local, and foreign tax laws
applicable to them, and the potential changes in applicable tax laws.

LEGAL OPINIONS

Sutherland Asbill & Brennan LLP has acted as our counsel in connection with
this offering and our election to be taxed as a REIT. Except where indicated,
statements as to matters of federal income tax law and legal conclusions
contained in this section are the opinion of Sutherland Asbill & Brennan LLP.
However, none of the statements in this section concerning any consequences
arising under the laws of any state, locality or foreign jurisdiction
constitutes an opinion of our counsel. Investors should be aware that an opinion
of counsel represents only that counsel's best legal judgment and does not bind
the IRS or any court. Thus, the IRS could challenge the statements and opinions
in this section, and if this happens a court could reject the statements or
opinions.

Based on the accuracy of representations we have made to them and subject
to the qualifications set forth in the more detailed discussion that follows,
Sutherland Asbill & Brennan LLP is of the opinion that, beginning with our
taxable year ending December 31, 1998, we will be organized in conformity with
the requirements for qualification as a REIT, and our proposed method of
operation will enable us to meet the requirements for qualification and taxation
as a REIT.

Sutherland Asbill & Brennan LLP's opinion is based on various assumptions
and is conditioned upon representations we have made as to factual matters,
including representations regarding the organization, business, properties,
operations, and future conduct of the businesses of Strategic Timber, Strategic
Timber Partners and Strategic Timber Operating Co. Furthermore, qualification
and taxation as a REIT depend upon our ability to meet the various qualification
tests discussed below on an ongoing basis through actual annual operating
results, distribution levels, and diversity of share ownership. Sutherland
Asbill & Brennan LLP will not review these results on a continuing basis and
cannot provide any assurance that the actual results of our operations for any
particular taxable year will satisfy the qualification tests.

128
<PAGE> 135

We have received a private letter ruling from the IRS confirming the
opinion of Sutherland Asbill & Brennan LLP that:

- timberlands and the timber thereon constitute real estate assets
within the meaning of the asset tests for REIT qualification described
in section 856(c)(4) of the Internal Revenue Code. See "-- Taxation of
Strategic Timber -- Asset Tests."

- income we receive from timber cutting agreements satisfying the
requirements of section 631(b) of the Code will qualify as gain from
the sale or other disposition of real property which is not property
held primarily for sale to customers in the ordinary course of a trade
or business within the meaning of the gross income tests for REIT
qualification described in section 856(c)(2) and (3) of the Internal
Revenue Code. See "-- Taxation of Strategic Timber -- Income Tests."

- income from section 631(b) timber cutting agreements will not be
considered income derived from a prohibited transaction as described
in section 857(b)(6) of the Internal Revenue Code.

The opinion of Sutherland Asbill & Brennan LLP contained in this section
addresses a number of tax issues that were not a part of the private letter
ruling received from the IRS. As noted, an opinion of counsel represents only
that counsel's best legal judgment and does not bind the IRS or any court. The
IRS could challenge the statements and opinions in this section, and if that
happens a court could reject the statements or opinions.

TAXATION OF STRATEGIC TIMBER

GENERAL

We will elect to be taxed as a REIT beginning with our taxable year ending
December 31, 1998. We believe that we will be organized and will operate in such
a manner as to qualify and remain qualified to be taxed as a REIT. We cannot
assure you, however, that we will operate in a manner so as to qualify, or
remain qualified, as a REIT.

As a REIT, we generally will not be subject to federal income taxes on that
portion of our ordinary income or capital gain that we currently distribute to
shareholders. The Internal Revenue Code generally allows a REIT to deduct
dividends paid to its shareholders. This deduction for dividends paid
substantially eliminates the "double taxation" of earnings at the corporation
and distributions to the shareholders that generally results from investment in
a regular "C" corporation. However, we will be subject to federal income tax as
follows:

- We will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains, although, as
explained below, our shareholders will be entitled to tax credits for
their shares of the tax we pay with respect to undistributed net capital
gains.

- If we have net income from the sale or other disposition of "foreclosure
property" that is held primarily for sale to customers in the ordinary
course of our trade or business or other nonqualifying income from
foreclosure property, we will be subject to tax at the highest corporate
rate on such income.

- If we have net income from prohibited transactions, that income will be
subject to a 100% tax. Prohibited transactions are, in general, sales or
other dispositions of property, other than foreclosure property, held
primarily for sale to customers in the ordinary course of a trade or
business.

- If we fail to satisfy the 75% gross income test or the 95% gross income
test (described below), but nonetheless maintain our qualification as a
REIT, we will be subject to a 100% tax on an amount equal to the gross
income attributable to the greater of the amount by which we fail the 75%
or the 95% gross income test, multiplied by a fraction intended to
reflect our profitability.

- If we fail to distribute during each calendar year at least the sum of

129
<PAGE> 136

- 85% of our REIT ordinary income for that year,

- 95% of our REIT capital gain net income for that year, other than
capital gain income we elect to retain and pay taxes on and

- any undistributed taxable income from prior periods, other than
capital gains from such years which we elected to retain and pay taxes
on,

then we will be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed.

- Under certain circumstances, we may be subject to the "alternative
minimum tax" on certain items of tax preference.

REQUIREMENTS FOR QUALIFICATION

To qualify as a REIT, we must elect to be taxed as a REIT. We also must
meet the requirements discussed below relating to our organization, sources of
income, nature of assets, and distributions.

Organizational Requirements

In order to qualify as a REIT, we must satisfy the following organizational
requirements:

(1) we must be a corporation, trust, or association that is managed by
one or more trustees or directors;

(2) our beneficial ownership must be evidenced by transferable shares
or by transferable certificates of beneficial interest;

(3) we must be taxable as a domestic corporation but for sections 856
through 859 of the Internal Revenue Code;

(4) we must not be a financial institution or an insurance company;

(5) our beneficial ownership must be held by 100 or more persons; and

(6) during the last half of each taxable year no more than 50% in
value of our outstanding stock may be owned directly or indirectly, through
the application of attribution rules, by five or fewer individuals (as
defined in the Internal Revenue Code to include certain entities).

We must meet requirements (1) through (4) during the entire taxable year.
We must meet requirement (5) during at least 335 days of a taxable year of
twelve months, or during a proportionate part of a taxable year of less than
twelve months. Requirements (5) and (6) will not apply to us until our taxable
year ending December 31, 1999.

In the opinion of Sutherland Asbill & Brennan LLP, we have satisfied
requirements (1) through (4) above for the taxable year ended December 31, 1998,
and, with respect to requirement (5), 100 or more persons have held the
beneficial ownership of our stock since December 31, 1998. We further believe
that we will have issued in this offering sufficient common stock with
sufficient diversity of ownership to allow us to satisfy requirement (6) above
(and continue to satisfy requirement (5) above) for our taxable year ending
December 31, 1999. In addition, our Articles of Incorporation provide
restrictions intended to assist us in continuing to satisfy the share ownership
requirements described in (5) and (6) above regarding the transfer and ownership
of common stock. These ownership and transfer restrictions are described in
"Description of Capital Stock -- Restrictions on Ownership and Transfer of
Shares." However, because of the absence of authority on this issue, there is no
assurance that the operation of these Articles of Incorporation provisions will,
as a matter of law, prevent a concentration of ownership of stock in excess of
the ownership limits described in requirements (5) and (6) above. If we fail to
satisfy these requirements, our status as a REIT will terminate; however, if we
comply with the rules contained in the applicable Treasury Regulations requiring
us to attempt to ascertain the actual ownership of our shares, and we do not
know, and would not have known through the exercise of reasonable diligence,
whether we failed to
130
<PAGE> 137

meet the requirement set forth in condition (6) above, we will be treated as
having met such requirement. See "-- Taxation of Strategic Timber -- Failure of
the Company to Qualify as a REIT." In rendering its opinion that we are
organized in a manner that permits us to qualify as a REIT, Sutherland Asbill &
Brennan LLP is relying on our representations that the ownership of our stock
(without regard to the "excess stock" provisions of the Articles of
Incorporation) satisfies the stock ownership requirements set forth in
requirement (6) above.

There are a few additional organizational requirements that we must satisfy
in order to be treated as a REIT. Our taxable year must be the calendar year.
Also, we must maintain required records and request on an annual basis certain
information from our shareholders designed to disclose the actual ownership of
our outstanding stock. A REIT's failure to comply with these record-keeping
requirements would result in a monetary fine imposed on that REIT, unless it is
shown that the failure was due to reasonable cause and not to willful neglect.
We intend to comply with all of these requirements.

Income Tests

In order to maintain qualification as a REIT, we must satisfy two gross
income requirements each year. First, at least 75% of our gross income for each
taxable year must be derived directly or indirectly from investments relating to
real property or mortgages on real property or from certain types of temporary
investments. Types of qualifying income include "rents from real property" and
"gain from the sale or other disposition of real property" other than property
held primarily for sale to customers in the ordinary course of a trade or
business. Second, at least 95% of our gross income for each taxable year must be
derived from such real property investments, dividends, interest and gain from
the sale or disposition of stock or securities, or from any combination of these
items. For purposes of these tests, "gross income" does not include gross income
from any "prohibited transaction," a term defined in section 857(b)(6) of the
Internal Revenue Code. A transaction can be a prohibited transaction only if it
involves the sale or other disposition of property held primarily for sale to
customers in the ordinary course of a trade or business.

In applying the gross income tests and the asset tests to a REIT that is a
partner in a partnership, Treasury Regulations provide that the REIT will be
deemed to own its proportionate share of the assets of the partnership and will
be deemed to be entitled to the income of the partnership attributable to such
share. In addition, the character of the assets and gross income of the
partnership is the same in the hands of the REIT for purposes of section 856 of
the Internal Revenue Code, including satisfying the gross income tests and the
asset tests. Thus, our proportionate share of the assets and items of income of
Strategic Timber Partners will be treated as assets and items of income of
Strategic Timber for purposes of applying the requirements described in this
summary. For this reason, references in this summary to our income and assets
include our proportionate share of the income and assets of Strategic Timber
Partners. A summary of the rules governing the federal income taxation of
partnerships and their partners is provided below in "-- Tax Aspects of
Strategic Timber's Ownership of Interests in Strategic Timber Partners."

The fact that we own 100% of the outstanding stock of Strategic Timber
Operating Co., makes it a "qualified REIT subsidiary." A qualified REIT
subsidiary is not treated as a separate corporation for federal income tax
purposes, and all assets, liabilities, and items of income, deduction, and
credit of a qualified REIT subsidiary are treated as assets, liabilities, and
items of Strategic Timber for all purposes of the Internal Revenue Code,
including the REIT qualification tests. For this reason, references in this
summary to the income and assets of Strategic Timber include the income and
assets of Strategic Timber Operating Co. and any other qualified REIT
subsidiary.

We plan to dispose of standing timber by granting purchasers cutting rights
to timber by contracts that satisfy the requirements of section 631(b) of the
Internal Revenue Code. Section 631(b) generally treats a timber owner's gain or
loss on a disposal of timber as though it were gain or loss on the sale of such
timber if the owner has held the timber for more than one year and disposes of
it under a contract pursuant to which the owner retains an economic interest in
the timber. Advance payments received under

131
<PAGE> 138

a section 631(b) contract are taxable in the year received, even though the
timber to be cut under the contract might be cut in a later year. If we refund
advance payments subsequent to the filing of the tax return for the year such
advance payments were received, we will be required to amend that tax return and
may be required to issue revised statements (Forms 1099 and 2439) to our
shareholders, which may necessitate the filing of amended tax returns by the
shareholders.

In the opinion of Sutherland Asbill & Brennan LLP, any gain we recognize
under timber cutting agreements that satisfy the requirements of section 631(b)
will be treated as gain from the sale or other disposition of real property that
is not property held primarily for sale to customers in the ordinary course of
business within the meaning of the 75% gross income test and the 95% gross
income test. As noted above, we have received a private letter ruling from the
IRS confirming this opinion.

It is also the opinion of Sutherland Asbill & Brennan LLP that the income
we receive from timber cutting agreements that do not satisfy the requirements
of section 631(b) of the Internal Revenue Code solely because we have not held
the timber disposed of for more than one year will qualify as "rents from real
property" within the meaning of the two gross income tests, provided that those
timber cutting agreements also meet the requirements set forth in the following
paragraph.

Rents we receive will qualify as "rents from real property" in satisfying
the gross income requirements for a REIT only if several conditions are met.
First, the amount of rent must not be based in whole or in part on the income or
profits of any person. However, an amount received or accrued generally will not
be excluded from the term "rents from real property" solely because it is based
on a fixed percentage or percentages of receipts or sales. Second, rents
received from a person will not qualify as "rents from real property" in
satisfying the gross income tests if the REIT, or an actual or constructive
owner of 10% or more of the REIT, actually or constructively owns 10% or more of
that person. Third, if rent attributable to personal property leased in
connection with a lease of real property is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such personal
property will not qualify as "rents from real property." Finally, for rents
received to qualify as "rents from real property," the REIT generally must not
operate or manage the property or furnish or render services to the tenants of
such property, other than through an independent contractor who is adequately
compensated and from whom the REIT derives no revenue (subject to a 1% de
minimis exception).

We anticipate that our only rental income of a material amount from sources
other than timber cutting agreements will be from certain real property leases,
including hunting leases. We represented to Sutherland Asbill & Brennan LLP
that:

- each lease that produced qualifying rents that was not reviewed is
substantially identical in all material respects to the terms of a
particular lease reviewed;

- neither we nor any actual or constructive owner of 10% or more of our
common stock owns 10% or more of any lessee; and

- specific amounts of our 1998 gross income were derived from specific
sources.

In determining that we satisfied the gross income tests for the period ending
December 31, 1998, Sutherland Asbill & Brennan LLP reviewed available lease
documents, determined which leases would produce qualifying "rents from real
property" and which would not, and relied on our representations.

If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we will fail to qualify as a REIT for that year unless we are
entitled to relief under the Internal Revenue Code. These relief provisions will
generally be available if our failure to meet the gross income tests was due to
reasonable cause and not due to willful neglect, we attach a schedule of the
sources of our income to our federal income tax return, and any incorrect
information on the schedule was not due to fraud with intent to evade tax. We
have represented that we will exercise ordinary business care and prudence in
attempting to satisfy the gross income tests and will attach a schedule of the
sources of our income to our tax return each year. It is not possible, however,
to state whether in all circumstances we would be entitled to the benefit of the
relief provisions. Furthermore, as discussed above in "-- Taxation of Strategic
Timber --

132
<PAGE> 139

General," even if the relief provisions apply, a 100% tax would be imposed on an
amount equal to the gross income attributable to the greater of the amount by
which we failed the 75% test or the 95% test, multiplied by a fraction intended
to reflect our profitability.

Any net income we realize from the sale or other disposition of property
held primarily for sale to customers in the ordinary course of a trade or
business will be treated as income from a "prohibited transaction" and will be
subject to a 100% penalty tax. Such prohibited transaction income may also have
an adverse effect upon our ability to satisfy the income tests for qualification
as a REIT. Under existing law, whether property is held primarily for sale to
customers in the ordinary course of a trade or business is a question of fact
that depends on all the facts and circumstances with respect to the particular
transaction. In the opinion of Sutherland Asbill & Brennan LLP, income derived
from timber cutting agreements that satisfy the requirements of section 631(b)
of the Internal Revenue Code will be treated as income realized from the
disposition of property used in our trade or business and not as income realized
from the sale or other disposition of property held primarily for sale to
customers in the ordinary course of our trade or business. The IRS has confirmed
this conclusion in the private letter ruling we received.

Strategic Timber Partners intends to hold timberlands and other properties
for investment with a view to long-term appreciation, to engage in the business
of acquiring, developing, owning and operating timberlands and other properties
and to make such occasional sales of timberlands (as opposed to dispositions of
standing timber) or other properties, including "higher and better use" parcels,
as are consistent with its investment objectives. The IRS could contend that one
or more of such sales is a prohibited transaction and subject to the 100%
penalty tax. In general, the determination of whether property is held primarily
for sale to customers in the ordinary course of its trade of business depends on
all the facts and circumstances surrounding such property's sale. Therefore, it
is not possible for Sutherland Asbill & Brennan LLP to opine whether any future
sale of timberlands or other properties, other than a sale of timber meeting the
requirements of section 631(b), might be a prohibited transaction.

We intend to satisfy the gross income tests in 1999 and subsequent years.
However, there can be no assurance that we will in fact satisfy these
requirements every year.

Asset Tests

At the close of each calendar quarter, we must satisfy three tests relating
to our assets. First, at least 75% of the value of our total assets must be
represented by real estate assets, cash, cash items and government securities.
Second, not more than 25% of our total assets may be represented by securities
other than those in the 75% asset class. Third, of the investments included in
the 25% asset class, the value of any one issuer's securities owned by us may
not exceed 5% of the value of our total assets, and we may not own more than 10%
of any one issuer's outstanding voting securities. This final rule, however,
does not apply to our interests in Strategic Timber Partners, any other
partnership, any qualified REIT subsidiary, or any other disregarded entity.

In the opinion of Sutherland Asbill & Brennan LLP, timberlands and the
timber thereon constitute real estate assets within the meaning of the asset
tests. The ruling received from the IRS confirms this conclusion. We met the 75%
asset test during 1998 and anticipate that we will always meet this test.

If we should fail to satisfy the asset tests at the end of a calendar
quarter, we would lose our REIT status unless we satisfied all of the asset
tests at the close of the preceding calendar quarter and, in addition, the
discrepancy between the value of our assets and the asset requirements either
did not exist immediately after the acquisition of any particular asset or was
not wholly or partly caused by such an acquisition. If the condition described
in the second clause of the preceding sentence were not satisfied, we could
still avoid disqualification by eliminating that discrepancy within 30 days
after the close of the quarter in which it arose.

133
<PAGE> 140

Distribution Requirements

In order to qualify as a REIT, we must distribute dividends, other than
capital gain dividends to our shareholders in an amount at least equal to 95% of
our "REIT taxable income" (computed without regard to the dividends paid
deduction and by excluding our net capital gain), plus 95% of any after-tax net
income from foreclosure property, less the sum of certain items of non-cash
income. We generally must pay these dividends in the taxable year to which they
relate. However, we may pay a dividend in the following taxable year if we
declare the dividend before timely filing our tax return for the taxable year to
which the dividend relates and we pay the dividend on or before the first
regular dividend payment date after the declaration. We intend to make timely
distributions sufficient to satisfy these distribution requirements.

In the event that we distribute or are treated as having distributed at
least 95%, but less than 100%, of our so adjusted "REIT taxable income," we will
be subject to tax on the income not distributed at ordinary corporate tax rates.
We will also be subject to tax at capital gain rates on any of our net capital
gain that we do not distribute or are not treated as having distributed. If we
fail to distribute during each calendar year at least the sum of (1) 85% of our
REIT ordinary income for such year, (2) 95% of our REIT capital gain income for
such year, other than capital gain income which we elect to retain and pay tax
on as provided below, and (3) any undistributed taxable income from prior
periods, other than capital gains from such years which we elected to retain and
pay tax on, we would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed.

The Internal Revenue Code allows us to elect to retain rather than
distribute all or part of our net capital gains. There are several effects of
such an election. First, we are required to pay the tax on such gains at regular
corporate tax rates. Second, our shareholders are required to include their
proportionate share of the undistributed net capital gain in income. However,
the shareholders will receive a credit for their share of the tax we paid, which
may result in a tax refund to them. Third, the basis of a shareholder's stock
would be increased by the amount of the undistributed net capital gains included
in income by the shareholder minus the amount of capital gains tax we paid on
the shareholder's behalf. In order for a shareholder to receive the credit or
the refund for the taxes we paid on the shareholder's behalf, the shareholder
must file the necessary forms with the IRS.

At any given time, it is possible that we may not have sufficient cash or
other liquid assets to meet the distribution requirements. This may result from
timing or other differences between:

- the actual receipt of income and actual payment of deductible
expenses;

- the inclusion of such income and deduction of such expenses in
arriving at our taxable income; or

- our percentage interest in the Strategic Timber Partners' cash flow
and our share of taxable income arising upon a disposition of property
contributed to Strategic Timber Partners where the fair market value
of such property exceeds its tax basis.

If such differences occur, we may, in order to meet the distribution
requirements, find it necessary to arrange for borrowings, equity issuances or
asset sales, or to pay dividends in the form of taxable stock dividends, or to
elect to retain and pay taxes on a portion of our net capital gains.

Under certain circumstances, we may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
shareholders in a later year, which may be included in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends; however, we would be required to
pay interest based upon the amount of any deduction taken for deficiency
dividends. It is our intention to meet all distribution requirements for the
year in which such requirements arise, so we do not anticipate paying deficiency
dividends.

134
<PAGE> 141

FAILURE TO QUALIFY AS A REIT

If we fail to qualify to be taxed as a REIT in any taxable year and if the
relief provisions do not apply, we will be subject to tax, including any
applicable alternative minimum tax, on our taxable income at regular corporate
rates. We could not deduct distributions to our shareholders in any year in
which we failed to qualify as a REIT. This would significantly reduce the cash
we have available to distribute to our shareholders and would likely reduce the
value of our common stock. In addition, if we failed to qualify as a REIT, all
distributions to our shareholders would be taxable as ordinary income, to the
extent of our current and accumulated earnings and profits. If that happened,
subject to certain limitations of the Internal Revenue Code, corporate
shareholders might be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, we also would be
disqualified from being taxed as a REIT for the next four taxable years. It is
not possible to state whether in all circumstances we would be entitled to that
statutory relief.

TAXATION OF TAXABLE U.S. SHAREHOLDERS

We are using the term "U.S. shareholder" to mean a holder of our common
stock who, for United States federal income tax purposes, is:

- an individual who is a citizen or resident of the United States;

- an entity that is a corporation or partnership for United States federal
income tax purposes and that is created or organized in the United States
or under the laws of the United States or any political subdivision
thereof although certain partnerships so created or organized may be
treated, under regulations not yet published, as not a United States
person;

- any estate whose income is includible in gross income for United States
federal income tax purposes regardless of its source; or

- a domestic trust. A domestic trust is any trust whose administration is
subject to the primary supervision of a court within the United States,
and as to which one or more United States fiduciaries have the authority
to control all substantial decisions although certain trusts classified
for United States federal income tax purposes as a United States person
prior to August 20, 1996 may, under regulations not yet published, elect
to retain their classification as a domestic trust.

DISTRIBUTIONS BY STRATEGIC TIMBER

So long as we qualify as a REIT, distributions we make out of our current
or accumulated earnings and profits that are not designated as capital gain
dividends will constitute dividends taxable to our taxable U.S. shareholders as
ordinary income. U.S. shareholders that are corporations will not be eligible
for the dividends received deduction with respect to such dividends.
Distributions we properly designate as capital gain dividends will, to the
extent that they do not exceed our actual net capital gain for the taxable year,
be taxable to taxable U.S. shareholders as long-term capital gains without
regard to the period for which a U.S. shareholder has held our common stock.

U.S. shareholders that are corporations may, however, be required to treat
up to 20% of specified capital gain dividends as ordinary income pursuant to
section 291(d) of the Internal Revenue Code. Individuals are generally subject
to differing rates of tax on various transactions giving rise to long-term
capital gains or losses. In general, the maximum long-term capital gain rate
applicable to individuals is 20%.

If we elect to retain and reinvest some or all of our capital gains rather
than distributing them, we will pay tax on these gains at the corporate tax
rate, which is now 35%. You will be deemed to have received a capital gain
dividend equal to your proportionate share of the gain we retained, which you
will need to report in your own return. You will, however, be entitled to a tax
credit on your proportionate share of the tax we paid on the gain. The maximum
capital tax rate applicable to U.S. individuals on this gain is 20% and,
depending upon your income, may be less. The difference between the tax we paid
on

135
<PAGE> 142

your behalf at the 35% corporate rate and the tax you actually owe on this gain
may be used to offset your liability for tax on other items of income, and if
your total tax payments exceed your liability, you will be entitled to a tax
refund. Tax-exempt organizations who are shareholders will be entitled to a
refund of the entire amount of tax we paid on their behalf. Each year, we will
report the amount of any retained capital gains to you on IRS Forms 2439, which
are similar to a Form 1099, and you may claim the tax credit on your own income
tax return, or on Form 990-T in the case of exempt organizations. Your tax basis
in the common stock you own will be increased by the amount of the deemed
capital gain dividend, less your proportionate share of the tax we paid on your
behalf.

To the extent that we make distributions in excess of our current and
accumulated earnings and profits, such distributions will be treated first as a
tax-free return of capital to each U.S. shareholder. A distribution treated as a
return of capital reduces the adjusted basis that the U.S. shareholder has in
its common stock for tax purposes by the amount of such distribution (but not
below zero), with distributions in excess of a U.S. shareholder's adjusted basis
in its common stock taxable as capital gains, provided that the common stock has
been held as a capital asset. We will be treated as having sufficient earnings
and profits to treat as a dividend any distribution up to the amount required to
be distributed in order to avoid imposition of the 4% excise tax discussed under
"-- Taxation of Strategic Timber -- General" and "-- Taxation of Strategic
Timber -- Requirements for Qualification -- Distribution Requirements." As a
result, shareholders may be required to treat as taxable dividends specified
distributions that would otherwise result in tax-free returns of capital.
Moreover, any "deficiency dividend" will be treated as a "dividend," either an
ordinary dividend or a capital gain dividend, regardless of our earnings and
profits. Dividends declared in October, November, or December of any year and
payable to a shareholder of record on a specified date in any such month shall
be treated as both paid by us and received by the shareholder on December 31 of
that year, provided that we actually pay the dividend on or before January 31 of
the following calendar year. Shareholders may not include in their own income
tax returns any net operating losses or net capital losses we may incur. We will
notify each shareholder after the close of our taxable year as to the portions
of the distributions attributable to that year which constitute ordinary income,
capital gain or a return of capital.

Income from distributions we pay and gain arising from the sale or exchange
by a U.S. shareholder of our common stock will not be treated as passive
activity income and, as a result, U.S. shareholders generally will not be able
to apply any "passive activity losses" against such income or gain. Dividends we
pay to the extent they do not constitute a capital gain dividend or a return of
capital, will generally be treated as investment income for purposes of the
investment interest limitation. Net capital gain from the sale or other
disposition of shares of our common stock and capital gain dividends will
generally not be considered investment income for purposes of the investment
interest limitation.

SALE OF COMMON STOCK

Upon any sale or other taxable disposition of our common stock, a U.S.
shareholder will recognize gain or loss for federal income tax purposes in an
amount equal to the difference between the amount of cash and the fair market
value of any property received on such sale or other disposition, and the
shareholder's adjusted basis in the common stock for tax purposes. This gain or
loss will be capital gain or loss if the common stock has been held as a capital
asset and will be long-term gain or loss if the common stock has been held for
more than one year. In general, any loss recognized by a U.S. shareholder upon
the sale or other taxable disposition of common stock that has been held for six
months or less for tax purposes will be treated as a long-term capital loss to
the extent of distributions received by the U.S. shareholder from us which were
required to be treated as long-term capital gains.

WITHHOLDING ON DISTRIBUTIONS

We will report to our U.S. shareholders and to the IRS the amount of
dividends paid during each calendar year and the amount of any tax withheld.
Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless the
shareholder is a corporation or comes within certain other exempt categories
and, when required, demonstrates this
136
<PAGE> 143

fact, or provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A U.S. shareholder that does not
provide us with the correct taxpayer identification number may also be subject
to penalties imposed by the IRS. Any amount paid as backup withholding will be
creditable against the shareholder's federal income tax liability. In addition,
we may be required to withhold a portion of capital gain distributions to any
shareholder who fails to certify his non-foreign status to us. See "--Taxation
of Non-U.S. Shareholders of Strategic Timber."

TAXATION OF TAX-EXEMPT SHAREHOLDERS OF STRATEGIC TIMBER

Dividends that we pay a tax-exempt shareholder, other than tax-exempt
shareholders that fall within the special categories described below, will not
be unrelated business taxable income, or "UBTI," unless the tax-exempt
shareholder has held its common stock as "debt financed property" within the
meaning of the Internal Revenue Code or has otherwise used its common stock in
an unrelated trade or business. Similarly, a tax-exempt shareholder's income
from the sale of common stock will not constitute UBTI unless the tax-exempt
shareholder has held the common stock as "debt financed property" within the
meaning of the Internal Revenue Code or has used the common stock in an
unrelated trade or business.

Dividends we pay tax-exempt shareholders that are social clubs, voluntary
employee benefit associations, supplemental unemployment benefit trusts, and
qualified group legal services plans exempt from federal income taxation under
Internal Revenue Code sections 501(c)(7), (9), (17) and (20), respectively, will
constitute UBTI unless the organization is able properly to deduct amounts set
aside or placed in reserve for purposes authorized by the Internal Revenue Code
so as to offset this dividend income. Prospective shareholders falling in to one
of these categories should consult their own tax advisors concerning these set
aside and reserve requirements.

In addition, in some circumstances a pension trust that owns more than 10%
of our stock may be required to treat a percentage of the dividends received
from us as UBTI. This percentage is the gross income we derived from an
unrelated trade or business (determined as if we were a pension trust) divided
by our gross income for the year in which the dividends are paid. The rule will
apply to a pension trust holding more than 10% of our stock only if:

- the percentage is at least 5%;

- in order for us to meet the 100 shareholder requirement to qualify as
a REIT, it is necessary for us to treat the beneficiaries of the
pension trust as holding our shares held by the trust in proportion to
their actuarial interests in the pension trust; and

- either one pension trust owns more than 25% of the value of our stock,
or a group of pension trusts individually holding more than 10% of the
value of our stock collectively owns more than 50% of the value of our
stock.

Based on the anticipated ownership of the shares of our common stock immediately
after this offering, and as a result of the limitations on transfer and
ownership of this common stock contained in the Articles of Incorporation, we do
not expect this rule to apply to any tax-exempt shareholders of our stock. In
addition, we intend to conduct our business in such a way that we would not be
treated as deriving gross income from an unrelated trade or business, even if
this rule were to apply.

TAXATION OF NON-U.S. SHAREHOLDERS OF STRATEGIC TIMBER

The rules governing United States federal income taxation of the ownership
and disposition of common stock by persons that are considered to be non-U.S.
shareholders for tax purposes are complex, and we will not attempt in this
discussion to provide more than a brief summary of these rules. The discussion
does not address all aspects of United States federal income tax and does not
address state, local or foreign tax consequences that may be relevant to a
non-U.S. shareholder in light of its particular circumstances.

137
<PAGE> 144

DISTRIBUTIONS BY STRATEGIC TIMBER

Under the Foreign Investment in Real Property Tax Act, which is commonly
referred to as "FIRPTA," distributions to a non-U.S. shareholder that are
attributable to gain from sales or exchanges of United States real property
interests will be treated by the non-U.S. shareholders as income effectively
connected with a United States trade or business. Gain from dispositions of
timber that we have owned for more than one year growing on timberlands within
the United States will come within this category. Non-U.S. shareholders would
generally be taxed at the same rates applicable to domestic shareholders on this
gain, subject to a special alternative minimum tax in the case of nonresident
alien individuals. Also, this gain may be subject to a 30% branch profits tax in
the hands of a non-U.S. shareholder that is a corporation. Unless a tax treaty
between the United States and the country of residence of the non-U.S.
shareholder reduces the withholding rate for REIT dividends, we are generally
required to withhold 35% of any capital gain distribution. That amount is
creditable against the non-U.S. shareholder's United States federal income tax
liability and is refundable if the amount withheld exceeds the non-U.S.
shareholders' actual U.S. income tax liability. To obtain a refund, the non-U.S.
shareholder must file a U.S. income tax return. This 35% withholding tax rate on
capital gain dividends is higher than the maximum rate on long-term capital
gains of individuals of 20%.

Distributions we pay to a non-U.S. shareholder that are neither
attributable to gain from our sale or exchange of United States real property
interests nor designated by us as capital gains dividends will be treated as
ordinary income to the extent that they are made out of our current or
accumulated earnings and profits. These distributions will be subject to U.S.
withholding tax on a gross basis (that is, without allowance of deductions) at a
30% rate, unless the withholding tax rate is reduced under an applicable income
tax treaty between the United States and the country of tax residence of the
non-U.S. shareholder.

For dividends paid prior to January 1, 2000, we are permitted by the tax
rules to rely on a shareholder's address in determining whether the dividend is
subject to withholding on the basis of being paid to a non-U.S. person. If a
non-U.S. shareholder is relying on a tax treaty to claim a lower withholding
rate, we will ask the shareholder to provide an appropriately executed Form 1001
to document this claim.

Recently finalized United States Treasury Regulations applicable to
dividends paid after December 31, 1999 set forth presumptions which we may
generally rely upon to determine whether, in the absence of certain
documentation, a shareholder should be treated as a non-U.S. shareholder for
purposes of the withholding tax on non-capital gain dividends. The presumptions
would not apply for purposes of granting a reduced rate of withholding under a
treaty to a non-U.S. shareholder. To obtain a reduced rate of withholding under
a treaty, a non-U.S. shareholder will be required either to provide us with a
Form W-8 certifying such non-U.S. shareholder's entitlement to benefits under a
treaty together with, in certain circumstances, additional information, or
satisfy certain other applicable treaty certification requirements. The new
regulations also provide special rules to determine whether, for purposes of
determining the applicability of a tax treaty, dividends paid to a non-U.S.
shareholder that is an entity should be treated as paid to the entity or to
those persons or entities holding an interest in the entity.

The 30% withholding tax applicable to non-capital gain dividends will not
apply if the dividends are treated as effectively connected with the conduct by
the non-U.S. shareholder of a United States trade or business, or,
alternatively, where an income tax treaty applies if the non-U.S. shareholder
files the appropriate IRS forms with us. In general, a foreign shareholder will
not be considered engaged in a U.S. trade or business solely as a result of its
ownership of common stock.

Distributions in excess of our current or accumulated earnings and profits
will not be taxable to a non-U.S. shareholder to the extent that they do not
exceed the adjusted basis of the shareholder's common stock, but will reduce the
adjusted basis of the shareholder's common stock. To the extent that such
distributions exceed the adjusted basis of a non-U.S. shareholder's common
stock, they will give rise to gain from the sale or exchange of the
shareholder's common stock. The tax treatment of this gain is the same as if the
non-U.S. shareholder had sold our stock, which is described below.

138
<PAGE> 145

SALE OF COMMON STOCK

Gain recognized by a non-U.S. shareholder on the sale or exchange of common
stock generally will not be subject to United States taxation unless the shares
constitute a "United States real property interest" within the meaning of
FIRPTA. Our common stock will not constitute a "United States real property
interest" so long as we are a "domestically controlled REIT." We will meet this
definition if, at all times during a specified testing period, less than 50% in
value of our stock is held directly or indirectly by non-U.S. shareholders. We
believe that after this offering we will be a "domestically controlled REIT,"
and therefore that the sale of common stock will not be subject to taxation
under FIRPTA. However, because the common stock is expected to become publicly
traded, no assurance can be given that we will continue to meet this definition.
Even if we meet this definition, gain from the sale or exchange of common stock
not otherwise subject to FIRPTA will be taxable to a non-U.S. shareholder if:

- the non-U.S. shareholder is a nonresident alien individual who is present
in the United States for 183 days or more during the taxable year and has
a "tax home" in the United States, in which case the nonresident alien
individual will be subject to a 30% United States withholding tax on the
amount of the gain, or

- the non-U.S. shareholder's investment in common stock is effectively
connected with its U.S. trade or business, in which case the non-U.S.
shareholder will be subject to the same treatment as U.S. shareholders
with respect to this gain.

If we do not qualify as, or cease to be a "domestically controlled REIT,"
the determination of whether gain arising from the sale or exchange by a
non-U.S. shareholder of common stock would be subject to United States taxation
under FIRPTA as a sale of a "United States real property interest" will depend
on whether the common stock is "regularly traded" for tax purposes on an
established securities market and on the size of the selling non-U.S.
shareholder's interest in Strategic Timber. In general, if the common stock is
"regularly traded" on an established securities market during the quarter in
which the non-U.S. shareholder sells his or her stock and the selling non-U.S.
shareholder holds, directly or indirectly, 5% or less of our common stock during
the five-year period ending on the date of disposition, then the sale will not
be subject to United States taxation under FIRPTA. If gain on the sale or
exchange of common stock were subject to taxation under FIRPTA, the non-U.S.
shareholder would be subject to regular United States income tax with respect to
this gain in the same manner as a U.S. shareholder (subject to any applicable
alternative minimum tax, as computed in the case of nonresident alien
individuals and foreign corporations and the possible application of the 30%
branch profits tax in the case of foreign corporations), and the purchaser of
the common stock would be required to withhold and remit to the IRS 10% of the
purchase price.

BACKUP WITHHOLDING TAX AND INFORMATION REPORTING

We must report annually to the IRS and to each non-U.S. shareholder the
amount of dividends paid to, and the tax withheld with respect to, the
shareholder, regardless of whether any tax was actually withheld. That
information may also be made available to the tax authorities of the country in
which a non-U.S. shareholder resides.

Backup withholding tax, which generally is imposed at the rate of 31% on
certain payments to persons that fail to furnish certain information under the
United States information reporting requirements, will generally not apply:

- if distributions are paid on or prior to December 31, 1999 to a non-U.S.
shareholders at an address outside the United States (provided that we do
not have actual knowledge that the payee is a United States person),

- if such distributions are subject to the 30% (or lower treaty rate)
withholding tax discussed above,

- if the distribution is a capital gains distribution, or

139
<PAGE> 146

- if the distribution is attributable to gain we realized from the sale or
exchange by Strategic Timber of United States real property interests.

For distributions paid after December 31, 1999, the new regulations provide
certain presumptions and other rules under which non-U.S. shareholders may be
subject to backup withholding and related information reporting in the absence
of required certifications. As a general matter, backup withholding and
information reporting will not apply to a payment of the proceeds of a sale of
common stock by or through a foreign office of a foreign broker. However,
information reporting, but not backup withholding, will apply to a payment of
the proceeds of a sale of common stock by a foreign office of a broker that:

- is a United States person;

- derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States;

- is a U.S. "controlled foreign corporation" for United States tax
purposes; or

- effective after December 31, 1999, certain brokers that are foreign
partnerships with U.S. partners or that are engaged in a U.S. trade or
business;

unless in each such case the broker has documentary evidence in its records that
the holder is a non-U.S. shareholder and certain other conditions are met, or
the shareholder otherwise establishes an exemption. Payment to or through a
United States office of a broker of the proceeds of a sale of common stock is
subject to both backup withholding and information reporting unless the
shareholder certifies under penalty of perjury that the shareholder is a
non-U.S. shareholder, or otherwise establishes an exemption.

The backup withholding tax is not an additional tax and may be credited
against a non-U.S. shareholder's United States federal income tax liability or
refunded to the extent excess amounts are withheld, provided that the required
information is supplied to the IRS.

TAX ASPECTS OF STRATEGIC TIMBER'S OWNERSHIP OF INTERESTS IN STRATEGIC TIMBER
PARTNERS

GENERAL

All of our assets will be held through Strategic Timber Partners. In
general, partnerships are "pass-through" entities which are not subject to
federal income tax. Instead, partners are allocated their proportionate shares
of the items of income, gain, loss, deduction and credit of a partnership, and
are potentially subject to tax on these items, without regard to whether the
partners receive a distribution from the partnership. We will include in our
income our proportionate share of these partnership items of Strategic Timber
Partners for purposes of the various REIT income tests and in the computation of
our REIT taxable income. Moreover, for purposes of the REIT asset tests, we will
include our proportionate share of assets held through Strategic Timber
Partners.

Our interest in Strategic Timber Partners may involve special tax
considerations. Those considerations include:

- the allocation of items of income and expense, which could affect the
computation of our taxable income;

- the treatment of Strategic Timber Partners as a partnership for federal
income tax purposes; and

- the taking of actions by Strategic Timber Partners which could adversely
affect our qualification as a REIT.

140
<PAGE> 147

ENTITY CLASSIFICATION

An organization formed as a partnership will be treated as a partnership
for federal income tax purposes if:

- it is not expressly classified as a corporation under section
301.7701-2(b)(1) through (8) of the Treasury Regulations;

- it does not elect to be classified as an association taxable as a
corporation; and

- it is not treated as a corporation by virtue of being classified as a
"publicly traded partnership."

Under section 7704 of the Code, a partnership is treated as a corporation
for federal income tax purposes if it is a "publicly traded partnership," except
in situations in which 90% or more of the partnership's gross income is
"qualifying income" within the meaning of section 7704(c)(2) of the Code.
"Qualifying income" includes interest, dividends, real property rents, gains
from the disposition of real property, and certain income or gains from the
exploitation of natural resources, including timber. We expect that more than
90% of the gross income of Strategic Timber Partners each year will be
"qualifying income."

We, Strategic Timber Partners, and Strategic Timber Operating Co., the sole
general partner of Strategic Timber Partners, have represented to Sutherland
Asbill & Brennan LLP that Strategic Timber Partners will timely file a federal
income tax return for its initial taxable year ending December 31, 1998, and
will not elect to be treated as a corporation for federal income tax purposes.
Sutherland Asbill & Brennan LLP is of the opinion that Strategic Timber Partners
will be treated as a partnership for federal income tax purposes.

If for any reason Strategic Timber Partners were taxable as a corporation,
rather than as a partnership, for federal income tax purposes, we would not be
able to satisfy the income and asset requirements for REIT status. See
"-- Taxation of Strategic Timber -- Requirements for Qualification -- Income
Tests" and "-- Requirements for Qualification -- Asset Tests." In addition, any
change in Strategic Timber Partners' status for tax purposes might be treated as
a taxable event, in which case we might incur a tax liability without any
related cash distribution. See "-- Taxation of Strategic Timber -- Requirements
for Qualification -- Distribution Requirements." Further, items of income and
deduction of Strategic Timber Partners would not pass through to its partners,
and its partners would be treated as shareholders for tax purposes.
Consequently, Strategic Timber Partners would be required to pay income tax at
corporate tax rates on its net income, and distributions to its partners would
constitute dividends that would not be deductible in computing Strategic Timber
Partners' taxable income.

PARTNERSHIP ALLOCATIONS

Although a partnership agreement will generally determine the allocation of
income and loss among partners, those allocations will be disregarded for tax
purposes if they do not comply with the provisions of section 704(b) of the
Internal Revenue Code and applicable Treasury Regulations. Generally, section
704(b) and the Treasury Regulations require that partnership allocations respect
the economic arrangement of the partners.

If an allocation is not recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. In the opinion of Sutherland Asbill &
Brennan LLP, the allocation of taxable income and loss contained in the
partnership agreement of Strategic Timber Partners complies with the
requirements of section 704(b) of the Internal Revenue Code and the applicable
Treasury Regulations.

141
<PAGE> 148

TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES

Pursuant to section 704(c) of the Internal Revenue Code, income, gain, loss
and deduction attributable to appreciated or depreciated property which has been
contributed to a partnership in exchange for an interest in the partnership must
be allocated in a manner such that the contributing partner is charged with, or
benefits from, respectively, the unrealized gain or unrealized loss associated
with the property at the time of the contribution. The amount of such unrealized
gain or unrealized loss is generally equal to the difference between the fair
market value of contributed property at the time of contribution and the
adjusted tax basis of such property at such time, commonly called a "Book-Tax
Difference." Section 704(c) allocations are solely for federal income tax
purposes and do not affect the partners' capital accounts or other economic or
legal arrangements among the partners.

All of the current timber assets of Strategic Timber Partners have a
Book-Tax Difference. When those assets are disposed of, including as a result of
timber dispositions pursuant to a timber cutting agreement, the Book-Tax
Difference will be accounted for by income allocations to the respective
contributing partners. These income allocations will eliminate the Book-Tax
Difference over the life of the partnership. Treasury Regulations under section
704(c) provide partnerships with a choice of several methods of accounting for
Book-Tax Differences. We have determined to use the "remedial method" for
accounting for Book-Tax Differences with respect to the properties owned by
Strategic Timber Partners at the time of this offering.

BASIS IN PARTNERSHIP INTEREST

Our adjusted tax basis in our interest in Strategic Timber Partners
generally will be equal to the amount of cash and the basis of any other
property we contribute to Strategic Timber Partners, will be increased by our
allocable share of the partnership's income and indebtedness and will be
reduced, but not below zero, by our allocable share of losses incurred by
Strategic Timber Partners, by the amount of cash distributed to us by Strategic
Timber Partners, and by constructive distributions resulting from a reduction in
our share of Strategic Timber Partners' indebtedness.

If our distributive share of Strategic Timber Partners' losses exceeds the
adjusted tax basis of our partnership interest, the recognition of such excess
loss will be deferred until such time as we have adjusted tax basis in our
partnership units against which to deduct the loss. To the extent that the
distributions from Strategic Timber Partners, or any decrease in our share of
the indebtedness of Strategic Timber Partners (such decreases being considered a
cash distribution to the partners), exceeds our adjusted tax basis, such excess
distributions constitute taxable income to us. This taxable income will normally
be characterized as capital gain, and if our interest in the partnership has
been held for longer than the long-term capital gain holding period (currently
one year), the distributions and constructive distributions will constitute
long-term capital gain.

OTHER TAXES

We, any of our subsidiaries, Strategic Timber Partners or our shareholders
may be subject to foreign, state and local tax in various countries, states and
localities, including those countries, states and localities in which we, it or
they transact business, own property, or reside. The state, local or foreign tax
treatment of any of these parties in such jurisdictions may differ from the
federal income tax treatment described above.

Qualification as a REIT under the laws of the individual states will
depend, among other things, on the state's conformity with federal tax law. For
example, one change made by the Taxpayer Relief Act of 1997, which eliminated
percentage limitations on the amount of income a REIT can have from the
disposition of assets held for less than four years is critical to the federal
income tax treatment described in this prospectus. If a state's tax laws do not
conform to this change, our status as a REIT under that state's tax laws would
be doubtful.

142
<PAGE> 149

Louisiana and Oregon conform to this change and otherwise generally follow
the federal tax treatment of REITs. New Hampshire does not conform to the
federal tax treatment of REITs. Accordingly, the New Hampshire Business Profits
Tax will apply to us. The Business Profits Tax is a 7% tax on net business
profits with no deduction for dividends distributed to shareholders. The
Business Profits Tax is subject to apportionment based on a three-factor
formula, so we will not be required to pay the tax on the full amount of our
income, but only on that portion that is attributed to New Hampshire through
application of the apportionment formula.

We will be subject to a Business and Occupation tax in Washington, which is
a tax on gross receipts. However, receipts from the sale of standing timber are
exempt from this Washington tax.

Some states in which we are not engaged in business do not conform to the
federal tax treatment of REITs. Since we do not do business in those states, we
would generally not be subject to taxation by any of those states. However, cash
distributions out of our earnings and profits to shareholders in those states
would likely be characterized as ordinary income rather than capital gains for
purposes of computing their state tax liability. This difference will generally
be relevant only in those states where capital gains are taxed at preferential
rates, or if a shareholder has a net capital loss carryforward available for
state tax purposes.

The state tax treatment of net capital gains we retain will depend on the
state tax laws of the states in which both we and our shareholders are subject
to tax. It is possible, therefore, that we may pay some state income taxes with
respect to our undistributed net capital gains that produce no usable state tax
credit for our shareholders. For example, although California otherwise
generally conforms to the federal treatment of REITs, it has not adopted the
provisions dealing with the treatment of retained capital gains. As a result, we
will pay California taxes on our retained capital gains, but shareholders will
not receive a credit for the taxes paid by us against their California tax
liability, if any.

Prospective investors are urged to consult their own tax advisors regarding
the effect of foreign, state and local tax laws upon an investment in our common
stock. Again, none of the statements in this discussion concerning matters of
foreign, state or local tax law constitutes an opinion of counsel.

143
<PAGE> 150

ERISA CONSIDERATIONS

GENERAL

This section summarizes some important issues under the Employee Retirement
Income Security Act of 1974, as amended, or ERISA, and the prohibited
transaction provisions of section 4975 of the Internal Revenue Code that you
should consider before purchasing our common stock. Even if you are not an
employee benefit plan, another tax-qualified retirement plan, or an individual
retirement account, or IRA, you should review "-- Status of Strategic Timber and
Strategic Timber Partners under ERISA." This section does not deal with all
aspects of ERISA or section 4975 of the Internal Revenue Code that may be
relevant to you in light of your particular circumstances, especially if you
are:

- a plan subject to Title I of ERISA;

- other retirement plan or IRA subject to the prohibited transaction
provisions of section 4975 of the Internal Revenue Code; or

- a governmental plan or church plan that is exempt from ERISA and section
4975 of the Internal Revenue Code but that may be subject to state law
requirements.

This section is based on current provisions of ERISA and the Internal
Revenue Code, existing and currently proposed regulations under ERISA and the
Internal Revenue Code, the legislative history of ERISA and the Internal Revenue
Code, existing administrative rulings of the Department of Labor and reported
judicial decisions. Legislative, judicial or administrative changes may affect
the accuracy of any statements in this section, even with respect to
transactions entered into or contemplated prior to the effective date of such
changes.

IF YOU ARE A FIDUCIARY MAKING A DECISION TO INVEST IN THE COMMON STOCK ON
BEHALF OF A PROSPECTIVE PURCHASER THAT IS AN EMPLOYEE BENEFIT PLAN, A
TAX-QUALIFIED RETIREMENT PLAN, OR AN IRA, YOU SHOULD CONSULT YOUR OWN LEGAL
ADVISOR REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA, SECTION 4975
OF THE INTERNAL REVENUE CODE, AND STATE LAW WITH RESPECT TO THE PURCHASE,
OWNERSHIP OR SALE OF THE COMMON STOCK BY A PLAN OR AN IRA.

If you are a fiduciary of a pension, profit-sharing, or other employee
benefit plan, or an ERISA plan, that is subject to Title I of ERISA, you should
consider carefully whether an investment in the common stock is consistent with
your fiduciary responsibilities under ERISA. In particular, the fiduciary
requirements of Part 4 of Title I of ERISA require an ERISA plan's investments
to be:

- prudent and in the best interests of the ERISA plan, its participants,
and its beneficiaries,

- diversified in order to minimize the risk of large losses, unless it is
clearly prudent not to do so, and

- authorized under the terms of the ERISA plan's governing documents,
provided the documents are consistent with ERISA.

In determining whether an investment in the common stock is prudent for
purposes of ERISA, you should consider whether the investment is reasonably
designed, as a part of the ERISA plan's portfolio, to meet the objectives of the
ERISA plan, taking into consideration the risk of loss and opportunity for gain
or other return from the investment, the diversification, cash flow and funding
requirements of the ERISA plan's portfolio. You also should take into account
the nature of our business, our management, our brief operating history, the
fact that certain investment properties may not have been identified yet, the
possibility of the recognition of unrelated business taxable income, and any
other facts and circumstances that may be relevant to an investment.

If you are a fiduciary of an IRA or of a qualified retirement plan that is
not subject to Title I of ERISA because it is a governmental or church plan or
because it does not cover common law employees, you should consider that these
plans may only make investments that are authorized by the appropriate governing
documents and under applicable state law. We refer to these plans as non-ERISA
plans.

If you are a fiduciary of an ERISA plan or are making the investment
decision for an IRA or other non-ERISA plan, you should consider the application
of the prohibited transaction provisions of ERISA
144
<PAGE> 151

and the Internal Revenue Code in making your investment decision. A "party in
interest" or "disqualified person" with respect to an ERISA plan or with respect
to a non-ERISA plan or IRA subject to Internal Revenue Code section 4975 is
subject to an initial 15% excise tax on the amount involved in any prohibited
transaction involving the assets of the plan or IRA, and an additional excise
tax equal to 100% of the amount involved if any prohibited transaction is not
corrected within the appropriate period. If an IRA is maintained on behalf of a
disqualified person who engages in a prohibited transaction, the IRA will lose
its tax-exempt status and its assets will be deemed to have been distributed to
the disqualified person or his or her beneficiary in a taxable distribution on
account of the prohibited transaction, and no excise tax will be imposed. In
addition, if you are a fiduciary and you permit an ERISA plan to engage in a
transaction that you know or should know is a prohibited transaction, you may be
liable to the ERISA plan for any loss the ERISA plan incurs as a result of the
transaction or for any profits you earn in the transaction.

STATUS OF STRATEGIC TIMBER AND STRATEGIC TIMBER PARTNERS UNDER ERISA

This section discusses principles you should apply to determine whether the
fiduciary requirements of ERISA and the prohibited transaction provisions of
ERISA and the Internal Revenue Code apply to an entity because one or more
investors in the equity interests in the entity is:

- an ERISA plan or

- a non-ERISA plan or IRA subject to section 4975 of the Internal Revenue
Code.

If you are an ERISA Plan fiduciary, you also should consider the relevance
of those principles to:

- ERISA's prohibition on improper delegation of control over or
responsibility for "plan assets" and

- ERISA's imposition of co-fiduciary liability on a fiduciary who
participates in, permits the occurrence of, or fails to remedy a known
breach by another fiduciary.

If our assets are deemed to be "plan assets" under ERISA,

- the prudence standards and other provisions of Part 4 of Title I of ERISA
would be applicable to any transactions involving our assets,

- persons who exercise any authority over our assets, or who provide
investment advice to us, would be considered fiduciaries of each ERISA
plan that acquires common stock, and transactions involving our assets
undertaken at their direction or pursuant to their advice might violate
their fiduciary responsibilities under ERISA, especially with regard to
conflicts of interest,

- a fiduciary exercising his or her investment discretion over the assets
of an ERISA plan to cause it to acquire or hold the common stock could be
liable under Part 4 of Title I of ERISA for transactions we enter into
that do not conform to ERISA standards of prudence and fiduciary
responsibility, and

- certain transactions that we might enter into in the ordinary course of
its business and operations might constitute "prohibited transactions"
under ERISA and the Internal Revenue Code.

Based on the following discussion, we do not believe that our assets will
be deemed "plan assets" of any ERISA plan, IRA or non-ERISA plan that invests in
the common stock. The Department of Labor or the Treasury Department, however,
may reach a contrary conclusion.

Regulations of the Department of Labor defining "plan assets" generally
provide that when an ERISA plan or non-ERISA plan or IRA acquires a security
that is an equity interest in a company and not a "publicly-offered security,"
the ERISA plan's, non-ERISA plan's or IRA's assets include both the equity
interest and an undivided interest in each of the underlying assets of the
issuer of the equity interest, unless one or more exceptions specified in these
regulations are satisfied. We refer to these regulations defining plan assets as
the plan asset regulations.

145
<PAGE> 152

The plan asset regulations define a publicly-offered security as a security
that is

- widely-held,

- freely transferable, and

- either part of a class of securities registered under the Securities
Exchange Act of 1934 or sold pursuant to an effective registration statement
under the Securities Act and registered under the Exchange Act within 120 days
after the end of the fiscal year of the issuer during which this offering
occurred.

We are selling the shares of common stock in an offering registered under
the Securities Act and we will register the shares under the Exchange Act.

The plan asset regulations provide that a security is "widely held" only if
it is part of a class of securities that is owned by 100 or more investors who
are independent from the issuer and one another. If the number independent
investors falls below 100 subsequent to the initial public offering as a result
of events beyond the issuer's control, the security will still be considered
widely held. We anticipate that upon completion of this offering, the common
stock will be "widely held."

The plan asset regulations provide that whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. When a security is part of an offering in
which the minimum investment is $10,000 or less (as is the case with this
offering), the security will ordinarily be deemed to be freely transferable even
if there are certain restrictions on transfer. These permissible restrictions on
transfer include:

- any restriction on or prohibition against any transfer or assignment that
would result in the termination or reclassification of an entity for
federal or state tax purposes, or that otherwise would violate any
federal or state law or court order,

- any requirement that advance notice of a transfer or assignment be given
to the issuer,

- any administrative procedure that establishes an effective date, or an
event (such as completion of an offering), prior to which a transfer or
assignment will not be effective, and

- any limitation or restriction on transfer or assignment that is not
imposed by the issuer or a person acting on behalf of the issuer.

We believe that the common stock will be "freely transferable" in spite of
the restrictions imposed under our Articles of Incorporation on the transfer of
the common stock. We also are not aware of any other facts or circumstances
limiting the transferability of the common stock that are not permitted by the
plan asset regulations. We do not intend to impose in the future, or to permit
any person to impose on our behalf, any impermissible limitations or
restrictions on transfer. The plan asset regulations only establish a
presumption in favor of a finding of free transferability, and the Department of
Labor or the Treasury Department may reach a contrary conclusion.

Assuming that the common stock will be "widely held" and that no other
facts and circumstances other than those referred to in the preceding paragraph
exist that restrict transferability of the common stock, the common stock should
be publicly offered securities. Thus, our assets should not be deemed to be
"plan assets" of any ERISA plan, IRA, or non-ERISA plan that invests in the
common stock.

The plan asset regulations also will apply in determining whether the
assets of Strategic Timber Partners will be deemed to be "plan assets." The
partnership interests in Strategic Timber Partners will not be publicly-offered
securities. Nevertheless, if the shares of common stock constitute
publicly-offered securities, your indirect investment in Strategic Timber
Partners through your ownership of common stock will not cause the assets of
Strategic Timber Partners to be treated as "plan assets" of an ERISA plan, IRA,
or a non-ERISA plan subject to section 4975 of the Internal Revenue Code.

146
<PAGE> 153

UNDERWRITING

Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and Strategic Timber has agreed to sell to such underwriter, the
number of shares set forth opposite the name of such underwriter.

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ----------
<S> <C>
Salomon Smith Barney Inc....................................
Credit Suisse First Boston Corporation......................
Donaldson, Lufkin & Jenrette Securities Corporation.........
A.G. Edwards & Sons, Inc....................................
Warburg Dillon Read LLC.....................................
ABN AMRO Incorporated.......................................
Morgan Keegan & Company, Inc................................
----------
Total.................................................. 16,600,000
==========
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares (other than those
covered by the over-allotment option described below) if they purchase any of
the shares.

The underwriters, for whom Salomon Smith Barney Inc., Credit Suisse First
Boston Corporation, Donaldson, Lufkin & Jenrette Securities Corporation, A.G.
Edwards & Sons, Inc., Warburg Dillon Read LLC, ABN AMRO Incorporated, and Morgan
Keegan & Company, Inc. are acting as representatives, propose to offer some of
the shares directly to the public at the public offering price set forth on the
cover page of this prospectus and some of the shares to certain dealers at the
public offering price less a concession not in excess of $ per share. The
underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share on sales to certain other dealers. If all of the shares are
not sold at the initial offering price, the representatives may change the
public offering price and the other selling terms. The representatives have
advised Strategic Timber that the underwriters do not intend to confirm any
sales to any accounts over which they exercise discretionary authority.

Strategic Timber has granted to the underwriters an option, exercisable for
30 days from the date of this prospectus, to purchase up to 2,490,000 additional
shares of common stock at the public offering price less the underwriting
discount. The underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with this offering. To the
extent such option is exercised, each underwriter will be obligated, subject to
certain conditions, to purchase a number of additional shares approximately
proportionate to such underwriter's initial purchase commitment.

Strategic Timber will pay an advisory fee of 0.65% of the gross proceeds of
this offering, including any exercise of the underwriters' over-allotment
option, to Salomon Smith Barney Inc. for advisory services in connection with
the evaluation, analysis and structuring of the formation of Strategic Timber
and this offering. Assuming an initial public offering price of $20 per share,
the advisory fee will be $2,158,000. If the underwriters exercise their
over-allotment option in full, the advisory fee will be $2,481,700.
147
<PAGE> 154

Strategic Timber, its officers and directors, and Strategic Timber Partners
have agreed that, subject to certain exceptions, for a period of one year from
the date of the consummation of this offering, they will not, without the prior
written consent of Salomon Smith Barney Inc., dispose of or hedge any shares of
common stock or any partnership units or any securities convertible into, or
exercisable or exchangeable for, common stock or partnership units. The owners
of units and shares received in the formation transactions have agreed not to
dispose of or hedge the units or shares for a period of one year after
consummation of this offering, without the prior written consent of Salomon
Smith Barney Inc. However, Salomon Smith Barney Inc., in its sole discretion,
may release any of the securities subject to these lock-up agreements at any
time without notice.

Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price for the shares will be
determined by negotiations between Strategic Timber and the representatives.
Among the factors to be considered in determining the initial public offering
price are Strategic Timber's record of operations, its current financial
condition, its future prospects, its markets, the economic conditions in and
future prospects for the industry in which Strategic Timber competes, its
management, and currently prevailing general conditions in the equity securities
markets, including current market valuations of publicly traded companies
considered comparable to Strategic Timber. There can be no assurance, however,
that the prices at which the shares will sell in the public market after this
offering will not be lower than the price at which they are sold by the
underwriters or that an active trading market in the common stock will develop
and continue after this offering.

The common stock has been approved for quotation on the Nasdaq National
Market under the symbol "STTR."

The following table shows the underwriting discounts and commissions
Strategic Timber will pay to the underwriters in connection with this offering.
These amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional shares of common stock.

<TABLE>
<CAPTION>
PAID BY STRATEGIC TIMBER
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share................................................... $ $
Total....................................................... $ $
</TABLE>

In connection with this offering, the representatives, on behalf of the
underwriters, may purchase and sell shares of common stock in the open market.
These transactions may include over-allotment, syndicate covering transactions
and stabilizing transactions. Over-allotment involves syndicate sales of common
stock in excess of the number of shares to be purchased by the underwriters in
the offering, which creates a syndicate short position. Syndicate covering
transactions involve purchases of the common stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Stabilizing transactions consist of certain bids or purchases of common stock
made for the purpose of preventing or retarding a decline in the market price of
the common stock while this offering is in progress.

The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when the
representatives, in covering syndicate short positions or making stabilizing
purchases, repurchase shares originally sold by that syndicate member.

Any of these activities may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the Nasdaq
National Market or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.

Strategic Timber estimates that the total expenses of this offering,
including the advisory fee to be paid to Salomon Smith Barney, will be $5.1
million.

148
<PAGE> 155

ABN AMRO Bank, which is affiliated with ABN AMRO Incorporated, one of the
representatives, is a lender under Strategic Timber's existing credit facilities
and has received customary fees in connection with those credit facilities. The
net proceeds of this offering will be used to repay all of Strategic Timber's
indebtedness under the credit facilities. See "Use of Proceeds." ABN AMRO
Incorporated is participating in the offering on the same terms as the other
underwriters and will not receive any benefit in connection with the offering
other than customary managing, underwriting and selling fees. ABN AMRO Bank is
also one of the lenders on Strategic Timber's new credit facility and will
receive customary fees for arranging this facility.

Strategic Timber and Strategic Timber Partners have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the underwriters may be required to
make in respect of any of those liabilities.

EXPERTS

The financial statements of:

- Pioneer Resources, LLC as of and for the years ended December 31, 1996
and 1997, and for the period from January 1, 1998 to October 8, 1998,

- Strategic Timber Trust, Inc. as of and for the period from inception
(April 21, 1998) to December 31, 1998, and

- Strategic Timber Trust II, LLC as of and for the period from inception
(October 9, 1998) to December 31, 1998,

included in this prospectus and elsewhere in this registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included in this
prospectus in reliance upon the authority of Arthur Andersen LLP as experts in
accounting and auditing in giving such reports.

Information included in this prospectus relating to our timber inventory,
acreage and timber sales plan with respect to the Pacific Northwest properties,
and the growth rate and species of our timber on these properties, as well as
historical price indices, current prices, the number of mills and timber
consumption in the related markets, has been reviewed by Mason, Bruce & Girard,
Inc., an independent forest resource consulting firm, and is included in this
prospectus in reliance upon the authority of Mason, Bruce & Girard as an expert
in timber inventory, forest regulatory and appraisal matters. Information
included in this prospectus relating to our timber inventory, acreage and timber
sales plan with respect to the Louisiana property, and the growth rate and
species of our timber on this property, as well as current prices in the related
market, has been reviewed by Canal Forest Resources, Inc., an independent forest
resource consulting firm, and is included in this prospectus in reliance upon
the authority of Canal Forest Resources as an expert in timber inventory, forest
regulatory and appraisal matters. The reports of Mason, Bruce & Girard and Canal
Forest Resources have been filed as exhibits to the registration statement of
which this prospectus forms a part.

LEGAL MATTERS

Sutherland Asbill & Brennan LLP, Atlanta, Georgia, will pass upon certain
legal matters for Strategic Timber with respect to the validity of the common
stock offered by this prospectus. Andrews & Kurth L.L.P., Houston, Texas, will
pass upon certain legal matters for the underwriters. In connection with the
formation transactions, Sutherland Asbill & Brennan LLP received 46,651 shares
of common stock, which are now owned by certain partners of that firm, and
51,617 partnership units in Strategic Timber Partners.

149
<PAGE> 156

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-11 under the
Securities Act to register the common stock we are offering. This prospectus is
part of that registration statement and omits some of the information set forth
in the registration statement and the exhibits and schedules to the registration
statement. For further information about us and our common stock, you should
read registration statement and the exhibits and schedules. Statements contained
in this prospectus regarding the contents of any contract or other document are
not complete. You should read the exhibit for a more complete description of the
contract or document included in the exhibit. We qualify each statement
contained in this prospectus regarding the contents of any contract or document
filed as an exhibit to the registration statement by reference to the exhibit.

Upon completion of this offering, we will file annual, quarterly and
special reports, proxy statements and other information with the SEC. You can
read and copy any materials we file with the SEC at its Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. You can obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains a web site that contains information we file
electronically with the SEC, which you can access over the Internet at
http://www.sec.gov.

150
<PAGE> 157

GLOSSARY OF SELECTED TIMBER INDUSTRY TERMS

We have provided you with definitions for some of the timber industry terms
we use in this prospectus.

BOARD FOOT A standard unit of measure for lumber that is 12
inches square and one inch thick.

CONVERSION The process of sawing or otherwise processing logs
or transforming timber into any other type of wood
product.

CONVERSION FACILITY A sawmill, pulp mill or other facility at which
timber conversion occurs.

CUNIT A standard unit of measurement of volume equal to
one hundred cubic feet.

HARDWOODS Trees that generally have broad leaves and are
deciduous (losing leaves every year).

LOGS Segments of the main stem of a tree that are cut to
specific length and diameter specifications and are
utilized as raw materials for lumber, plywood and
pulp/paper manufacturers.

LUMBER Solidwood product that is manufactured from logs.
Lumber is produced in standard dimensions and used
for a variety of applications, including building
construction, furniture and shipping containers.

MERCHANTABLE TIMBER Timber exceeding a minimum size and usable volume
that is suitable for sale for commercial uses in
the market where the timber is to be sold.

PLANTATION A timber stand established either through sowing of
seeds or by planting seedlings.

PREMERCHANTABLE TIMBER Trees that have not yet reached a size where they
are suitable for sale.

PULPWOOD Wood that is cut primarily to make wood pulp, which
may be manufactured into paper, fiber, paperboard
and other paper products.

SAWTIMBER Trees containing logs of sufficient size and
quality to be suitable for conversion into lumber
or plywood.

SECOND-GROWTH REDWOODS Redwoods that have been replanted after the
original forest was harvested or regrown after
being destroyed by fire; these redwoods may be
harvested for commercial purposes.

SEEDLINGS Live trees less than one inch in diameter at ground
level.

SILVICULTURE The practice of establishing, tending and
reproducing forest stands of desired
characteristics.

SOFTWOODS Trees that are usually evergreen, bear cones and
have needles or scale-like leaves. They include
pines, spruces, firs and cedars.

SOLIDWOOD A term used to distinguish wood products that are
manufactured by sawing or cutting a log, such as
lumber or plywood, as opposed to wood products
produced from wood pulp, wood fiber or chips.

THINNING Removal of selected trees, usually to eliminate
overcrowding, to remove dying or diseased trees and
to promote more rapid growth of

151
<PAGE> 158

desired trees. "Pre-commercial thinning" refers to
thinning that does not produce merchantable timber.

TIMBER A standing tree or group of standing trees. Once
cut, a tree is no longer considered timber, but
becomes a log that can then be converted into wood
products.

TIMBERLANDS Forestland generally capable of producing more than
20 cubic feet of wood per acre per year.

WOOD FIBER Generally refers to pulpwood or chips used in the
manufacture of pulp and paper.

152
<PAGE> 159

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Strategic Timber Trust, Inc. and Subsidiaries Consolidated
Financial Statements:
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets -- December 31, 1998 and March
31, 1999 (unaudited)................................... F-3
Consolidated Statements of Operations -- For the Period
from Inception (April 21, 1998) to December 31, 1998
and the Three Months Ended March 31, 1999
(unaudited)............................................ F-4
Consolidated Statements of Changes in Shareholders'
Deficit -- For the Period from Inception (April 21,
1998) to December 31, 1998 and the Three Months Ended
March 31, 1999 (unaudited)............................. F-5
Consolidated Statements of Cash Flows -- For the Period
from Inception (April 21, 1998) to December 31, 1998
and the Three Months Ended March 31, 1999
(unaudited)............................................ F-6
Notes to Consolidated Financial Statements................ F-7

Strategic Timber Trust II, LLC and Subsidiaries Consolidated
Financial Statements:
Report of Independent Public Accountants.................. F-14
Consolidated Balance Sheets -- December 31, 1998 and March
31, 1999 (unaudited)................................... F-15
Consolidated Statements of Operations -- For the Period
from Inception (October 9, 1998) to December 31, 1998
and the Three Months Ended March 31, 1999
(unaudited)............................................ F-16
Consolidated Statements of Changes in Members'
Deficit -- For the Period from Inception (October 9,
1998) to December 31, 1998 and the Three Months Ended
March 31, 1999 (unaudited)............................. F-17
Consolidated Statements of Cash Flows -- For the Period
from Inception (October 9, 1998) to December 31, 1998
and the Three Months Ended March 31, 1999
(unaudited)............................................ F-18
Notes to Consolidated Financial Statements................ F-19

Pioneer Resources, LLC and Subsidiaries Consolidated
Financial Statements:
Report of Independent Public Accountants.................. F-26
Consolidated Balance Sheets -- December 31, 1996 and
1997................................................... F-27
Consolidated Statements of Operations -- Years Ended
December 31, 1996 and 1997 and the Period from January
1, 1998 to October 8, 1998............................. F-28
Consolidated Statements of Changes in Members'
Equity -- Years Ended December 31, 1996 and 1997 and
the Period from January 1, 1998 to October 8, 1998..... F-29
Consolidated Statements of Cash Flows -- Years Ended
December 31, 1996 and 1997 and the Period from January
1, 1998 to October 8, 1998............................. F-30
Notes to Consolidated Financial Statements................ F-31
</TABLE>

F-1
<PAGE> 160

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
Strategic Timber Trust, Inc.:

We have audited the accompanying consolidated balance sheet of Strategic
Timber Trust, Inc. (a Georgia corporation) and subsidiaries as of December 31,
1998, and the related consolidated statements of operations, changes in
shareholders' deficit and cash flows for the period from inception (April 21,
1998) to December 31, 1998. 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 audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Strategic Timber Trust, Inc.
and subsidiaries as of December 31, 1998, and the results of their operations
and their cash flows for the period from inception to December 31, 1998 in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Stamford, Connecticut
February 26, 1999

F-2
<PAGE> 161

STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1998 AND MARCH 31, 1999

LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES:
Bridge loan............................................... $ 85,000,000 $ 85,000,000
Revolving line of credit.................................. 133,787,034 139,297,034
Accounts payable and other accrued liabilities............ 1,688,260 1,999,646
Accrued interest.......................................... 2,053,397 1,887,513
Due to affiliates......................................... 2,236,244 797,921
Deferred revenue.......................................... 3,537,015 3,862,600
------------ ------------
Total current liabilities......................... 228,301,950 232,844,714
MINORITY INTEREST........................................... 46,919,256 46,218,093
SHAREHOLDERS' DEFICIT:
Common stock ($.01 par value, 200,000,000 shares
authorized, 671,770 shares issued and outstanding)..... 1,000 1,000
Accumulated deficit....................................... (14,344,295) (19,578,420)
------------ ------------
(14,343,295) (19,577,420)
------------ ------------
Total liabilities and shareholders' deficit....... $260,877,911 259,485,387
============ ============
</TABLE>

The accompanying notes to consolidated financial statements are an

integral part of these consolidated balance sheets.

F-3
<PAGE> 162

STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE PERIOD FROM INCEPTION (APRIL 21, 1998) TO DECEMBER 31, 1998 AND THE
THREE MONTHS ENDED MARCH 31, 1999

<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(APRIL 21, THREE MONTHS
1998) TO ENDED
DECEMBER 31, MARCH 31,
1998 1999
-------------- ------------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Timber and property sales................................. $ 322,954 $ 2,693,774
Other..................................................... 183,985 132,979
------------ -----------
Total revenues.................................... 506,939 2,826,753

OPERATING EXPENSES:
Cost of timber and property sold.......................... 402,614 2,792,980
Amortization of deferred financing costs.................. 1,743,000 653,625
General and administrative expenses....................... 1,820,288 474,942
------------ -----------
Operating loss.................................... (3,458,963) (1,094,794)

OTHER INCOME (EXPENSE):
Interest expense.......................................... (13,781,366) (4,841,108)
Interest income........................................... 33,324 614
------------ -----------
Loss before minority interest..................... (17,207,005) (5,935,288)

MINORITY INTEREST IN LOSS OF SUBSIDIARY PARTNERSHIP......... 2,862,710 701,163
------------ -----------
Net loss.......................................... $(14,344,295) $(5,234,125)
============ ===========
</TABLE>

The accompanying notes to consolidated financial statements are

an integral part of these consolidated statements.

F-4
<PAGE> 163

STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT

FOR THE PERIOD FROM INCEPTION (APRIL 21, 1998) TO DECEMBER 31, 1998 AND THE
THREE MONTHS ENDED MARCH 31, 1999

<TABLE>
<CAPTION>
COMMON ACCUMULATED
STOCK DEFICIT TOTAL
------ ------------ ------------
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY, April 21, 1998................... $ -- $ -- $ --
Initial contribution................................. 1,000 -- 1,000
Net loss............................................. -- (14,344,295) (14,344,295)
------ ------------ ------------
SHAREHOLDERS' DEFICIT, December 31, 1998............... 1,000 (14,344,295) (14,343,295)
Net loss(unaudited).................................. -- (5,234,125) (5,234,125)
------ ------------ ------------
SHAREHOLDERS' DEFICIT, March 31, 1999(unaudited)....... $1,000 $(19,578,420) $(19,577,420)
====== ============ ============
</TABLE>

The accompanying notes to consolidated financial statements are

an integral part of these consolidated statements.

F-5
<PAGE> 164

STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE PERIOD FROM INCEPTION (APRIL 21, 1998) TO DECEMBER 31, 1998 AND THE
THREE MONTHS ENDED MARCH 31, 1999

<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION THREE MONTHS
(APRIL 21, 1998) ENDED
TO DECEMBER 31, MARCH 31,
1998 1999
---------------- ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (14,344,295) $(5,234,125)
Adjustments to reconcile net loss to net cash used in
operating activities --
Minority interest in net loss of subsidiary
partnership.......................................... (2,862,710) (701,163)
Depletion.............................................. 402,614 2,792,980
Depreciation and amortization.......................... 1,744,458 655,515
Non-cash compensation.................................. 1,000 --
Changes in assets and liabilities:
Increase in trade accounts receivable.................. (56,708) (403,136)
Increase in prepaid expenses........................... (7,223) (621,564)
Increase in accounts payable and other accrued
liabilities.......................................... 383,625 311,386
Increase (decrease) in accrued interest................ 2,053,397 (165,884)
Increase (decrease) in due from/to affiliates.......... 2,236,244 (1,592,125)
Increase in deferred revenue........................... 3,537,015 325,585
------------- -----------
Net cash used in operating activities............. (6,912,583) (4,632,531)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of timberlands.................................. (205,218,034) --
Purchases of property and equipment....................... (17,133) (87,836)
------------- -----------
Net cash used in investing activities............. (205,235,167) (87,836)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bridge loan................................. 85,000,000 --
Proceeds from borrowings under revolving line of credit... 138,787,034 5,510,000
Repayments of revolving line of credit.................... (5,000,000) --
Deferred financing costs.................................. (6,329,000) --
------------- -----------
Net cash provided by financing activities......... 212,458,034 5,510,000
------------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 310,284 789,633
CASH AND CASH EQUIVALENTS, beginning of period.............. -- 310,284
------------- -----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 310,284 $ 1,099,917
============= ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 11,727,968 $ 4,969,071
============= ===========
</TABLE>

The accompanying notes to consolidated financial statements are

an integral part of these consolidated statements.

F-6
<PAGE> 165

STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:

ORGANIZATION AND CONTROL --

Strategic Timber Trust, Inc., a Georgia corporation, was organized April
21, 1998 for the purpose of acquiring, owning and managing timberlands. Our
consolidated financial statements include the accounts of our wholly owned
subsidiary, Strategic Timber Operating Co., a Delaware corporation, and those of
Strategic Timber Partners, LP, a Delaware limited partnership in which we have a
79.4% limited partner interest. Strategic Timber Operating Co. is the sole
general partner of Strategic Timber Partners and holds a 1.0% general partner
interest. All significant intercompany transactions have been eliminated.

On April 27, 1998, we acquired 88,000 acres of timberland in southwest
Louisiana for total consideration valued at $255,000,000. Louisiana Timber
Partners, LLC, a Georgia limited liability company, contributed to Strategic
Timber Partners a contract to acquire the Louisiana property in exchange for
5,000 limited partnership units, representing an aggregate of 19.6% of the total
partnership units then outstanding. We valued these partnership units at
$50,000,000, which we believed to be the difference between the fair value of
the property and the purchase price of the property under the contract Louisiana
Timber contributed. Strategic Timber Partners then purchased the Louisiana
property on April 27, 1998 for $205,000,000 in cash. The partnership funded the
purchase price of the Louisiana property and related transaction costs by
borrowing $125,800,000 under a $215,000,000 bank revolving credit facility and
with an $85,000,000 cash contribution made to the partnership by Strategic
Timber. Strategic Timber borrowed these funds under a bank bridge loan.

We plan to sell shares of our common stock in an initial public offering
during 1999. Shortly before this offering, the timber operations of our
affiliate, Strategic Timber Trust II, LLC, will be merged into Strategic Timber
Partners. As the entities to be merged are under common control, we will account
for this merger using the historical carrying amounts of Strategic Timber Trust
II, LLC's assets and liabilities.

NATURE OF BUSINESS OPERATIONS --

We own and manage timberlands for the purpose of selling standing timber.
We negotiate and contract for the sale of our standing timber with buyers who
generally cut and pay for the trees during the contract period.

CONSOLIDATION --

The accompanying financial statements consolidate the accounts of Strategic
Timber and all entities in which Strategic Timber holds a majority and
controlling interest. Minority ownership in Strategic Timber Partners is
reflected as minority interest expense in the accompanying consolidated
statements of operations and minority interest in the accompanying consolidated
balance sheets.

USE OF ESTIMATES --

The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of certain estimates by our
management in determining the reported amount of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

REVENUE RECOGNITION --

F-7
<PAGE> 166
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

occasionally longer. Contracts that are longer than one year typically require
the customer to harvest minimum amounts of timber each year. We recognize
revenue and depletion at the time our customer takes title to the timber, which
occurs when legal ownership and the risk of loss passes to the purchaser and the
quantity sold is determinable. We may receive payments under these contracts in
advance of recognition of revenue.

We may enter into timber deeds whereby all cutting rights on a tract of
timberland are sold to a buyer. At the end of the contract term, any uncut
timber will revert back to us. Risk of loss passes to our customers upon the
signing of the deeds. For instance, if a fire destroys or partially destroys the
timber subject to a timber deed, the purchaser would not be entitled to a refund
of any portion of the purchase price. Accordingly, we will recognize revenues
and costs under our timber deeds at the time the contracts close. We do not
expect to make outright sales of timber by timber deeds beyond the second
quarter of 1999.

CASH AND CASH EQUIVALENTS --

Cash and cash equivalents include cash and short term investments with
original maturities of three months or less.

TIMBERLANDS --

We capitalize acquisition costs of land and timber, site preparation and
other costs relating to the planting and growing of timber. Such costs are
charged to cost of timber sold as depletion at the time timber is harvested,
based on the relationship of harvested timber to the estimated volume of
currently merchantable timber. Estimates of currently merchantable timber are
subject to change based on periodic timber surveys, growth, and harvest volumes.
Depletion is calculated on a property-by-property basis, and further by product
category within the property.

Timberlands are stated at the lower of cost, net of depletion, or market
value.

PROPERTY AND EQUIPMENT --

Property and equipment consists of furniture and fixtures, machinery and
equipment and leasehold improvements. Depreciation is computed on a
straight-line basis over the estimated useful lives of the assets, which range
from three to five years. Amortization of leasehold improvements is calculated
on a straight-line basis over the lesser of the lease term or the estimated
useful lives of the assets.

DEFERRED FINANCING COSTS --

Deferred financing costs consist of fees and expenses incurred in
connection with our borrowings. These fees are being amortized over the terms of
the related debt agreements ranging from one to five years.

INCOME TAXES --

We intend to elect to be treated as a real estate investment trust, or
REIT, under provisions of the Internal Revenue Code. As a result, we will not be
subject to federal income taxes on the portion of our income that we currently
distribute to our shareholders.

We will be able to generate net operating losses for tax purposes in years
in which we do not have taxable income. No benefit for income taxes has been
provided on our loss since inception as the benefit is

F-8
<PAGE> 167
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

not currently "more likely than not" to be realized due to our limited operating
history. Our net operating loss carryforwards are approximately $21,400,000
(unaudited) at March 31, 1999.

We may be subject to state and local taxes regardless of whether we
distribute some or all of our income to our shareholders. For the period ended
December 31, 1998 and for the three months ended March 31, 1999, though, we did
not incur any state or local income tax liabilities due to our operating losses.

INTEREST RATE SWAPS --

Interest rate swaps involve the periodic exchange of interest payments
without the exchange of underlying principal or notional amounts. Net amounts
paid or received on interest rate swaps are recognized as interest expense as
incurred in the accompanying consolidated statements of operations.

SHAREHOLDERS' EQUITY --

The accompanying consolidated financial statements have been adjusted to
give effect to a 36.59-for-1 stock split that we expect will occur immediately
prior to completion of our initial public offering. We have also given effect in
the accompanying consolidated financial statements to a planned increase in the
number of common shares authorized for issuance to 200,000,000 shares, which is
expected to be approved by our board of directors and current shareholders
immediately prior to completion of our initial public offering. We also expect
to authorize 50,000,000 shares of preferred stock immediately prior to
completion of our initial public offering.

After giving effect to the stock split, our common stock account does not
contain the required par value. This deficit will be funded with the proceeds
from our initial public offering.

UNAUDITED INTERIM FINANCIAL INFORMATION --

The financial information as of and for the three months ended March 31,
1999 is unaudited, but includes all adjustments, consisting of only normal
recurring adjustments, that we consider necessary for a fair presentation of our
financial position as of March 31, 1999 and our operations and cash flows for
the three months then ended. Operating results for the three months ended March
31, 1999 are not necessarily indicative of results that may be expected for the
entire year.

2. DEBT:

We have the following debt instruments outstanding as of December 31, 1998
and March 31, 1999:

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revolving credit line(a)...................... $133,787,034 $139,297,034
Bridge loan(b)................................ 85,000,000 85,000,000
------------ ------------
$218,787,034 $224,297,034
============ ============
</TABLE>

(a) At December 31, 1998, we had a senior revolving credit line that provided a
maximum borrowing of $215,000,000, subject to formula. Effective March 17,
1999, we reduced the maximum borrowing amount to $155.0 million. The credit
line is used to finance our acquisitions of timberlands and for general
corporate purposes. The facility bears interest at LIBOR plus an applicable
margin rate, 7.75% and 7.50% at December 31, 1998 and March 31, 1999,
respectively. Interest is payable quarterly. The unused portion of the
credit facility is subject to a commitment fee of 50 basis points per
annum. This facility expires on April 25, 2003 and is secured by all assets
and properties of Strategic Timber Partners, including timberlands.

F-9
<PAGE> 168
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(b) The bridge loan was used to finance our initial acquisition of timberlands
and matures on October 27, 1999. The loan bears interest at LIBOR plus an
applicable margin rate, 9.25% and 9.00% at December 31, 1998 and March 31,
1999, respectively. Interest is payable quarterly. The bridge loan is
secured by all assets and property of Strategic Timber.

The revolving credit line and the bridge loan have certain financial and
non-financial covenants, including restrictions on additional borrowings, the
maintenance of certain financial ratios and limitations on capital spending,
investments and asset sales. We believe that we are in compliance with all
covenants at March 31, 1999. In addition, we are not permitted to make
distributions to our shareholders under these debt agreements.

All debt has been classified as current in the accompanying consolidated
balance sheets. This is due to the inclusion of clauses in the debt agreements
that allow our lenders to call the debt prior to its maturity in the event of a
"material adverse change" in our business. In addition, our intention is to
repay all of our outstanding borrowings with the proceeds from our initial
public offering and a new credit facility that will be put in place at the time
of the offering (see Note 10).

The fair value of the above financial instruments approximate their
carrying value at December 31, 1998 and March 31, 1999.

3. INTEREST RATE SWAP:

In connection with our revolving line of credit, we have entered into a
$100,000,000 interest rate swap contract with our primary lender to hedge a
portion of the variable interest rate exposure on this debt instrument. Under
the terms of the swap, we are required to pay interest quarterly to the lender
at a fixed rate of 5.99% and receive interest quarterly at the three-month LIBOR
rate, which was 5.25% and 5.00% at December 31, 1998 and March 31, 1999,
respectively. At December 31, 1998 and March 31, 1999, we have recorded a
payable of approximately $77,000 and $87,000, respectively, related to the net
interest payment due to the lender, with the offsetting charge applied to
interest expense. The swap will mature on May 13, 2002.

The fair value of this swap is estimated as the amount payable to the
lender to terminate the agreement as of March 31, 1999. At this date, the fair
value of this swap is a payable of approximately $1,556,000.

The counterparty to our interest rate swap contract is a major financial
institution. We do not expect non-performance by this institution, but we
periodically monitor the credit quality of this organization. Our credit risk on
this derivative financial instrument is limited to the unrealized gain on the
contract in the event that the swap has a positive fair value.

4. COMMITMENTS AND CONTINGENCIES:

The limited partnership agreement of Strategic Timber Partners granted
certain redemption and put rights to Louisiana Timber Partners including (a) at
the closing of an initial public offering, Louisiana Timber Partners will be
redeemed in cash or shares with a value of approximately $50 million and (b) if
certain events had not occurred by January 31, 1999 (e.g. the filing of a
registration statement with the SEC), Louisiana Timber Partners had the right to
put its units to Strategic Timber for $50 million in cash. In accordance with
the above rights, at the time of our initial public offering, Louisiana Timber
will be entitled to receive consideration of approximately $12,945,000 in cash
representing a partial redemption of its interest in Strategic Timber Partners.
Louisiana Timber also will own 1,762,974 units in Strategic Timber Partners
after the initial public offering.

F-10
<PAGE> 169
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Our operations and timberlands are subject to federal, state and local laws
and regulations, including those related to the environment, endangered species
and forestry activities. In addition, our land may become subject to laws and
regulations designed to protect wetlands. All of these regulations may cause us
to incur significant costs, damages, penalties or other liabilities, and may
materially and adversely affect harvesting operations on our timberlands.

We are subject to certain claims and litigation, including unasserted
claims, in the normal course of business. While it is not possible to predict
with certainty the outcome of these matters, it is our opinion that the ultimate
outcome will not have a material adverse effect on the consolidated financial
statements of Strategic Timber or our subsidiaries.

As of March 31, 1999, we do not have any material commitments under
non-cancelable operating leases.

5. RELATED PARTY TRANSACTIONS:

In December 1998, we entered into a transaction with our President and
Chief Executive Officer, C. Edward Broom, in which Mr. Broom purchased for
$3,000,000 approximately 6,700 acres of agricultural land on our Louisiana
property. Because we determined that this property was ancillary to our ongoing
business, we sold this property to provide a source of cash to make required
payments of our bank debt. Mr. Broom and other members of our senior management
determined this purchase price to provide the necessary funds to make these
required payments.

The purchase price does not necessarily reflect the price we might have
been able to obtain if the property had been fully prepared for sale and exposed
to the market for a sufficient period of time to produce the highest price. To
protect our economic interest in the property, Mr. Broom has agreed that we may
repurchase the property at any time before December 31, 2000, at the price paid
by Mr. Broom plus a pro-rata annual increase at the rate of 8% compounded
annually. Accordingly, in 1998 we recorded the proceeds from this sale as
deferred revenue and have classified the underlying property as land held for
repurchase in the accompanying consolidated balance sheets. If we decide not to
exercise the repurchase option, we will recognize revenue and costs of
$3,000,000 during the year ended December 31, 2000, resulting in no gain or loss
on this related party transaction.

We rent office space from a company controlled by two of our executive
officers. Rental payments under this lease arrangement were $5,000 and $5,250
per month during 1998 and 1999, respectively. These payments totaled
approximately $40,000 and $16,000 (unaudited) for the period from inception to
December 31, 1998 and for the three months ended March 31, 1999, respectively.

We also have a payable of approximately $760,000 and $798,000 (unaudited)
at December 31, 1998 and March 31, 1999, respectively, to Broom Resource
Investments, LLC, an entity whose shareholders are substantially the same as
those of Strategic Timber. This amount represents fees and expenses paid by this
entity on our behalf in connection with our acquisition of the Louisiana
property. This payable bears interest at an annual simple rate of 5.5%.

Our management performs services on behalf of our affiliate, Strategic
Timber Trust II, LLC. We also pay vendors for certain shared expenses, such as
rent, utilities and insurance. During the period ended December 31, 1998 and for
the three months ended March 31, 1999, we charged Strategic Timber Trust II, LLC
approximately $624,000 and $337,000 (unaudited), respectively, for services
provided, and costs paid, on their behalf.

F-11
<PAGE> 170
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1998, we have a payable of approximately $1,500,000 to
Strategic Timber Trust II, LLC. This amount primarily relates to cash that they
advanced to us so that we could make required payments under our debt
agreements. We repaid this amount in February 1999.

6. EMPLOYEE BENEFIT PLANS:

We have established a 401(k) plan. All full time employees are eligible to
participate in the plan after completing 1,000 hours of service. The plan
provides that we may make contributions to the plan on behalf of our employees
at the discretion of our Board of Directors. No contributions were made during
the period from inception to December 31, 1998 or for the three months ended
March 31, 1999.

7. NON-CASH INVESTING AND FINANCING ACTIVITIES:

At our inception, our founding shareholders received approximately 587,798
shares of common stock in exchange for services valued at $1,000. These services
were provided in lieu of funding the required initial capital contribution to
form Strategic Timber. The value of these services was determined based on the
estimated initial fair value of Strategic Timber, as we believed that the fair
value of the shares issued was more reliably measurable than the value of the
services rendered.

In connection with Strategic Timber's acquisition of the Louisiana
property, Louisiana Timber, in lieu of cash consideration, received 5,000 units
in Strategic Timber Partners valued at approximately $50,000,000. The fair value
of these units was based on the difference between the fair value of the
Louisiana property, $255,000,000, and the actual cash we paid to purchase this
property, $205,000,000.

8. MAJOR CUSTOMERS:

For the period ended December 31, 1998, all of our timber sales were
derived from two customers and were limited to salvage operations. For the three
months ended March 31, 1999, sales to four customers accounted for 33.2%, 23.8%,
20.6% and 15.6% of our total revenues during the period.

9. NEW ACCOUNTING PRONOUNCEMENTS:

In June 1998, the Financial Accounting Standards Board released Standard
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
pronouncement requires the recognition of all derivative instruments on the
balance sheet at fair value. Any subsequent changes in fair value are then
recognized in earnings unless the derivative qualifies for treatment as a hedge.
We are currently assessing the effects, if any, the pronouncement will have on
earnings. This pronouncement could lead to increased volatility in our earnings
and other comprehensive income.

We do not believe that any other recently issued pronouncements will have a
significant effect on our financial condition or results of operation.

10. SUBSEQUENT EVENTS (UNAUDITED)

In April 1999, we entered into a new credit facility that provides for
borrowings of up to $375.0 million. This facility, together with the proceeds
from our initial public offering, will be used to retire our existing debt
facilities and to partially redeem units held by minority unitholders in
Strategic Timber Partners. Interest on this new facility will be based on LIBOR
or the bank's prime rate, plus an applicable margin. This facility contains
certain financial covenants, such as minimum ratios of EBITDDA to interest
expense and outstanding debt to EBITDDA. In addition, this facility permits us
to make shareholder distributions, so long as these distributions do not cause
us to default under other terms of the credit agreement.

F-12
<PAGE> 171
STRATEGIC TIMBER TRUST, INC. AND SUBSIDIARIES
(A GEORGIA CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On April 12, 1999, our Board of Directors declared a $0.175 distribution
per share of common stock, prorated for the partial quarter between the closing
of our initial public offering and June 30, 1999. The distribution will be
payable only if we complete the formation transactions and this offering no
later than June 30, 1999. Assuming that we complete this offering on May 31,
1999, the aggregate amount that we would distribute to our shareholders would
approximate $996,000, or $1,140,000 if the underwriters exercise in full their
over-allotment option. We intend to fund this distribution using borrowings
under our new credit facility. The new credit facility permits borrowing to fund
distributions. The distribution will not cause us to be in default under our new
credit facility.

F-13
<PAGE> 172

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Members of
Strategic Timber Trust II, LLC:

We have audited the accompanying consolidated balance sheet of Strategic
Timber Trust II, LLC (a Georgia limited liability company) and subsidiaries as
of December 31, 1998, and the related consolidated statements of operations,
changes in members' deficit and cash flows for the period from inception
(October 9, 1998) to December 31, 1998. 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 audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Strategic Timber Trust II,
LLC and subsidiaries as of December 31, 1998 and the results of their operations
and their cash flows for the period from inception to December 31, 1998, in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Stamford, Connecticut
February 26, 1999

F-14
<PAGE> 173

STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1998 AND MARCH 31, 1999

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 5,842,918 $ 3,781,804
Trade accounts receivable................................. 108,857 34,710
Prepaid expenses.......................................... 145,837 157,584
Due from affiliate........................................ 1,476,244 --
------------ ------------
Total current assets.............................. 7,573,856 3,974,098
TIMBERLANDS................................................. 354,298,144 352,136,526
PROPERTY AND EQUIPMENT:
Vehicles.................................................. 123,166 123,166
Machinery and equipment................................... 93,390 99,236
------------ ------------
216,556 222,402
Less -- Accumulated depreciation.................. (30,892) (47,099)
------------ ------------
185,664 175,303
DEFERRED FINANCING COSTS, net............................... 7,024,096 6,478,333
------------ ------------
Total assets...................................... $369,081,760 $362,764,260
============ ============
LIABILITIES AND MEMBERS' DEFICIT
CURRENT LIABILITIES:
Bridge loan............................................... $ 35,000,000 $ 35,000,000
Current portion of long-term debt......................... 2,500,000 5,000,000
Accounts payable and other accrued liabilities............ 530,126 268,114
Accrued interest.......................................... 4,844,870 4,745,923
Due to affiliate.......................................... -- 153,802
Obligations under interest rate swaps..................... 3,316,300 3,316,300
------------ ------------
Total current liabilities......................... 46,191,296 48,484,139
LONG-TERM DEBT.............................................. 252,500,000 247,950,000
MINORITY INTEREST........................................... 72,413,153 70,298,483
MEMBERS' DEFICIT............................................ (2,022,689) (3,968,362)
------------ ------------
Total liabilities and members' deficit............ $369,081,760 $362,764,260
============ ============
</TABLE>

The accompanying notes to consolidated financial statements are an

integral part of these consolidated balance sheets.

F-15
<PAGE> 174

STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE PERIOD FROM INCEPTION (OCTOBER 9, 1998) TO DECEMBER 31, 1998

AND THE THREE MONTHS ENDED MARCH 31, 1999

<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(OCTOBER 9, 1998) THREE MONTHS ENDED
TO DECEMBER 31, MARCH 31,
1998 1999
------------------ ------------------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Timber sales.............................................. $ 9,017,504 $ 5,032,376
Property sales............................................ -- 736,500
Other..................................................... -- 25,736
----------- -----------
Total Revenues.................................... 9,017,504 5,794,612
OPERATING EXPENSES:
Cost of timber sold....................................... 5,746,026 2,228,717
Cost of property sold..................................... -- 180,629
Amortization of deferred financing costs.................. 499,116 545,763
General and administrative expenses....................... 1,737,587 938,270
----------- -----------
Operating income.................................. 1,034,775 1,901,233

OTHER INCOME (EXPENSE):
Interest expense.......................................... (5,656,745) (5,975,627)
Interest income........................................... 12,434 14,051
----------- -----------
Loss before minority interest..................... (4,609,536) (4,060,343)

MINORITY INTEREST IN LOSS OF SUBSIDIARY PARTNERSHIP......... 2,586,847 2,114,670
----------- -----------
Net loss.......................................... $(2,022,689) $(1,945,673)
=========== ===========
</TABLE>

The accompanying notes to consolidated financial statements are

an integral part of these consolidated statements.

F-16
<PAGE> 175

STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' DEFICIT

FOR THE PERIOD FROM INCEPTION (OCTOBER 9, 1998) TO DECEMBER 31, 1998 AND THE
THREE MONTHS ENDED MARCH 31, 1999

<TABLE>
<S> <C>
MEMBERS' EQUITY, October 9, 1998............................ $ --
Net loss.................................................. (2,022,689)
-----------
MEMBERS' DEFICIT, December 31, 1998......................... (2,022,689)
Net loss (unaudited)...................................... (1,945,673)
-----------
MEMBERS' DEFICIT, March 31, 1999 (unaudited)................ $(3,968,362)
===========
</TABLE>

The accompanying notes to consolidated financial statements are

an integral part of these consolidated statements.

F-17
<PAGE> 176

STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE PERIOD FROM INCEPTION (OCTOBER 9, 1998) TO DECEMBER 31, 1998 AND THE
THREE MONTHS ENDED MARCH 31, 1999

<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(OCTOBER 9, THREE MONTHS
1998) TO ENDED
DECEMBER 31, MARCH 31,
1998 1999
-------------- ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (2,022,689) $(1,945,673)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Minority interest in net loss of subsidiary
partnership........................................... (2,586,847) (2,114,670)
Depletion.............................................. 5,703,128 2,337,203
Depreciation and amortization.......................... 530,008 561,970
Changes in assets and liabilities:
(Increase) decrease in trade accounts receivable....... (108,857) 74,147
Increase in prepaid expenses........................... (145,837) (11,747)
(Increase) decrease in due from/to affiliate........... (1,476,244) 1,630,046
Increase (decrease) in accounts payable and other
accrued liabilities................................... 530,126 (262,012)
Increase (decrease) in accrued interest................ 4,844,870 (98,947)
------------- -----------
Net cash provided by operating activities......... 5,267,658 170,317

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Pioneer.................................... (295,000,000) --
Reforestation activities.................................. (101,272) (175,585)
Purchases of property and equipment....................... (116,556) (5,846)
------------- -----------
Net cash used in investing activities............. (295,217,828) (181,431)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bridge loan................................. 35,000,000 --
Proceeds from investment by Mach One...................... 10,000,000 --
Proceeds from revolving line of credit and term loan...... 255,000,000 --
Repayments of revolving line of credit.................... -- (2,050,000)
Deferred financing costs.................................. (4,206,912) --
------------- -----------
Net cash provided by financing activities......... 295,793,088 (2,050,000)
------------- -----------

NET INCREASE IN CASH AND CASH EQUIVALENTS................... 5,842,918 (2,061,114)
CASH AND CASH EQUIVALENTS, beginning of period.............. -- 5,842,918
------------- -----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 5,842,918 $ 3,781,804
============= ===========

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest...................................... $ 811,875 $ 6,074,574
============= ===========
</TABLE>

The accompanying notes to consolidated financial statements are

an integral part of these consolidated statements.

F-18
<PAGE> 177

STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:

ORGANIZATION AND CONTROL --

Strategic Timber Trust II, LLC, a Georgia limited liability company, was
organized on October 9, 1998 for the purpose of acquiring, owning and managing
timberlands. Our consolidated financial statements include the accounts of our
wholly owned subsidiary, Strategic Timber Two Operating Co., LLC, a Georgia
limited liability company, and those of Strategic Timber Partners II, LP, a
Georgia limited partnership in which we have a 30.8% limited partner interest.
Strategic Timber Two Operating Co. is the sole general partner of Strategic
Timber Partners II. Our consolidated financial statements also include the
accounts of Pioneer Resources, LLC, an Oregon limited liability company that is
wholly-owned by Strategic Timber Partners II. All significant intercompany
transactions have been eliminated.

On October 9, 1998, Strategic Timber Partners II acquired all of the
membership interests in Pioneer from its members for total consideration valued
at approximately $360,000,000. Pioneer holds approximately 363,000 acres of
timberland in the U.S. Pacific Northwest. Strategic Timber Partners funded the
cash portion of the purchase price and related transaction costs with:

- a $35,000,000 cash contribution made by Strategic Timber II, in exchange
for 3,080 units, or a 30.8% limited partner interest in Strategic Timber
Partners II, and

- a $10,000,000 cash contribution made by Mach One Partners, LLC in
exchange for 909 units, or a 9.1% limited partner interest in Strategic
Timber Partners II.

To fund our contribution to Strategic Timber Partners II, we borrowed
$35,000,000 under a bank bridge loan.

Strategic Timber Partners II also issued 5,909 units, representing a 59.1%
limited partner interest in Strategic Timber Partners II, to the former Pioneer
members, which we valued at $65,000,000. In connection with the acquisition, we
retired Pioneer's then existing debt with the proceeds from a new $255,000,000
term loan and revolving credit line.

The acquisition was accounted for using the purchase method. The purchase
price has been allocated to timberlands, property and equipment and certain
other assets and liabilities based on an independent third party valuation of
the assets acquired.

The members of Strategic Timber II also own and control Strategic Timber
Trust, Inc., an affiliated entity that was organized in April 1998 to acquire,
own and manage timberlands. Strategic Timber has a controlling interest in
Strategic Timber Partners, LP. Strategic Timber plans to sell shares of its
common stock in an initial public offering during 1999. Shortly before the
offering, Strategic Timber II, Strategic Timber Two Operating Co. and Strategic
Timber Partners II will be merged into Strategic Timber Partners, leaving
Pioneer as a wholly owned subsidiary of Strategic Timber Partners. Because the
entities to be merged are under common control, this merger will be accounted
for using the historical carrying amounts of Strategic Timber II's assets and
liabilities.

NATURE OF BUSINESS OPERATIONS --

F-19
<PAGE> 178
STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONSOLIDATION --

The accompanying financial statements consolidate the accounts of Strategic
Timber II and all entities in which Strategic Timber II holds a majority or
controlling interest. Strategic Timber II consolidates the results of Strategic
Timber Partners II, and its wholly owned subsidiary, Pioneer, as the management
and control of this entity is held by Strategic Timber Two Operating Co.,
Strategic Timber II's wholly-owned subsidiary. Minority ownership in our
subsidiaries is reflected as minority interest in the accompanying consolidated
balance sheets and minority interest expense in the accompanying consolidated
statements of operations.

USE OF ESTIMATES --

REVENUE RECOGNITION --

We enter into timber cutting contracts with third parties that require
customers to harvest and remove timber at their expense. These contracts may
last for periods ranging from three months to six years, or occasionally longer.
Contracts that are longer than one year typically require the customer to
harvest minimum amounts of timber each year. We recognize revenue and depletion
at the time our customer takes title to the timber, which occurs when legal
ownership and the risk of loss passes to the purchaser and the quantity sold is
determinable. We may receive payments under these contracts in advance of
recognition of revenue.

We have entered into timber deeds whereby all cutting rights on a tract of
timberland are sold to a buyer. At the end of the contract term, any uncut
timber will revert back to us. Risk of loss passed to our customers upon the
signing of the deeds. For instance, if a fire destroys or partially destroys the
timber subject to a timber deed, the purchaser would not be entitled to a refund
of any portion of the purchase price. Accordingly, we recognized revenues and
costs under our timber deeds at the time the contracts closed. We do not expect
to make outright sales of timber by timber deeds beyond the second quarter of
1999.

CASH AND CASH EQUIVALENTS --

Cash and cash equivalents include cash and short term investments with
original maturities of three months or less.

TIMBERLANDS --

Timberlands are stated at the lower of cost, net of depletion, or market
value.

F-20
<PAGE> 179
STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PROPERTY AND EQUIPMENT --

Property and equipment consists principally of vehicles and machinery and
equipment. Depreciation is computed on a straight-line basis over the estimated
useful lives of the assets, which range from three to five years.

DEFERRED FINANCING COSTS --

INCOME TAXES --

We have not provided for income taxes in the accompanying statement of
operations as we are a limited liability corporation. Accordingly, our members
will be responsible for any federal or state income tax liabilities resulting
from our operations.

INTEREST RATE SWAPS --

UNAUDITED INTERIM FINANCIAL INFORMATION --

This financial information as of and for the three months ended March 31,
1999 is unaudited, but includes all adjustments, consisting of only normal
recurring adjustments, that we consider necessary for a fair presentation of our
financial position as of March 31, 1999 and our operations and cash flows for
the three months then ended. Operating results for the three months ended March
31, 1999 are not necessarily indicative of results that may be expected for the
entire year.

2. DEBT:

We have the following debt instruments outstanding as of December 31, 1998
and March 31, 1999:

<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
(UNAUDITED)
<S> <C> <C>
Revolving credit line(a)................................ $ 55,000,000 $ 52,950,000
Term loan(b)............................................ 200,000,000 200,000,000
Bridge loan(c).......................................... 35,000,000 35,000,000
------------ ------------
$290,000,000 $287,950,000
============ ============
</TABLE>

(a) We have a revolving credit line that provides a maximum borrowing of
$70,000,000, subject to formula. The credit line was used to finance our
acquisition of Pioneer and will be used for general corporate purposes. A
portion of the facility bears interest at LIBOR plus a margin, 7.85% and
7.57% at December 31, 1998 and March 31, 1999, respectively, while the
remaining portion bears interest at the base rate plus a margin, 8.75% and
7.50% at December 31, 1998 and March 31, 1999 respectively. Interest is
payable quarterly. This facility expires on September 30, 2003 and is
secured by all assets of Pioneer, including timberlands. We expect that
this credit facility will be retired prior to maturity with proceeds from
the Strategic Timber initial public offering and a new credit facility that
will be put in place at the time of the offering.

F-21
<PAGE> 180
STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(b) The term loan was used to finance our acquisition of Pioneer and is payable
in quarterly installments commencing on December 31, 1999, with the last
installment being due on September 30, 2003. We expect that this loan will
be retired prior to maturity with the proceeds from the Strategic Timber
initial public offering and the new credit facility. The loan bears
interest at adjusted LIBOR plus a margin, 7.85% and 7.57% at December 31,
1998 and March 31, 1999, respectively. Interest is payable quarterly. The
term loan is also secured by all assets of Pioneer, including timberlands.

(c) The bridge loan was also used to finance our acquisition of Pioneer and
matures on October 27, 1999. Similar to our other debt instruments, we
expect that this loan will be retired prior to maturity with the proceeds
from the Strategic Timber initial public offering and the new credit
facility. The loan bears interest at a fixed rate of 9.06%. Interest is
payable quarterly. The bridge loan is secured by all assets of Strategic
Timber II, including our investments in Strategic Timber Partners II and
Pioneer.

Under the bridge loan agreement, additional interest will be charged on the
principal balance if the loan is not repaid before the beginning of the
following periods:

<TABLE>
<S> <C>
Between January 1, 1999 and March 31, 1999................. 1.5%
Between April 1, 1999 and June 30, 1999.................... 4.5%
Between July 1, 1999 and September 30, 1999................ 10.5%
On or after October 1, 1999................................ 19.5%
</TABLE>

Also, we will be required to pay additional compensation upon termination
if the bridge loan is not repaid before the beginning of the following
periods:

<TABLE>
<S> <C>
Between January 1, 1999 and March 31, 1999................. $ 1,125,000
Between April 1, 1999 and June 30, 1999.................... 1,725,000
Between July 1, 1999 and September 30, 1999................ 2,100,000
On or after October 1, 1999................................ 2,250,000
</TABLE>

All instruments described above have certain financial and non-financial
covenants, including restrictions on additional borrowings, the maintenance of
certain financial ratios and limitations on capital spending, investments,
distributions and asset sales. We believe that we are in compliance with all
covenants at March 31, 1999.

Contractual maturities of debt are as follows:

<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31,
1999..................................................... $ 37,500,000
2000..................................................... 13,750,000
2001..................................................... 27,500,000
2002..................................................... 36,250,000
2003..................................................... 175,000,000
------------
$290,000,000
============
</TABLE>

The fair value of the above financial instruments approximate their
carrying value at December 31, 1998 and March 31, 1999.

F-22
<PAGE> 181
STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. INTEREST RATE SWAPS:

We have entered into a series of interest rate swap agreements to hedge a
portion of the variable interest rate exposure on our underlying debt
instruments. The following table outlines the key terms of each swap:

<TABLE>
<CAPTION>
RATE RECEIVED AT FAIR VALUE AT
NOTIONAL COMPANY COMPANY MARCH 31, MARCH 31,
COUNTERPARTY AMOUNT PAYS RECEIVES 1999 1999
- ------------ ------------ ------- ------------- ---------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
First Union................. $ 25,000,000 6.69% 3 month LIBOR 5.06% $(1,299,048)
Bank of America............. 25,000,000 6.69% 3 month LIBOR 5.06% (1,206,329)
ABN Amro.................... 50,000,000 5.77% 3 month LIBOR 5.06% (424,215)
------------
$100,000,000
============
</TABLE>

Net interest payments are to be made quarterly on January 14, April 14,
July 14 and October 14, commencing on January 14, 1999, under the terms of each
swap. The maturity dates of the swaps range from September 30, 2003 to October
14, 2003. At December 31, 1998 and March 31, 1999, we have recorded a payable of
approximately $189,000 and $250,000 (unaudited), respectively, related to the
net interest payment due, with the offsetting charge applied to interest
expense.

We have also recorded a payable of $3,316,000 in the accompanying
consolidated financial statements related to the fair value of swaps assumed or
entered into in connection with the acquisition of Pioneer.

The counterparties to our interest rate swap contracts consist of major
financial institutions. We do not expect non-performance by any of these
counterparties but we periodically monitor the credit quality of these
institutions. Our credit risk on these derivative financial instruments is
limited to the unrealized gain on those contracts with a positive fair value.

4. COMMITMENTS AND CONTINGENCIES:

The units held by the former Pioneer members entitle them to certain
rights. In the event that the initial public offering of Strategic Timber common
stock has not occurred by June 30, 1999, the former Pioneer members will be
entitled to a payment of $65,000,000 in redemption of their interests, to be
paid at the option of the former Pioneer members. In addition, the former
Pioneer members will be entitled to 15% simple interest on this $65,000,000,
beginning on June 30, 1999. If the redemption amount is not paid by December 31,
1999, the former Pioneer members will have the right to assume control of
Strategic Timber Partners II.

The ownership units held by Mach One in Strategic Timber Partners II
entitle Mach One to a dividend of 40% per year on its initial investment of
$10,000,000. Mach One is entitled to $10,000,000 plus accrued dividends in
redemption of its interest if the initial public offering of Strategic Timber
common stock has not occurred by June 30, 1999. Dividends are payable at the
earlier of the closing of Strategic Timber's initial public offering or
redemption of Mach One's ownership interest. Our maximum liability under this
dividend would be approximately $4,900,000, assuming that such payment is made
on December 31, 1999. Under a separate agreement with Mach One, the expected
payment on this dividend will be made in the form of 100,110 limited partnership
units of Strategic Timber Partners.

At the time of the merger of Strategic Timber II and subsidiaries into
Strategic Timber Partners, the former Pioneer members and Mach One will be
entitled to receive consideration valued at $67,457,000 and $12,002,000,
respectively, representing a full redemption of their interests in Strategic
Timber

F-23
<PAGE> 182
STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Partners II. This consideration will be in the form of cash and limited
partnership units of Strategic Timber Partners.

We have engaged Mason, Bruce & Girard for a fee of approximately $1,300,000
to develop timber harvest plans with respect to our Coastal forest to be
submitted to the California Department of Forestry and Fire Protection. Such
payment is expected to be made in 1999.

As of March 31, 1999, we do not have any material commitments under
non-cancelable operating leases.

5. RELATED PARTY TRANSACTIONS:

In December 1998, we entered into a timber deed with Kinzua Resources, LLC,
an entity controlled by Gregory M. Demers, a beneficial owner of more than 5% of
the partnership units of Strategic Timber Partners II. Under the terms of the
deed, we conveyed approximately 19,300,000 board feet of timber for
approximately $5,600,000. This timber deed will expire in September 1999. In
accordance with our accounting policies, we have recognized revenues on the
entire value of the contract, as well as related costs, during the period ended
December 31, 1998.

The management of our affiliate, Strategic Timber, performs services on our
behalf. They also pay vendors for certain shared expenses, such as rent,
utilities and insurance. During the period ended December 31, 1998 and the three
months ended March 31, 1999, we recognized expenses of approximately $624,000
and $337,000 (unaudited), respectively, allocated to us by Strategic Timber for
services they provided, and costs they paid, on our behalf.

At December 31, 1998, we have a receivable of approximately $1,500,000 due
from Strategic Timber. This amount primarily relates to cash that we advanced to
them so that they could make required payments under their debt agreements.
Strategic Timber repaid this amount in February 1999.

6. EMPLOYEE BENEFIT PLANS:

We have established a 401(k) plan. All full time employees are eligible to
participate in the plan after completing 1,000 hours of service. The plan
document provides that we may make contributions on behalf of our employees at
the discretion of our board of directors. No contributions were made for the
period ended December 31, 1998 and for the three months ended March 31, 1999.

7. NON-CASH INVESTING AND FINANCING ACTIVITIES:

At our inception, our founding shareholders received approximately 2,810
units in exchange for services valued at $100. These services were provided in
lieu of funding the required initial capital contributions to form Strategic
Timber II. The value of these services was determined based on the estimated
initial fair value of Strategic Timber II as we believed that the fair value of
the units issued was more reliably measurable than the value of the services
rendered.

F-24
<PAGE> 183
STRATEGIC TIMBER TRUST II, LLC AND SUBSIDIARIES
(A GEORGIA LIMITED LIABILITY COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In connection with our acquisition of Pioneer, the former Pioneer members
received 5,909 units, or a 59.1% limited partnership interest, in Strategic
Timber Partners II and $35,000,000 in cash. The limited partnership interest in
Strategic Timber Partners II was valued at approximately $65,000,000.

8. MAJOR CUSTOMERS:

All of our revenues for the period ended December 31, 1998 were derived
from two customers, including the related party transaction discussed in Note 5.
During the three months ended March 31, 1999, one customer accounted for
approximately 85.1% of our total revenues.

9. NEW PRONOUNCEMENTS:

We do not believe that any other recently issued pronouncements will have a
significant effect on our financial condition on results of operations.

F-25
<PAGE> 184

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Members of
Pioneer Resources, LLC:

We have audited the accompanying consolidated balance sheets of Pioneer
Resources, LLC (an Oregon limited liability company and predecessor to Strategic
Timber Trust II, LLC) and subsidiaries (the "Company") as of December 31, 1996
and 1997, and the related consolidated statements of operations, changes in
members' equity and cash flows for the years then ended and for the period from
January 1, 1998 to October 8, 1998. 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 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 financial statements referred to above present fairly,
in all material respects, the financial position of Pioneer Resources, LLC and
subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for the years then ended and for the period from
January 1, 1998 to October 8, 1998, in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Portland, Oregon
February 26, 1999

F-26
<PAGE> 185

PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 4,429,000 $ 1,362,000
Trade accounts receivable................................. 2,338,000 3,396,000
Receivables, related party................................ 176,000 256,000
Inventories............................................... 11,623,000 12,602,000
Prepaid expenses and deposits............................. 258,000 4,198,000
Real estate investments................................... 1,091,000 2,000,000
Current portion of notes receivable....................... -- 1,522,000
Net current assets of discontinued operation.............. 3,331,000 3,209,000
------------ ------------
Total current assets.............................. 23,246,000 28,545,000
------------ ------------
TIMBER, TIMBERLANDS AND TIMBER CUTTING RIGHTS............... 86,294,000 99,126,000
REAL ESTATE INVESTMENTS..................................... 5,128,000 7,409,000
PROPERTY, PLANT AND EQUIPMENT:
Land...................................................... 1,233,000 1,145,000
Buildings................................................. 2,222,000 2,364,000
Machinery and equipment................................... 8,482,000 10,035,000
Aircraft.................................................. 5,735,000 3,660,000
------------ ------------
17,672,000 17,204,000
Less -- Accumulated depreciation.......................... (1,924,000) (2,845,000)
------------ ------------
Total property, plant and equipment............... 15,748,000 14,359,000
------------ ------------
NOTES RECEIVABLE............................................ 1,420,000 2,546,000
OTHER ASSETS................................................ 224,000 2,445,000
------------ ------------
Total assets...................................... $132,060,000 $154,430,000
============ ============

LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 17,119,000 $ 2,600,000
Accounts payable.......................................... 1,749,000 3,096,000
Accounts payable -- related party......................... 101,000 27,000
Accrued liabilities....................................... 2,209,000 2,180,000
Deferred income taxes..................................... 901,000 515,000
------------ ------------
Total current liabilities......................... 22,079,000 8,418,000
------------ ------------
DEFERRED INCOME TAXES....................................... 2,363,000 1,688,000
CUTTING CONTRACT DEPOSIT.................................... 16,819,000 --
LONG-TERM DEBT, less current maturities..................... 79,446,000 124,341,000
NET NONCURRENT LIABILITIES OF DISCONTINUED OPERATION........ 622,000 --
MINORITY INTEREST........................................... 991,000 46,000
MEMBERS' EQUITY............................................. 9,740,000 19,937,000
------------ ------------
Total liabilities and members' equity............. $132,060,000 $154,430,000
============ ============
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

F-27
<PAGE> 186

PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND THE PERIOD FROM JANUARY 1, 1998 TO
OCTOBER 8, 1998

<TABLE>
<CAPTION>
JANUARY 1,
YEAR ENDED DECEMBER 31, 1998 TO
------------------------- OCTOBER 8,
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
REVENUES:
Log sales................................................. $25,901,000 $39,505,000 $ 23,097,000
Lumber and by-product sales............................... 36,004,000 52,623,000 45,213,000
Timberland and property sales............................. 613,000 6,774,000 5,901,000
----------- ----------- ------------
Total revenues...................................... 62,518,000 98,902,000 74,211,000
OPERATING EXPENSES:
Cost of products sold..................................... 25,897,000 39,602,000 45,498,000
Cost of timberland and property sales..................... 486,000 4,292,000 2,536,000
Depletion, depreciation and amortization.................. 15,366,000 25,259,000 12,966,000
Selling, general and administrative expenses.............. 3,144,000 7,444,000 7,137,000
Write down of real estate investments (Note 3)............ -- -- 583,000
----------- ----------- ------------
Operating income.................................... 17,625,000 22,305,000 5,491,000
OTHER INCOME (EXPENSE):
Interest expense.......................................... (6,070,000) (8,722,000) (12,505,000)
Interest income........................................... 248,000 224,000 56,000
Other income (expense), net............................... -- 502,000 (780,000)
----------- ----------- ------------
Income (loss) from continuing operations before
income taxes and minority interest................ 11,803,000 14,309,000 (7,738,000)
INCOME TAX BENEFIT (PROVISION).............................. (978,000) 355,000 336,000
----------- ----------- ------------
Income (loss) from continuing operations before
minority interest................................. 10,825,000 14,664,000 (7,402,000)
MINORITY INTEREST IN LOSS OF SUBSIDIARY..................... 262,000 51,000 12,000
----------- ----------- ------------
Income (loss) from continuing operations............ 11,087,000 14,715,000 (7,390,000)
DISCONTINUED OPERATION:
Loss from discontinued plywood operation (less applicable
tax benefits of $30,000 and $821,000 for 1996 and
1997)................................................... (48,000) (1,339,000) --
Gain (loss) on disposal of discontinued plywood operation
(less applicable tax provision of $241,000 in 1997 and
tax benefit of $550,000 for the period from January 1,
1998 to October 8, 1998................................. -- 394,000 (897,000)
----------- ----------- ------------
Income (loss) before extraordinary item............. 11,039,000 13,770,000 (8,287,000)
EXTRAORDINARY ITEM:
Loss on extinguishment of debt............................ (780,000) -- (2,106,000)
----------- ----------- ------------
Net income (loss)................................... $10,259,000 $13,770,000 $(10,393,000)
=========== =========== ============
</TABLE>

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

F-28
<PAGE> 187

PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1997
AND THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 8, 1998

<TABLE>
<S> <C>
MEMBERS' EQUITY, December 31, 1995.......................... $ --
Member contributions...................................... 1,159,000
Member distributions...................................... (1,678,000)
Net income................................................ 10,259,000
------------
MEMBERS' EQUITY, December 31, 1996.......................... 9,740,000
Member contributions...................................... 4,075,000
Member distributions...................................... (7,648,000)
Net income................................................ 13,770,000
------------
MEMBERS' EQUITY, December 31, 1997.......................... 19,937,000
Member contributions...................................... 62,000
Member distributions...................................... (6,104,000)
Net loss.................................................. (10,393,000)
------------
MEMBERS' EQUITY, October 8, 1998............................ $ 3,502,000
============
</TABLE>

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

F-29
<PAGE> 188

PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1997
AND THE PERIOD FROM JANUARY 1, 1998 TO OCTOBER 8, 1998

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, JANUARY 1, 1998
--------------------------- TO
1996 1997 OCTOBER 8, 1998
------------ ------------ ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)......................................... $ 10,259,000 $ 13,770,000 $ (10,393,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities --
Extraordinary loss...................................... 780,000 -- 2,106,000
Write down of assets to estimated realizable value...... -- -- 1,283,000
(Gain)/loss on sale of assets........................... -- (433,000) 212,000
Minority interest in loss of subsidiary................. (262,000) (51,000) (12,000)
Depletion, depreciation, amortization, and cost of
timber and property sold.............................. 15,852,000 29,551,000 15,502,000
Deferred income taxes................................... (387,000) (1,154,000) (656,000)
Changes in balance sheet captions, (in 1996, net of
effects of businesses acquired during the period) --
Trade accounts receivable............................... (727,000) (1,094,000) (555,000)
Inventories............................................. (5,891,000) 136,000 549,000
Related party receivables and payables, net............. (929,000) (31,000) (778,000)
Accounts payable........................................ 645,000 235,000 195,000
Net advances (reduction) on cutting contract deposit.... 7,244,000 (16,819,000) --
Changes in other asset and liability accounts, net...... 222,000 639,000 314,000
------------ ------------ -------------
Net cash provided by operating activities........... 26,806,000 24,749,000 7,767,000
------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for Lane acquisition............................ (10,062,000) -- --
Cash paid for Pilot Rock acquisition...................... (30,323,000) -- --
Cash paid for Pioneer Aviation acquisition................ (3,725,000) -- --
Purchase of minority interest in Pioneer Aviation......... -- (1,173,000) --
Purchases of timber and timberlands....................... (9,816,000) (40,308,000) (162,356,000)
Purchases of real estate investments...................... (1,132,000) (3,164,000) (1,414,000)
Purchases of property, plant and equipment................ (3,359,000) (4,654,000) (1,885,000)
Collection (issuances) of notes receivable, net........... (1,420,000) (4,541,000) 1,891,000
Proceeds from sale of fixed assets........................ 1,051,000 6,156,000 1,467,000
Deposit on timber and timberlands......................... -- 1,169,000 --
Contribution of Old Pioneer net assets.................... 524,000 -- --
Acquisition of Kinzua net assets.......................... 152,000 -- --
------------ ------------ -------------
Net cash used by investing activities............... (58,110,000) (46,515,000) (162,297,000)
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Members' contributions.................................... $ 10,000 $ -- $ 62,000
Long-term borrowings...................................... 55,531,000 66,281,000 193,700,000
Repayment of borrowings................................... (19,558,000) (37,212,000) (32,127,000)
Deferred financing fees incurred.......................... (150,000) (2,722,000) (2,363,000)
Cash payments for members' distributions.................. (100,000) (7,648,000) (6,104,000)
------------ ------------ -------------
Net cash provided by financing activities........... 35,733,000 18,699,000 153,168,000
------------ ------------ -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 4,429,000 (3,067,000) (1,362,000)
CASH AND CASH EQUIVALENTS, beginning of period.............. -- 4,429,000 1,362,000
------------ ------------ -------------
CASH AND CASH EQUIVALENTS, end of period.................... $ 4,429,000 $ 1,362,000 $ --
============ ============ =============
</TABLE>

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

F-30
<PAGE> 189

PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SALE OF PIONEER RESOURCES, LLC:

Effective October 9, 1998, a significant portion of Pioneer Resources,
LLC's (Pioneer) timberland assets were sold to Strategic Timber Partners II, LP.
The acquisition was effected by the acquisition of the ownership interests of
Pioneer by Strategic Timber Partners II, LP.

Immediately prior to the sale, certain assets and liabilities of Pioneer
(including all of the interests in Pioneer's subsidiaries) were conveyed to
Frontier Resources, LLC, a newly formed entity with the same ownership structure
as Pioneer prior to the transaction.

2. BASIS OF PRESENTATION AND NATURE OF OPERATIONS:

BASIS OF PRESENTATION

Pioneer Resources, LLC and its subsidiaries were formed in December 1995
for the purpose of acquiring certain assets and liabilities of Old Pioneer.
Pioneer has three subsidiaries:

- Kinzua Resources, LLC ("Kinzua"), which owns and operates sawmills in
Heppner and Pilot Rock, Oregon;

- Pioneer Aviation, LLC ("Pioneer Aviation"), which owns aircraft and
related buildings and equipment; and

- Lane Plywood, Inc. ("Lane") owns timber and timberlands and real estate.

Pioneer, Kinzua and Pioneer Aviation are Oregon limited liability
companies. Lane is an Oregon C corporation. One member owns a controlling
interest in Pioneer. The accompanying consolidated financial statements
represent the financial position of Pioneer as of December 31, 1996 and 1997.
The consolidated statements of operations, cash flows and members' equity for
the period from January 1, 1998 to October 8, 1998 represent results of
operations and cash flows for the nine-month period ended September 30, 1998.
Activity between October 1, 1998 and October 8, 1998 is insignificant. All
significant intercompany transactions and balances have been eliminated.

On January 3, 1996, certain assets and liabilities of Old Pioneer were
contributed to Pioneer by noncontrolling members of Old Pioneer and recorded at
their historical cost. In addition, Pioneer acquired timber and timberlands from
former members of Old Pioneer at fair value. These former members of Old Pioneer
collectively represented a controlling ownership in Old Pioneer and did not
become members in Pioneer. This acquisition was made with the proceeds from debt
financing. Pioneer also acquired 99.5% of the ownership interest in Kinzua. The
purchase price of Kinzua approximated Kinzua's book value. Accordingly, the
respective assets and liabilities acquired have been recorded at Kinzua's
historical cost. This series of transactions is referred to in these notes as
the "Transactions". Because of the insignificant activity on January 1 and
January 2, 1996, the Transactions have been reflected as if they occurred on
January 1, 1996 in the accompanying financial statements.

On November 25, 1996, the owners of Pioneer Merger, Inc. ("PMI"), which
became a wholly owned subsidiary of Pioneer on the same date, transferred their
ownership interests in Lane to Pioneer. Lane then became a wholly owned
subsidiary of Pioneer. This transaction was treated as a reorganization under
common control and therefore the historical basis of the assets and liabilities
did not change. Lane had been under common ownership and management with Pioneer
since its acquisition by PMI on May 1, 1996 (see Note 9). Accordingly, the
financial position, results of operations and cash flows of Lane have been
included in the accompanying consolidated financial statements. In 1997, the
plywood operation of Lane was discontinued and the majority of Lane's
plywood-related assets were sold in December 1997. See

F-31
<PAGE> 190
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Note 11 for additional discussion of the discontinued plywood operation. Lane
continues to manage its timber and timberlands, and real estate investments.

NATURE OF OPERATIONS

Pioneer's primary products are logs and lumber. Pioneer owns timber and
timberlands in the western United States, principally Oregon, California and
Washington, and sells logs harvested to unrelated third parties or transfers
them to its sawmills for conversion to lumber. The sawmills also purchase and
convert logs from unrelated third parties. These products are commodities whose
price is significantly affected by factors outside of their control. These
factors include the availability of logs and lumber from other domestic and
foreign markets, the demand for new construction materials, and general economic
conditions. Lumber is sold principally to furniture manufacturers and the
construction market through wholesalers within the United States. External third
party log sales are principally made to other wood products converters in the
western United States.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires our management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

REVENUE RECOGNITION

Log, lumber and by-product sales are recognized upon shipment or delivery
of products to customers.

CASH AND CASH EQUIVALENTS

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

INVENTORIES

Inventories are valued at the lower of cost or market value, applied on a
last-in, first-out (LIFO) basis. The major types of inventories are as follows:

<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Logs............................................ $ 8,794,000 $ 7,479,000
Lumber.......................................... 4,503,000 6,586,000
Supplies and other.............................. 14,000 4,000
LIFO reserve.................................... (1,688,000) (1,467,000)
----------- -----------
Total................................. $11,623,000 $12,602,000
=========== ===========
</TABLE>

TIMBER AND TIMBERLANDS

Pioneer's timber and timberlands consist principally of fee timber located
in the western United States. Pioneer uses a composite rate for timber
depletion. Depletion rates are based on estimated remaining merchantable volume;
these estimates are subject to change based on periodic timber surveys.

F-32
<PAGE> 191
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

REAL ESTATE INVESTMENTS

Real estate investments consist primarily of undeveloped commercial real
estate located in Eugene, Oregon, as well as ranch property. A substantial
portion of the commercial real estate was obtained as part of the Lane
acquisition (see Note 9). Pioneer monitors the carrying costs of its real estate
properties and records reserves to reduce carrying costs to estimated market
value when it believes impairment has occurred. During 1998, Pioneer wrote down
the value of one of its real estate investments by $583,000 based on Pioneer's
current assessment of the fair value of this property.

Pioneer anticipates selling a portion of its commercial real estate within
one year of the balance sheet date. Accordingly, the cost basis associated with
parcels anticipated to be sold within one year has been reflected as a current
asset in the accompanying consolidated balance sheets.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists principally of land, buildings,
machinery and equipment located on the Heppner and Pilot Rock sawmill sites.
Aircraft consists of planes and a helicopter owned by Pioneer Aviation and used
by Pioneer as part of its business and timber management activities.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets, approximately 5 to 15 years for manufacturing equipment, 15
to 40 years for buildings and 5 to 10 years for vehicles and aircraft.

OTHER ASSETS

Other assets consist principally of unamortized deferred financing fees.
Deferred financing fees are being amortized over the term of the underlying
debt.

TIMBER AND TIMBERLAND PURCHASES

Pioneer purchased the Coastal tract in July 1998 for approximately
$131,000,000. The Coastal tract consists primarily of timber located in northern
California. Other significant properties purchased in 1998 were the Riffe Lake
tract in January 1998 for approximately $15,000,000, and the Aloha tract in
March 1998 for approximately $17,000,000.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of the Pioneer's cash and cash equivalents, accounts
receivable, accounts payable and debt instruments approximates market value as
of December 31, 1996 and 1997.

F-33
<PAGE> 192
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

STATEMENTS OF CASH FLOWS

Supplemental cash flow information and significant noncash transactions are
included as follows:

<TABLE>
<CAPTION>
JANUARY 1,
YEAR ENDED DECEMBER 31, 1998 TO
------------------------ OCTOBER 8,
1996 1997 1998
----------- ---------- -----------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest................................... $ 5,059,000 $8,497,000 $12,153,000
Cash paid for income taxes............................... 258,000 960,000 173,000

SIGNIFICANT NONCASH TRANSACTIONS:
Distributions declared but not paid...................... -- -- --
Reduction of member notes receivable in consideration for
timber and timberlands................................. 10,862,000 -- --
Issuance of long-term debt in consideration for timber
and timberlands........................................ 23,000,000 -- --
Reduction of member notes receivable in consideration of
ownership interest in Kinzua........................... 969,000 -- --
Issuance of note payable to seller in connection with
Pilot Rock acquisition................................. 5,000,000 -- --
Reduction of member note receivable in consideration for
interest in Pioneer Aviation........................... 1,300,000 -- --
Reduction of member note receivable in lieu of member's
distribution........................................... 1,578,000 -- --
Reduction of member note receivable in consideration for
real estate investments................................ 980,000 -- --
Contribution of timber deposit and equipment for equity
interest............................................... -- 4,075,000 --
Application of timber deposit to purchase of timber...... -- -- 3,793,000
</TABLE>

RECLASSIFICATIONS

Certain reclassifications have been made to the prior year financial
statements to conform to the current period's presentation.

4. LONG-TERM DEBT AND SUBSEQUENT REFINANCING:

On February 26, 1998, Pioneer refinanced a substantial portion of its
outstanding debt as of December 31, 1997. The current portion of long-term debt
in the accompanying consolidated balance sheet as of December 31, 1997 reflects
the terms of the new agreement with the Bank of Montreal (the Lending
Commitment). The debt outstanding as of December 31, 1997 consists of
$125,232,000 of borrowings pursuant to a Credit Agreement with the Bank of
Montreal and certain other banks. As a part of the refinancing, unamortized
deferred financing fees of $2,106,000 related to refinanced borrowings were
written off in 1998.

LENDING COMMITMENT TERMS

The Lending Commitment provides for a senior secured revolving Credit
Facility of up to $350,000,000 for a term of seven years. The Lending Commitment
will allow Pioneer to refinance the majority of its outstanding debt and, under
conditions defined in the Lending Commitment, will allow Pioneer to borrow
additional funds for acquisitions or other general business purposes. The amount

F-34
<PAGE> 193
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

available for borrowing is based on the value of Pioneer's assets, computed in
accordance with terms set forth in the Lending Commitment.

Interest rates will be based on either a base rate, computed as the higher
of the Federal Funds rate plus 0.5% or the Bank of Montreal's prime commercial
lending rate, or LIBOR, plus a margin. The margin is contingent upon Pioneer's
EBITDDA, calculated as earnings before interest, taxes, depletion, depreciation
and amortization, to debt ratio.

The amount available for borrowing will be permanently reduced, on a
quarterly basis, according to the following schedule:

<TABLE>
<CAPTION>
TOTAL ANNUAL
COMMITMENT CUMULATIVE
YEAR REDUCTION REDUCTION
- ---- ------------ ----------
<S> <C> <C>
2002................................................ 15% 15%
2003................................................ 20% 35%
2004................................................ 30% 65%
2005................................................ 35% 100%
</TABLE>

In addition, all payments received related to the timber harvesting
contract discussed in Note 5 must be applied against the principal portion of
outstanding borrowings.

The Lending Commitment contains covenants that require Pioneer to maintain
certain financial ratios. Pioneer was in compliance with these covenants based
on the consolidated financial statement balances as of December 31, 1997. The
Lending Commitment is collateralized by essentially all assets of Pioneer.

OTHER DEBT

Other debt consists of the following:

<TABLE>
<CAPTION>
1996 1997
---------- --------
<S> <C> <C>
Term note, payable in monthly installments of approximately
$31,000 including interest. Interest is variable (8.25% as
of December 31, 1997). Debt is secured by aviation
equipment................................................. $2,450,000 $ --
Term note, payable in annual installments of $250,000,
including interest at 8.0%. Debt is secured by real
property.................................................. 1,000,000 830,000
Term note, payable in annual installments of $81,000,
including interest at 5.0%. Debt is secured by timber and
timberlands............................................... 323,000 242,000
Term note, payable in monthly installments of $6,100,
including interest. Interest is variable (8.12% as of
December 31, 1997). Debt is secured by aviation
equipment................................................. -- 497,000
Other term notes with varying maturities and interest rates.
Debt is secured by timber and timberlands................. -- 140,000
</TABLE>

REPAYMENT SCHEDULE

The following debt payout schedule is computed based on the terms of the
Lending Commitment with the Bank of Montreal, as well as the repayment terms of
the debt instruments not refinanced.

These amounts include principal payments required by the sale of timber
under the long-term cutting contract as discussed above and in Note 5, which
totaled $2,300,000 for 1998. These principal amounts are in addition to the
regularly scheduled payments required by the Lending Commitment. As this
long-term

F-35
<PAGE> 194
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

cutting contract expires in 1998, no payments for periods beyond 1998 are
included in the debt repayment schedule.

Principal payments due on long-term debt as of December 31, 1997,
considering the effect of the subsequent refinancing and including the impact of
1998 harvest levels as previously discussed, are as follows:

<TABLE>
<S> <C>
1998....................................................... $ 2,600,000
1999....................................................... 615,000
2000....................................................... 336,000
2001....................................................... 275,000
2002....................................................... 16,153,000
Thereafter................................................. 106,962,000
------------
$126,941,000
============
</TABLE>

On October 9, 1998, Pioneer's outstanding balance under the Credit Facility
was paid off as a part of the sale of a significant portion of Pioneer's
timberland assets to Strategic Timber Partners II, LP. This sale is discussed in
Note 1.

INTEREST RATE SWAPS

To hedge its exposure to adverse fluctuations in interest rates, Pioneer
entered into loan swap arrangements with two financial institutions in 1997. The
interest rate differential on interest rate swap contracts used to hedge
underlying debt obligations is reflected as an adjustment to interest expense
over the life of the swaps.

Pursuant to these arrangements, Pioneer swapped a portion of its variable
rate debt for fixed rate debt. The notional amount swapped totaled $70,000,000,
which consists of $50,000,000 expiring in 2000 and $20,000,000 expiring in 2002.
$40,000,000 of the swaps maturing in 2000 can be extended to 2002 at the
financial institutions' option.

5. LONG-TERM CUTTING CONTRACT:

Pioneer has rights to a cutting contract with an unrelated third party
customer. This contract requires periodic advance deposits to Pioneer prior to
harvesting the timber. The purchase price of timber removed under this contract
is applied against the advance at the time of harvest according to prices
specified in the agreement. During 1997, the deposit balance was fully utilized
and the customer began paying Pioneer for volume removed on a current basis. As
discussed in Note 4, these payments were applied as principal payments against
Pioneer's long-term debt.

6. INCOME TAXES:

Pioneer, Kinzua and Pioneer Aviation are limited liability companies. As
owners of a limited liability company, members of Pioneer, Kinzua and Pioneer
Aviation are taxed on their respective share of income and there is no entity
level tax. Accordingly, no income tax accounts for Pioneer, Kinzua and Pioneer
Aviation have been reflected in the accompanying consolidated financial
statements.

PMI and Lane are C corporations and are, therefore, subject to income
taxes. Both companies account for deferred tax assets and liabilities based on
the temporary differences between the financial statement and tax bases of
assets and liabilities as measured by the enacted tax rates for the years in
which the taxes are expected to be paid. As discussed further in Note 11, the
plywood operations of Lane

F-36
<PAGE> 195
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

were discontinued in September 1997. The components of deferred taxes related to
the continuing operations of PMI and Lane included in Pioneer's consolidated
balance sheets as of December 31, 1996 and 1997 are as follows:

<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Current liabilities:
Land............................................ $ 901,000 $ 515,000
========== ==========
Long-term liabilities:
Timber.......................................... $1,284,000 $ 483,000
Land............................................ 1,079,000 1,205,000
---------- ----------
$2,363,000 $1,688,000
========== ==========
</TABLE>

Deferred tax liabilities of $93,000 and $301,000, respectively, related to
temporary differences between the financial statement and tax bases of Lane's
inventory are included in net current assets of discontinued operation in the
accompanying consolidated balance sheets as of December 31, 1996 and 1997.

On a stand-alone basis, Lane's effective tax rate was approximately 38% for
the period from acquisition (May 1, 1996) through December 31, 1996, the year
ended December 31, 1997 and the period from January 1, 1998 to October 8, 1998.
This rate differs from the federal statutory rate due primarily to state taxes.
Lane's tax benefit (provision) has been allocated between continuing and
discontinued operations in the statements of operations for the period from
acquisition (May 1, 1996) through December 31, 1996, the year ended December 31,
1997 and the period from January 1, 1998 to October 8, 1998.

7. MEMBERS' EQUITY AND RELATED PARTY TRANSACTIONS:

The liability of the individual members of Pioneer is limited to the
balances of their respective members' equity accounts.

The members of Pioneer were actively involved in managing the company and
paid regular salaries which are included in selling, general and administrative
expenses in the accompanying consolidated statements of operations. Prior to the
sale of Pioneer as described in Note 1, Greg Demers owned or controlled a
majority of the Pioneer's ownership interest and five other individuals or
entities owned the balance.

Pioneer has had transactions with several of its members and entities
affiliated with its members. Related party receivables and payables as of
December 31, 1996 and 1997 consist primarily of receivables and payables to
members or to entities affiliated with members.

MINORITY INTEREST

Greg Demers owns the 0.5% ownership interest in Kinzua not owned by
Pioneer. This ownership is reflected as minority interest in the accompanying
consolidated financial statements.

OTHER RELATED PARTY TRANSACTIONS

Various related parties have used the services of Pioneer Aviation's
aircraft and have been charged accordingly for such services at a rate that
approximates fair market value. These charges totaled $571,000, $258,000 and
$71,000 in 1996 and 1997, and the period from January 1, 1998 to October 8,
1998, respectively.

F-37
<PAGE> 196
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Beginning in 1996, Pioneer engaged a forest products trading company to
market its lumber products. One of Pioneer's members also has an ownership
interest in the trading company. Sales commissions paid to this entity, which
approximated market value, were $248,000, $700,000 and $324,000 in 1996, 1997
and the period from January 1, 1998 to October 8, 1998, respectively.

8. COMMITMENTS AND CONTINGENCIES:

LAND OWNERSHIP DISPUTE

In 1994, Old Pioneer filed a lawsuit against an unrelated third party for
$6,000,000, alleging that this party was erroneously deeded certain tracts of
timber and timberlands valued at $6,000,000 in April 1994. The other party then
counter-sued Old Pioneer for $6,000,000. Discovery and trial proceedings
occurred through 1997.

In January 1998, an Oregon Circuit/District Court ruled in Old Pioneer's
favor and ordered that the other party reconvey the timber and timberlands to
Old Pioneer and compensate Old Pioneer for the value of timber harvested during
the period the disputed property was under the other party's control. The other
party's claims were denied.

As Pioneer believes the other party is likely to appeal the Court's
decision, and as Pioneer has not yet assumed possession of the property or
collected damages, Pioneer has not recorded the gain contingency in the
accompanying consolidated financial statements. Any ultimate recoveries from the
lawsuit will be allocated among the owners of Old Pioneer at the time of the
related transaction. Pioneer's share of any recoveries would be approximately
27% of total recoveries received by Old Pioneer.

OTHER CLAIMS

Pioneer is subject to ongoing litigation and claims as part of its normal
business operations. In the opinion of management, none of these claims will
have a material adverse effect on the business or results of operations of
Pioneer.

9. ACQUISITIONS:

Three acquisitions have been reflected in the accompanying consolidated
financial statements. In May 1996, Lane was acquired by a group of investors who
also have ownership interests in Pioneer. The investors' ownership interests
were transferred to Pioneer in November 1996. In June 1996, Pioneer and Kinzua
acquired timber and timberlands and a sawmill in Pilot Rock, Oregon. In August
1996, Pioneer acquired a majority ownership interest in Pioneer Aviation.

LANE PLYWOOD ACQUISITION

Lane was formed in 1952. PMI was formed in 1996 by members of Pioneer for
the purpose of acquiring Lane. Lane was acquired by PMI on May 1, 1996. Lane's
operating assets principally consisted of timber-related operations and a
plywood operation. The acquisition was accounted for using the purchase method
of accounting; the purchase price was $10,100,000. The results of operations of
Lane are included in the accompanying consolidated financial statements for all
periods beginning May 1, 1996. As discussed in Note 11, Lane's plywood operation
was discontinued in 1997. Thus, the results of the plywood operation are
reflected as discontinued for all periods presented in the consolidated
financial statements.

On November 25, 1996, the ownership of PMI was transferred to Pioneer. This
transaction was accounted for as a reorganization of entities under common
control and, accordingly, the carrying values of Lane's accounts were not
adjusted as a result of the ownership transfer to Pioneer.

F-38
<PAGE> 197
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents the unaudited pro forma results of
discontinued operations for the year ended December 31, 1996 as if the Lane
acquisition had been consummated at the beginning of the period. The pro forma
results were prepared for comparative purposes only and do not purport to be
indicative of what would have occurred had the Lane acquisition been consummated
at the beginning of the period.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
(UNAUDITED)
<S> <C>
Revenue from discontinued operation...................... $39,363,000
Loss from discontinued operation......................... (142,000)
</TABLE>

PILOT ROCK ACQUISITION

In June 1996, Kinzua acquired a sawmill in Pilot Rock, Oregon ("Pilot
Rock") for $5,500,000. Concurrently, Pioneer purchased timber and timberlands in
northeastern Oregon from the same seller for $28,500,000. The acquisition was
accounted for using the purchase method of accounting. Results of operations of
the acquired sawmill and timber operations for the period from July 1, 1996
through December 31, 1996, the year ended December 31, 1997 and the period from
January 1, 1998 to October 8, 1998 are included in the accompanying consolidated
financial statements.

The following table presents the unaudited pro forma revenue and income
from continuing operations for the year ended December 31, 1996 as if the Pilot
Rock acquisition had been consummated at the beginning of the period. The pro
forma results were prepared for comparative purposes only and do not purport to
be indicative of what would have occurred had the Pilot Rock acquisition been
consummated at the beginning of the period.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
(UNAUDITED)
<S> <C>
Revenue.................................................. $74,355,000
Income from continuing operations........................ 8,649,000
</TABLE>

PIONEER AVIATION ACQUISITION

As discussed in Note 2, Pioneer Aviation was a related entity to Pioneer
prior to Pioneer acquiring a majority interest in Pioneer Aviation in August
1996. Through a series of purchases, capital contributions and ownership
exchanges in 1996 and 1997, Pioneer acquired all of the ownership interest in
Pioneer Aviation. The combined total of capital contributions, purchases of
other owners' interests and ownership exchanges totaled $5,000,000 and
$1,246,000 in 1996 and 1997, respectively. These acquisitions were accounted for
by the purchase method of accounting, except exchanges that have been recorded
at historical cost. Results of operations have been included in the accompanying
consolidated financial statements for each of the periods presented.

10. SEGMENT AND SIGNIFICANT CUSTOMER INFORMATION:

Pioneer operates in two industry segments - timber operations and lumber
operations. The timber operations segment consists of sales of logs to both
outside customers and to the lumber operations segment. The lumber operations
segment consists of lumber and by-products produced by Pioneer's two sawmills.
Operating income from the timber operations segment includes timberland and
property sales of $613,000, $6,774,000 and $5,901,000 in 1996, 1997, and the
period from January 1, 1998 to October 8, 1998, respectively.

F-39
<PAGE> 198
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents Pioneer's sales to certain customers as a
percentage of total sales for the applicable period. Other than as reflected in
the table, there were no other customers with sales equal to or in excess of 10%
of total sales for the years ended December 31, 1996, 1997 and for the period
from January 1 to October 8, 1998.

<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Customer A.................................................. 33% 29%
Customer B.................................................. 13% --
</TABLE>

While many of Pioneer's logs and lumber products are of export quality,
Pioneer does not directly export any logs or other products.

Segment information for the years ended December 31, 1996, 1997 and for the
period from January 1, 1998 to October 8, 1998 are as follows:

<TABLE>
<CAPTION>
JANUARY 1,
YEAR ENDED DECEMBER 31, 1998 TO
------------------------- OCTOBER 8,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Timber operations............................. $34,244,000 $60,304,000 $38,965,000
Lumber operations............................. 36,004,000 52,623,000 45,213,000
Intersegment sales to lumber operations....... (7,730,000) (14,025,000) (9,967,000)
----------- ----------- -----------
$62,518,000 $98,902,000 $74,211,000
=========== =========== ===========
Operating income (loss):
Timber operations............................. $13,618,000 $18,771,000 $ 8,788,000
Lumber operations............................. 4,007,000 3,534,000 (3,297,000)
----------- ----------- -----------
$17,625,000 $22,305,000 $ 5,491,000
=========== =========== ===========
Depreciation, depletion and amortization:
Timber operations............................. $13,809,000 $23,171,000 $11,152,000
Lumber operations............................. 639,000 781,000 610,000
General corporate assets...................... 918,000 1,307,000 1,204,000
----------- ----------- -----------
$15,366,000 $25,259,000 $12,966,000
=========== =========== ===========
Capital expenditures (a):
Lumber operations............................. $ 350,000 $ 917,000 $ 1,524,000
General corporate assets...................... 3,009,000 3,737,000 361,000
----------- ----------- -----------
$ 3,359,000 $ 4,654,000 $ 1,885,000
=========== =========== ===========
</TABLE>

(a) Capital expenditures do not include the cost of acquiring additional timber
and timberland properties.

Balance sheet segment information as of December 31, 1996 and 1997 is as
follows:

<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Identifiable Assets:
Timber operations....................................... $ 92,625,000 $108,690,000
Lumber operations....................................... 22,614,000 25,442,000
General corporate assets................................ 16,821,000 20,298,000
------------ ------------
$132,060,000 $154,430,000
============ ============
</TABLE>

F-40
<PAGE> 199
PIONEER RESOURCES, LLC AND SUBSIDIARIES
(AN OREGON LIMITED LIABILITY COMPANY AND PREDECESSOR TO STRATEGIC TIMBER TRUST
II, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. DISCONTINUED OPERATION:

In September 1997, Pioneer decided to dispose of its plywood manufacturing
operation, as owned and operated by Lane. This operation ceased in November
1997.

The net losses of the plywood operation for all periods presented are
included in the consolidated statements of operations under discontinued
operation. Revenues from the plywood operation were $27,788,000 in 1996 and
$36,818,000 in 1997. Except for certain receivables, inventories, and other
current assets carried at a total estimated net realizable value of $3,209,000,
all assets of the plywood operation were disposed of prior to December 31, 1997.

The gain in 1997 on disposal of the discontinued operation reflected in the
consolidated statement of operations includes gains on the sale of equipment
used in the plywood operation, less estimated closure-related costs, net of tax
provision on the gain. The loss in the period from January 1, 1998 to October 8,
1998 related to the disposal of this operation principally represents costs
incurred in excess of those estimated in 1997 for closure-related expenses.

12. SUBSEQUENT EVENT:

As discussed in Note 1, Pioneer's interest in Kinzua was conveyed to
Frontier Resources. In January 1999, Frontier decided to permanently close the
Heppner, Oregon sawmill operated by Kinzua. Based on an initial assessment,
Frontier believes that closure costs related to the plant shutdown will not be
significant.

F-41
<PAGE> 200

[INSIDE BACK COVER]

[PHOTO A]

Mid-rotation, intensively-managed
Southern pine plantation.

Life Cycle of A Tree

Strategic Timber owns and manages a diversified portfolio of
commercial timber, a renewable natural resource.

<TABLE>
<S> <C>
[PHOTO B] [PHOTO C]

Fast-growing 5 year-old Southern Mature Southern pine ready for
pine plantation in Louisiana. harvest. Clear, straight and
large diameter sawtimber has
many high-value end uses.
</TABLE>
<PAGE> 201

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

16,600,000 SHARES

STRATEGIC TIMBER TRUST, INC.

COMMON STOCK

LOGO

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

PROSPECTUS

, 1999

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

SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
A.G. EDWARDS & SONS, INC.
WARBURG DILLON READ LLC
ABN AMRO ROTHSCHILD
A DIVISION OF ABN AMRO INCORPORATED

MORGAN KEEGAN & COMPANY, INC.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 202

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Unless otherwise defined, all capitalized terms contained in this Part II
shall have the meanings ascribed to them in the prospectus which forms a part of
this Registration Statement. Strategic Timber is sometimes referred to herein as
the "Registrant."

ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the various expenses expected to be incurred
by Strategic Timber in connection with the sale and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions. All amounts are estimated except the Securities and Exchange
Commission registration fee and the National Association of Securities Dealers,
Inc. filing fee.

<TABLE>
<S> <C>
SEC registration fee........................................ $ 111,448
National Association of Securities Dealers, Inc. filing
fee....................................................... 30,500
Nasdaq National Market listing fee.......................... 95,000
Blue Sky fees and expenses.................................. 5,000
Accounting fees and expenses................................ 800,000
Legal fees and expenses..................................... 1,000,000
Financial advisory fee...................................... 2,158,000
Printing and engraving expenses............................. 450,000
Registrar and Transfer Agent's fees......................... 15,500
Directors' and Officers' liability insurance................ 162,000
Miscellaneous fees and expenses............................. $ 300,000
----------
Total............................................. $5,127,448
==========
</TABLE>

ITEM 32. SALES TO SPECIAL PARTIES.

In connection with the formation transactions, the following sales of
Strategic Timber's and Strategic Timber Partners' securities have occurred
within the past six months or will occur upon the completion of this offering:

(i) In accordance with the terms of the Strategic Timber Partners II
partnership units held by the former members of Pioneer and the Strategic
Timber Partners II partnership units held by Mach One, the former members
of Pioneer will receive $24.1 million in cash and 2,170,086 Strategic
Timber Partners partnership units having a value of $43.4 million, based on
an initial public offering price of $20 per share, and Mach One will
receive $10.0 million in cash and 100,110 Strategic Timber Partners
partnership units having a value of $2.0 million, based on the initial
public offering price of $20 per share, in connection with the merger of
Strategic Timber Partners II into Strategic Timber Partners. All of the
units in Strategic Timber Partners II, consisting of 10,000 partnership
units, will be cancelled in connection with the merger of Strategic Timber
Partners II into Strategic Timber Partners, and the holders will receive
Strategic Timber Partners units in exchange for their Strategic Timber
Partners II units. The former members of Pioneer acquired their Strategic
Timber Partners II partnership units in connection with Strategic Timber
Partners II's acquisition of Pioneer. Mach One acquired its interest in
Strategic Timber Partners II in exchange for $10.0 million cash to
Strategic Timber Partners II that was used to finance Strategic Timber
Partners II's acquisition of Pioneer.

(ii) In accordance with the terms of the Strategic Timber Partners
partnership units held by Louisiana Timber, Louisiana Timber will receive
$12.9 million in cash and will own 1,762,974 Strategic Timber Partners
partnership units having a value of $35.3 million, based on an initial
public offering price of $20 per share, as of the completion of the
offering. Louisiana Timber acquired its Strategic Timber Partners
partnership units in exchange for the contribution to Strategic Timber
Partners of a contract (valued by the parties at $50.0 million) to acquire
the Louisiana property.
II-1
<PAGE> 203

(iii) At the completion of this offering, the shareholders of
Strategic Timber who formed Strategic Timber II will receive 933,035
Strategic Timber Partners partnership units in connection with the merger
of Strategic Timber II, Strategic Timber Partners II and Strategic Timber
Two Operating Co. into Strategic Timber Partners. The Strategic Timber
Partners II partnership units held by these individuals will be canceled in
the merger.

ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES.

In addition to the issuances described in Item 32, Strategic Timber and
Strategic Timber Partners have issued the following securities:

(i) In April 1998, Strategic Timber issued an aggregate of 16,065 (or
587,798 shares adjusted for Strategic Timber's 36.59-for-1 stock split)
shares of common stock to six individuals for services rendered as
employees of Strategic Timber: C. Edward Broom, Christopher J. Broom,
Thomas P. Broom, Charles W. Godfrey, Vladimir Harris and Joseph E. Rendini.
Based on an initial public offering price of $20 per share, these shares
are worth approximately $11.8 million.

(ii) In April 1998, Strategic Timber Partners issued 500 Class B
partnership units and 4,500 Class C partnership units to Louisiana Timber
in exchange for assignment to Strategic Timber Partners of a contract to
acquire the Louisiana property. The parties valued the contract at $50.0
million. In connection with the completion of this offering, these units
will be converted into an aggregate of 1,762,974 partnership units and
$12.9 million in cash. Based on an initial public offering price of $20 per
share, these units are worth approximately $35.3 million.

(iii) In April 1998, Strategic Timber issued 1,275 shares (or 46,651
shares adjusted for the stock split) of common stock to Sutherland Asbill &
Brennan LLP in consideration of legal services rendered to Strategic
Timber. Based on an initial public offering price of $20 per share, these
shares are worth approximately $933,000.

(iv) In June 1998, Strategic Timber issued 1,020 (or 37,321 shares
adjusted for the stock split) shares of common stock to Nicholas C. Brunet
for services rendered as an employee of Strategic Timber. Based on an
initial public offering price of $20 per share, these shares are worth
approximately $746,000.

With respect to the issuances of common stock, options and partnership
units convertible into common stock described in Item 32 above and in this Item
33, Strategic Timber relied upon the exemption provided by section 4(2) of the
Securities Act, and in all but the issuance of shares to Mr. Brunet, Regulation
D, Rule 506, promulgated thereunder.

Each recipient of the securities described above and in Item 32 represented
his or its intention to acquire the securities for investment only and not with
a view to distribution thereof. Appropriate legends were affixed to the stock
certificates issued in such transactions. Each recipient had adequate access to
information about Strategic Timber.

ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

GEORGIA BUSINESS CORPORATION CODE

Section 14-2-851 of the GBCC empowers a corporation to indemnify a director
(including a former director and including a director who is or was serving at
the request of the corporation as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise) against liability
arising from official acts if the director acted in good faith and reasonably
believed that his or her conduct was in the best interests of the corporation.
For all other acts, the corporation may indemnify a director who acted in good
faith and reasonably believed that the conduct was not opposed to the best
interests of the corporation. The corporation may indemnify a director with
respect to criminal proceedings if the director acted in good

II-2
<PAGE> 204

faith and had no reasonable cause to believe the conduct was unlawful. A
corporation may not indemnify a director adjudged liable for conduct involving
receipt of an improper personal benefit.

In addition, section 14-2-856 of the GBCC permits the articles of
incorporation, bylaws, a contract, or resolution approved by the shareholders to
authorize the corporation to indemnify a director against claims to which the
director was a party, including claims by the corporation or in the right of the
corporation (e.g., a shareholder derivative action). However, the corporation
may not indemnify the director for liability to the corporation for any
appropriation of a corporate opportunity, intentional misconduct or knowing
violation of law, unlawful distributions or receipt of an improper benefit.

Section 14-2-852 of the GBCC provides for mandatory indemnification against
reasonable expenses incurred by a director who is wholly successful in defending
an action to which the director was a party due to his or her status as a
director of the corporation on the merits or otherwise. Section 14-2-854 allows
a court, upon application by a director, to order indemnification and
advancement of expenses if it determines that the director is entitled to
indemnification under the GBCC or if it determines that indemnification is fair
and reasonable even if the director has failed to meet the statutory standard of
conduct under section 14-2-851. However, the court may not order indemnification
in excess of reasonable expenses for liability to the corporation or for receipt
of an improper benefit.

Section 14-2-857 of the GBCC permits a corporation to indemnify an officer
(including a former officer and including an officer who is or was serving at
the request of the corporation as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise) to the same extent as
a director. A corporation may indemnify an officer who is not a director to a
further extent by means of articles of incorporation, bylaw, board resolution,
or contract. However, the corporation may not indemnify an officer for liability
arising from conduct involving appropriation of a corporate opportunity,
intentional misconduct or knowing violation of law, unlawful distributions, or
receipt of an improper personal benefit. An officer who is not a director is
also entitled to mandatory indemnification and may apply for court-ordered
indemnification.

Section 14-2-858 of the GBCC permits a corporation to purchase and maintain
insurance on behalf of directors and officers against liability incurred by them
in their capacities or arising out of their status as directors and officers of
the corporation, regardless of whether the corporation would have the power to
indemnify or advance expenses to the director or officer for the same liability
under the GBCC.

ARTICLES OF INCORPORATION

Article V of the Articles of Incorporation exculpates the directors of
Strategic Timber from personal liability for money damages to Strategic Timber
or its shareholders to the fullest extent permitted by the GBCC, as it may be
amended from time to time. Currently, the directors are exculpated from all
liability to Strategic Timber or its shareholders except for liability arising
from conduct involving appropriation of a corporate opportunity, intentional
misconduct or knowing violation of law, unlawful distributions, or receipt of an
improper personal benefit. The Articles of Incorporation also provide that any
repeal or modification of Article V of the Articles of Incorporation by the
shareholders of Strategic Timber shall not adversely affect any right or
protection of a director of Strategic Timber existing at the time of such repeal
or modification.

BYLAWS

Article VI of Strategic Timber's Bylaws provides that Strategic Timber
shall indemnify to the fullest extent permitted under the GBCC any person who is
or was a director or an officer of Strategic Timber, including a director or an
officer who is or was serving at the request of Strategic Timber as a director,
officer, partner, trustee, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise.

No amendment, termination, or other elimination of Article VI of the Bylaws
or of any relevant provisions of the GBCC or of any other applicable law shall
affect or diminish in any way the rights to
II-3
<PAGE> 205

indemnification under the Bylaws with respect to any action, suit or proceeding
arising out of, or relating to, any event or act or omission occurring or fact
or circumstance existing prior to such amendment, termination or other
elimination. The indemnification and advancement of expenses provided by, or
granted pursuant to, Strategic Timber's Bylaws are not exclusive of any other
rights permitted by applicable law to which a person seeking indemnification or
advancement of expenses may be entitled, whether by contract or otherwise. All
rights to indemnification under Article VI of the Bylaws continue as to a person
who has ceased to be a director or officer and shall be deemed to be a contract
between Strategic Timber and each such person.

INDEMNIFICATION AGREEMENTS

Strategic Timber will enter into indemnification agreements with each of
its directors and executive officers prior to completion of this offering, and
intends to enter into similar agreements with its prospective directors upon
completion of the offering. The indemnification agreements provide for
indemnification to the fullest extent permitted by applicable law, the Articles
of Incorporation, the Bylaws and any resolutions of the Board of Directors and
shareholders of Strategic Timber as in effect on the date of execution of each
such indemnification agreement, and to such greater extent as applicable law may
thereafter from time to time permit. The terms of these indemnification
agreements are consistent with the terms of Article VI of Strategic Timber's
Bylaws and Article V of the Articles of Incorporation.

INSURANCE

Strategic Timber intends to purchase a policy of insurance providing
reimbursement of indemnification payments to officers and directors of Strategic
Timber and reimbursement of certain liabilities incurred by directors and
officers of Strategic Timber in their capacities as such, to the extent that
they are not otherwise indemnified by Strategic Timber.

UNDERWRITING AGREEMENT

The Underwriting Agreement (Exhibit 1.1) provides for indemnification by
the underwriters of Strategic Timber, its directors and its officers, and by
Strategic Timber of the underwriters, for certain liabilities, including
liabilities arising under the Securities Act, and affords certain rights of
contribution with respect thereto.

PARTNERSHIP AGREEMENT

The Partnership Agreement (Exhibit 3.5.4) provides for indemnification of
Strategic Timber, Strategic Timber Operating Co., and the directors and officers
of Strategic Timber, as well as any other persons Strategic Timber Operating
Co., as general partner, may designate. Strategic Timber Partners shall
indemnify any of these indemnitees against any losses, claims, damages,
liabilities, judgments, fines, settlements and expenses arising from the
operations of Strategic Timber Partners so long as the indemnitee acted in good
faith and in a manner it reasonably believed to be in, or not opposed to, the
best interest of Strategic Timber Partners, and in the case of any criminal
proceeding, the indemnitee had no reasonable cause to believe that its conduct
was unlawful. This indemnification is limited to the assets of Strategic Timber
Partners and no partner in Strategic Timber Partners shall be personally liable
for such indemnification. Strategic Timber Partners may reimburse reasonable
expenses incurred by any such indemnitee in defense of an action relating to the
operations of Strategic Timber Partners, if Strategic Timber Partners receives
certain written affirmations and undertakings from the indemnitee. Strategic
Timber Partners may purchase and maintain insurance on behalf of such
indemnitees against liabilities incurred by them in connection with Strategic
Timber Partners' activities, regardless of whether Strategic Timber Partners
would have the power to indemnify the indemnitee for the same liability under
the Partnership Agreement.

II-4
<PAGE> 206

ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.

Not applicable.

ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS.

(a) Financial Statements

See Index to Financial Statements on page F-1 of the prospectus which
forms a part of this Registration Statement.

(b) Exhibits

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
1.1* Form of Underwriting Agreement
2.1.1+* Contract for the Purchase and Sale of Real Property, dated
April 15, 1998, by and between Griffin Logging, Inc. and
Louisiana Timber Partners, LLC
2.1.2+* Partial Assignment and Assumption of Contract, dated April
23, 1998, by and between Louisiana Timber Partners, LLC and
Strategic Timber Partners, LP
2.1.3+* Contribution Agreement, dated April 23, 1998, by and among
Strategic Timber Partners, LP, Strategic Timber Operating
Co., the Registrant and Louisiana Timber Partners, LLC
2.2+* Acquisition and Contribution Agreement, dated October 9,
1998, by and among Strategic Timber Trust II, LLC, Strategic
Timber Two Operating Co., LLC, Strategic Timber Partners II,
LP, Frontier Resources, LLC and all of the former owners of
the membership interests of Pioneer Resources, LLC
2.3* Plan and Agreement of Merger with respect to the Merger of
Strategic Timber Trust II, LLC, Strategic Timber Two
Operating Co., LLC, and Strategic Timber Partners II, LP
with and into Strategic Timber Partners, LP, dated as of
January 25, 1999
3.1.1* Articles of Incorporation of the Registrant
3.1.2* Form of Amended and Restated Articles of Incorporation of
the Registrant to be effective on or prior to the
consummation of this offering
3.2.1* Bylaws of the Registrant
3.2.2* Form of Amended and Restated Bylaws of the Registrant to be
effective on or prior to the consummation of this offering
3.3* Certificate of Incorporation of Strategic Timber Operating
Co.
3.4* Bylaws of Strategic Timber Operating Co.
3.5.1* Agreement of Limited Partnership of Strategic Timber
Partners, LP
3.5.2* First Amended and Restated Agreement of Limited Partnership
of Strategic Timber Partners, LP
3.5.3* First Amendment to First Amended and Restated Agreement of
Limited Partnership of Strategic Timber Partners, LP
3.5.4 Form of Second Amended and Restated Agreement of Limited
Partnership of Strategic Timber Partners, LP, to be
effective on or prior to the consummation of this offering
3.6.1* Agreement of Limited Partnership of Strategic Timber
Partners II, LP
3.6.2* First Amended and Restated Agreement of Limited Partnership
of Strategic Timber Partners II, LP
3.7* Operating Agreement of Strategic Timber Trust II, LLC
3.8* Operating Agreement of Strategic Timber Two Operating Co.,
LLC
3.9* Fourth Amended and Restated Operating Agreement of Pioneer
Resources, LLC
4.1* Form of Common Stock Certificate
</TABLE>

II-5
<PAGE> 207

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
5.1 Opinion of Sutherland Asbill & Brennan LLP as to certain
matters regarding the shares of Common Stock offered hereby
8.1* Opinion of Sutherland Asbill & Brennan LLP as to tax matters
8.2* Private Letter Ruling issued to the Registrant from the
Internal Revenue Service, dated March 19, 1999
10.1* Form of 1999 Strategic Timber Trust Omnibus Incentive Plan
10.2* Form of Indemnification Agreement to be executed between
Registrant and certain of its officers and directors
10.3* Form of Stock Option Agreement
10.4* Form of Stock Option Agreement for Outside Directors
10.5+* Replacement Credit Agreement, dated October 9, 1998, by and
among Pioneer Resources, LLC, First Union National Bank, ABN
AMRO Bank N.V., NationsBank, N.A., and the other lenders
which are or become parties thereto
10.6+* Loan Agreement, dated April 27, 1998, by and among Strategic
Timber Partners, LP, ABN AMRO Bank N.V., and the other
lenders which are or become parties thereto
10.7+* Bridge Loan Agreement, dated April 27, 1998, by and among
the Registrant, ABN AMRO Bank N.V. and the lenders named
therein
10.8+* Bridge Loan Agreement, dated October 9, 1998, by and among
Strategic Timber Trust II, LLC, ABN AMRO Bank N.V. and the
lenders named therein
10.9.1* Timber Purchase Agreement, dated December 29, 1998, between
Kinzua Resources, LLC and Pioneer Resources, LLC
10.9.2* Statutory Bargain and Sale Timber Deed between Kinzua
Resources, LLC and Pioneer Resources, LLC, dated December
29, 1998
10.10* Employment and Non-Competition Agreement between the
Registrant and C. Edward Broom
10.11* Employment and Non-Competition Agreement between the
Registrant and Christopher J. Broom
10.12* Employment and Non-Competition Agreement between the
Registrant and Thomas P. Broom
10.13* Employment and Non-Competition Agreement between the
Registrant and Kenneth L. Chute
10.14* Employment and Non-Competition Agreement between the
Registrant and Vladimir Harris
10.15* Employment and Non-Competition Agreement between the
Registrant and Nicholas C. Brunet
10.16* Employment and Non-Competition Agreement between the
Registrant and Joseph E. Rendini
10.17.1* Loan Agreement by and among Strategic Timber Partners, LP
and Pioneer Resources, LLC, as borrowers, and ABN AMRO Bank
N.V., as Administrative Agent, and the lenders named
therein, dated April 9, 1999
10.17.2 Amendment No. 1 to Loan Agreement by and among Strategic
Timber Partners, LP, as borrower, and ABN AMRO Bank N.V., as
Administrative Agent, and the lenders named therein, dated
as of April 22, 1999
21.1* Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Sutherland Asbill & Brennan LLP
23.3 Consent of Mason, Bruce & Girard, Inc.
23.4 Consent of Canal Forest Resources, Inc.
</TABLE>

II-6
<PAGE> 208

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
24.1* Power of Attorney
27.1 Financial Data Schedule
99.1* Consent of Prospective Director Starling W. Childs, II
99.2* Consent of Prospective Director Jay S. Lucas
99.3* Consent of Prospective Director Hanns A. Pielenz
99.4* Consent of Prospective Director Richard P. Urfer
99.5 Report of Mason, Bruce & Girard, Inc., dated May 6, 1999
99.6 Report of Canal Forest Resources, Inc., dated May 6, 1999
</TABLE>

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

* Previously filed.

+ Schedules and similar attachments to this exhibit have been omitted. A list
of these omitted schedules has been provided in this exhibit, and the
Registrant agrees to furnish supplementally to the Commission a copy of any
omitted schedule upon request.

ITEM 37. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Strategic
Timber pursuant to the foregoing provisions, or otherwise, Strategic Timber has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Strategic Timber of expenses
incurred or paid by a director, officer or controlling person of Strategic
Timber in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, Strategic Timber will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by Strategic Timber pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and this offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(3) It will provide to the underwriters at the closing(s) specified in
the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.

II-7
<PAGE> 209

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New London, State of New Hampshire, on the 6th day of
May, 1999.

STRATEGIC TIMBER TRUST, INC.

By: /s/ C. EDWARD BROOM

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

C. Edward Broom

President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ C. EDWARD BROOM President, Chief Executive May 6, 1999
- ----------------------------------------------------- Officer and Chairman of the
C. Edward Broom Board of Directors
(Principal Executive
Officer)

/s/ KENNETH L. CHUTE Senior Vice President and May 6, 1999
- ----------------------------------------------------- Chief Financial Officer
Kenneth L. Chute (Principal Financial and
Accounting Officer)

/s/ CHRISTOPHER J. BROOM Executive Vice President, May 5, 1999
- ----------------------------------------------------- Chief Investment Officer and
Christopher J. Broom Director

/s/ THOMAS P. BROOM Executive Vice President, May 6, 1999
- ----------------------------------------------------- Chief Operating Officer and
Thomas P. Broom Director
</TABLE>

II-8
<PAGE> 210

EXHIBIT INDEX

<PAGE> 211

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
8.2* Private Letter Ruling issued to the Registrant from the
Internal Revenue Service, dated March 19, 1999
10.1* Form of 1999 Strategic Timber Trust Omnibus Incentive Plan
10.2* Form of Indemnification Agreement to be executed between
Registrant and certain of its officers and directors
10.3* Form of Stock Option Agreement
10.4* Form of Stock Option Agreement for Outside Directors
10.5+* Replacement Credit Agreement, dated October 9, 1998, by and
among Pioneer Resources, LLC, First Union National Bank, ABN
AMRO Bank N.V., NationsBank, N.A., and the other lenders
which are or become parties thereto
10.6+* Loan Agreement, dated April 27, 1998, by and among Strategic
Timber Partners, LP, ABN AMRO Bank N.V., and the other
lenders which are or become parties thereto
10.7+* Bridge Loan Agreement, dated April 27, 1998, by and among
the Registrant, ABN AMRO Bank N.V. and the lenders named
therein
10.8+* Bridge Loan Agreement, dated October 9, 1998, by and among
Strategic Timber Trust II, LLC, ABN AMRO Bank N.V. and the
lenders named therein
10.9.1* Timber Purchase Agreement, dated December 29, 1998, between
Kinzua Resources, LLC and Pioneer Resources, LLC
10.9.2* Statutory Bargain and Sale Timber Deed between Kinzua
Resources, LLC and Pioneer Resources, LLC, dated December
29, 1998
10.10* Employment and Non-Competition Agreement between the
Registrant and C. Edward Broom
10.11* Employment and Non-Competition Agreement between the
Registrant and Christopher J. Broom
10.12* Employment and Non-Competition Agreement between the
Registrant and Thomas P. Broom
10.13* Employment and Non-Competition Agreement between the
Registrant and Kenneth L. Chute
10.14* Employment and Non-Competition Agreement between the
Registrant and Vladimir Harris
10.15* Employment and Non-Competition Agreement between the
Registrant and Nicholas C. Brunet
10.16* Employment and Non-Competition Agreement between the
Registrant and Joseph E. Rendini
10.17.1* Loan Agreement by and among Strategic Timber Partners, LP
and Pioneer Resources, LLC, as borrowers, and ABN AMRO Bank
N.V., as Administrative Agent, and the lenders named
therein, dated April 9, 1999
10.17.2 Amendment No. 1 to Loan Agreement by and among Strategic
Timber Partners, LP as borrower, and ABN AMRO Bank N.V., as
Administrative Agent, and the lenders named therein, dated
as of April 22, 1999
21.1* Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Sutherland Asbill & Brennan LLP
23.3 Consent of Mason, Bruce & Girard, Inc.
</TABLE>

<PAGE> 212

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
23.4 Consent of Canal Forest Resources, Inc.
24.1* Power of Attorney
27.1 Financial Data Schedule
99.1* Consent of Prospective Director Starling W. Childs, II
99.2* Consent of Prospective Director Jay S. Lucas
99.3* Consent of Prospective Director Hanns A. Pielenz
99.4* Consent of Prospective Director Richard P. Urfer
99.5 Report of Mason, Bruce & Girard, Inc., dated May 6, 1999
99.6 Report of Canal Forest Resources, Inc., dated May 6, 1999
</TABLE>

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

* Previously filed.

<PAGE> 1

EXHIBIT 3.5.4

SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP

STRATEGIC TIMBER PARTNERS, LP

DATED AS OF
MAY___, 1999

<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<S> <C> <C> <C>
ARTICLE I.........................................................................................................2
Definitions..............................................................................................2
1.1 Definitions............................................................................2

ARTICLE II........................................................................................................9
Organization of Partnership..............................................................................9
2.1 Organization...........................................................................9
2.2 Name...................................................................................9
2.3 Location of Principal Place of Business................................................9
2.4 Registered Agent and Registered Office.................................................9
2.5 Term..................................................................................10

ARTICLE III......................................................................................................10
Purpose and Powers......................................................................................10
3.1 Purpose and Business..................................................................10
3.2 Powers................................................................................10

ARTICLE IV.......................................................................................................11
Capital Contributions...................................................................................11
4.1 Capital Contributions, Partnership Interests and Percentage Interests of
Partners..............................................................................11
4.2 Issuances of Additional Partnership Interests ........................................11
4.3 Contribution of Proceeds of Issuance of STT Shares....................................12
4.4 No Third Party Beneficiaries..........................................................12
4.5 No Interest on or Return of Capital Contributions.....................................13
4.6 Loans to Partnership..................................................................13
4.7 Incentive Plan........................................................................13
4.8 No Preemptive Rights..................................................................13

ARTICLE V........................................................................................................13
Distributions...........................................................................................13
5.1 Distributions.........................................................................13
5.2 Amounts Withheld......................................................................14
5.3 Distributions Upon Liquidation........................................................14
5.4 Capital Gains.........................................................................14

ARTICLE VI.......................................................................................................15
Allocations and Other Tax and Accounting Matters........................................................15
6.1 Allocations for Capital Account Purposes..............................................15
6.2 Tax Allocations.......................................................................15
6.3 Books of Account......................................................................16
6.4 Reports...............................................................................16
6.5 Tax Matters Partner; Tax Elections and Returns........................................16
6.6 Withholding Payments Required By Law..................................................17
6.7 Fiscal Year...........................................................................18
</TABLE>

<PAGE> 3

<TABLE>
<S> <C> <C> <C>
ARTICLE VII......................................................................................................18
Rights, Duties and Restrictions of the
General Partner and the REIT...................................................................18
7.1 Powers and Duties of General Partner..................................................18
7.2 Reimbursement of the General Partner and STT..........................................21
7.3 Contracts with Affiliates.............................................................22
7.4 Title to Partnership Assets...........................................................22
7.5 Reliance by Third Parties.............................................................22
7.6 Indemnification by Partnership........................................................23
7.7 Liability of the General Partner and STT..............................................25
7.8 Other Matters Concerning the General Partner and STT..................................25
7.9 Outside Activities of the General Partner and STT.....................................25
7.10 Certificate of Limited Partner........................................................26
7.11 Restrictions on General Partner Authority.............................................26

ARTICLE VIII.....................................................................................................27
Dissolution, Winding-Up and Liquidation or Combination..................................................27
8.1 Events of Dissolution.................................................................27
8.2 Winding Up............................................................................27
8.3 Timing Requirements...................................................................29
8.4. Documentation of Liquidation..........................................................29
8.5 Rights of Limited Partners............................................................29
8.6 Notice of Dissolution.................................................................29
8.7 Reasonable Time for Winding-Up........................................................29
8.8. Waiver of Partition...................................................................30
8.9. Deemed Distribution and Recontribution................................................30

ARTICLE IX.......................................................................................................30
Transfer of Partnership Interests.......................................................................30
9.1 Transfer..............................................................................30
9.2 Transfers by the General Partner or STT...............................................30
9.3 Transfers by Limited Partners Other than STT..........................................31
9.4 Assignees.............................................................................32
9.5 Certain Restrictions on Transfer......................................................32
9.6 Substituted Limited Partners..........................................................33

ARTICLE X........................................................................................................34
Rights and Obligations of the Limited Partners..........................................................34
10.1 Limitation of Liability...............................................................34
10.2 No Participation in Management........................................................34
10.3 No Withdrawal.........................................................................34
10.4 Conflicts.............................................................................34
10.5 Provision of Information..............................................................34
10.6 Power of Attorney.....................................................................35
</TABLE>

<PAGE> 4

<TABLE>
<S> <C> <C> <C>
ARTICLE XI.......................................................................................................36
Grant of Certain Rights to Limited Partners.............................................................36
11.1 Grant of Rights.......................................................................36
11.2 Right of STT to Assume................................................................37
11.3 Restriction on Redemption.............................................................38

ARTICLE XII......................................................................................................38
Amendment of Partnership Agreement......................................................................38
12.1 Amendments............................................................................38

ARTICLE XIII.....................................................................................................39
Meetings of the Partners................................................................................39
13.1 Partner Meetings......................................................................39
13.2 Written Consent.......................................................................40
13.3 Proxy.................................................................................40

ARTICLE XIV......................................................................................................40
Admission of Additional Limited Partners................................................................40
14.1 Procedure for Admission...............................................................40
14.2 Allocations and Distribution to Additional Partners...................................40

ARTICLE XV.......................................................................................................41
General Provisions......................................................................................41
15.1 Notices...............................................................................41
15.2 Controlling Law.......................................................................41
15.3 Execution in Counterparts.............................................................41
15.4 Provisions Separable..................................................................41
15.5 Entire Agreement......................................................................41
15.6 Titles and Captions...................................................................41
15.7 Pronouns and Plurals..................................................................41
15.8 Number of Days........................................................................42
15.9 Assurances............................................................................42
15.10 Binding Effect........................................................................42
15.11 Creditors.............................................................................42
15.12 Waiver................................................................................42
15.13 Exhibits..............................................................................42
</TABLE>

iii

<PAGE> 5

THE PARTNERSHIP INTERESTS REFERRED TO IN THIS AGREEMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.
REFERENCE IS MADE TO ARTICLE IX OF THIS AGREEMENT FOR PROVISIONS RELATING TO
VARIOUS RESTRICTIONS ON THE SALE OR OTHER TRANSFER OF THESE INTERESTS.

SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP

STRATEGIC TIMBER PARTNERS, LP

THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP is made and entered into as of May ___, 1999 by and among the
General Partner and the Limited Partners (as those terms are defined below).

R E C I T A L S:

On April 21, 1998, Strategic Timber Operating Co. ("STOC"), as the
general partner, and Strategic Timber Trust, Inc. ("STT"), as the limited
partner (collectively the "Original Partners") formed Strategic Timber Partners,
LP ("Partnership"), as a limited partnership under the Revised Uniform Limited
Partnership Act of the State of Delaware pursuant to the Certificate of Limited
Partnership of Strategic Timber Partners, LP, filed with the Delaware Secretary
of State on April 21, 1998 and the Agreement of Limited Partnership, dated April
21, 1998 ("Original Agreement").

The Original Agreement was amended and restated as the First Amended
and Restated Agreement of Limited Partnership ("Restated Agreement") effective
April 23, 1998 contemporaneously with the admission of Louisiana Timber
Partners, LLC and the Partnership's acquisition of timberland in the State of
Louisiana. The Restated Agreement was further amended by the First Amendment to
the Restated Agreement, effective October 9, 1998 ("Amended and Restated
Agreement").

<PAGE> 6

Immediately preceding the execution and delivery of this Agreement,
Strategic Timber Two Operating Co., LLC, Strategic Timber Trust II, LLC and
Strategic Timber Partners II, LP were merged into the Partnership, with the
Partnership being the surviving entity. As a result of such merger, the
Partnership acquired all of the outstanding member interests of Pioneer
Resources, LLC ("Pioneer"), which owns timberlands located in the states of
California, Washington and Oregon.

The parties hereto desire to further amend and restate the Amended and
Restated Agreement in its entirety in accordance with the terms set forth
herein.

NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration on, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:

ARTICLE I

DEFINITIONS

1.1 Definitions. Except as otherwise expressly provided herein and
in the Exhibits, the following terms and phrases shall have the meanings as set
forth below:

"Accountants" shall mean Arthur Andersen LLP or such other
nationally recognized accountants as are selected by the General Partner.

"Act" shall mean the Revised Uniform Limited Partnership Act
of the State of Delaware, as the same may hereafter be amended from time to
time.

"Additional Limited Partner" means a Person admitted to the
Partnership pursuant to Section 14.1 hereof and who is shown as such on the
books and records of the Partnership.

"Affiliate" means, with respect to any Person, (i) any Person
directly or indirectly controlling, controlled by or under common control with
such Person; (ii) any Person owning or controlling ten percent (10%) or more of
the outstanding voting interests of such Person; (iii) any Person of which such
Person owns or controls ten percent (10%) or more of the voting interests; or
(iv) any officer, director, general partner or trustee of such Person or of any
Person referred to in clauses (i), (ii), and (iii) above. For purposes of this
definition, "control," when used with respect to any Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.

2
<PAGE> 7

"Agreement" shall mean this Second Amended and Restated
Limited Partnership Agreement and the Exhibits attached hereto, as originally
executed and as amended, modified, supplemented or restated from time to time,
as the context requires.

"Agreed Value" means (i) in the case of any property
contributed to the Partnership, the fair market value, as of the time of
contribution, as determined by the General Partner and the Person contributing
such property, reduced by any liabilities either assumed by the Partnership upon
such contribution or to which such property is subject when contributed, and
(ii) in the case of any property distributed to a Partner by the Partnership,
the value of such property at the time such property is distributed, as
determined by the General Partner, in good faith, reduced by any indebtedness
either assumed by such Partner upon such distribution or to which such property
is subject at the time of distribution as determined under section 752 of the
Code and the Regulations thereunder. The aggregate Agreed Value of the property
contributed or deemed contributed by each Partner as of the date hereof is as
set forth in Exhibit A.

"Articles of Incorporation" means the amended and restated
articles of incorporation of STT filed in the State of Georgia on May ___, 1999,
as amended or restated from time to time.

"Assignee" means a Person to whom one or more Partnership
Units have been transferred in a manner permitted under this Agreement, but who
has not become a substituted Limited Partner, and who has the rights set forth
in Section 9.4.

"Audited Financial Statements" shall mean financial statements
(balance sheet, statement of operations, statement of partners' equity and
statement of cash flows) prepared in accordance with GAAP and accompanied by an
independent auditor's report containing an opinion thereon.

"Bankruptcy" shall mean, with respect to any Partner, (i) the
commencement by such Partner of any petition, case or proceeding seeking relief
under any provision or chapter of the federal Bankruptcy Code or any other
federal or state law relating to insolvency, bankruptcy or reorganization, (ii)
an adjudication that such Partner is insolvent or bankrupt; (iii) the entry of
an order for relief under the federal Bankruptcy Code with respect to such
Partner, (iv) the filing of any such petition or the commencement of any such
case or proceeding against such Partner, unless such petition and the case or
proceeding initiated thereby are dismissed within ninety (90) days from the date
of such filing or (v) the filing of an answer by such Partner admitting the
allegations of any such petition.

"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York, New York are authorized or
required by law to close.

"Capital Account" shall mean the separate "book" account which
the Partnership shall establish and maintain for each Partner in accordance with
Exhibit B of this Agreement.

3
<PAGE> 8

"Capital Contribution" means the amount of cash, cash
equivalents and the Agreed Value of any contributed property that a Partner
contributes, or is deemed to contribute, to the Partnership pursuant to Sections
4.1 through 4.3 hereof.

"Capital Gain Amount" has the meaning set forth in Section 5.4
of this Agreement.

"Cash Amount" means an amount of cash equal to the Value of
the Shares on the Valuation Date.

"Certificate" shall mean the Certificate of Limited
Partnership establishing the Partnership, as filed with the office of the
Delaware Secretary of State, as it may be amended from time to time in
accordance with the terms of this Agreement and the Act.

"Code" shall mean the Internal Revenue Code of 1986, as
amended and in effect from time to time. Any reference herein to a specific
section of the Code shall be deemed to include a reference to any corresponding
provision of succeeding laws.

"Consent" shall mean the consent or approval of a proposed
action by the Partners, given in accordance with Article XIII hereof.

"Consolidated Company" means the combined group of STT, STOC,
the Partnership and Pioneer.

"Continuing Limited Partners" means those Persons, other than
STT, that have been admitted as Limited Partners prior to the Effective Date of
this Agreement.

"Conversion Factor" means 1.0, provided however, that in the
event STT (i) declares or pays a dividend on its outstanding Shares in its
Shares or makes a distribution to all holders of its outstanding Shares of its
Shares, (ii) subdivides its outstanding Shares, or (iii) combines its
outstanding Shares into a smaller number of Shares, the Conversion Factor shall
be adjusted by multiplying the Conversion Factor by a fraction, the numerator of
which shall be the number of Shares issued and outstanding on the record date
for such dividend, distribution, subdivision or combination (assuming for such
purposes that such dividend, distribution, subdivision or combination has
occurred as of such time), and the denominator of which shall be the actual
number of Shares (determined without the above assumption) issued and
outstanding on the record date for such dividend, distribution, subdivision or
combination. Any adjustment to the Conversion Factor shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event. It is intended that the foregoing adjustments to
the Conversion Factor be made to provide, at all times, the economic equivalence
of one Partnership Unit to one Share.

"Effective Date" means the date of the closing of the initial
public offering of the common stock of STT pursuant to that certain Underwriting
Agreement among Strategic Timber Partners, LP, Strategic Timber Trust, Inc. and
the representatives of the several

4
<PAGE> 9

underwriters dated as of May __, 1999.

"Entity" shall mean any general partnership, limited
partnership, limited liability company, corporation, joint venture, trust,
business trust, real estate investment trust, association or other business
entity.

"GAAP" shall mean U.S. generally accepted accounting
principles as in effect from time to time.

"General Partner" means Strategic Timber Operating Co., a
Delaware corporation or its duly admitted successors.

"Gross Asset Value" shall mean the value at which the assets
of the Partnership are carried on its books as required by the Regulations under
Code section 704(b) and as determined in accordance with Exhibit B.

"Incentive Plan" shall mean the 1999 Strategic Timber Trust
Omnibus Incentive Plan and any other stock option or stock incentive plan
hereafter adopted by STT or an Entity that is part of the Consolidated Company.

"Indemnitee" shall mean (i) any Person made a party to a
proceeding by reason of his status as (A) the General Partner, (B) STT, (C) an
employee, independent contractor, trustee, director, or officer of an Entity
that is part of the Consolidated Company (except with respect to any guaranty or
other credit enhancement of any debt obligation of the Partnership), or (D) a
Liquidating Trustee of the Partnership, and (ii) such other Persons (including
Affiliates of the General Partner or the Partnership) as the General Partner may
designate from time to time in its sole and absolute discretion.

"Limited Partners" shall mean those Persons, including STT,
listed under the heading "Limited Partners" on Exhibit A attached hereto, as
amended from time to time to reflect the admission of additional Persons and any
permitted successors or assigns, who are admitted as limited partners in the
Partnership.

"Liquidating Trustee" is defined in Section 8.2 of this
Agreement.

"Net Income" means for any period, the excess, if any, of the
Partnership's items of income and gain for such period over the Partnership's
items of loss and deduction for such period. The items included in the
calculation of Net Income shall be determined in accordance with Exhibit B.

"Net Loss" means, for any period, the excess, if any, of the
Partnership's items of loss and deduction for such period over the Partnership's
items of income and gain for such period. The items included in the calculation
of Net Loss shall be determined in accordance with Exhibit B.

5
<PAGE> 10

"Net Operating Cash Flow" means, with respect to any period
for which such calculation is being made,

(i) the sum of:

(a) the Partnership's Net Income or Net Loss (as the case may be)
for such period,

(b) depreciation, depletion and all other noncash charges deducted
in determining Net Income or Net Loss for such period,

(c) the amount of any reduction in the reserves of the Partnership
(including, without limitation, reductions resulting from the General Partner
determining that such amounts are no longer necessary), and

(d) all other cash received by the Partnership for such period that
was not included in determining Net Income or Net Loss for such period
including, without limitation, the proceeds of financings in excess of the
current needs of the Partnership,

(ii) less the sum of:

(a) all principal debt payments made during such period by the
Partnership,

(b) capital expenditures made by the Partnership during such period,

(c) investments in any entity (including loans made thereto) to the
extent that such investments are not otherwise described in clause (ii)(a) or
(ii)(b),

(d) all other expenditures and payments not deducted in determining
Net Income or Net Loss for such period,

(e) any amount included in determining Net Income or Net Loss for
such period that was not received by the Partnership during such period,

(f) the amount of any increase in reserves during such period which
the General Partner determines to be necessary or appropriate in its sole and
absolute discretion, and

(g) the amount of any working capital accounts and other accounts
with similar balances which the General Partner determines to be necessary or
appropriate in its sole and absolute discretion.

Notwithstanding the foregoing, Net Operating Cash Flow shall not include any
cash received or reductions in reserves or take into account any disbursements
made or reserves established after commencement of the dissolution and
liquidation of the partnership.

6
<PAGE> 11

"Notice of Redemption" means a Notice exercising a Limited
Partner's Redemption Rights, substantially in the form of Exhibit D to this
Agreement.

"Partner(s)" shall mean the General Partner and/or the Limited
Partners, their duly admitted successors or assigns and any additional Person
who has been admitted as a partner of the Partnership at the time of reference
thereto.

"Partnership Interest" shall mean the ownership interest of a
Partner in the Partnership representing a Capital Contribution by either a
Limited Partner or the General Partner and includes any and all benefits to
which the holder of such an interest may be entitled to under this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Partnership Interest may be expressed as a
number of Partnership Units.

"Partnership Record Date" means the record date established by
the General Partner for the distribution of Net Operating Cash Flow pursuant to
Section 5.1 hereof, which record date shall be the same as the record date
established by STT for a distribution to its shareholders of some or all of its
portion of the distribution of Net Operating Cash Flow.

"Partnership Unit" means a fractional, undivided share of the
Partnership Interests of all the Partners issued pursuant to Sections 4.1, 4.2,
4.3 and 4.7 of this Agreement. The number of Partnership Units and the
Percentage Interest represented by such Units are set forth in Exhibit A, as
amended from time to time. The ownership of Partnership Units may be evidenced
by such form of certificate for units as the General Partner adopts from time to
time on behalf of the Partnership. Partnership Units may be divided into two or
more classes and series.

"Percentage Interest" shall mean, with respect to any Partner,
its interest determined by dividing the Partnership Units owned by such Partner
by the total number of Partnership Units then outstanding and as specified in
Exhibit A hereto, as such Exhibit may be amended from time to time.

"Person" shall mean any natural person or Entity.

"Redeeming Partner" has the meaning set forth in Section 11.1
hereof.

"Redemption Right" has the meaning set forth in Section 11.1
hereof.

"Regulations" shall mean the Federal Income Tax Regulations
promulgated under the Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).

"REIT" means a real estate investment trust as defined in Code
section 856.

7
<PAGE> 12

"REIT Expenses" mean all expenses that are incurred by the
General Partner or STT relative to ownership of an interest in and operation of
the Partnership including, without limitation: (i) the costs and expenses
relating to the continuation of STT, its subsidiaries and the Partnership
including, without limitation, salaries and other benefits of STT's officers,
employees and directors, including benefits under the Incentive Plan; (ii) costs
and expenses related to the initial public offering of the Shares and any
subsequent offer or registration of securities by STT and all statements,
reports, fees and expenses incidental thereto, including underwriting discounts
and selling commissions applicable to any such offer of securities; (iii) costs
and expenses associated with compliance by STT with laws, rules and regulations
promulgated by any regulatory body, including the SEC, and (iv) all other
operating or administrative costs of the General Partner, STT and any other
Entity that is part of the Consolidated Company incurred on behalf of the
Partnership. The reimbursement of REIT Expenses shall not constitute a
distribution under Article V of this Agreement.

"SEC" means the US Securities and Exchange Commission.

"Securities Laws" means the federal and state laws (including
the rules and regulations thereunder and the judicial and administrative
interpretations thereof) regulating the sale of securities including, without
limitation, the Securities Act of 1933, as amended; the Securities Exchange Act
of 1934, as amended; state Blue Sky Laws; and the rules and regulations of any
stock exchange on which the Shares are listed for trading.

"Shares" means the shares of the common stock of STT.

"Share Amount" means a number of Shares equal to the product
of the number of Partnership Units offered for redemption by a Redeeming
Partner, multiplied by the Conversion Factor in effect on the date of receipt by
the General Partner of a Notice of Redemption, provided that in the event STT
issues to all holders of Shares rights, options, warrants or convertible or
exchangeable securities entitling the shareholders to subscribe for or purchase
Shares, or any other securities or property, and such rights have not expired at
the date the Redemption Notice is received by the General Partner, then the
Share Amount shall also include such rights as if the Redeeming Partner had held
Shares on the applicable record date relating to the issuance of such rights.

"Specified Redemption Date" means the tenth (10th) Business
Day after receipt by the General Partner of a Notice of Redemption; provided
that no Specified Redemption Date shall occur before one (1) year from the date
of this Agreement.

"Substituted Limited Partner" means a Person who is admitted
as a Limited Partner to the Partnership, pursuant to Section 9.6.

"Tax Matters Partner" means the Partner with the
responsibilities and authority set forth in Code section 6221 et seq. and as
provided in Section 6.5 of this Agreement.

"Valuation Date" means the date of receipt by the General
Partner of a

8
<PAGE> 13

Notice of Redemption or, if such date is not a Business Day, the first Business
Day thereafter.

"Value" means, with respect to a Share, the average of the
daily market price for the ten (10) consecutive trading days immediately
preceding the Valuation Date. The market price for each such trading day shall
be: (i) if the Shares are listed or admitted to trading on any securities
exchange or the Nasdaq-National Market System, the closing price, regular way,
on such day, or if no such sale takes place on such day, the average of the
closing bid and asked prices on such day, (ii) if the Shares are not listed or
admitted to trading on any securities exchange or the Nasdaq- National Market
System, the last reported sale price on such day or, if no sale takes place on
such day, the average of the closing bid and asked prices on such day, as
reported by a reliable quotation source designated by the General Partner, or
(iii) if the Shares are not listed or admitted to trading on any securities
exchange or the Nasdaq-National Market System and no such last reported sale
price or closing bid and asked prices are available, the average of the reported
high bid and low asked prices on such day, as reported by a reliable quotation
source designated by the General Partner, or if there shall be no bid and asked
prices on such day, the average of the high bid and low asked prices, as so
reported, on the most recent day (not more than ten (10) days prior to the date
in question) for which prices have been so reported; provided that if there are
no bid and asked prices reported during the ten (10) days prior to the date in
question, the Value of the Shares shall be determined by the General Partner,
acting in good faith on the basis of such quotations and other information as it
considers, in its reasonable judgment, appropriate. In the event the Share
Amount includes rights that a holder of Shares would be entitled to receive,
then the Value of such rights will be determined by the General Partner, acting
in good faith, on the basis of such quotations and other information as it
considers, in its reasonable judgment, to be appropriate.

ARTICLE II

ORGANIZATION OF PARTNERSHIP

2.1 Organization. The General Partner has organized the
Partnership as a limited partnership by filing the Certificate pursuant to the
provisions of the Act for the purposes and upon the terms and conditions
hereinafter set forth. The Partners agree that the rights and liabilities of the
Partners shall be as provided in the Act, except as otherwise herein expressly
provided.

2.2 Name. The name of the Partnership shall be Strategic Timber
Partners, LP, or such other name as shall be chosen from time to time by the
General Partner in its sole discretion.

2.3 Location of Principal Place of Business. The location of the
principal place of business of the Partnership shall be at 5 North Pleasant
Street, New London, New Hampshire 03257, or such other location as shall be
selected from time to time by the General Partner in its sole discretion.

9
<PAGE> 14

2.4 Registered Agent and Registered Office. The Corporation Trust
Company shall act as registered agent of the Partnership and the Registered
Office of the Partnership shall be Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware. The registered office and registered agent may be changed
from time to time as the General Partner deems advisable by filing notice of
such changes with the Secretary of State of Delaware in accordance with the Act.

2.5 Term. The Partnership's term commenced upon the filing of the
Certificate with the Secretary of State of Delaware on April 21, 1998 and shall
continue until December 31, 2099, unless the Partnership is sooner terminated as
provided in Article VIII or as provided by law.

ARTICLE III

PURPOSE AND POWERS

3.1 Purpose and Business. The purpose and nature of the business
to be conducted by the Partnership is (i) to conduct any business that may be
lawfully conducted by a limited partnership organized pursuant to the Act;
provided, however, that such business shall be limited to and conducted in such
a manner as to permit STT at all times to be classified as a REIT, unless STT
ceases to qualify as a REIT for reasons other than the conduct of the business
of the Partnership; (ii) to enter into any partnership, joint venture, limited
liability company or other similar arrangement to engage in any of the foregoing
or to own interests in any entity engaged, directly or indirectly, in any of the
foregoing; and (iii) to do anything necessary or incidental to the foregoing. In
connection with the foregoing, and without limiting STT's right, in its sole
discretion, to cease qualifying as a REIT, the Partners acknowledge STT's
current status as a REIT inures to the benefit of all of the Partners and not
solely to STT's General Partner. The General Partner shall also be empowered to
do any and all acts and things necessary or prudent to ensure that the
Partnership will not be classified as a "publicly traded partnership" for
purposes of section 7704 of the Code including, but not limited to, imposing
restrictions on transfers and redemptions.

3.2 Powers. The Partnership shall have all powers necessary,
desirable or appropriate to accomplish the purposes enumerated. In connection
with the foregoing, the Partnership shall have full power and authority,
directly or indirectly to enter into, perform, and carry out contracts of any
kind, to borrow money and to issue other evidences of indebtedness including
guaranties of the indebtedness of Affiliates, which indebtedness may be secured
by mortgages, pledges, security interests or other liens, and to enter into any
and all indentures and other agreements and documents relating to such evidence
of indebtedness, directly or indirectly, and to acquire such assets as may be
necessary or useful in connection with its business. Notwithstanding the
foregoing, the Partnership shall not take, or refrain from taking, any action
which, in the judgment of the General Partner, in its sole and absolute
discretion, (i) could adversely affect the ability of STT to qualify as a real
estate investment trust under the Code, (ii) could subject STT to any taxes
under section 857 (other than for capital gains that STT has

10
<PAGE> 15

elected to retain) or section 4981 of the Code or have other potentially adverse
consequences under the Code, or (iii) could violate any law or regulation of any
governmental body or agency having jurisdiction over STT, its subsidiaries or
its securities, unless such action (or inaction) shall have been specifically
consented to by STT in writing.

ARTICLE IV

CAPITAL CONTRIBUTIONS

4.1 Capital Contributions, Partnership Interests and Percentage
Interests of Partners.

(a) The Continuing Limited Partners, STT and the General Partner
have previously made Capital Contributions to the Partnership. After adjustment
for the Partnership Units acquired by STT from the Continuing Limited Partners
immediately prior to the execution and delivery of this Agreement, the Capital
Contributions made, or deemed to have been made, by the Partners are reflected
in Exhibit A attached hereto.

(b) To the extent the Partnership acquires any property by the
merger of any other Person into the Partnership, Persons who receive Partnership
Interests in exchange for their interests in the Person merging into the
Partnership shall become Partners and shall be deemed to have made Capital
Contributions as provided in the applicable merger agreement and as set forth in
Exhibit A as amended at such time.

(c) Each Partner shall own Partnership Units in the amount set
forth for such Partner in Exhibit A and shall have a Percentage Interest in the
Partnership as set forth for such Partner in Exhibit A, which Percentage
Interest shall be adjusted on Exhibit A, from time to time, by the General
Partner to the extent necessary to reflect redemptions, Capital Contributions,
the issuance of additional Partnership Units (pursuant to any merger or
otherwise), or similar events having an effect on a Partner's Percentage
Interest. Except as provided in Sections 4.2 and 6.6, the Partners shall have no
obligation to make any additional Capital Contributions or loans to the
Partnership.

4.2 Issuances of Additional Partnership Interests.

(a) Except as provided in paragraphs (b), (c) and (d) of this
Section 4.2, the General Partner is hereby authorized to cause the Partnership
from time to time to issue to the Partners (including STT) or other Persons
additional Partnership Units in one or more classes, or one or more series of
any of such classes, with such designations, preferences, participation,
optional or other special rights, powers and duties, including rights, powers
and duties senior to existing Partnership Units, as shall be determined by the
General Partner in its sole and absolute discretion and without the approval of
any of the Limited Partners, subject to Delaware law, including, without
limitation, (i) the allocations of items of Partnership income, gain, loss,
deduction and credit to each such class or series of Partnership Units; (ii) the
right of each such

11
<PAGE> 16

class or series of Partnership Units to share in Partnership distributions; and
(iii) the rights of each such class or series of Partnership Units upon
dissolution and liquidation of the Partnership.

(b) Without limiting the powers granted to the General Partner in
Section 4.2(a), the General Partner is expressly authorized to cause the
Partnership to issue Partnership Units for less than fair market value, so long
as the General Partner concludes in good faith that such issuance is in the
interest of STT and the Partnership (for example, and not by way of limitation,
the issuance of Partnership Units pursuant to an employee purchase plan
providing for employee purchases of Partnership Units at a discount from fair
market value or employee options that have an exercise price that is less than
the fair market value of the Partnership Units, either at the time of issuance
or at the time of exercise).

(1) (i) the additional Partnership Units are issued in
connection with an issuance of Shares, which shares have
designations, preferences and other rights, all such that the
economic interests are substantially similar to the
designations, preferences and other rights of the additional
Partnership Units issued to STT in accordance with this
Section 4.2, and (ii) STT shall make a Capital Contribution to
the Partnership in an amount equal to the proceeds raised in
connection with the issuance of such Shares as provided for in
Section 4.3 hereof, or

(2) the additional Partnership Units are issued to all
Partners in proportion to their respective Percentage
Interests.

(d) If STT makes an additional Capital Contribution to the
Partnership pursuant to Section 4.3 of the Agreement, the General Partner shall
be deemed to have made a portion of such Capital Contribution in an amount,
which when added to prior Capital Contributions of the General Partner, is equal
to one percent (1%) of the aggregate Capital Contributions of the Partners.

4.3 Contribution of Proceeds of Issuance of STT Shares. In
connection with the initial public offering of the Shares by STT, and any other
issuance of Shares for cash, from time to time, STT shall make a Capital
Contribution to the Partnership of the net cash proceeds raised in connection
with such issuance less, in the case of the initial public offering, the amount
used to pay indebtedness of STT and its Affiliates. The expenses paid or
incurred in connection with such issuance including, without limitation, any
underwriters' discounts or placement or financial advisory fees, shall be deemed
to be a Capital Contribution to the Partnership by STT. The Partnership shall be
deemed simultaneously to have reimbursed STT pursuant to Section 7.2 for the
amount of such underwriter's discount or other expenses.

4.4 No Third Party Beneficiaries. No creditor or other third party
shall have the right to enforce any right or obligation of any Partner to make
Capital Contributions or loans

12
<PAGE> 17

or to pursue any other right or remedy hereunder or at law or in equity, it
being understood and agreed that the provisions of this Agreement shall be
solely for the benefit of, and may be enforced solely by, the parties hereto and
their respective successors and assigns.

4.5 No Interest on or Return of Capital Contributions. No Partner
shall be entitled to interest on its Capital Contribution or have any right to
demand or receive the return of its Capital Contribution except as otherwise
specifically provided herein.

4.6 Loans to Partnership. At the option of the General Partner,
any Partner (including, without limitation, the General Partner) may make loans
to the Partnership on terms deemed by the General Partner to be commercially
reasonable.

4.7 Incentive Plan.

From time to time, STT may grant stock options or other forms of
noncash compensation ("Incentive Compensation") to any officer, director or
employee of the Consolidated Company pursuant to the Incentive Plan. At the time
of exercise of the stock options or payment of other forms of Incentive
Compensation, STT shall be deemed to have contributed to the Partnership as a
Capital Contribution, pursuant to this Section 4.7, an amount equal to such
Incentive Compensation. In determining the amount of such Capital Contribution
in connection with the exercise of an option to acquire the Shares, the excess
of the per share market price of the Shares (as of the trading day immediately
preceding the date on which the employee receives the Shares or their
equivalent) over any amount paid by the employee, officer or director,
multiplied by the number of Shares delivered by STT to such Person as Incentive
Compensation shall be utilized. Additional Partnership Units will be issued to
STT to account for such additional deemed Capital Contribution. All costs
attributable to the Incentive Plan are costs of the Partnership and will be
reimbursed by the Partnership to STT. As soon as practical after the exercise or
vesting of such Incentive Compensation, STT shall contribute to the capital of
the Partnership an amount equal to the consideration paid to STT by such
employee, officer or director, if any.

4.8 No Preemptive Rights.

No Person shall have any preemptive, preferential or other similar
right with respect to (i) additional Capital Contributions or loans to the
Partnership; or (ii) issuance or sale of any Partnership Units or other
Partnership Interests.

ARTICLE V

DISTRIBUTIONS

5.1 Distributions.

(a) Except as provided for in Section 5.4 and Section 8.2, the
General Partner

13
<PAGE> 18

shall cause the Partnership to distribute all or any portion of the Net
Operating Cash Flow to the Partners in such amounts and at such times as the
General Partner may determine.

(b) Amounts of Net Operating Cash Flow designated for distribution
will be paid to Partners who were Partners on a Partnership Record Date in
accordance with their respective Percentage Interests on such Partnership Record
Date; provided, however, in no event may a Partner receive a distribution of Net
Operating Cash Flow with respect to a Partnership Unit if such Partner is
entitled to receive a distribution out of Net Operating Cash Flow with respect
to a Share for which such Partnership Unit has been redeemed or exchanged.

(c) The General Partner and the Partnership shall not have any
liability to a Limited Partner under any circumstances as a result of any
distribution to a Limited Partner being treated as proceeds of a sale under Code
section 707 or the Regulations thereunder.

(d) The General Partner shall use its reasonable efforts to cause
the Partnership to distribute amounts sufficient to enable the REIT (i) to pay
such distributions to its shareholders as will enable the REIT to meet its
distribution requirements for qualification as a real estate investment trust as
set forth in Code section 857 and (ii) to avoid any federal income or excise tax
liabilities imposed by the Code, other than tax on capital gains that have been
designated for retention by the Partnership, as provided for in Section 5.4 of
this Agreement.

5.2 Amounts Withheld. All amounts withheld pursuant to the Code or
any provision of any state or local tax law pursuant to Section 6.6 hereof with
respect to any allocation, payment or distribution to the General Partner, the
Limited Partners or Assignees shall be treated as amounts distributed to such
Persons pursuant to Section 5.1 for all purposes under this Agreement.

5.3 Distributions Upon Liquidation. Proceeds from the sale or
other disposition of all or substantially all of the assets of the Partnership,
or related series of transactions that, taken together, result in the sale or
other disposition of all or substantially all of the assets of the Partnership,
including reductions in reserves made after commencement of the liquidation of
the Partnership, shall be distributed to the Partners in accordance with Section
8.3.

5.4 Capital Gains. If STT notifies the General Partner that it is
making an election under Code section 857(b) to retain all or a portion of its
capital gain income ("Capital Gain Amount"), the General Partner will withhold
from the distribution of Net Operating Cash Flow an amount equal to (i) the
Capital Gain Amount, plus (ii) an amount equal to the capital gain income that
is allocable to Partners other than the General Partner and STT in proportion to
the Capital Gain Amount. The General Partner shall also compute the federal and
state income taxes on the amount to be retained by the Partnership, which shall
be computed using STT's effective tax rate for such period ("Tax Amount"). The
Tax Amount will be distributed from Net Operating Cash Flow to the Partners in
accordance with their Percentage Interests no later than 180 days after the
close of a taxable year.

14
<PAGE> 19

ARTICLE VI

ALLOCATIONS AND OTHER TAX AND ACCOUNTING MATTERS

6.1 Allocations for Capital Account Purposes. For purposes of
maintaining the Capital Accounts and determining the rights of the Partners
among themselves, the Partnership's items of income, gain, loss and deduction
(computed in accordance with Exhibit B hereof), shall be allocated among the
Partners in each taxable year (or a portion thereof) as provided in this Section
6.1:

(a) After giving effect to the special allocation rules contained
in Exhibit C, Net Income shall be allocated: (i) first, to the General Partner
to the extent of the amount by which Net Losses previously allocated to the
General Partner pursuant to the last sentence of Section 6.1(b) exceed Net
Income previously allocated to the General Partner pursuant to this clause (i)
of Section 6.1(a); and (ii) thereafter, Net Income shall be allocated to the
Partners in accordance with their respective Percentage Interests.

(b) After giving effect to the special allocation rules contained
in Exhibit C, Net Losses shall be allocated to the Partners in accordance with
their respective Percentage Interests, provided that Net Losses shall not be
allocated to any Partner, other than the General Partner, to the extent that
such allocation would cause such Partner to have an Adjusted Capital Account
Deficit (as defined in Exhibit C) at the end of such taxable year (or increase
any existing Adjusted Capital Account Deficit). All Net Losses in excess of the
limitation set forth in the preceding sentence of this Section 6.1(b) shall be
allocated to the General Partner.

6.2 Tax Allocations.

(a) Generally. Except as provided in subparagraph (b) hereof,
items of income, gain, loss, deduction and credit to be allocated for income tax
purposes (collectively, "Tax Items") shall be allocated among the Partners in
the same proportion as the corresponding book items (within the meaning of the
Code section 704(b) Regulations) are allocated pursuant to Section 6.1.

(b) Allocations Respecting Section 704(c) and Revaluations.
Notwithstanding paragraph (a) hereof, Tax Items that relate to Partnership
property that is subject to Code section 704(c) (contributed property having a
fair market value different from its tax basis) and/or revalued pursuant to
Regulation Section 1.704-1(b)(2)(iv)(f) (collectively "Section 704(c) Tax
Items") shall be allocated in accordance with said Code section 704(c) and
Regulation Section 1.704-3(d).

15
<PAGE> 20

6.3 Books of Account. At all times during the continuance of the
Partnership, the General Partner shall maintain, or cause to be maintained,
full, true, complete and correct books of account. In addition, the Partnership
shall keep all records required to be maintained by the Act.

6.4 Reports.

(a) The General Partner shall cause to be sent to the Limited
Partners promptly after receipt of the same from the Accountants, and in no
event later than 15 days after STT files its Form 10-K with the SEC, copies of
Audited Financial Statements for the Partnership or STT, if such statements are
prepared on a consolidated basis with STT, for the immediately preceding fiscal
year of the Partnership.

(b) As soon as practical, but in no event later than 30 days after
STT files its Form 10-Q for the immediately preceding calendar quarter (except
the last calendar quarter of each year with the SEC), the General Partner shall
cause to be sent to the Limited Partners as of the last day of the calendar
quarter, a report containing unaudited financial statements of the Partnership
or of STT, if such statements are prepared on a consolidated basis with STT, and
such other information as may be required by applicable law or regulation, or as
the General Partner determines to be appropriate.

6.5 Tax Matters Partner; Tax Elections and Returns.

(a) The General Partner is hereby designated as the Tax Matters
Partner (within the meaning of section 6231(a)(7) of the Code) for the
Partnership. All elections required or permitted to be made by the Partnership
under any applicable tax law shall be made by the Tax Matters Partner.

(b) The taking of any action and the incurring of any expense by
the Tax Matters Partner in connection with any federal, state or local tax
controversy or proceeding, except to the extent required by law, is in the sole
and absolute discretion of the Tax Matters Partner. The provisions relating to
indemnification of the General Partner, set forth in Section 7.6 of this
Agreement, shall be fully applicable to the Tax Matters Partner in its capacity
as such.

(c) The Tax Matters Partner shall be responsible for preparing, or
causing to be prepared, and filing all federal and state tax returns for the
Partnership and furnishing copies thereof to the Partners, together with
required Partnership schedules showing allocations of tax items, all within the
period of time prescribed by law including extensions. All costs and expenses
incurred by the Tax Matters Partner in performing its duties as such (including
legal and accounting fees and expenses) shall be borne by the Partnership.
Nothing contained herein shall be construed to restrict the Partnership from
engaging tax consultants to assist the Tax Matters Partner in discharging its
duties hereunder.

16
<PAGE> 21

6.6 Withholding Payments Required By Law.

(a) Each Limited Partner hereby authorizes the
Partnership to withhold from or pay on behalf of or with respect to such Limited
Partner any amount of federal, state, local or foreign taxes that the General
Partner determines that the Partnership is required to withhold or pay with
respect to any amount distributable or allocable to such Limited Partner
pursuant to this Agreement, including without limitation, any taxes required to
be withheld or paid by the Partnership pursuant to sections 1441, 1442, 1445 or
1446 of the Code ("Withholding Obligation"). Unless treated as a Tax Payment
Loan (as hereinafter defined), any amount paid by the Partnership for or with
respect to any Limited Partner on account of any Withholding Obligation shall be
treated as a distribution to such Limited Partner for all purposes of this
Agreement, consistent with the character or source of the Withholding
Obligation.

(b) To the extent that the amount required to be remitted
by the Partnership with respect to a Withholding Obligation exceeds the amount
then otherwise distributable to a Limited Partner, the excess of the Withholding
Obligation shall constitute a loan ("Tax Payment Loan") from the Partnership to
such Limited Partner. Any Tax Payment Loan shall be repaid by the Limited
Partner to whom it was deemed made within fifteen (15) days after Notice from
the General Partner that a Tax Payment Loan has been made on behalf of such
Limited Partner. Each Limited Partner hereby unconditionally and irrevocably
grants to the Partnership a security interest in such Limited Partner's
Partnership Interest to secure such Limited Partner's obligation to pay to the
Partnership any amounts required to be paid pursuant to this Section 6.6. In the
event that a Limited Partner fails to pay any amount owed to the Partnership
pursuant to this Section 6.6 when due, the General Partner may, in its sole and
absolute discretion, elect to make the payment to the Partnership on behalf of
such defaulting Limited Partner, and in such event shall be deemed to have
loaned such amount to such defaulting Limited Partner. In such event, the
General Partner shall have the right to receive distributions that otherwise
would be distributable to such defaulting Limited Partner until such time as
such loan, together with all interest thereon, has been paid in full; and any
such distributions so received by the General Partner shall be treated as having
been distributed to the Defaulting Limited Partner and immediately paid by the
defaulting Limited Partner to the General Partner in repayment of such loan. Any
amounts payable by a Limited Partner hereunder shall bear interest at the lesser
of (A) the base rate on corporate loans at large United States money center
commercial banks, as published from time to time in The Wall Street Journal,
plus 4 percentage points, or (B) the maximum lawful rate of interest on such
obligation. Such interest shall accrue from the date such amount is due (i.e.,
15 days after demand) until such amount is paid in full. Each Limited Partner
shall take such actions as the Partnership or the General Partner shall request
in order to perfect or enforce the security interest created hereunder.

(c) The General Partner shall have the authority to take
all actions necessary to enable the Partnership to comply with the statutes,
laws or obligations that create a Withholding Obligation and to carry out the
provisions of this Section 6.6. Nothing in this Section 6.6 shall create any
obligation on the General Partner to advance funds to the Partnership or to
borrow funds from third parties in order to make any payments on account of any
liability

17
<PAGE> 22

of the Partnership for a Withholding Obligation.

(d) Any Partner who is a nonresident alien, foreign
corporation, foreign partnership, foreign trust or foreign estate (as those
terms are defined in the Code and the Regulations) is hereinafter referred to as
a Foreign Partner. A Partner who is not a Foreign Partner shall deliver to the
General Partner a Certification of Non-Foreign Status in the form prescribed by
the General Partner for withholding purposes under sections 1445 and 1446 of the
Code. In the event that a Partner (i) is a Foreign Partner, or (ii) does not
furnish a certification of Non-Foreign Status to the General Partner, then the
withholding provisions in this Section 6.6 shall apply.

6.7 Fiscal Year. The fiscal year of the Partnership shall be the
calendar year.

ARTICLE VII

RIGHTS, DUTIES AND RESTRICTIONS OF THE
GENERAL PARTNER AND THE REIT

7.1 Powers and Duties of General Partner.

(a) Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership are and shall
be exclusively vested in the General Partner, and no Limited Partner shall have
any right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Limited Partners with or without cause. In addition to the powers now or
hereafter granted a general partner of a limited partnership under applicable
law or which are granted to the General Partner under any other provisions of
this Agreement, the General Partner, subject to Section 7.11, shall have full
power and authority to do all things deemed necessary or desired by it to
conduct the business of the Partnership, to exercise all powers of the
Partnership as set forth in Section 3.2 hereof and to effectuate the purposes
set forth in Section 3.1 hereof, including without limitation:

(1) to acquire, directly or indirectly,
interests in real estate and any and all kinds of interests therein, and any and
all related property; to manage and protect any of the Partnership's assets,
interests therein or parts thereof; to improve any such real estate consistent
with the purposes of the Partnership; to participate in the ownership of
property; to dedicate a portion of a property for public use; to convey,
mortgage, pledge or otherwise encumber said property, or any part thereof; to
lease said property or any part thereof from time to time, upon any terms and
for any period of time, to renew or extend leases, to amend, change or modify
the terms and provisions of any leases and to grant options to lease, options to
renew leases, options to purchase; to partition or to exchange said real
property, or any part thereof, for other real property; to grant easements or
charges of any kind; to release, convey or assign any right, title or interest
in or about or easement appurtenant to said property or any part thereof; to
insure any Person having an interest in or responsibility for the care or
management of such

18
<PAGE> 23

property;

(2) to employ, engage or contract with or
dismiss from employment or engagement Persons to the extent deemed necessary by
the General Partner for the operation and management of the Partnership business
including, but not limited to, employees, contractors, subcontractors,
engineers, foresters, surveyors, consultants, accountants, attorneys, real
estate brokers and others;

(3) to enter into contracts on behalf of the
Partnership and to cause all expenses related thereto to be paid;

(4) to borrow and lend money and make and obtain
loans and advances to or from any Person for Partnership purposes; to contract
liabilities and obligations of every kind and nature with or without security;
and to repay, discharge, settle, adjust, compromise, or liquidate any such loan,
advance, obligation or liability;

(5) to grant security interests in, mortgage,
assign, pledge, hypothecate, deposit, deliver, enter into sale and leaseback
arrangements with respect to or otherwise give as security or for sale or other
disposition any and all Partnership property, tangible or intangible, including,
but not limited to, personal property and real estate and interests; to sign,
execute and deliver any and all assignments, deeds, bills of sale and
instruments in writing; to enter into, make, execute, deliver and receive
agreements, undertakings and instruments of every kind and nature; and generally
to do any and all other acts and things incidental to any of the foregoing;

(6) to acquire and enter into any contract of
insurance (including, without limitation, general partner liability and
partnership reimbursement insurance policies) which the General Partner may deem
necessary or appropriate;

(7) to conduct any and all banking transactions
on behalf of the Partnership; to draw, sign, execute, accept, endorse,
guarantee, deliver, receive and pay any checks, drafts, bills of exchange,
acceptances, notes, obligations, undertakings and other instruments for or
relating to the payment of money in, into, or from any account in the
Partnership's name; to make deposits and withdraw the same and to negotiate or
discount commercial paper and acceptances;

(8) to demand, sue for, receive, and otherwise
take steps to collect all debts, rents, proceeds, interests, dividends, goods,
income from property, damages and all other property, to which the Partnership
may be entitled or which are or may become due the Partnership from any Person;
to commence, prosecute or enforce, or to defend, answer or oppose, contest and
abandon all legal proceedings in which the Partnership is or may hereafter be
interested; and to settle, compromise or submit to arbitration any claims,
disputes and matters which may arise between the Partnership and any other
Person and to grant an extension of time for the payment or satisfaction thereof
on any terms, with or without security;

19
<PAGE> 24

(9) to acquire interests in and contribute
property to any limited or general partnerships, joint ventures, subsidiaries or
other entities as the General Partner deems desirable so long as such investment
does not jeopardize the qualification of STT as a REIT or cause STT to incur any
taxes under Sections 857(b)(5) or (6) or Section 4981 of the Code except for
capital gains it has elected for the Partnership to retain;

(10) to maintain the Partnership's books and
records;

(11) to make tax, regulatory and other filings,
or render periodic or other reports to governmental or other agencies having
jurisdiction over the business or assets of the Partnership, the registration of
any class or securities of an Entity that is part of the Consolidated Company
under the Securities Exchange Act of 1934, as amended, and the listing of any
debt securities of the Partnership on any exchange;

(12) to distribute Net Operating Cash Flow or
other Partnership assets in accordance with this Agreement;

(13) to hold, manage, invest and reinvest cash
and other assets of the Partnership;

(14) to collect and receive revenues and income
of the Partnership;

(15) to establish one or more divisions of the
Partnership;

(16) to determine the fair market value of any
Partnership property distributed in kind using such reasonable method of
valuation as the General Partner may adopt;

(17) to exercise, directly or indirectly,
including without limitation, through any attorney-in-fact acting under a
general or limited power of attorney, any right including, without limitation,
the right to vote, appurtenant to any asset or investment held by the
Partnership;

(18) to exercise any of the powers of the General
Partner enumerated in this Agreement on behalf of or in connection with any
Subsidiary of the Partnership or any other Person in which the Partnership has a
direct or indirect interest, or jointly with any such Subsidiary or other
Person;

(19) to exercise any of the powers of the General
Partner enumerated in this Agreement with respect to any Person in which the
Partnership has an interest pursuant to contractual or other arrangements with
such Person; and

(20) to issue additional Partnership Units, as
appropriate, in connection with Capital Contributions by Additional Limited
Partners and additional Capital

20
<PAGE> 25

Contributions by Partners pursuant to Article IV hereof.

(b) Each of the Limited Partners agrees that the General Partner
is authorized to execute, deliver and perform the above-mentioned agreements,
transactions and actions on behalf of the Partnership without any further act,
approval or vote of the Partners, notwithstanding any other provision of this
Agreement (except as provided in Section 7.11 of this Agreement), the Act or any
applicable law, rule or regulation, to the fullest extent permitted under the
Act or other applicable law, rule or regulation. The execution, delivery,
performance or action by the General Partner or the Partnership of any
agreement, transaction or action authorized or permitted under this Agreement
shall not constitute a breach by the General Partner of any duty that the
General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement or of any duty stated or implied by law or equity.

(c) At all times from and after the date hereof, the General
Partner may cause the Partnership to establish and maintain at any and all times
working capital accounts and other cash or similar balances in such amounts as
the General Partner, in its sole and absolute discretion, deems appropriate and
reasonable from time to time.

(d) To the extent the duties of the General Partner require
expenditures of funds to be paid to third parties, the General Partner shall not
have any obligations hereunder except to the extent that Partnership funds are
reasonably available to it for the performance of such duties, and nothing
herein contained shall be deemed to require the General Partner, in its capacity
as such, to expend its separate funds for payment to third parties or to
undertake any specific liability on behalf of the Partnership.

7.2 Reimbursement of the General Partner and STT.

(a) Except as otherwise provided in this Section 7.2 and
in Articles 5 and 6 (regarding distributions and allocations to which it may be
entitled), the General Partner shall not be compensated for its services as
general partner of the Partnership.

(b) Monthly or on such other basis as the General Partner
may determine, the General Partner shall be reimbursed for all expenses that it
incurs relating to its ownership of an interest in and operation of the
Partnership. STT shall be reimbursed by the Partnership for all REIT Expenses.

(c) The General Partner and STT shall also be reimbursed
for all expenses they incur relating to the organization of the Partnership, the
General Partner and STT.

(d) The Limited Partners acknowledge that STT's sole
business is the ownership of interests in the Partnership and that all of STT's
expenses are incurred for the benefit of the Partnership. The reimbursement of
such expenses shall be in addition to any reimbursement to STT as a result of
indemnification pursuant to Section 7.6 hereof.

21
<PAGE> 26

(e) In the event that STT elects to purchase from its
shareholders any Shares for the purpose of delivering such Shares to satisfy an
obligation under any dividend reinvestment program adopted by STT, any employee
stock purchase plan adopted by STT, or any similar obligation or arrangement
undertaken by STT in the future or for the purpose of retiring such Shares, the
purchase price paid by STT for such Shares and any other expenses incurred by
STT in connection with such purchase shall be considered expenses of the
Partnership and shall be advanced to STT or reimbursed to STT, subject to the
condition that: (i) if such Shares subsequently are sold by STT, STT shall pay
to the Partnership any proceeds received by STT for such Shares (which sales
proceeds shall include the amount of dividends reinvested under any dividend
reinvestment or similar program provided that a transfer of Shares for Units
will not be considered a sale for such purposes); and (ii) if such Shares are
not retransferred by STT within thirty (30) days after the purchase thereof, or
STT otherwise determines not to retransfer such Shares, the General Partner
shall cause the Partnership to redeem a number of Partnership Units held by STT
equal to the product obtained by multiplying the number of such Shares by the
Conversion Factor, in which case such advancement or reimbursement of expenses
shall be treated as having been made as a distribution in redemption of such
number of Units held by STT.

7.3 Contracts with Affiliates. The Partnership may lend or
contribute to its subsidiaries or other Persons in which it has an equity
investment, and such Persons may borrow funds from the Partnership, on terms and
conditions established in the sole and absolute discretion of the General
Partner. The foregoing authority shall not create any right or benefit in favor
of any subsidiaries or other Person. The Partnership may also engage in
transactions and enter into contracts with Affiliates of the General Partner
that are on terms determined by the General Partner, in good faith, to be fair
and reasonable to the Partnership.

7.4 Title to Partnership Assets. Title to Partnership assets,
whether real, personal or mixed and whether tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner, individually
or collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership's assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
The General Partner hereby acknowledges and confirms that any Partnership assets
for which legal title is held in the name of the General Partner, any nominee or
Affiliate of the General Partner shall be held by the General Partner or such
others for the use and benefit of the Partnership in accordance with the
provisions of this Agreement; provided, however, that the General Partner shall
use its best efforts to cause beneficial and record title to such assets to be
vested in the Partnership as soon as reasonably practical. All Partnership
assets shall be recorded as property of the Partnership in its books and
records, irrespective of the name in which legal title to such Partnership
assets is held.

7.5 Reliance by Third Parties. Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the Partnership shall be
entitled to assume that the General Partner has full power and authority to
encumber, sell or otherwise use in any manner any and all assets of the
Partnership and to enter into any contracts on behalf of the Partnership,

22
<PAGE> 27

and such Person shall be entitled to deal with the General Partner as if it were
the Partnership's sole party in interest, both legally and beneficially. Each
Limited Partner hereby irrevocably waives any and all defenses or other remedies
that may be available against such Person to contest, negate or disaffirm any
action of the General Partner in dealing with such Person. In no event shall any
Person dealing with the General Partner or its representatives be obligated to
ascertain that the terms of this Agreement have been complied with or to inquire
into the necessity or expedience of any act or action of the General Partner or
its representatives. Each and every certificate, document or other instrument
executed on behalf of the Partnership by the General Partner shall be conclusive
evidence in favor of any and every Person relying thereon or claiming thereunder
that (i) at the time of the execution and delivery of such certificate, document
or instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership and (iii)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.

7.6 Indemnification by Partnership.

(a) To the fullest extent permitted by Delaware law, the
Partnership shall indemnify each Indemnitee from and against any and all losses,
claims, damages, liabilities, joint or several, expenses (including, without
limitation, attorneys fees and other legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the Partnership or STT as set forth in this
Agreement, in which such Indemnitee may be involved, or is threatened to be
involved, as a party or otherwise, unless it is established that: (i) the act or
omission of the Indemnitee was material to the matter giving rise to the
proceeding and either was committed in bad faith or was the result of active and
deliberate dishonesty; (ii) the Indemnitee actually received an improper
personal benefit in money, property or services; or (iii) in the case of any
criminal proceeding, the Indemnitee had reasonable cause to believe that the act
or omission was unlawful. The termination of any proceeding by conviction of an
Indemnitee or upon a plea of nolo contendere or its equivalent by an Indemnitee,
or any entry of an order of probation against an Indemnitee prior to judgment,
creates a rebuttable presumption that such Indemnitee acted in a manner contrary
to that specified in this Section 7.6(a). Any indemnification pursuant to this
Section 7.6 shall be made only out of the assets of the Partnership, and neither
the General Partner nor any Limited Partner shall have any obligation to
contribute to the capital of the Partnership, or otherwise provide funds, to
enable the Partnership to fund its obligations under this Section 7.6.

(b) Reasonable expenses incurred by an Indemnitee who is
a party to a proceeding shall be paid or reimbursed by the Partnership in
advance of the final disposition of the proceeding upon receipt by the
Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee's
good faith belief that the standard of conduct necessary for indemnification by
the Partnership, as authorized in this Section 7.6, has been met, and (ii) a
written undertaking by or on behalf of the Indemnitee to repay the amount paid
or reimbursed if it shall ultimately be determined that such standard of conduct
has not been met.

23
<PAGE> 28

(c) The indemnification provided by this Section 7.6
shall be in addition to any other rights to which an Indemnitee or any other
Person may be entitled under any agreement, as a matter of law, pursuant to a
vote of the Partners or otherwise, and shall continue as to an Indemnitee who
has ceased to serve in such capacity unless otherwise provided in a written
agreement with such Indemnitee or in the writing pursuant to which such
Indemnitee is indemnified.

(d) The Partnership may, but shall not be obligated to,
purchase and maintain insurance, on behalf of the Indemnitees and such other
Persons as the General Partner shall determine, against any liability that may
be asserted against or expenses that may be incurred by such Persons in
connection with the Partnership's activities, regardless of whether the
Partnership would have the power to indemnify any such Person against such
liability under the provisions of this Agreement.

(e) Any liabilities which an Indemnitee incurs as a
result of acting on behalf of an Entity that is part of the Consolidated Company
(whether as a fiduciary or otherwise) in connection with the operation,
administration or maintenance of an employee benefit plan or any related trust
or funding mechanism (whether such liabilities are in the form of excise taxes
assessed by the Internal Revenue Service, penalties assessed by the Department
of Labor, restitutions to such a plan or trust or other funding mechanism or to
a participant or beneficiary of such plan, trust or other funding mechanism, or
otherwise) shall be treated as liabilities or judgments or fines under this
Section 7.6, if the Indemnitee reasonably believed the actions taken or omitted
were in the interests of the participants and beneficiaries of the employee
benefit plan, in which event such actions or inactions will be deemed for the
benefit of the Partnership.

(f) An Indemnitee shall not be denied indemnification in
whole or in part under this Section 7.6 solely because the Indemnitee had an
interest in the transaction with respect to which the indemnification applies if
the transaction was otherwise permitted by the terms of this Agreement.

(g) In no event may an Indemnitee subject any of the
Partners to personal liability by reason of the indemnification provisions of
this Agreement.

(h) The provisions of this Section 7.6 are for the
benefit of the Indemnitees, their heirs, successors, assigns, personal
representatives and administrators, and shall not be deemed to create any rights
for the benefit of any other Person. Any amendment, modification or repeal of
this Section 7.6 or any provision hereof shall be prospective only and shall not
in any way affect the Partnership's liability to any Indemnitee under this
Section 7.6 as in effect immediately prior to such amendment, modification or
repeal with respect to claims arising from or relating to matters occurring, in
whole or in part, prior to such amendment, modification or repeal, regardless of
when such claims may arise or be asserted.

24
<PAGE> 29

7.7 Liability of the General Partner and STT.

(a) Neither the General Partner nor STT shall be liable
for monetary or other damages to the Partnership, any Partner or any Assignee
for losses sustained or liabilities incurred as a result of errors in judgment
or of any act or omission, if the action or omission of the General Partner, STT
or their officers, directors and employees was in good faith, and such action or
inaction was not the result of intentional misconduct or a knowing violation of
law.

(b) The General Partner and STT shall not be liable for
monetary or other damages for losses sustained, liabilities incurred, or
benefits not derived by Limited Partners in connection with their decisions,
provided that the General Partner or STT acted in good faith with respect
thereto and such action or inaction was not the result of intentional
misconduct, or a knowing violation of law. The Limited Partners expressly
acknowledge that the General Partner is acting on behalf of the Partnership, STT
and STT stockholders collectively. In the event of a conflict between the
interest of the stockholders of STT on the one hand and the Limited Partners on
the other, the General Partner shall endeavor in good faith to resolve the
conflict in a manner not adverse to either the stockholders of STT or the
Limited Partners. Without limiting the foregoing, the General Partner is under
no obligation to consider the separate interests of a particular Limited Partner
(including, without limitation, the tax consequences to Limited Partners or any
Assignees thereof) other than STT in deciding whether to cause the Partnership
to take (or decline to take) any actions.

(c) Subject to its obligations and duties as General
Partner set forth in Section 7.1 hereof, the General Partner may exercise any of
the powers granted to it by this Agreement and perform any of the duties imposed
upon it hereunder either directly or by or through its agents. The General
Partner shall not be responsible for any misconduct or negligence on the part of
any such agent appointed by it in good faith.

(d) Any amendment, modification or repeal of this Section
7.7, or any provision hereof, shall be prospective only and shall not in any way
affect the limitations on the General Partner's or STT's liability to the
Partnership and the Limited Partners under this Section 7.7 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.

7.8 Other Matters Concerning the General Partner and STT.

(a) The General Partner and STT may rely upon and shall
be protected in acting or refraining from acting upon any resolution,
certificate, consent, statement, instrument, opinion, report, or other document
believed by it to be genuine and to have been signed or presented by the proper
party or parties.

(b) The General Partner and STT may consult with legal
counsel, accountants, appraisers, management consultants, investment bankers and
other consultants and advisers selected by it, and any act taken or omitted to
be taken in reliance upon the opinion of

25
<PAGE> 30

such advisors as to matters which the General Partner or STT reasonably believe
to be within such advisor's professional or expert competence, shall be
conclusively presumed to have been done or omitted in good faith.

(c) Notwithstanding any other provisions of this
Agreement or the Act, any action of the General Partner on behalf of the
Partnership or any decision of the General Partner to refrain from acting on
behalf of the Partnership, undertaken in the good faith belief that such action
or omission is necessary or advisable in order (i) to protect or further the
ability of STT to qualify as a REIT under the Code or (ii) to avoid STT's
incurring any taxes under section 857 (other than for capital gains that STT has
elected to retain) or section 4981 of the Code, is expressly authorized under
this Agreement and is deemed approved by all of the Limited Partners.

7.9 Outside Activities of the General Partner and STT. The General
Partner and STT shall not directly or indirectly enter into or conduct any
business, other than in connection with the ownership, acquisition and
disposition of Partnership Interests as a General Partner or Limited Partner and
the management of the business of the Partnership, and such activities as are
incidental thereto.

7.10 Certificate of Limited Partnership. The General Partner has
previously filed the Certificate of Limited Partnership with the Secretary of
State of the State of Delaware as required by the Act. The General Partner shall
use all reasonable efforts to cause to be filed such other certificates or
documents as may be reasonable and necessary or appropriate for the formation,
continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability) in the State
of Delaware and any other state, or the District of Columbia, in which the
Partnership may elect to do business or own property. To the extent that such
action is determined by the General Partner to be reasonable and necessary or
appropriate, the General Partner shall file amendments to and restatements of
the Certificate of Limited Partnership and do all of the things to maintain the
Partnership as a limited partnership (or a partnership in which the limited
partners have limited liability) under the laws of the State of Delaware and
each other state, or the District of Columbia, in which the Partnership may
elect to do business or own property. Subject to the terms of Section 10.5
hereof, the General Partner shall not be required, before or after filing, to
deliver or mail a copy of the Certificate of Limited Partnership or any
amendment thereto to any Limited Partner.

7.11 Restrictions on General Partner Authority. The General Partner
may not take any action in contravention of an express prohibition or limitation
of this Agreement without the written Consent of Limited Partners holding a
majority of the Percentage Interests of the Limited Partners (including the
Percentage Interests held by STT), or such other percentage of the Limited
Partners as may be specifically provided for under a provision of this
Agreement.

26
<PAGE> 31

ARTICLE VIII

DISSOLUTION, WINDING-UP AND LIQUIDATION OR COMBINATION

8.1 Events of Dissolution. The Partnership shall not be dissolved
upon admission of Additional Limited Partners, Substituted Limited Partners or
the admission of a successor General Partner in accordance with the terms of
this Agreement. Upon the withdrawal of the General Partner, any successor
General Partner shall continue the business of the Partnership. The Partnership
shall dissolve, and its affairs wound up, upon the occurrence of the earliest of
the following events ("Liquidating Events"):

(a) an event of withdrawal of the General Partner, as
defined in the Act (other than an event of bankruptcy), unless, within ninety
(90) days after such event of withdrawal a majority in interest of the remaining
Partners agree in writing to continue the business of the Partnership and to the
appointment, effective as of the date of withdrawal, of a successor General
Partner;

(b) the election to dissolve the Partnership made in
writing by the General Partner with the Consent of the Partners owning a
majority of the Percentage Interests;

(d) the entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Act, which decree is final and not
subject to appeal;

(e) December 31, 2099; or

(f) a final and non-appealable judgment is entered by a
court of competent jurisdiction ruling that the General Partner is bankrupt or
insolvent, or a final and non-appealable order for relief is entered by a court
with appropriate jurisdiction against the General Partner, in each case under
any federal or state bankruptcy or insolvency laws as now or hereafter in
effect, unless prior to the entry of such order or judgment all of the remaining
Partners agree in writing to continue the business of the Partnership and to the
appointment, effective as of a date prior to the date of such order or judgment,
of a substitute General Partner.

8.2 Winding Up.

(a) Upon the occurrence of a Liquidating Event, the
Partnership shall continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Partners. No Partner shall take any action that is inconsistent
with, or not necessary to or appropriate for, the winding up of the
Partnership's business and affairs. The General Partner, or in the event there
is no remaining General Partner, any Person elected by a majority in interest of
the Limited Partners (the General Partner or such other Person being referred to
herein as the "Liquidating Trustee"), shall be

27
<PAGE> 32

responsible for overseeing the winding up and dissolution of the Partnership and
shall take full account of the Partnership's liabilities and property and the
Partnership property shall be liquidated as promptly as is consistent with
obtaining the fair value thereof, and the proceeds therefrom shall be applied
and distributed in the following order:

(1) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors
other than the Partners;

(2) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to STT or the
General Partner;

(3) Third, to the payment and discharge of all of the
Partnership's debts and liabilities to the Partners
other than STT and the General Partner; and

(4) The balance, if any, to the General Partner and
Limited Partners in accordance with their Capital
Accounts, after giving effect to all contributions,
distributions, and allocations for all periods.

The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 8; provided, however, all expenses
incurred by the General Partner, in its capacity as Liquidating Trustee, shall
be reimbursed by the Partnership and the General Partner, as Liquidating
Trustee, shall be entitled to the indemnification provided in Section 7.6 of
this Agreement.

(b) Notwithstanding the provisions of Section 8.2(a)
hereof which require liquidation of the assets of the Partnership, but subject
to the order of priorities set forth therein, if prior to or upon dissolution of
the Partnership the Liquidating Trustee determines that an immediate sale of
part or all of the Partnership's assets would be impractical or would cause
undue loss to the Partners, the Liquidating Trustee may, in its sole and
absolute discretion, defer for a reasonable time the liquidation of any assets
except those necessary to satisfy liabilities of the Partnership (including
those to Partners who are creditors) and/or distribute to the Partners, in lieu
of cash, as tenants in common and in accordance with the provisions of Section
8.2(a) hereof, undivided interests in such Partnership assets as the Liquidating
Trustee deems not suitable for liquidation. Any such distributions in kind shall
be made only if, in the good faith judgment of the Liquidating Trustee, such
distributions in kind are in the best interest of the Partners, and shall be
subject to such conditions relating to the disposition and management of such
properties as the Liquidating Trustee deems reasonable and equitable and to any
agreements governing the operation of such properties at such time. The
Liquidating Trustee shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.

(c) In the discretion of the Liquidating Trustee, a pro
rata portion of the distributions that would otherwise be made to the General
Partner and Limited Partners pursuant to this Article VIII may be:

28
<PAGE> 33

(a) distributed to a trust established for the benefit of
the General Partner and Limited Partners for the purposes of liquidating
Partnership assets, collecting amounts owed to the Partnership, and paying any
contingent or unforeseen liabilities or obligations of the Partnership or the
General Partner arising out of or in connection with the Partnership. The assets
of any such trust shall be distributed to the General Partner and Limited
Partners from time to time, in the reasonable discretion of the Liquidating
Trustee, in the same proportions as would otherwise have been distributed to the
General Partner and Limited Partners pursuant to this Agreement; or

(b) withheld or escrowed to provide a reasonable reserve
for Partnership liabilities (contingent or otherwise) and to reflect the
unrealized portion of any installment obligations owed to the Partnership,
provided that such withheld or escrowed amounts shall be distributed to the
General Partner and Limited Partners in the manner and order of priority set
forth in Section 8.2 as soon as practicable.

8.3 Timing Requirements. In the event that the Partnership is
"liquidated" within the meaning of Section 1.704-1(b)(2)(ii)(g) of the
Regulations, any and all distributions to the Partners pursuant to Section
8.2(a) hereof shall be made no later than the later to occur of (i) the last day
of the taxable year of the Partnership in which such liquidation occurs or (ii)
ninety (90) days after the date of such liquidation.

8.4. Documentation of Liquidation. Upon the completion of the
liquidation of the Partnership's assets as provided in Section 8.2, the
Partnership shall be terminated, a certificate of cancellation shall be filed,
and all qualifications of the Partnership as a foreign limited partnership in
jurisdictions other than the State of Delaware shall be canceled and such other
actions as may be necessary to terminate the Partnership shall be taken.

8.5 Rights of Limited Partners. Except as otherwise provided in
this Agreement, each Limited Partner shall look solely to the assets of the
Partnership for the return of its Capital Contributions and shall have no right
or power to demand or receive property other than cash from the Partnership.
Except as otherwise provided in this Agreement, no Limited Partner shall have
priority over any other Partner as to the return of its Capital Contributions,
distributions, or allocations.

8.6 Notice of Dissolution. In the event a Liquidating Event occurs
or an event occurs that would, but for the provisions of an election or
objection by one or more Partners pursuant to Section 8.1, result in a
dissolution of the Partnership, the General Partner shall, within thirty (30)
days thereafter, provide written notice thereof to each of the Partners.

8.7 Reasonable Time for Winding-Up. A reasonable time shall be
allowed for the orderly winding-up of the business and affairs of the
Partnership and the liquidation of its assets, pursuant to Section 8.2 hereof,
in order to minimize any losses otherwise attendant upon such winding-up, and
the provisions of this Agreement shall remain in effect between the Partners
during the period of liquidation.

29
<PAGE> 34

8.8 Waiver of Partition Each Partner hereby waives any right to
partition of the Partnership property.

8.9 Deemed Distribution and Recontribution.

Notwithstanding any other provision of this Article VIII, in the event
the Partnership is considered "liquidated" within the meaning of Regulations
Section 1.704- 1(b)(2)(ii)(g), but no Liquidating Event has occurred, the
Partnership's property shall not be liquidated, the Partnership's liabilities
shall not be paid or discharged, and the Partnership's affairs shall not be
wound up. Instead, for federal income tax purposes and for purposes of
maintaining Capital Accounts pursuant to Exhibit B hereto, the Partnership shall
be deemed to have distributed the property in kind to the General Partner and
Limited Partners, who shall be deemed to have assumed and taken such property
subject to all Partnership liabilities, all in accordance with their respective
Capital Accounts. Immediately thereafter, the General Partner and Limited
Partners shall be deemed to have recontributed the Partnership property in kind
to the Partnership, which shall be deemed to have assumed and taken such
property subject to all such liabilities.

ARTICLE IX

TRANSFER OF PARTNERSHIP INTERESTS

9.1 Transfer.

(a) The term "transfer", when used in this Article IX
with respect to a Partnership Interest, shall be deemed to refer to a
transaction by which a Partner purports to assign its Partnership Interest or
any portion thereof to another Person, and includes a sale, assignment, gift,
pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition
by law or otherwise; provided, however, that the term "transfer", when used in
this Article IX does not (except when such term is used in Section 9.5) include
any redemption of Partnership Interests from a Limited Partner or the
acquisition of Partnership Interests from a Limited Partner by STT pursuant to
Section 11.2 of this Agreement.

(b) No Partnership Interest shall be transferred, in
whole or in part, except in accordance with the terms and conditions set forth
in this Article IX. Any transfer or purported transfer of a Partnership Interest
not made in accordance with this Article IX shall be null and void ab initio.

9.2 Transfers by the General Partner or STT.

(a) Neither the General Partner nor STT shall withdraw from the
Partnership or sell, assign, pledge, encumber or otherwise dispose of all or any
portion of their interest in the Partnership except (i) transfers to Affiliates
of STT, (ii) in a transaction described in Section 9.2(c), or (iii) a pledge of
their Partnership Interests to secure financing for the benefit of any

30
<PAGE> 35

Entity that is part of the Consolidated Company.

(b) In the event the General Partner or STT withdraws from the
Partnership in violation of this Agreement or otherwise dissolves or terminates
or upon the Bankruptcy of the General Partner or STT, all the remaining
Partners, which are not Affiliates of the General Partner, within 90 days after
such withdrawal, dissolution, termination or Bankruptcy, may elect to continue
the business of the Partnership and appoint a successor general partner
effective as of the date of such withdrawal, dissolution, termination or
Bankruptcy.

(c) Except as otherwise provided in Section 9.2(d), the General
Partner and STT shall not engage in any merger, consolidation or other
combination with or into another Person or sale of all or substantially all of
its assets, or effect any reclassification, or recapitalization or change of
outstanding Shares (other than a change in par value, or from par value to no
par value, or as a result of a subdivision or combination as described in the
definition of "Conversion Factor") ("Transaction"), unless (i) the Transaction
also includes a merger of the Partnership or sale of substantially all of the
assets of the Partnership which has been approved by the requisite Consent of
the Partners pursuant to Section 13.2 and as a result of which all Limited
Partners will receive for each Partnership Unit an amount of cash, securities or
other property equal to the Conversion Factor multiplied by the greatest amount
of cash, securities or other property paid to a holder of one Share in
consideration of one Share pursuant to the terms by which the Transaction is
consummated, provided that if, in connection with the Transaction, a purchase,
tender or exchange offer shall have been made to and accepted by the holders of
more than fifty percent (50%) of the outstanding Shares, each holder of
Partnership Units shall receive the amount of cash, securities, or other
property which such holder would have received had it exercised the Redemption
Right and received Shares in exchange for its Partnership Units immediately
prior to the expiration of such purchase, tender or exchange offer and had
thereupon accepted such purchase, tender or exchange offer, and (ii) no more
than seventy-five percent (75%) of the equity securities of the acquiring Person
in such transaction shall be owned, after consummation of such Transaction, by
the General Partner, STT or Persons who are Affiliates of the General Partner,
the Partnership or STT immediately prior to the date on which the Transaction is
consummated.

(d) Notwithstanding Section 9.2(c), the General Partner or STT may
merge with another entity if immediately after such merger substantially all of
the assets of the surviving entity, other than Partnership Units held by the
General Partner and STT, are contributed to the Partnership as a Capital
Contribution in exchange for Partnership Units with a fair market value, as
reasonably determined by the General Partner, equal to the fair market value of
the assets contributed to the Partnership.

9.3 Transfers by Limited Partners Other Than STT.

(a) Subject to Sections 9.4 and 9.5, a Limited Partner
shall have the right to transfer all or any portion of its economic rights as a
Limited Partner without the prior written consent of the General Partner;
provided, however, an Assignee will not become a Substituted Limited Partner
without the prior written consent of the General Partner, in its sole

31
<PAGE> 36

and absolute discretion.

(b) If a Limited Partner dies or becomes incapacitated,
the executor, administrator, trustee, committee, guardian, conservator or
receiver of such Limited Partner's estate shall have all of the rights of a
Limited Partner, but not more rights than those enjoyed by other Limited
Partners, for the purpose of settling or managing the estate and such power as
the deceased or incapacitated Limited Partner possessed to transfer all or any
part of his or its interest in the Partnership. The incapacity or death of a
Limited Partner, in and of itself, shall not dissolve or terminate the
Partnership.

(c) The Limited Partners acknowledge that the Partnership
Interests have not been registered under any federal or state securities laws
and, as a result thereof, they may not be sold or otherwise transferred, except
in compliance with such laws. Notwithstanding anything to the contrary contained
in this Agreement, no Partnership Interest may be sold or otherwise transferred
unless such transfer is exempt from registration under any applicable securities
laws or such transfer is registered under such laws, it being acknowledged that
the Partnership has no obligation to take any action which would allow any such
Partnership Interests to be registered.

(d) The General Partner may prohibit any transfer by a
Limited Partner of its Partnership Units if, in the opinion of legal counsel to
the Partnership, such transfer would require filing of a registration statement
under the Securities Act of 1933 or would otherwise violate any federal or state
securities laws or regulations applicable to the Partnership or the Partnership
Units.

9.4 Assignees. If the General Partner, in its sole and absolute
discretion, does not consent to the admission of any transferee as a Substituted
Limited Partner, as described in Section 9.3(a), such transferee shall be
considered an Assignee for all purposes of this Agreement. An Assignee shall be
deemed to have had assigned to it, and shall be entitled to receive,
distributions from the Partnership and the share of Net Income, Net Losses, and
any other items of income, gain, loss, deduction and credit of the Partnership
attributable to the Partnership Interests assigned to it and shall have all of
the Redemption Rights granted to Limited Partners by this Agreement attributable
to such Partnership Interests, but shall not be deemed to be a holder of
Partnership Interests for any other purpose under this Agreement, and shall not
be entitled to vote such Partnership Interests in any matter presented to the
Limited Partners for a vote (such Partnership Interests being deemed to have
been voted on such matter in the same proportion as all other Partnership
Interests held by Limited Partners are voted). In the event any Assignee desires
to make a further assignment of any such Partnership Interests, such Assignee
shall be subject to all the provisions of this Article IX to the same extent and
in the same manner as a Limited Partner desiring to make an assignment of
Partnership Interests.

9.5 Certain Restrictions on Transfer. In addition to any other
restrictions on transfer herein contained, in no event may a Partner transfer a
Partnership Interest (i) to any Person who lacks the legal right, power or
capacity to own a Partnership Interest; (ii) if such transfer would cause STT to
cease to qualify as a REIT; (iii) if such transfer is effectuated

32
<PAGE> 37

through an "established securities market" or a "secondary market (or the
substantial equivalent thereof)" within the meaning of section 7704(b) of the
Code; (iv) if such transfer would cause the Partnership to become, with respect
to any employee benefit plan, subject to Title 1 of ERISA, a "party-in-interest"
(as defined in Section 3(14) of ERISA) or a "disqualified person" (as defined in
section 4975(c) of the Code); (v) if such transfer would, in the opinion of
counsel to the Partnership, cause any portion of the assets of the Partnership
to constitute assets of any employee benefit plan pursuant to Department of
Labor Regulations Section 2510.2-101; (vi) except for pledges to secure loans to
any Entity that is a part of the Consolidated Company, to a lender to the
Partnership or any Person who is related to any lender to the Partnership
(within the meaning of Section 1.752-4(b) of the Regulations) unless in the
opinion of counsel to the Partnership, such transfer and ownership of the
Partnership Interest by the lender (or related person) will not have adverse
federal income tax consequence to the Partners; (vii) if such transfer would
result in (A) the Partnership being classified as an association taxable as a
corporation for federal income tax purposes (other than a qualified REIT
subsidiary within the meaning of section 856(i)(2) of the Code), or (B) subject
STT to more than a de minimis amount of tax under Code section 857 or 4981,
other than for capital gains that STT has elected for the Partnership to retain;
(viii) within one year after the consummation of the initial public offering by
STT; or (ix) if such transfer would subject the Partnership to regulation under
the Investment Company Act of 1940, the Investment Advisors Act of 1940 or
ERISA.

9.6 Substituted Limited Partners.

(a) No Limited Partner shall have the right to substitute a
transferee as a Limited Partner in his place. The General Partner shall,
however, have the right to consent to the admission of a transferee of the
interest of a Limited Partner pursuant to this Section 9.6 as a Substituted
Limited Partner, which consent may be given or withheld by the General Partner
in its sole and absolute discretion. The General Partner's failure or refusal to
permit a transferee of any such interests to become a Substituted Limited
Partner shall not give rise to any cause of action against the Partnership or
any Partner.

(b) A transferee who has been admitted as a Substituted Limited
Partner in accordance with this Article IX shall have all the rights and powers
and be subject to all the restrictions and liabilities of a Limited Partner
under this Agreement.

(c) Upon the admission of a Substituted Limited Partner, the
General Partner shall amend Exhibit A to reflect the name, address, number of
Units, and Percentage Interest of such Substituted Limited Partner and to
eliminate or adjust, if necessary, the name, address and interest of the
predecessor of such Substituted Limited Partner.

33
<PAGE> 38

ARTICLE X

RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS

10.1 Limitation of Liability. The Limited Partners shall have no
liability for obligations of the Partnership except as expressly provided in
this Agreement, including Section 6.6 hereof, or under the Act.

10.2 No Participation in Management. No Limited Partner, in its
capacity as such, shall take part in the management of the Partnership's
business, transact any business in the Partnership's name or have the power to
sign documents for or otherwise bind the Partnership.

10.3 No Withdrawal. Except pursuant to the Redemption Right set
forth in Article XI, no Limited Partner shall be entitled to the withdrawal or
return of its Capital Contribution, except to the extent of distributions made
pursuant to this Agreement or upon termination of the Partnership as provided
herein. Except as otherwise expressly provided in this Agreement, no Limited
Partner or Assignee shall have priority over any other Limited Partner or
Assignee, either as to the return of Capital Contributions or as to profits,
losses or distributions.

10.4 Conflicts. Subject to any separate agreements or arrangements
relating to rights of first opportunity or any restrictions contained in an
employment or consulting agreement with a Limited Partner, the Limited Partners
and their Affiliates are entitled to carry on such other business interests,
activities and investments, including business interest and activities that are
in direct competition with the Partnership or that are enhanced by the
activities of the Partnership. Neither the Partnership nor any Partner shall
have any right, by virtue of this Agreement, in or to such other activities of a
Limited Partner, or the income or profits derived therefrom.

10.5 Provision of Information.

(a) In addition to other rights provided by this
Agreement or by the Act, each Limited Partner shall have the right, on an annual
basis and for a purpose reasonably related to such Limited Partner's interest in
the Partnership, upon written request:

(1) to obtain a copy of the Partnership's federal, state
and local income tax returns for each Partnership
Year;

(2) to obtain a current list of the names and last known
business, residence or mailing address of each
Partner;

(3) to obtain a copy of this Agreement and the
Certificate and all amendments thereto, together with
executed copies of all powers of attorney pursuant to
which this Agreement, the Certificate and all
amendments thereto have been executed;

34
<PAGE> 39

(4) to obtain a copy of the most recent annual and
quarterly reports filed with the Securities and
Exchange Commission by the REIT pursuant to the
Securities Exchange Act of 1934; and

(5) to obtain information as to the amount of cash or
value of property contributed by Persons in exchange
for additional Partnership Interests after the
Effective Date.

(b) The Partnership shall notify each Limited Partner, upon
request, of the then current Conversion Factor and the Share Amount per
Partnership Unit and, with reasonable detail, how the same was determined.

(c) Notwithstanding any other provisions of this Section 10.5, the
General Partner may keep confidential from the Limited Partners, for such period
of time as the General Partner determines in its sole and absolute discretion to
be reasonable, any information that (i) the General Partner reasonably believes
to be in the nature of trade secrets or other information the disclosure of
which the General Partner in good faith believes is not in the best interest of
the Partnership or its business or (ii) the Partnership is required by law or by
agreement with an unaffiliated third party to keep confidential.

10.6 Power of Attorney.

(a) Each Limited Partner and each Assignee constitutes
and appoints the General Partner, any Liquidating Trustee, and authorized
officers and attorneys-in-fact of each, and each of those acting singly, in each
case with full power of substitution, as its true and lawful agent and
attorney-in-fact, with full power and authority in its name, place and stead to:

(i) execute, swear to, acknowledge, deliver,
file and record in the appropriate public offices (A) all certificates,
documents and other instruments (including, without limitation, this Agreement
and the Certificate and all amendments or restatements thereof) that the General
Partner or the Liquidating Trustee deems appropriate or necessary to form,
qualify or continue the existence or qualification of the Partnership as a
limited partnership (or a partnership in which the limited partners have limited
liability) in the State of Delaware and in all other jurisdictions in which the
Partnership may conduct business or own property; (B) all instruments that the
General Partner deems appropriate or necessary to reflect any amendment, change,
modification or restatement of this Agreement in accordance with its terms; (C)
all conveyances and other instruments or documents that the General Partner or
Liquidating Trustee deems appropriate or necessary to reflect the dissolution
and liquidation of the Partnership pursuant to the terms of this Agreement,
including, without limitation, a certificate of cancellation; (D) all
instruments relating to the admission, withdrawal, removal or substitution of
any Partner pursuant to the provisions of this Agreement, or the Capital
Contribution of any Partner; and (E) all certificates, documents, or other
instruments relating to the determination of rights, preferences and privileges
of the Partnership Interests.

(ii) execute, swear to, seal, acknowledge and
file all ballots,

35
<PAGE> 40

consents, approvals, waivers, certificates and other instruments appropriate or
necessary, in the sole and absolute discretion of the General Partner or any
Liquidating Trustee, to make, evidence, give, confirm or ratify any vote,
consent, approval, agreement or other action which is made or given by the
Partners hereunder or is consistent with the terms of this Agreement or
appropriate or necessary, in the sole discretion of the General Partner or any
Liquidating Trustee, to effectuate the terms or intent of this Agreement.

(b) The foregoing power of attorney is hereby declared to
be irrevocable and a power coupled with an interest, in recognition of the fact
that each of the Partners will be relying upon the power of the General Partner
to act as contemplated by this Agreement in any filing or other action by it on
behalf of the Partnership, and it shall survive the death or incompetency of a
Limited Partner or Assignee, to the effect and extent permitted by law, and the
transfer of all or any portion of such Limited Partner's or Assignee's Units and
shall extend to such Limited Partner's or Assignee's heirs, successors, assigns
and personal representatives. Each Limited Partner or Assignee hereby agrees to
be bound by any representation made by the General Partner or any Liquidating
Trustee, acting in good faith pursuant to such power of attorney, and each such
Limited Partner or Assignee hereby waives any and all defenses which may be
available to contest, negate or disaffirm the action of the General Partner or
any Liquidating Trustee, taken in good faith under such power of attorney.
Within fifteen (15) days after receipt of the General Partner's or Liquidating
Trustee's request therefor, each Limited Partner and Assignee will execute such
further designation, powers of attorney and other instruments as the General
Partner or the Liquidating Trustee, as the case may be, deems necessary to
effectuate this Agreement and the purposes of the Partnership.

(c) Nothing contained in this Section 10.5 shall be
construed as authorizing the General Partner to amend this Agreement except in
accordance with Article XII hereof.

ARTICLE XI

GRANT OF CERTAIN RIGHTS TO LIMITED PARTNERS

11.1 Grant of Rights.

(a) Subject to the provisions of Section 11.3, on or
after one (1) year from the Effective Date, each Limited Partner, other than
STT, shall have the right (the "Redemption Right") to require the Partnership to
redeem, no later than 30 days after giving Notice to the General Partner (with a
copy to STT) ("Redemption Notice"), all or a portion of the Partnership Units
held by such Limited Partner ("Redeeming Partner"), at a redemption price per
Partnership Unit equal to, and in the form of, the Cash Amount; provided,
however, the Partnership shall not be obligated to satisfy such Redemption Right
if STT elects, pursuant to Section 11.2 hereof, to purchase the Partnership
Units subject to the Notice of Redemption.

36
<PAGE> 41

(b) The Redemption Right shall be exercised pursuant to a
Notice of Redemption delivered to the General Partner by the Redeeming Partner
who is exercising the Redemption Right. The Redeeming Partner may not exercise
the Redemption Right for less than 1,000 Partnership Units or, if such Redeeming
Partner holds less than 1,000 Partnership Units, all of the Partnership Units
held by such Limited Partner.

(c) A Redeeming Partner shall have no right, with respect
to any redeemed Partnership Units, to receive any distributions paid with
respect to a Partnership Record Date that is after the Redeeming Limited Partner
delivers a Redemption Notice.

(d) An Assignee may exercise the Redemption Rights that
were applicable to the Partnership Units that were assigned to it and the
assigning Limited Partner shall be deemed to have assigned such rights to its
Assignee and shall be bound by the exercise of such rights by the Assignee. In
connection with any exercise of such rights by an Assignee, the Cash Amount or
the Share Amount, as determined by STT, shall be paid directly to such Assignee.

11.2 Right of STT to Assume.

(a) Notwithstanding the provisions of Section 11.1, a
Limited Partner that exercises a Redemption Right shall be deemed to have also
offered to sell the Partnership Units described in the Notice of Redemption to
STT and STT may, in its sole and absolute discretion, elect to purchase and
directly acquire the Partnership Units described in the Redemption Notice by
paying to the Redeeming Partner either the Cash Amount or the Share Amount. Upon
satisfaction of the Redemption Right, STT shall acquire the Partnership Units
specified in the Redemption Notice and shall be treated for all purposes of this
Agreement as the owner of such Partnership Units. In the event STT exercises its
right to satisfy the Redemption Right in the manner described in the preceding
sentence, the Partnership shall have no obligation to pay any further amount to
the Redeeming Partner with respect to such Redeeming Partner's exercise of the
Redemption Right. For federal income tax purposes, each of the Redeeming
Partner, the Partnership, and STT shall treat the transaction between STT and
the Redeeming Partner as a sale of the Redeeming Partner's Partnership Units to
STT. Each Redeeming Partner agrees to execute such documents as STT may
reasonably require in connection with the issuance of any Shares to satisfy the
Share Amount. If STT elects to exercise its right to purchase Units under this
Section 11.2 with respect to a Notice of Redemption, it shall so notify the
Redeeming Partner within ten (10) Business Days after the receipt by it of such
Notice of Redemption. Unless STT (in its sole and absolute discretion) shall
exercise its right to purchase Units from the Redeeming Partner pursuant to this
Section 11.2(a), STT shall not have any obligation to the Redeeming Partner or
the Partnership with respect to the Redeeming Partner's exercise of the
Redemption Right.

(b) In the event that the Partnership issues additional
Partnership Interests pursuant to Section 4.2 hereof, the General Partner may
make such revisions to this Article XI as it determines are necessary to reflect
the issuance of such additional Partnership Interests.

37
<PAGE> 42

11.3 Restriction on Redemption. Notwithstanding the other
provisions of this Article XI, a Limited Partner shall not be entitled to
exercise the Redemption Right pursuant to Section 11.1 if the delivery of Shares
to such Limited Partner would be prohibited under STT's Articles of
Incorporation, regardless of whether STT has exercised its rights under Section
11.2 to assume the Redemption Right.

ARTICLE XII

AMENDMENT OF PARTNERSHIP AGREEMENT

12.1 Amendments.

(a) Except as provided in paragraphs (b) and (c) of this Section
12.1, this Agreement may not be amended unless such amendment is approved by the
General Partner and Limited Partners holding a majority in interest of the
Percentage Interests held by the Partners (including Partnership Interests held
by STT). Amendments to this Agreement may be proposed by the General Partner or
by Limited Partners holding twenty percent (20%) or more of the Partnership
Interests. Following such proposal, the General Partner will send a copy of any
proposed amendment to the Limited Partners. The General Partner shall seek the
written vote of the Partners on the proposed amendment or shall call a meeting
to vote thereon and to transact any other business that the General Partner may
deem appropriate. For purposes of obtaining a written vote, the General Partner
may require a response within a reasonable specified time, but not less than 15
days, and failure to respond in such time, shall constitute a vote which is
consistent with the General Partner's recommendation with respect to the
proposal.

(b) Notwithstanding Section 12.1(a), the General Partner shall
have the power, without the consent of any of the Limited Partners, to amend
this Agreement as may be required to facilitate or implement any of the
following purposes:

(1) to add to the obligations of the General Partner or
surrender any right or power granted to the General Partner or any Affiliate of
the General Partner for the benefit of the Limited Partners;

(2) to reflect the admission, substitution, removal, or
withdrawal of Partners in accordance with this Agreement;

(3) to reflect a change that is of an inconsequential
nature and does not adversely affect the Limited Partners in any material
respect, or to cure any ambiguity in, correct or supplement any provision in
this Agreement that is not inconsistent with law or with other provisions of
this Agreement or to make any other changes with respect to matters arising
under this Agreement that will not be inconsistent with law or provisions of
this Agreement;

(4) to satisfy any requirements, conditions, or
guidelines contained in any order, directive, opinion, ruling or regulation of a
federal or state agency or contained in

38
<PAGE> 43

federal or state law; and

(5) to set forth the designations, rights, powers, duties
and preferences of the holders of any additional Partnership Interests issued
pursuant to Section 4.2(a) hereof.

The General Partner will provide notice to the Limited Partners promptly after
any action under this Section 12.1(b) is taken.

(c) Notwithstanding paragraphs (a) and (b) of this Section 12.1
hereof, this Agreement shall not be amended without the consent of any Limited
Partner that would be adversely affected if such amendment would (i) convert a
Limited Partner's interest in the Partnership into a general partner's interest,
(ii) modify the limited liability of the Limited Partner in a manner adverse to
such Limited Partner, (iii) alter rights (other than as a result of the issuance
of additional Partnership Interests) of the Partners to receive allocations and
distributions pursuant to Articles V or VI hereof (except as permitted pursuant
to Section 4.2, and Section 12.1(b)(5) hereof), (iv) or modify the Redemption
Right, as set forth in Article XI hereof, in a manner adverse to such Partner,
or (v) amend this Section 12.1(c).

ARTICLE XIII

MEETINGS OF THE PARTNERS

13.1 Partner Meetings.

(a) Special meetings of the Partners may be called by the General
Partner and shall be called upon the receipt by the General Partner of a written
request by Limited Partners holding twenty percent (20%) or more of the
Percentage Interests. The request shall state the nature of the business to be
transacted. Notice of any such meeting shall be given to all Partners not less
than seven (7) and not more than thirty (30) days prior to the date of such
meeting. Partners may vote in person or by proxy at such meeting. Whenever the
vote or Consent of Partners is permitted or required under this Agreement, such
vote or Consent may be given at a meeting of Partners or as provided for in
Section 13.2.

(b) Unless otherwise expressly provided for in this Agreement, an
act of a majority in interest of the Percentage Interests held by the Partners
(including the Percentage Interests held by STT), whether in person or by proxy,
shall be an act of the Partners, unless the vote of a greater proportion or
number is otherwise required by the Act. Each meeting of the Partners shall be
conducted by the General Partner or such other Person as the General Partner may
appoint pursuant to such rules for the conduct of the meeting as the General
Partner or such other Person deems appropriate. Without limitation, meetings of
Partners may be conducted in the same manner as meetings of the shareholders of
STT and may be held at the same time, and as part of, meetings of the
shareholders of STT.

39
<PAGE> 44

13.2 Written Consent. Any action required or permitted to be taken
at a meeting of the Partners may be taken without a meeting if a written consent
setting forth the action so taken is signed (in counterpart or otherwise) by
Partners holding at least a majority in interest of the Percentage Interests of
all of the Partners or such other percentage as is expressly required by this
Agreement (including for all such calculations the Percentage Interests held by
STT). Such consent may be in one instrument or in several instruments, and shall
have the same force and effect as a vote of a majority in interest of all of the
Partners (or such other percentage as is expressly required by this Agreement).
Such consent shall be filed with the General Partner.

13.3 Proxy. Each Limited Partner may authorize any Person or
Persons to act for it by proxy on all matters in which a Limited Partner is
entitled to participate, including waiving notice of any meeting, or voting or
participating at a meeting. Every proxy must be signed by the Limited Partner or
its attorney-in-fact. No proxy shall be valid after the expiration of 12 months
from the date thereof unless otherwise provided in the proxy. Every proxy shall
be revocable at the pleasure of the Limited Partner executing it.

ARTICLE XIV

ADMISSION OF ADDITIONAL LIMITED PARTNERS

14.1 Procedure for Admission. After the Effective Date, a Person
(other than an existing Partner) who makes a Capital Contribution to the
Partnership in accordance with this Agreement shall be admitted to the
Partnership as an additional Limited Partner only upon furnishing to the General
Partner (i) evidence of acceptance, in form satisfactory to the General Partner,
of all of the terms and conditions of this Agreement, including, without
limitation, the power of attorney granted in Section 10.5 hereof and (ii) such
other documents or instruments as may be required in the discretion of the
General Partner in order to effect such Person's admission as an additional
Limited Partner. Notwithstanding anything to the contrary in this Section 14.1,
no Person shall be admitted as an additional Limited Partner without the consent
of the General Partner, which consent may be given or withheld in the General
Partner's sole and absolute discretion. The admission of any Person as an
additional Limited Partner shall become effective on the date upon which the
name of such Person is recorded on the books and records of the Partnership,
following the consent of the General Partner to such admission.

14.2 Allocations and Distribution to Additional Partners. If any
additional Limited Partner is admitted to the Partnership on any day other than
the first day of a Partnership year, then Net Income, Net Losses, each item
thereof and all other items allocable among Partners and Assignees for such
Partnership Year shall be allocated among such additional Limited Partner and
all other Partners and Assignees by taking into account their varying interests
during the year in accordance with section 706(d) of the Code, using such method
as is determined by the General Partner. All distributions of Net Operating Cash
Flow with respect to a Partnership Record Date that is before the date of such
admission shall exclude any additional Limited Partner admitted after such
Partnership Record Date and will be made solely to Partners and Assignees as to
the Partnership Record Date.

40
<PAGE> 45

ARTICLE XV

GENERAL PROVISIONS

15.1 Notices. All notices, requests, reports or other
communications required or permitted to be given to a Partner or Assignee
pursuant to this Agreement shall be in writing and may be personally served,
telecopied or sent by first class United States mail and shall be deemed to have
been given when delivered in person, upon receipt of telecopy, one Business Day
after deposit in the overnight mail or other next day delivery service or three
business days after deposit in United States mail, postage prepaid, and properly
addressed to the appropriate party. For purposes of this Section 15.1, the
addresses of the parties hereto shall be as set forth in the Partnership's
records. The address of any party hereto may be changed by a notice in writing
given in accordance with the provisions hereof to the General Partner.

15.2 Controlling Law. This Agreement and all questions relating to
its validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of the State of Delaware,
notwithstanding any conflict-of-laws doctrines of such state or other
jurisdiction to the contrary.

15.3 Execution in Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an original and
all of which shall together constitute one and the same instrument. Each party
shall become bound by this Agreement immediately upon affixing its signature
hereto.

15.4 Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other provision may be invalid or unenforceable in whole or in part.

15.5 Entire Agreement. This Agreement, including all the Exhibits
hereto, contain the entire understanding among the parties hereto with respect
to the subject matter hereof, and supersedes all prior and contemporaneous
agreements and understandings, inducements or conditions, express or implied,
oral or written, except as herein contained. The express terms hereof control
and supersede any course of performance and/or usage of the trade inconsistent
with any of the terms hereof. This Agreement may not be modified or amended
other than by an agreement in writing.

15.6 Titles and Captions. The Article and Section headings in this
Agreement are for convenience only; they form no part of this Agreement and
shall not affect its interpretation.

15.7 Pronouns and Plurals. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter form and the singular form of nouns, pronouns and verbs shall
include the plural and vice versa.

41
<PAGE> 46

15.8 Number of Days. Except as otherwise provided, in computing the
number of days for purposes of this Agreement, all days shall be counted,
including Saturdays, Sundays and holidays; provided, however, that if the final
day of any time period falls on a day that is not a Business Day, then the final
day shall be deemed to be the next Business Day.

15.9 Assurances. Each of the Partners shall hereafter execute and
deliver such further instruments and do such further acts and things as may be
required or useful to carry out the intent and purpose of this Agreement.

15.10 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their heirs, executors, administrators,
successors, legal representatives and permitted assigns.

15.11 Creditors. Other than as expressly set forth herein with
respect to the Indemnities, none of the provisions of this Agreement shall be
for the benefit of, or shall be enforceable by, any creditor of the Partnership.

15.12 Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute waiver of any such breach or any other covenant, duty, agreement or
condition.

15.13 Exhibits. The provisions of Exhibits A through D to this
Agreement are by this reference hereby incorporated into this Agreement as if
contained in the body of the Agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be executed on their behalf as of the date first above
written.

GENERAL PARTNER:
STRATEGIC TIMBER OPERATING CO.

By:
----------------------------------------
Title:
-------------------------------------

LIMITED PARTNERS:

STRATEGIC TIMBER TRUST, INC.

By:
----------------------------------------
Title:
-------------------------------------

OLD PIONEER, LLC

By:
----------------------------------------
Gregory M. Demers, as authorized member

[SIGNATURES CONTINUED ON NEXT PAGE]

42
<PAGE> 47

-------------------------------------------
GREGORY M. DEMERS

-------------------------------------------
T. YATES EXLEY

KING INVESTMENT GROUP, INC.

By:
----------------------------------------
Title:
-------------------------------------

-------------------------------------------
DARRICK SALYERS

-------------------------------------------
JAMES A. YOUEL

MACH ONE PARTNERS, LLC

By:
----------------------------------------
Title:
-------------------------------------

-------------------------------------------
C. EDWARD BROOM

-------------------------------------------
THOMAS P. BROOM

-------------------------------------------
CHRISTOPHER J. BROOM

-------------------------------------------
VLADIMIR HARRIS

-------------------------------------------
JOSEPH E. RENDINI

-------------------------------------------
NICHOLAS C. BRUNET

SUTHERLAND ASBILL & BRENNAN LLP

By:
----------------------------------------

43
<PAGE> 48

EXHIBIT A TO
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
STRATEGIC TIMBER PARTNERS, LP

PARTNERS' CONTRIBUTIONS AND INTERESTS

<TABLE>
<CAPTION>
Cash or
Name/Address Agreed Value of Partnership Percentage
of Partner Contributions Units Interest
--------------- ------------- ----------- ----------

<S> <C> <C> <C>
General Partner

Strategic Timber Operating Co. $_________ _________ ______%
5 N. Pleasant Street
New London, NH 03257

Limited Partners

Strategic Timber Trust, Inc. $_________ _________ ______%
5 N. Pleasant Street
New London, NH 03257

Gregory M. Demers $_________ _________ ______%
25310 Jeans Road
P.O. Box 876
Veneta, OR 97487

Old Pioneer, LLC $_________ _________ ______%
25310 Jeans Road
P.O. Box 876
Veneta, OR 97487

T. Yates Exley $_________ _________ ______%
25310 Jeans Road
P.O. Box 876
Veneta, OR 97487

King Investment Group, Inc. $_________ __________ _____%
30414 LeBleu Road
Eugene, OR 97405
</TABLE>

A-1

<PAGE> 49

<TABLE>
<CAPTION>
Cash or
Name/Address Agreed Value of Partnership Percentage
of Partner Contributions Units Interest
------------ --------------- ----------- ----------

<S> <C> <C> <C>
Darrick Salyers $_________ ________ _____%
25310 Jeans Road
P.O. Box 876
Veneta, OR 97487

James A. Youel $_________ ________ _____%
25310 Jeans Road
P.O. Box 876
Veneta, OR 97487

MACH ONE PARTNERS, $_________ ________ _____%
LLC
c/o Nancy K. Thomason
First Union National Bank
of Georgia
1100 Abernathy Road, N.E.
Bldg. 500
Atlanta, GA 30328

LOUISIANA TIMBER $_________ ________ _____%
PARTNERS, LLC
c/o Nancy K. Thomason
First Union National Bank
of Georgia
1100 Abernathy Road, N.E.
Bldg. 500
Atlanta, GA 30328

C. Edward Broom $_________ ________ _____%
5 N. Pleasant Street
New London, NH 03257

Thomas P. Broom $_________ ________ _____%
5 N. Pleasant Street
New London, NH 03257

Christopher J. Broom $_________ ________ _____%
5 N. Pleasant Street
New London, NH 03257
</TABLE>

A-2
<PAGE> 50

<TABLE>
<CAPTION>
Cash or
Name/Address Agreed Value of Partnership Percentage
of Partner Contributions Units Interest
------------ --------------- ----------- ----------

<S> <C> <C> <C>
Vladimir Harris $__________ _________ _____%
5 N. Pleasant Street
New London, NH 03257

Joseph E. Rendini $__________ _________ _____%
5 N. Pleasant Street
New London, NH 03257

Nicholas C. Brunet $__________ _________ _____%
5 N. Pleasant Street
New London, NH 03257

Sutherland Asbill $__________ _________ _____%
& Brennan LLP
999 Peachtree Street
Suite 2300
Atlanta, GA 30309

Total $__________ _________ _____%
</TABLE>

A-3
<PAGE> 51

EXHIBIT B TO
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
STRATEGIC TIMBER PARTNERS, LP

CAPITAL ACCOUNT MAINTENANCE

Definitions. The following terms, for the purposes of this Exhibit B
and the Agreement shall have the meaning set forth below:

1. "Depletion" shall mean, with respect to standing timber owned
by the Partnership, the recovery (as a noncash expense) of the costs associated
with the acquisition or establishment of timber stands, as determined under Code
section 611 and the Regulations thereunder; provided, however, if there is a
difference between the Gross Asset Value and adjusted tax basis of such timber,
Depletion means "book" depletion as determined under the Code section 704(b)
Regulations.

"Depreciation" shall mean, with respect to any asset of the
Partnership for any fiscal year or other period, the depreciation or
amortization, as the case may be, allowed or allowable for Federal income tax
purposes in respect of such asset for such fiscal year or other period;
provided, however, that if there is a difference between the Gross Asset Value
and the adjusted tax basis of such asset, Depreciation shall mean "book"
depreciation or amortization as determined under the Code section 704(b)
Regulations.

2. Capital Account of the Partners. The Partnership shall
maintain for each Partner, a separate Capital Account in accordance with the
rules of Regulation Section 1.704-1(b)(2)(iv).

3. Computation of Net Income or Net Loss. For each fiscal year or
other applicable period, the Net Income or Net Loss shall be an amount equal to
the Partnership's net income or loss for such year or period as determined for
federal income tax purposes by the Accountants, in accordance with section
703(a) of the Code. For this purpose, all items of income, gain, loss or
deduction required to be stated separately pursuant to Code section 703(a) shall
be included in taxable income or loss. The following adjustments shall then be
made:

(a) include as an item of gross income any tax-exempt
income received by the Partnership;

(b) any expenditure of the Partnership described in
section 705(a)(2)(B) of the Code shall be treated as a deductible expense;

(c) in lieu of depreciation, depletion, amortization, and
other cost recovery deductions taken into account in computing Net Income or Net
Loss, there shall be taken into account Depreciation and Depletion;

(d) gain or loss resulting from any disposition of
Partnership property with respect to which gain or loss is recognized for
federal income tax purposes shall be

B-1

<PAGE> 52

computed by reference to the Gross Asset Value of such property as adjusted for
Depreciation and Depletion rather than its adjusted tax basis; and

(e) in the event of an adjustment to the Gross Asset
Value of any Partnership asset, as provided for in subparagraphs (b), (c) and
(d) of Paragraph 3 of this Exhibit B, that also requires the Capital Accounts of
the Partnership to be adjusted pursuant to Regulation Section
1.704-1(b)(2)(iv)(e), (f) and (m), the amount of such adjustment is to be taken
into account as an additional item of income or deduction, as is applicable.

(f) Once an item of income, gain, loss or deductions is
included in the initial computation of Net Income or Net Loss but is then
subjected to the special allocation rules in Exhibit C, Net Income or Net Loss
shall be recomputed without regard to such item.

4. Contributed Property and Adjustments to Value.

With respect to any asset of the Partnership, the Gross Asset Value of
such asset shall be such asset's adjusted basis for Federal income tax purposes,
except as follows:

(a) the initial Gross Asset Value of any asset (other than cash)
contributed by a Partner to the Partnership shall be the gross fair
market value of such asset at the time of its contribution, and such
amount as reduced for any liabilities assumed or taken subject to by
the Partnership in connection with such contribution, shall be
reflected in the books and records of the Partnership and on Exhibit A
to this Agreement as the "Agreed Value" of the contributed property;

(b) if the General Partner reasonably determines, that an
adjustment is necessary or appropriate to reflect the relative economic
interests of the Partners, the Gross Asset Values of all Partnership
assets shall be adjusted to equal their respective gross fair market
values, as reasonably determined by the General Partner, as of the
following events:

(x) immediately prior to a Capital Contribution (other
than a de minimis Capital Contribution) to the Partnership by
a new or existing Partner as consideration for a Partnership
Interest;

(y) immediately prior to the distribution by the
Partnership to a Partner of more than a de minimis amount of
Partnership property as consideration for the redemption of a
Partnership Interest; and

(z) immediately prior to the liquidation of the
Partnership within the meaning of the Regulations under Code
section 704(b);

(c) in accordance with Regulations Section 1.704-1(b)(2)(iv)(e),
the Gross Asset Values of Partnership Assets distributed in kind shall
be adjusted upward or downward to reflect any unrealized gain or loss
attributable to such Partnership property, as of the time any such
asset is distributed; and

(d) the Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant

B-2

<PAGE> 53

to Sections 734(b) or 743(b) of the Code, but only to the extent that
such adjustments are taken into account in determining Capital Accounts
pursuant to the Regulations under Code section 704(b); provided,
however, that Gross Asset Values shall not be adjusted pursuant to this
paragraph to the extent that the General Partner reasonably determines
that an adjustment pursuant to paragraph (b) above is necessary or
appropriate in connection with a transaction that would otherwise
result in an adjustment pursuant to this paragraph (d).

5. Periodic Adjustments to Gross Asset Value. As of the end of
each fiscal year or other computation period, Gross Asset Values shall be
adjusted by any Depletion or Depreciation taken into account with respect to the
Partnership's assets for purposes of computing Net Income and Net Loss.

6. Overriding Principles. The provisions of the Agreement
(including this Exhibit B and the other exhibits to this Agreement), relating to
the maintenance of capital accounts and allocations are intended to comply with
Regulation Section 1.704-1(b) and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the General Partner shall
determine that it is prudent to modify the manner in which the Capital Accounts,
or any debits or credits thereto are computed in order to comply with such
Regulations, the General Partner may make such modifications, provided that such
modification is not likely to have a material adverse effect on the amounts
distributable to any Partner or Assignee, pursuant to Article VIII of this
Agreement, upon dissolution of the Partnership.

7. No Interest. No interest shall be paid by the Partnership on
Capital Contributions or on balances in Partners' Capital Accounts.

8. No Withdrawal. No Partner shall be entitled to withdraw any
part of its Capital Contribution or its Capital Account or to receive any
distribution from the Partnership, except as provided in Articles 4, 5, 7 and 8
of the Agreement.

B-3

<PAGE> 54

EXHIBIT C TO
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
STRATEGIC TIMBER PARTNERS, LP

SPECIAL ALLOCATION RULES

Notwithstanding the provisions of Section 6.1 of the Agreement, the
Special Allocation Rules of this Exhibit C are controlling as to the allocation
of any items of Partnership income, gain, loss and deduction.

1. Definitions. The following terms shall, for purposes of this
Exhibit C and the Agreement, have the meanings set forth below:

"Adjusted Capital Account Deficit" shall mean, with respect to
any Partner, the deficit balance, if any, in such Partner's Capital Account as
of the end of any relevant fiscal year and after giving effect to the following
adjustments:

(a) credit to such Capital Account any amounts which such
Partner is obligated or treated as obligated to restore with
respect to any deficit balance in such Capital Account
pursuant to Section 1.704-1(b)(2)(ii)(c) of the Regulations,
or is deemed to be obligated to restore with respect to any
deficit balance pursuant to the penultimate sentences of
Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations;
and

(b) debit to such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4),(5) and (6) of the
Regulations.

The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the requirements of the alternate test for economic effect contained
in Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted
consistently therewith.

"Nonrecourse Deductions" shall have the meaning set forth in
Sections 1.704-2(b)(1) and (c) of the Regulations.

"Nonrecourse Liabilities" shall have the meaning set forth in
Section 1.752-1(a)(2) of the Regulations.

"Partner Minimum Gain" shall mean "partner nonrecourse debt
minimum gain" as determined in accordance with Regulation Section 1.704-2(i)(2).

"Partner Nonrecourse Deductions" shall have the meaning set
forth in Section 1.704-2(i)(2) of the Regulations.

C-1

<PAGE> 55

"Partnership Minimum Gain" shall have the meaning set forth in
Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations.

"Regulatory Allocations" shall mean the allocations required
by the Regulations under Code section 704(b) in order for allocations to be
deemed to have "economic effect" within the meaning of Code section 704(b) and
as provided for in subparagraphs (a) through (f) of Paragraph 2 of this Exhibit
C.

2. Special Allocations.

Notwithstanding any other provisions of the Agreement, the following
special allocations shall be made prior to any allocation under Section 6.1 of
the Agreement and in the following order:

(a) Minimum Gain Chargeback. If there is a net decrease in
Partnership Minimum Gain for any Partnership fiscal year (except as otherwise
provided in Regulation Section 1.704-2), each Partner shall be specially
allocated items of Partnership income and gain for such year (and, if necessary,
subsequent years) in an amount equal to that Partner' s share of the net
decrease in Partnership Minimum Gain. The items to be so allocated shall be
determined in accordance with Regulation Section 1.704-2(f). This paragraph (a)
is intended to comply with the minimum gain chargeback requirement of Regulation
Section 1.704-2 and shall be interpreted consistently therewith. Allocations
pursuant to this paragraph (a) shall be made in proportion to the respective
amounts required to be allocated to each Partner pursuant to the Regulations.

(b) Partner Minimum Gain. If there is a net decrease in Partner
Minimum Gain during any fiscal year (except as otherwise provided in Regulation
Section 1.704-2(i)(4)), each Partner shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent years)
in an amount equal to the Partner's share of the net decrease in Partner Minimum
Gain, if any. The items to be so allocated shall be determined in accordance
with Regulation Section 1.704-2(i)(4) and (j)(2). This paragraph (b) is intended
to comply with the minimum gain chargeback requirement with respect to Partner
Nonrecourse Debt contained in the Regulations and shall be interpreted
consistently therewith. Allocations pursuant to this paragraph (b) shall be made
in proportion to the respective amounts required to be allocated to each Partner
pursuant to the Regulations.

(c) Qualified Income Offset. In the event a Partner unexpectedly
receives any adjustments, allocations or distributions described in Regulation
Section 1.704-1(b)(2)(ii) (d)(4),(5), or (6), and such Limited Partner has an
Adjusted Capital Account Deficit as a result of such adjustments, allocations or
distributions, items of Partnership income and gain shall be specially allocated
to such Partner in an amount and manner sufficient to eliminate the Adjusted
Capital Account Deficit as quickly as possible unless such deficit balance is
otherwise eliminated pursuant to Sections 2(a) or 2(b) of this Exhibit C. This
paragraph (c) is intended to constitute a "qualified income offset" under
Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently
therewith.

(d) Nonrecourse Deductions. Nonrecourse Deductions for any fiscal
year or other applicable period shall be allocated to the Partners in accordance
with their respective

C-2

<PAGE> 56

Percentage Interests.

(e) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions
for any fiscal year or other applicable period shall be specially allocated to
the Partner that bears the economic risk of loss for the debt (i.e., the Partner
Nonrecourse Debt) as to which such Partner Nonrecourse Deductions are
attributable, as determined under Regulation Section 1.704-2(b)(4) and (i)(1)).

(f) Excess Nonrecourse Liabilities. The "excess nonrecourse
liabilities" of the Partnership (within the meaning of Regulation Section
1.752-3(a)(3)) shall be allocated among the Partners in accordance with the
Partners' Percentage Interests.

(g) Curative Allocations. The Regulatory Allocations shall be
taken into account in allocating other items of income, gain, loss, and
deduction among the Partners so that, to the extent possible, the cumulative net
amount of allocations of Partnership items under the Regulatory Allocations and
Section 6.1 of the Agreement shall be equal to the net amount that would have
been allocated to each Partner if the Regulatory Allocations had not occurred.
This subparagraph (f) is intended to minimize, to the extent possible, any
economic distortions which may result from application of the Regulatory
Allocations and shall be interpreted in a manner consistent therewith.

(h) No Withdrawal. No Partner shall be entitled to withdraw any
part of its Capital Contribution or its Capital Account or to receive any
distribution from the Partnership, except as provided in Articles 4, 5, 7 and 8
of the Agreement.

C-3

<PAGE> 57

EXHIBIT D TO
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
STRATEGIC TIMBER PARTNERS, LP

NOTICE OF REDEMPTION

The undersigned Limited Partner hereby (i) irrevocably redeems ______
Partnership Units in Strategic Timber Partners, LP in accordance with the terms
of the Second Amended and Restated Agreement of Limited Partnership of Strategic
Timber Partners, LP, as amended, and the Redemption Right referred to therein,
(ii) surrenders such Partnership Units and all right, title and interest
therein, and (iii) requests that the Cash Amount or the Share Amount, as
determined by STT, be delivered to the address specified below. If the Shares
are to be delivered, the undersigned requests that such Shares be registered or
placed in the name(s) specified below.

The undersigned hereby represents, warrants, certifies and agrees that
the undersigned (i) has good, marketable and unencumbered title to such
Partnership Units, free and clear of the rights or interests of any other person
or entity, (ii) has the full right, power and authority to redeem and surrender
such Partnership Units as provided herein, and (iii) has obtained the consent or
approval of all persons or entities, if any, having the right to consent to or
approve such redemption and surrender.

Dated:
----------------------------

Name of Limited Partner:
---------------------------------------

---------------------------------------
(Signature of Limited Partner)

---------------------------------------
(Street Address)

---------------------------------------
(City, State, Zip Code)

Signature Guaranteed by:

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

IF SHARES ARE TO BE ISSUED, ISSUE TO:

Please insert social security or identifying number.
----------------------------

Name of Shareholder(s):

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

D-1

<PAGE> 58

List of Exhibits

<TABLE>
<S> <C>
Exhibit A Partners' Contributions and Interests

Exhibit B Capital Account Maintenance

Exhibit C Special Allocation Rules

Exhibit D Notice of Redemption
</TABLE>

<PAGE> 1
EXHIBIT 5.1

[LETTERHEAD
OF
SUTHERLAND ASBILL & BRENNAN LLP]

May 6, 1999

Strategic Timber Trust, Inc.
5 North Pleasant Street
New London, NH 03257

Ladies and Gentlemen:

We are acting as your counsel in connection with the
registration of 19,090,000 common shares, $.01 par value (the "Shares"), of
Strategic Timber Trust, Inc., a Georgia corporation ("STT"). The Shares are
being registered with the Securities and Exchange Commission (the "Commission")
under a Registration Statement on Form S-11, Registration Number 333-71291 (the
"Registration Statement"), for a public offering pursuant to an underwriting
agreement, the form of which has been filed as an exhibit to the Registration
Statement (the "Underwriting Agreement"). Pursuant to Rule 430A promulgated by
the Commission, the amended Registration Statement on the date it becomes
effective will omit certain information, including the public offering price and
underwriting discounts or commissions (the "Rule 430A Information"). We are
familiar with the relevant documents and materials used in preparing the
Registration Statement and the Prospectus that forms a part of the Registration
Statement (the "Prospectus").

Based on our review of the relevant documents and materials,
it is our opinion that when (a) the Registration Statement shall have been
declared effective by order of the Commission, (b) the Underwriting Agreement
shall have been executed by duly authorized officers of STT pursuant to the
authorization by the Board of Directors of STT, (c) the Amended and Restated
Articles of Incorporation of STT shall have been filed with the Secretary of
State of the State of Georgia, (d) the transactions described in the
Registration Statement under the heading "Structure and Formation of Strategic
Timber" shall have occurred, and (e) the Shares shall have been issued and sold
upon the terms and conditions (including the Rule 430A Information) set forth in
the Registration Statement and the Underwriting Agreement, then the Shares will
be validly and legally issued, fully paid and nonassessable.

Very truly yours,

SUTHERLAND ASBILL & BRENNAN LLP

By: /s/ Thomas C. Herman
---------------------------
Thomas C. Herman

<PAGE> 1
EXHIBIT 10.17.2

AMENDMENT NO. 1 TO LOAN AGREEMENT
(STRATEGIC TIMBER PARTNERS, LP)

THIS AMENDMENT NO. 1 TO LOAN AGREEMENT dated as of April 22, 1999
("Amendment"), is entered into by and among STRATEGIC TIMBER PARTNERS, LP, a
Delaware limited partnership (the "Borrower"), as the borrower, the LENDERS
party to the Loan Agreement (as defined below), and ABN AMRO BANK N.V., not in
its individual capacity but solely in its capacity as the agent on behalf of
the Lenders (in such capacity, the "Agent").

RECITALS

A. The Borrower, the Lenders and the Agent have entered into that
Loan Agreement dated as of April 27, 1998 (the "Loan Agreement"), pursuant to
which the Lenders have extended and have agreed to extend and make available to
the Borrower certain advances of credit in accordance with their respective
Commitments and upon the terms and conditions set forth in the Loan Agreement
and other Loan Documents.

B. The Borrower desires to amend the Loan Agreement as provided
below and the Lenders are willing to so amend the Loan Agreement, on the terms
and conditions set forth below.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing recitals and other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound, the parties hereto agree as
follows:

SECTION 1. DEFINITIONS. Capitalized terms used but not defined in
this Amendment shall have the meanings given to them in the Loan Agreement.

SECTION 2. AMENDMENTS. Effective as of the Effective Date (as
defined below), and subject to the terms of and conditions precedent to the
effectiveness of this Amendment, the Loan Agreement is amended as follows:

1.1 The definition of "Borrowing Base" set forth in
Section 1.1 of the Loan Agreement is deleted in its entirety and is replaced
with the following:

"Borrowing Base" means, as calculated for the Borrower as of
any date of determination, an amount equal to the sum of (a) an amount
equal to eighty percent (80.0%) of the contract price for all Timber
sold forward under Eligible Timber Agreements (calculated on the basis
of the applicable floor or minimum price over the remaining term of
such Eligible Timber Agreements), whether title to such underlying
Timber transfers immediately, as under a timber deed, or at the time
such Timber is harvested, plus (b) an amount equal to sixty-one and
two-tenths percent (61.2%) of the Value of Merchantable Timber. The
Borrowing Base advance rate percentage applicable under clause (b),
above, shall be reduced automatically to fifty-eight percent (58.0%)
on May 31, 1999 and thereafter shall be reduced incrementally and
automatically by two percent (2.0%) on each succeeding anniversary of
the Closing Date (i.e., to 56% on the second anniversary of the
Closing Date, 54% on the third anniversary, and so on).
<PAGE> 2

1.2 Section 2.8 of the Loan Agreement is amended by
inserting at the end thereof, after the words "together with all accrued and
unpaid interest thereon", the following parenthetical:

(provided, however, that notwithstanding anything to the
contrary contained in this SECTION 2.8, the mandatory
prepayment, if any, required by this SECTION 2.8 in
connection with any Over Advance arising or occurring on May
31, 1999 as a result of the scheduled reduction to
fifty-eight percent (58.0%) of the Borrowing Base advance
rate percentage applicable to the Value of Merchantable
Timber shall be payable by June 9, 1999 and failure to make
payment in full of such Over Advance by June 9, 1999 shall
be an Event of Default under SECTION 10.1(A)).

SECTION 3. LIMITATIONS ON AMENDMENTS.

(A) The amendments set forth in SECTION 2 above is
effective for the purposes set forth herein and shall be limited precisely as
written and shall not be deemed to (i) be a consent to any other amendment,
waiver or modification of any other term or condition of any Loan Document, or
(ii) otherwise prejudice any right or remedy which the Lenders or the Agent may
now have or may have in the future under or in connection with any Loan
Document.

(B) This Amendment shall be construed in connection with
and as part of the Loan Documents and all terms, conditions, representations,
warranties, covenants and agreements set forth in the Loan Documents, except as
herein waived or amended, are hereby ratified and confirmed and shall remain in
full force and effect.

SECTION 4. REAFFIRMATION AND ACKNOWLEDGEMENT. The Borrower hereby
reaffirms its obligations under each Loan Document to which it is a party and
ratifies and reaffirms the validity and enforceability of all of the Liens and
security interests heretofore granted, pursuant to the Collateral Documents to
the Agent, for itself and on behalf of the Lenders, as collateral security for
the Obligations, and acknowledges that all of such Liens and security
interests, and all Collateral heretofore pledged as security for the
Obligations, continues to be and remain collateral for the Obligations from and
after the date hereof.

SECTION 5. REPRESENTATIONS AND WARRANTIES. In order to induce the
Lenders and the Agent to enter into this Amendment, the Borrower hereby
represents and warrants to each Lender and the Agent as follows:

(A) Immediately after giving effect to this Amendment (i)
the representations and warranties contained in the Loan Documents (other than
those which expressly speak as of a different date) are true, accurate and
complete in all material respects as of the date hereof and (ii) no Default or
Event of Default has occurred and is continuing;

(B) The Borrower has the power and authority to execute
and deliver this Amendment and to perform its obligations under the Loan
Agreement, as amended by this Amendment, and each of the other Loan Documents
to which it is a party;

(C) The execution and delivery by the Borrower of this
Amendment and the performance by Borrower of its obligations under the Loan
Agreement, as amended by this

2
<PAGE> 3

Amendment, and each of the other Loan Documents to which it is a party have
been duly authorized by all necessary partnership action on the part of the
Borrower;

(D) The execution and delivery by the Borrower of this
Amendment and the performance by the Borrower of its obligations under the Loan
Agreement, as amended by this Amendment, and each of the other Loan Documents
to which it is a party do not and will not contravene (i) any law or regulation
binding on or affecting the Borrower, (ii) the Borrower Partnership Agreement,
(iii) any order, judgment or decree of any court or other governmental or
public body or authority, or subdivision thereof, binding on the Borrower, or
(iv) any contractual restriction with a Person other than an Affiliate binding
on the Borrower;

(E) The execution and delivery by the Borrower of this
Amendment and the performance by the Borrower of its obligations under the Loan
Agreement, as amended by this Amendment, and each of the other Loan Documents
to which it is a party do not require any order, consent, approval, license,
authorization or validation of, or filing, recording or registration with, or
exemption by any governmental or public body or authority, or subdivision
thereof, binding on the Borrower, except as already has been obtained or made;
and

(F) This Amendment has been duly executed and delivered by
the Borrower and is the binding obligation of the Borrower, enforceable against
it in accordance with its terms, except as such enforceability may be limited
by bankruptcy, insolvency, reorganization, liquidation, moratorium or other
similar laws of general application and equitable principles relating to or
affecting creditors' rights.

SECTION 6. COUNTERPARTS. This Amendment may be executed in any
number of counterparts and all of such counterparts taken together shall be
deemed to constitute one and the same instrument.

SECTION 7. EFFECTIVENESS. This Amendment shall be deemed
effective on the date (the "Effective Date") upon which is satisfied the final
of the following conditions precedent (provided that all such conditions shall
be satisfied prior to 5:00 p.m., Chicago, Illinois time, April 29, 1999):

(A) The Borrower, the Lenders and the Agent shall have
duly executed and delivered this Amendment to the Agent.

(B) The Borrower shall have paid to the Agent, for the
benefit of the Lenders, an amendment fee of $232,500 by wire transfer or
otherwise in immediately available funds (which represents 0.15% of the
Aggregate Commitment).

SECTION 8. RELEASE AND WAIVER.

(A) The Borrower hereby acknowledges and agrees that: (a)
it has no claim, right or cause of action of any kind against any Lender or the
Agent or any parent, subsidiary or affiliate of any Lender or any of such
Lender's or the Agent's officers, directors, employees, attorneys or other
representatives or agents (all of which parties other than the Lenders and the
Agent being, collectively, the "Lender Agents") in connection with the Loan
Agreement and the

3
<PAGE> 4

other Loan Documents, the Loans advanced or the transactions contemplated
therein; (b) it has no offset or defense of any kind against any of its
respective obligations, indebtedness or contracts in favor of the Lenders or
the Agent; and (c) it recognizes that each of the Lenders and the Agent has
heretofore properly performed and satisfied in a timely manner all of its
respective obligations to and contracts with the Borrower.

(B) Although each of the Lenders and the Agent regards its
respective conduct as proper and does not believe the Borrower to have any
claim, right, cause of action, offset or defense against such Lender or the
Agent or any Lender Agent in connection with the Loan Agreement or any of the
other Loan Documents, the Loans advanced or the transactions contemplated
therein, each Lender and the Agent wishes and the Borrower agrees to eliminate
any possibility that any past conditions, acts, omissions, events,
circumstances or matters could impair or otherwise affect any rights,
interests, contracts or remedies of the Lenders or the Agent. Therefore, the
Borrower unconditionally, freely, voluntarily and after consultation with
counsel, releases, waives and forever discharges (i) any and all liabilities,
indebtedness and obligations, whether known or unknown, of any kind of any
Lender or the Agent or of any Lender Agent to the Borrower except the
obligations remaining to be respectively performed by the Lenders or the Agent
as expressly stated in the Loan Agreement, this Agreement and the other Loan
Documents; (ii) any legal, equitable or other obligations or duties, whether
known or unknown, of any Lender, the Agent or any Lender Agent to the Borrower
(and any rights of the Borrower against any Lender, the Agent, or any Lender
Agent) besides those expressly stated in the Loan Agreement, this Agreement and
the other Loan Documents; (iii) any and all claims under any oral or implied
agreement, obligation or understanding with any Lender, the Agent or any Lender
Agent, whether known or unknown, which is different from or in addition to the
express terms of the Loan Agreement, this Agreement or any of the other Loan
Documents; and (iv) all other claims, rights, causes of action, counterclaims
or defenses of any kind whatsoever (if any), whether known or unknown, which
the Borrower might otherwise have against any Lender, the Agent or any Lender
Agent on account of any condition, act, omission, event, contract, liability,
obligation, indebtedness, claim, right, cause of action, defense, circumstance
or matter of any kind whatsoever which existed, arose or occurred at any time
prior to the execution and delivery of this Agreement or which could arise
concurrently with the effectiveness of this Agreement.

SECTION 9. GOVERNING LAW. THIS CONSENT SHALL BE GOVERNED BY AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS.

IN WITNESS WHEREOF, the parties hereto have caused this Consent to be
executed as of the date first written above.

THE BORROWER STRATEGIC TIMBER PARTNERS, L.P., a Delaware limited
partnership

By: STRATEGIC TIMBER OPERATING CO., a Delaware
corporation, its general partner

By:
----------------------------------------------------
Printed Name:
------------------------------------------
Title:
-------------------------------------------------

4
<PAGE> 5

THE LENDERS ABN AMRO BANK N.V.

By:
----------------------------------------------
Printed Name: Leif H. Olsson
Title: Senior Vice President

By:
----------------------------------------------
Printed Name: Wayne Rancourt
Title: Vice President

NATIONSBANK, N.A.

By:
----------------------------------------------
Printed Name:
------------------------------------
Title:
-------------------------------------------

AMSOUTH BANK

By:
----------------------------------------------
Printed Name:
------------------------------------
Title:
-------------------------------------------

THE BANK OF NOVA SCOTIA

By:
----------------------------------------------
Printed Name:
------------------------------------
Title:
-------------------------------------------

SOCIETE GENERALE

By:
----------------------------------------------
Printed Name:
------------------------------------
Title:
-------------------------------------------

SOUTH TRUST BANK, N.A.

By:
----------------------------------------------
Printed Name:
------------------------------------
Title:
-------------------------------------------

5
<PAGE> 6
UNION BANK OF CALIFORNIA, N.A.

By:
----------------------------------------------
Printed Name:
------------------------------------
Title:
-------------------------------------------

THE AGENT ABN AMRO BANK N.V., as Agent

By:
----------------------------------------------
Printed Name: Leif H. Olsson
Title: Senior Vice President

By:
----------------------------------------------
Printed Name: Wayne Rancourt
Title: Vice President

<PAGE> 1

ARTHUR ANDERSEN LLP

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.

ARTHUR ANDERSEN LLP

Stamford, Connecticut
May 5, 1999

<PAGE> 1
EXHIBIT 23.2

CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP

Pursuant to Rule 436 promulgated under the Securities Act of 1933, as
amended, the undersigned hereby consents to the reference to our firm under the
captions "Legal Matters" and "Federal Income Tax Consequences" in the prospectus
constituting part of this Registration Statement on Form S-11 and to the filing
as exhibits to the Registration Statement of this consent, the opinion of our
firm regarding the validity of the issuance of the shares and the opinion of our
firm regarding tax matters.

SUTHERLAND ASBILL & BRENNAN LLP

By: /s/ William H. Bradley
---------------------------------
William H. Bradley, a Partner

Atlanta, Georgia
May 6, 1999

<PAGE> 1

EXHIBIT 23.3

CONSENT OF INDEPENDENT FORESTERS

We consent to the reference to our firm under the heading "Experts" in the
prospectus constituting part of this Registration Statement on Form S-11.

MASON, BRUCE & GIRARD, INC.
/s/ KENNETH M. VROMAN

Portland, Oregon
May 5, 1999

<PAGE> 1
EXHIBIT 23.4

CONSENT OF INDEPENDENT FORESTERS

We consent to the reference to our firm under the heading "Experts" in the
prospectus constituting part of this Registration Statement on Form S-11.

CANAL FOREST RESOURCES, INC.
/s/ PETER J. STEWART
Technical Manager

Charlotte, North Carolina
May 5, 1999

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-21-1998
<PERIOD-END> OCT-09-1998
<CASH> 1,376,761
<SECURITIES> 0
<RECEIVABLES> 41,222
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,717,983
<PP&E> 7,389
<DEPRECIATION> 125
<TOTAL-ASSETS> 261,722,218
<CURRENT-LIABILITIES> 223,398,684
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 9,513,845
<TOTAL-LIABILITY-AND-EQUITY> 261,722,218
<SALES> 111,107
<TOTAL-REVENUES> 152,299
<CGS> 179,400
<TOTAL-COSTS> 179,400
<OTHER-EXPENSES> 2,408,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,024,331
<INCOME-PRETAX> 9,513,845
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,513,845
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,513,845
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>

<PAGE> 1

EXHIBIT 99.5

May 6, 1999

Board of Directors
Strategic Timber Trust, Inc.
5 North Pleasant Street
New London, New Hampshire 03257

Re: Form S-11 Registration
Statement File No. 333-71291

Dear Sirs:

Based upon our authority as experts in forestry, timber inventory,
forest regulatory, and appraisal matters, we have reviewed and approved
information you have included in the Prospectus ("the Prospectus"). The
Prospectus is part of the referenced Registration Statement ("Registration
Statement"), as amended. We have reviewed and approved information relating to
the timber volumes, acreage, forest regulatory matters, stumpage and delivered
log prices, and timber harvest/management sales plan with respect to the
properties owned by your subsidiary Pioneer Resources, LLC in California,
Washington, and Oregon. We have consented to your inclusion of our report and
references to the firm in the Prospectus, and on April 15, 1999, we submitted a
prior report for use in the referenced Registration Statement. This report,
which will be included in Amendment No. 3 to the Registration Statement, is
intended to supersede the prior report.

We summarize below our determinations in reviewing the timber volumes
and timber sales plan information contained in the Prospectus and describe the
assumptions and methodologies we used in making our determinations. We also
provide below confirmation as to the conformance of your timber operations and
timber sales plan with applicable forestry rules, regulations, and practices in
the Pacific Northwest areas.

In the Prospectus, these properties are referred to as the Pacific
Northwest properties, and in this report we will do the same. As of March 31,
1999, the forest tracts designated as the Pacific Northwest properties are
comprised of the Coastal forest (79,026 acres), Commander

<PAGE> 2

forest (43,313 acres), Oregon timberlands (230,323 acres), and Washington
timberlands (10,822 acres). The Coastal forest is comprised of the Longview,
Willits Wood, and Williams Ranch tracts. The Washington timberlands are
comprised of the Riffe Lake and Aloha Tracts.

The Northwest Properties are categorized as timber properties,
agricultural land, and open/non-forested land as set forth below:

Pacific Northwest Properties
Acreage by Type
------------------------------------------------------------------------------------------

Merchantable and
Premerchantable
Timber Non-forest Total
---------------- ---------- -------

<S> <C> <C> <C>
Coastal forest 77,366 1,660 79,026
Commander forest 39,771 3,542 43,313
Oregon timberlands 204,502 25,821 230,323
Washington timberlands 9,794 1,058 10,822
------- ------ -------

Totals 331,433 32,081 363,484
</TABLE>

In confirming information contained in the prospectus, we conducted an
extensive assessment of the effect of applicable regulatory restrictions on
your timber harvesting and timberland management operations on the Pacific
Northwest properties. Our regulatory assessment included:
- site surveys
- reviews of your public filings and ongoing and planned timber
operations, and
- reviews of federal and state regulatory endangered species and
watershed databases.

We confirmed compliance of your timber operations and sales plans in
each of the Pacific Northwest properties with forestry laws, rules, and
regulations and local accepted practices.

This summary report is divided into four sections dealing with Timber
Volume, Regulatory Restrictions, Timber Prices and the Pacific Northwest
Properties' Timber Sales Plan. Within each of these four sections, our
discussion is organized by reference to each of the four Pacific Northwest
properties.

2
<PAGE> 3

I. TIMBER VOLUMES

The volumes we confirmed and that are included in the Prospectus as of
March 31, 1999 are set out in the tables below.

INVENTORY OF TIMBER ON STT CALIFORNIA, OREGON AND
WASHINGTON PROPERTIES AS OF MARCH 31, 1999

CALIFORNIA COASTAL FOREST
MERCHANTABLE TIMBER BY SPECIES

<TABLE>
<CAPTION>
BOARD FEET
----------
(IN THOUSANDS)
<S> <C>
SPECIES

Second-growth redwood....................................... 398,249

Douglas-fir................................................. 276,826

Hardwoods................................................... 113,766

Sugar pine.................................................. 52,397

Whitewoods.................................................. 15,072
-------

Total.............................................. 856,310
=======
</TABLE>

CALIFORNIA COMMANDER FOREST
MERCHANTABLE TIMBER BY SPECIES

BOARD FEET
----------
(IN THOUSANDS)
SPECIES

<S> <C>
Douglas-fir................................................. 130,155

White fir................................................... 70,260

Ponderosa pine.............................................. 36,008

Sugar pine.................................................. 23,019

Incense cedar............................................... 27,629

Other pine.................................................. 539
-------

Total.............................................. 287,610
=======
</TABLE>

3
<PAGE> 4

OREGON TIMBERLANDS AND TIMBER DEEDS
MERCHANTABLE TIMBER BY SPECIES

<TABLE>
<CAPTION>
BOARD FEET 1
----------
(IN THOUSANDS)
<S> <C>
SPECIES

Ponderosa pine.............................................. 148,084

Douglas-fir................................................. 119,064

White fir................................................... 62,707

Western larch............................................... 29,815

Lodgepole pine.............................................. 9,742

Other....................................................... 1,892
-------

Total.............................................. 371,304
=======
</TABLE>

WASHINGTON TIMBERLANDS
MERCHANTABLE TIMBER BY SPECIES

<TABLE>
<CAPTION>
BOARD FEET
----------
(IN THOUSANDS)
<S> <C>
SPECIES

Western hemlock............................................. 56,980

Douglas-fir................................................. 30,789

Red and incense cedar....................................... 16,066

Other conifers.............................................. 13,168

Red alder................................................... 8,348

Other hardwoods............................................. 3,415
-------

Total.............................................. 128,766
=======
</TABLE>

- ---------
1 Includes a small volume of timber located on Eastern Washington "timber deed"
holdings. The timber is marketed with and is similar in quality to the Oregon
timber. Also it is similarly restricted as to harvest as is the Eastern
Oregon timber.

PROCEDURE AND METHODOLOGIES

It is impractical to count or measure each tree on a large tract of
timber. Therefore, timber inventories are prepared on a statistical sampling of
the trees observed and measured on a tract, with the total timber volumes and
estimate of species presence being a compilation of this sample. All sample
results are audited through a second round of established review procedures

<PAGE> 5

to confirm the accuracy of the measurements reflected in the samples. This
inventory process is often referred to as a "cruise".

The methods MB&G used to establish merchantable timber volumes set out
in the Prospectus are customary for the type of transactions involved. As is
the practice with respect to large acreage tracts of timber with diverse
species and diverse locations, MB&G did not perform a complete re-inventory in
connection with the Prospectus. Instead, MB&G confirmed the timber volumes by
sampling or observing portions of the tracts which individually had been
inventoried by MB&G or others (and in that case, checked by MB&G) at various
times.

Before inclusion in the Prospectus, each volume estimate completed
prior to the filing of the Registration Statement was adjusted for subsequent
harvests and projected growth before inclusion in the Prospectus. In each case,
MB&G completed field work and office work to confirm its opinion of timber
volumes.

With the exception of the Riffe Lake Tract in Washington, we, or other
recognized consulting forestry firms, whose work we confirmed performed
inventory samples for the Pacific Northwest properties in accordance with
industry standards. These standards ranged from +5% at a 95% confidence
interval to +10% at a 90% confidence interval, dependent upon the particular
inventories. This means that in 95 (or 90) times out of 100, if the property
were reinventoried using the same sampling procedure and specifications, the
resultant volumes should not vary by more than those standards (5% or 10%).

Set forth below are the years in which an inventory sampling was done
for each of the Pacific Northwest properties, together with the acres which
were the subject of our sample inventoried, as the basis for our determination
of timber volume and acreage:

<TABLE>
<CAPTION>
EASTERN OREGON
SAMPLING YEAR ACRES
<S> <C>
1994 41,112
1995 5,804
1996 93,820
1997 14,322
1998 60,491

Total: Sampled in Eastern Oregon 215,649
-------
</TABLE>

5
<PAGE> 6

<TABLE>
<CAPTION>
WESTERN WASHINGTON
SAMPLING YEAR ACRES
<S> <C>
1998 10,822

Total: Sampled in Western Washington 10,822
-------

CALIFORNIA
SAMPLING YEAR ACRES
1995 (Coastal) 75,138
1997 (Commander) 43,312

Total: Sampled in California 118,450
-------
</TABLE>

We did not perform a full inventory on the Riffe Lake Tract. The Riffe
Lake Tract volumes in the Prospectus are as reported by Weyerhaeuser
Corporation at the time of purchase by Pioneer Resources, less harvest and plus
estimated growth since the date of the acquisition. Immediately after the
acquisition by Pioneer, and on its behalf, we did establish a sample of the
inventory on the Riffe Lake Tract adequate to assure that at least the volume
indicated by Weyerhaeuser was present on the property. We so confirmed, and
since the purchase, Weyerhaeuser's inventory has proven (based on depletions)
to be accurate, if not slightly understating the timber inventory on the Riffe
Lake Tract.

To determine species information in our report and in the prospectus,
we did not do independent statistical tests. Such testing is not customarily
done and, in our experience, has not normally been done for any industrial
forest land inventory. We are aware of instances where even 100 percent samples
of all trees are taken. However, in our experience, such instances never apply
to large acreages.

The species volumes are part of the total volumes confirmed by our
report and are identified only as they appear in the sample. An individual
volume sample in a multi-species stand might be composed of several species.
For example, in Eastern Oregon, a single sample point might include ponderosa
pine, lodgepole pine, Douglas-fir and white fir. The trees at each sample point
were individually recorded and the volume reported as part of the total.

6
<PAGE> 7

MERCHANTABILITY STANDARDS

In categorizing timber as merchantable, we used size classifications
in accord with industry standards currently employed by timber owners,
professional foresters and appraisers in determining merchantable timber
volumes each of the specific Northwest Pacific areas. The standards used
require for merchantability, that the minimum diameter of standing trees,
measured inside the tree bark at the top of the measured segment, be at least
five inches, rounded to the nearest whole inch.

Minimum diameter standards for merchantability are tied to local
market mill specifications, which are a function of two factors:

1. Technology/Equipment -- The ability of the facility to process
economically logs of a certain length and diameter, and most are
capable of processing five-inch diameter logs.

2. General Market Prices for Timber -- Mills, when market prices
are lower, as is currently the case, adjust specifications to require
logs of a greater diameter to enhance mill efficiency.

Currently, mills in all the Pacific Northwest areas, except for
Coastal market area, are actively purchasing logs with a 5-inch top diameter.
Mills in the Coastal market have the technology to take logs with a 5-inch top
diameter and historically have done so. In current conditions in the Coastal
market area, mills with limited exceptions require logs with at least a
5.5-inch top diameter (inside bark) which is consistent with your timber sales
plans, which call for harvest and sales of logs with at least a 6-inch
(5.5-inch) diameter. We have confirmed, for this report, that mills in the area
are capable of sawing and under appropriate market conditions will accept
five-inch diameter top logs. Seven mills currently process five-inch diameter
logs. Two of these mills are actively purchasing five-inch diameter top logs
from outside suppliers. For purposes of this report specifically, we have
spoken to representatives of most of the over 20 mills in the economic area for
the Coastal tracts.

When MB&G completed work on the Option A for the former owner of the
Coastal properties, we utilized a model that projected harvest volumes and
growth in terms of a minimum of six-inch diameter logs since this model was
most readily available given we started this work in 1993. The stand
configuration of the Coastal lands is such that a substantial amount of volume
accrues when the inventory is processed utilizing the five-inch rather than the
six-inch model. The stands are at the stage of development where a large
component is in trees just lower in diameter than allows inclusion in the
volume analysis where a six-inch minimum is used. The differential is shown by
comparing the table below with the five-inch inventory analysis we have used
for purposes of appraisal and as included in this report. Both the
projected harvest and the estimated growth are in terms of the six-inch class
rendering it probable that the growth is somewhat understated, as compared to a
five-inch basis volume, for the first two to three decades of the Option A
plan. The harvest volumes projected and communicated to the regulatory agencies
contemplate utilization to a six-inch diameter. The hardwoods, which utilize a
different

7
<PAGE> 8

volume table, are the same in both instances.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------

VOLUME TO A MINIMUM
6-INCH DIAMETER TOP
SPECIES (MBF)

<S> <C>
Second-growth redwood 312,188

Douglas-fir 249,870

Hardwoods 113,766

Sugar pine 28,903

Whitewoods 8,248

TOTAL 712,975
- -------------------------------------------------------------------------------------------------
</TABLE>

The difference between the two estimates, both of which are based on
the same inventory data, is about 19% for conifer alone and 17% where hardwoods
are included.

The merchantable timber volumes provided for the Coastal forest in the
Prospectus approximate 10,835 board feet per acre, which is based on a 5-inch
top. The California Department of Forestry and Fire Protection has noted to the
SEC in connection with the Registration Statement that at January 1, 1996 in
the "Option A", merchantable timber averaged 6,500 board feet per acre, which
is based on a 6-inch top. We provide below a reconciliation of these 1999 and
1996 board foot averages.

The table below shows that the total estimated timber volume from the
CRYPTOS summary (adjusted for a 5-inch top and additional volume from the
Willams Ranch) is 843 million board feet. This compares to Mason, Bruce &
Girard, Inc.'s 856 million board foot estimate of total volume; a difference of
2%. These differences are due to:
- Different volume tables including the fact that the Option A
growth is in terms of 6-inch top diameter
- Recent harvests that have been heavy to Douglas-fir

This sort of volume difference between estimates is not unusual. In
fact, such close alignment between two separate estimates of total volume is
unusual. The CRYPTOS volume simulation is a ten-year projection estimate and
use for annual updates such as are being requested for this comparison, are not
anticipated. The volume by species is also impacted by the short-term harvest.
Note that because an area from the southeast of the tract was harvested in
1998, the ratio was about 5 to 1 in favor of Douglas-fir when the overall ratio
of redwood to Douglas-fir is close to even.

8
<PAGE> 9

Option A Calculation of Volume

<TABLE>
<CAPTION>
Conifer Only RW DF OC Total
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1/1/97 249,306 215,902 41,443 506,652
Add Williams Ranch 5,314 4,602 883 10,800
Inv including Williams Ranch 254,620 220,505 42,327 517,452
Add adjustment to 5" top 63,910 55,347 10,624 129,880
Add 97 growth 25,767 22,314 4,283 *52,365
Less 97 harvest 4,378 5,281 981 10,640
1/1/98 inventory 339,919 292,885 56,253 689,057
Add 98 growth 25,767 22,314 4,283 *52,365
Less 98 harvest 1,839 10,103 375 12,317
1/1/99 Conifer inventory 363,847 305,096 60,161 729,105
-------------------------------------------------------------------------------------
Hardwoods 113,766
-------------------------------------------------------------------------------------
Total 1/1/99 inventory 842,871
</TABLE>

*Based on 6" top

The Mason, Bruce & Girard, Inc. hardwood estimate is greater
than the volume the CRYPTOS model predicts for hardwoods. This higher
estimate of hardwood volume is based on the actual inventory, field
data, a published volume table, actual depletion and estimated growth
at 3% per year, all of which we believe may develop an estimate closer
to the actual volume than does the CRYPTOS volume hardwood simulator.
(The greater volume estimate for hardwood tends to adversely impact the
economic prospects for the property and we have appraised the property
and the harvest plan utilizing this higher hardwood volume.)

The "Option A" Plan data for January 1, 1996 shows the following
volumes:

<TABLE>
<S> <C>
Redwood 245,020
Douglas-fir 186,944
Hardwood 107,799
Sugar pine 30,972
Other conifer 9,447
-------
Total 580,182(1)
</TABLE>

This volume, without hardwoods, is approximately 472,400 mbf. After
growth, adjustment for recalculated acreage and depletion the "Option A" Plan
states in Table 10 that as of January 1, 1997 the conifer volume is 506,636
mbf.

- --------------
(1) Note this number is slightly different than the "Option A" Plan because of
rounding in the strata calculations. The difference is approximately two
one-hundreths of a percent.

9
<PAGE> 10

This volume is not set out in species volume terms in the "Option A"
Plan but in the same Table 10 we show the volume per acre (to three decimal
places). This volume extended with the acreage shows a volume by species as
follows:

<TABLE>
<S> <C>
Redwood 249,306
Douglas-fir 215,902
Sugar pine & other conifer 41,477
-------
Total 506,685
</TABLE>

This volume is not significantly different from the estimate of total
volume as shown above.

Regarding all inventory estimates including hardwood species on the
Coastal tract, the inventory field measurements included data for estimating
number of trees, tree diameter and basal area. The timber volume calculations
are based on a published table that is different from the table used to
estimate volume in conifer trees. There is little recent experience in
converting tanoak (over 90% of the estimated hardwood volume) to lumber. Most
of the emphasis has been on converting such trees to pulp chips. Essentially,
all of the volume of tanoak sold from the Coastal property during the last ten
years has been sold for conversion to pulp chips. Estimates of hardwood volumes
harvested (depleted) have been based on a conversion from a weight measurement
which has been the basis for payment. The conversion is based on a sample of
loads actually measured to determine board footage as compared to the weight
determined on certified scales.

Merchantability length specifications vary in the Washington market
from the other three Pacific Northwest markets, where length specifications are
similar. In the Washington market a tree is merchantable and is included in
inventory if it will produce at least one log that is 32 feet long with the
minimum top diameter of 5 inches. For all other markets, a tree is merchantable
and is included in inventory if it contains at least one 16-foot log with the
five-inch minimum top diameter. In addition, in each of the Pacific Northwest
markets, volumes for the portion of a tree's bole above the merchantable first
log will be included if the additional piece beyond the merchantable first log
is at least a minimum length of 12 feet.

In our determinations and in accordance with industry standards, an
entire tree is not required to be free from defect to be considered
merchantable. Logs from trees otherwise merchantable can contain mechanical
defects such as breaks, splits, crooks or defects caused by fungi for up to 75%
of the gross volumes of the timber. Only that portion of the tree free from
such defect, however, is considered merchantable. These defect percentages vary
by the specific rules of the relevant log scaling bureaus. There are more than
ten independent scaling bureaus operating in the Pacific Northwest area, all of
which use generally the same standards and the ones we have applied.

None of the trees we included in inventory is physically impossible to
harvest, but trees are included if they are restricted and cannot be harvested
immediately because of an environmental, endangered species, or other
regulatory restriction. This is in accordance with

10
<PAGE> 11

industry standards, which recognize that no large-acreage timber stand like the
Pacific Northwest properties can be harvested at one time but must be harvested
according to a deferred schedule.

To be included as merchantable timber, a tree, though it may not be
immediately harvestable, may impact your scheduled harvest plan. For instance,
a tree in a stream side zone having a crown that regulates stream temperature
and wildlife habitat may not itself be cut, but it will allow for the harvest
of a tree at another location. In some instances, also, trees may become
available for harvest through the change in location of endangered species or
when density of surrounding stands change. Later in this report we set out the
acres in the Pacific Northwest properties where harvesting is now prohibited,
as well as restricted. We have advised you that in part these restrictions are
political in nature and that changes should be expected to acreages included as
prohibited or restricted. We anticipate some reduction specifically in
streamside restrictions as better definition is made.

II. REGULATORY RESTRICTIONS IMPACTING PACIFIC NORTHWEST PROPERTIES

Regulatory restrictions apply to timber harvesting and timberland
management operations in each of California, Oregon, and Washington.
Historically, California has the most restrictive harvesting restrictions
imposed by government agencies. In the mid-70's, the Z'berg-Nejedly Forest
Practice Act was put in place by the California legislature, and since then, a
substantial amount of investigative, planning and documentation work must
precede essentially any timber harvesting operation in California. The
California Forest Practice Act was significantly modified in 1994 when the
current rules were put in place. More recently, Washington, and presently
Oregon have imposed significant regulatory restrictions. Washington appears to
be far in front of Oregon in the implementation process.

We have reviewed your regulatory filings and timber operations and
sales plans in each of the Pacific Northwest properties and found them to be in
compliance with forestry laws, rules, and regulations and local accepted
practices. For California, this included a review of the Option A timber
management plan applicable to the Coastal forest and all timber harvest plans
under which you are operating both at Coastal and in the Commander forests. We
reviewed all notifications of operations filed by Pioneer with the Oregon
Forestry Department. In Washington, all your forest practice applications and
any required environmental statements were inspected by us and found to be in
compliance.

The following tables indicate the number of acres on the Pacific
Northwest timberlands, by property, that are currently subject to harvest
restrictions due to the presence of waterway buffer zones, geologically
unstable areas or wildlife on or near the property. The first table shows the
number of acres on each property that cannot be harvested today. This number of
acres may increase or decrease with a change in any category. The second table
shows the number of acres on each property as to which harvesting is presently
restricted, but not prohibited.

11
<PAGE> 12

HARVESTING CURRENTLY PROHIBITED

WATERWAY GEOLOGICALLY TOTAL
BUFFER UNSTABLE WILDLIFE** BY PROPERTY
-------- ------------ -------- -----------
ZONE* AREAS
-------- ------------
<S> <C> <C> <C> <C>
California - Commander ..................................... -- 40 155 195

California - Coastal ....................................... 1,708 480 396 2,584

Oregon ..................................................... 2,165 -- 80 2,245

Washington ................................................. -- -- 20 20

Totals ........................................... 3,873 520 651 5,044
====== ===== ====== =====
</TABLE>

HARVESTING CURRENTLY RESTRICTED

<TABLE>
<CAPTION>
WATERWAY TOTAL
BUFFER ZONE* WILDLIFE** BY PROPERTY
----------- -------- -----------

<S> <C> <C> <C>
California - Commander ..................................... 2,334 541 2,875

California - Coastal ....................................... 4,656 1,074 5,730

Oregon ..................................................... 8,231 -- 8,231

Washington ................................................. 977 -- 977
------ ------

Totals ........................................... 16,198 1,615 17,813
====== ===== ======
</TABLE>

* Streamside buffer zone restrictions include restrictions due to chinook
and coho salmon, and bull and steelhead trout.

** All wildlife restricted acres except for 5 acres for a peregrine falcon
on the Mendocino lands, and 100 acres for bald eagles in Oregon and Washington,
are due to the Northern Spotted Owl.

In the following we describe regulatory issues affecting the Pacific
Northwest properties on a state-by-state basis:

CALIFORNIA

Before a private landowner can harvest timber in California, the
California Forest Practice Act and the Forest Practice Rules require a
timberland owner to submit a timber harvest plan to the California Department
of Forestry and Fire Protection for its approval. A timber harvest plan must be
prepared by a registered professional forester (RPF) and filed on a
tract-by-tract basis within a particular forest. The plan must comply with
California's forestry rules and legal requirements, which are perhaps the most
stringent in the United States. Generally, the timber harvest plan must
include, among other things:

- - how the harvest will be done;
- - the silvicultural techniques to be used;
- - proposed replanting and reforestation activities;
- - the measures that will be taken to prevent erosion and maintain water
quality;

12
<PAGE> 13

- - the measures that will be taken to protect wildlife and plant
habitats; and
- - methods of sustaining other forest resources.

The Forest Practice Rules require a timber harvest plan to demonstrate
that a forest is being harvested in a manner that will not exceed maximum
sustained production. This generally means that, over a 10-year period, the
rate of harvest in a forest tract will not exceed growth of timber from that
forest. The Forest Practice Rules provide three options for demonstrating the
ability to achieve maximum sustained production. These optional methods are
called Option A, Option B and Option C.

Option A. Under Option A, the landowner is required to prepare a
separate plan to achieve maximum sustained production for the entire forest,
commonly known as an "Option A plan". The Option A plan is filed as an
attachment to the timber harvest plan. The Option A plan generally expires
after ten years.

The Option A plan is divided into four main sections. The first
section describes the property, its history and the owner's strategy for
achieving maximum sustained production. The second section provides a detailed
survey of the volume and species of timber in the forest. The third section
estimates the volume of timber that can be harvested over a ten-year period and
the estimated long-term (100 years) sustained yield for the forest. The fourth
section contains articles referenced in the first three sections, maps of the
property, detailed forest growth and inventory data, and the statistical data
from which growth and inventory estimates were derived.

Once the Option A plan is filed and approved by the California
Department of Forestry and Fire Protection, a landowner, after receiving
approval of a prepared Timber Harvest Plan, can harvest the timber included in
the area under plan to which the Option A plan was attached. When the landowner
desires to harvest other tracts in the forest covered by the Option A plan, the
landowner must then file another timber harvest plan with respect to the new
tract, but the landowner will be deemed to have already shown maximum sustained
production.

Option B. Under Option B, the landowner files a sustained yield plan
as part of the timber harvest plan. This sustained yield plan includes the
owner's plan to achieve maximum sustained production, as well as a forest-wide
analysis of environmental and endangered species impacts of harvesting. An
owner utilizing Option B must continue to submit timber harvest plans for each
subsequent tract in a forest that is harvested. However, once the sustained
yield plan is approved, the owner does not need to include a specific
environmental or endangered species impact assessment in subsequent timber
harvest plans.

Option C. Under Option C, a landowner does not submit a separate
maximum sustained production or environmental impact analysis. Instead, the
owner would include these analyses in each timber harvest plan submitted to the
Department of Forestry for approval prior to harvesting timber on a particular
tract. The landowner would be required to comply with the Forest Practice
Rules' restocking requirements when harvesting a tract. However, Option C is
not available for use with respect to forests of 50,000 or more acres.

13
<PAGE> 14

Coastal Forestlands, Ltd., the prior owner of the Coastal forest,
filed a timber management plan under Option A on July 4, 1996. Following
extensive review and comment by the Department of Forestry, the timber
management plan and related Option A conditions were approved by that agency on
November 18, 1996. After approval, the California Department of Forestry
continued to review this plan, and Coastal Forestlands made appropriate
revisions to its Option A plan based upon this review. The Option A conditions
were last updated on January 30, 1998, and approved by the California
Department of Forestry effective as of May 7, 1998.

As the purchaser of the Coastal forest, Pioneer had the option of
assuming the terms of the Option A plan filed and updated by Coastal. Pioneer
did elect to assume the existing Option A, and we have confirmed that your
timber harvest plans filed with the Department of Forestry and the timber sale
plans for Coastal as reflected in the overall timber sales plan contained in
the prospectus are in conformance with the existing Option A and its harvesting
limitations.

In addition to the Forest Practice Rules described above, timber
harvest operations must comply with the California Endangered Species Act and
the California Environmental Quality Act. All three sets of rules have
requirements for threatened and endangered species. Implementation is variable
depending on the philosophies and experiences of local regulators, the public,
and the RPF preparing the timber harvest plan.

The Forest Practice Rules specifically state measures to minimize and
mitigate impacts to fish habitat, water quality and wildlife. These are briefly
summarized below:

Riparian area management along Class I (domestic use and fish always
or seasonally present) and Class II (fish present within 1000 feet
downstream or aquatic habitat for non-fish aquatic species)
watercourses:

- Require 50 percent of existing overstory and 50 percent
understory covering the ground adjacent to watercourses.

- Allow timber harvesting in riparian area to a 50 percent
overstory and 50 percent understory retention in a
well-distributed multistoried stand, with conifers making up
at least 25 percent of existing overstory.

- Designate two living conifers per acre at least 16 inches dbh
(diameter at breast height, 42 feet above the ground) and 50
feet tall within 50 feet of the watercourse.

- Provide for mitigation measures related to the protection of
fish and riparian wildlife habitat, including snags. No
numeric standards.

- Require variable widths of Watercourse and Lake Protection
Zones (WLPZ) based on site-specific conditions such as
side-slope, yarding systems, and beneficial uses. WLPZ widths
vary from 50 feet to 150 feet for Class I and II water.

14
<PAGE> 15

Riparian area management along Class III (no aquatic life, capable of
sediment transport) watercourses:

- Tree retention for large woody debris is not required.

- May require, when necessary to protect beneficial use, a WLPZ
on Class III waters.

- Require only vegetation other than commercial tree species to
be retained and protected near wet areas. Specify that
environmental impacts with the potential for significant
adverse effects are to be avoided or mitigated.

- Specify that the need for Class III protection, which may
include equipment limitation zones, is to be determined on a
site-specific basis.

Erosion and sedimentation:

- Require road maintenance for erosion control for 1 year, but
may prescribe maintenance for up to 3 years post-harvest.

- Specify that the protection of Class III watercourses shall be
determined on a site-specific basis.

- Require that mitigation and erosion protection must be stated
in the Timber Harvest Plan and approved by the state
forester.

According to the National Marine Fisheries Service (the federal
regulatory agency with jurisdiction over anadromous fish), the Forest Practice
Rules contain provisions that are protective if fully implemented. There are
also exceptions to the Forest Practice Rules that allow timber harvest to occur
without any requirement for environmental review or monitoring. Therefore,
National Marine Fisheries Service assumes that there is potential for
incidental taking of listed fish species as a result of timber harvest
operations under the current rules. Several landowners have prepared or are
preparing Habitat Conservation Plans (HCPs) to receive the incidental taking
permit. National Marine Fisheries Service protection standards under HCPs have
changed over the last five years, with increased buffer widths, more
restrictions on types of activities allowed (including along Class III
streams), and increased assurances from watershed analysis through
site-specific land management.

The "Option A" plan for the Coastal Forest includes a program of
watershed evaluation, monitoring, and stream restoration throughout the
property to increase protection for aquatic and riparian species. Based on the
resource assessment modules in the watershed analysis, three major factors have
been identified which significantly affect the viability of habitat conditions
in streams on the property:

- Sedimentation

15
<PAGE> 16

- Large woody debris

- Riparian canopy/stream temperature

Numerous sections of the Forest Practice Rules address threatened and
endangered species issues. Article 9 addresses wildlife protection practices,
describing general measures as well as measures specific to the northern
spotted owl and marbled murrelet. Current wildlife protection strategies from
the Forest Practice Rules are summarized below.

- SNAG RETENTION. Current rules require that all snags be
retained except those designated as a fire hazard. Snags are
defined as standing dead trees over 20 feet tall and 16
inches dbh.

- GENERAL PROTECTION OF NEST SITES. Outlines strategies for
protecting nest sites of sensitive species. A pre-harvest
inspection will be required for known sites where the site
buffer is within a harvest unit. During harvest, nest trees,
designated perch trees, screening trees and replacement trees
shall be left standing and unharmed except as otherwise
provided in the rules. If an occupied nest site of a listed
bird species is discovered during harvesting, the trees shall
be protected and agencies contacted to modify the Timber
Harvest Plan.

- SPECIFIC REQUIREMENTS FOR PROTECTION OF NEST SITES. Defines
buffers for various species.

- Northern Spotted Owl - minimum of 18 acres and must
avoid "take".

- Bald eagle and peregrine falcon - minimum 10 acres,
can be increased beyond 40 acres to avoid "take".

- Golden eagle - minimum 8 acres.

- Great blue heron and great egret - area within a
300-foot radius of a tree, or trees, containing a
group of five or more active nests in close
proximity.

- Northern goshawk - minimum 5 acres, can be increased
to a maximum of 20 acres.

- Peregrine falcon - must avoid "take" and protect nest
sites.

- Osprey - up to 5 acres, can be increased to a maximum
of 18 acres.

16
<PAGE> 17

The rules define the type of activities allowed within these buffers.
Generally, no clear-cutting is allowed; selection, commercial thinning,
sanitation-salvage, and the shelterwood regeneration methods are allowed as
long as designated trees are left standing and unharmed. The rules also define
critical time periods for these species when timber operations cannot occur
near the nest.

The surveys we conducted in the first quarter of 1998 showed that
there were approximately 110 northern spotted owl activity centers that affect
the Commander forest, though many of these activity centers are located on
adjacent properties. Although there have been incidental observations of bald
eagles, American peregrine falcons, golden eagles and northern goshawk in the
Commander forest, no nesting or roosting sites have been found. Steelhead trout
and fall chinook salmon have been observed in streams in the Commander forest
and it is likely that streams in that forest will be subject to restrictions
for these species and for coho salmon.

We have also conducted surveys on the Coastal forest. These surveys
showed that there were approximately 12 pairs or single spotted owls on the
Longview tract in the Coastal forest, and that the property is within the range
of the bald eagle, peregrine falcon and marbled murrelet, though none is
currently known to reside on the property. Streams within the Longview tract
support coho salmon, steelhead trout and chinook salmon. You currently comply
with restrictions to protect and restore the habitat of these fish. The nature
and scope of restrictions to conserve fish populations may increase over time.
For example, the size of buffer zones along streams on the property may have to
be widened and the number of streams subject to buffer requirements may
increase. Road construction and maintenance requirements may also become more
burdensome. A similar survey conducted on the Willits Woods/Williams Ranch
tract in the Coastal forest showed that there were approximately 10 pairs or
single spotted owls and one peregrine falcon nest on the property, and that the
property is within the range of the bald eagle and the marbled murrelet, though
none is currently known to reside on the property. Streams within the Willits
Woods/Williams Ranch tract contain coho salmon and steelhead trout. Some
chinook salmon have also been reported. You comply with the same protective
measures with respect to streams on this tract as with the Longview tract.

Threatened and endangered species plants are not specifically
addressed in the Forest Practice Rules. Sections 919.12, 939.12 and 959.12 deal
with sensitive species classification. Part (d) states that the Board shall
consider the best available science to establish feasible mitigation for the
protection of the species. However, the rules do not specify any mitigation
measures for sensitive plants.

EASTERN OREGON

The Oregon Forest Practices Act requires submission of written plan to
the Oregon Department of Forestry, with a mandatory waiting period, when an
operation is larger than 120

17
<PAGE> 18

acres or is within prescribed distances of certain streams or wildlife sites.
The potential influence of biological resources on timber harvest for Pioneer
lands in Oregon is currently much less than in either California or Washington.
The Oregon lands include property in the following counties: Grant, Morrow,
Umatilla, Union and Wheeler. The Oregon Natural Heritage Program (ONHP) was
contacted early in January 1999 for information on State or Federally
threatened and endangered plant and animal species on or near Pioneer property
in these counties: Grant, Morrow, Umatilla, Union and Wheeler. The Oregon
Natural Heritage Program (ONHP) was contacted early in January 1999 for
information on State or Federally threatened and endangered plant and animal
species on or near Pioneer property in these counties. There are four fish of
concern, three birds of concern and two plants that have been observed on the
property. All of these species are given consideration in harvesting
operations. In addition to the above, other species of concern are known to be
in the vicinity. (Restrictions similar to the ones included here for the
Eastern Oregon lands apply to the small acreage of Eastern Washington lands on
which timber is owned.)

Although the ONHP does not yet have database records for anadromous
fish in Oregon, both steelhead trout and chinook salmon have the potential to
occur on the property. Nineteen observations of bull trout resulted from the
1998 ONHP database query. However, many of these records were not for
observations on Pioneer property because, for fish species, the query searches
by watershed and not by section. Bull trout were noted on Pioneer property in
the Texas Bar Block (John Day River) and the Desolation Block (Desolation
Creek). While bull trout were not recorded on blocks downstream of these
reaches (e.g., Elk Grove, Buckaroo, River, etc.), it is likely that bull trout
occur there as well.

Only one federally-listed wildlife species is known to occur on
Pioneer lands in Eastern Oregon; six observations of bald eagle were found in
the ONHP database. All sightings were along the John Day River. These sightings
were all recorded during the winter and are believed to be associated with
winter roosting sites. It is possible that one or more of these sites could
also be used by nesting bald eagles, although no nesting territories are known
to occur on these Pioneer lands.

In July 1998, the U.S. Fish and Wildlife Service (USFWS) proposed to
list the Canada lynx as threatened. Timber harvest and related activities were
noted in the proposal as the predominant land use affecting lynx habitat. Two
observations of Canada lynx were found in the ONHP database in the Umatilla
National Forest. Both of these observations are within approximately 1.5 miles
of Pioneer ownership. The wolverine was listed by the state of Oregon as
threatened in 1975 and is a federal species of concern. Two observations were
documented in the ONHP database search.

The ONHP database query found observations of Laurence's milk-vetch
(FSC, ST) and arrow-leaf thelypody (FSC, ST) on or near Pioneer lands in
Eastern Oregon. Neither the Federal nor Oregon Endangered Species Acts prohibit
the "taking" of listed plant species, so plants are not considered to be
something that could affect timber harvesting on Pioneer lands for the
foreseeable future.

18
<PAGE> 19

The Oregon Forest Practice Administrative Rules (OAR) defines
necessary protections for Type D (domestic water supply), F (fish or domestic),
and N (neither fish nor domestic use) streams. Riparian Management Area (RMA)
widths are determined by stream size and stream type. Geographic region and
stream size determines the general prescription for RMAs adjacent to Type F or
Type D. The OFPA describes watershed-specific practices for water quality
limited watersheds and areas where threatened or endangered aquatic species are
present.

The listings of bull trout and anadromous salmonids under the federal
ESA have changed forestry practices in riparian and upland areas, and more
changes will likely be forthcoming. These changes have caused operators to
minimize ground disturbance and remove fewer trees from riparian areas. Harvest
activities within riparian buffers have been, and will likely continue to be,
restricted beyond current Forest Practice Rules to address protection for fish
and aquatic resources. The use of watershed analysis methodologies is likely to
become more prevalent in Oregon. It is likely that new rules will include
provisions to use watershed analysis to identify hazard areas and habitat that
is vulnerable or requires improvement.

In addition to legal requirements, voluntary stream and aquatic
habitat protection measures were developed under the Oregon Coastal Salmon
restoration Initiative, and outlined in a memo from Paul Bell (Forest Practice
Policy Analyst) dated September 15, 1997. Oregon Forest Industries Council
(OFIC) members have made a commitment to select trees within harvest units to
restore salmon habitat in Core Areas (as defined by ODFW). This can be
accomplished by placing large woody debris in streams, or other actions. Other
voluntary management measures (within Core Area) include riparian hardwood
conversions, additional conifer retention, RMAs for Type N streams, and leave
tree placement. These measures might affect the volume of wood harvested on the
property.

In addition, the NMFS has proposed new stream rules that would apply
to private land in Oregon. While the NMFS's proposed modifications to the OAR
will not be adopted, a revision of the current rules in the near future is
likely. This would mean more restrictions on activities within the RMA, and
less timber harvest. Operations that may affect TES species or their designated
critical habitat will require Endangered Species Act (ESA) compliance.

Unlike fish, the regulatory climate dealing with most wildlife in the
forested landscape or Oregon has remained relatively static for the last few
years. The bald eagle is the only species that currently has the potential to
measurably impact timber harvest on the Pioneer lands in Eastern Oregon, and
then only slightly.

The State Forester will not approve timber operations if they would
result in "taking" of bald eagles. Additional restrictions apply for operations
near bald eagle nesting, roosting or foraging sites. Winter roost sites must be
retained and protected from damage including windthrow. During the critical
period of use (November 15-March 31), operations must not disturb eagles using
the resource site, and no operation shall be permitted within 1/4 mile of the
active roost tree, or 2 miles if the eagles have line-of-sight vision to the
operation.

19
<PAGE> 20

WASHINGTON

The potential influence of biological resources on timber harvest for
the Aloha and Riffe Lake blocks, Washington, in our opinion, is less than
California and more than Oregon. Database queries were conducted to determine
if any state or federally listed (threatened or endangered) plant, wildlife, or
fish species occur. Four fish species, three bird species but no plants are
listed as being of concern on the Western Washington lands. There are three
sensitive plant species.

Timber harvesting and land management in Washington State is subject
to all relevant state and federal laws. Timber harvest activities must comply
with the Washington Forest Practices Act (FPA) (RCW 76.09), as governed by the
Washington Department of Natural Resources (WDNR). Other relevant laws include
the federal Endangered Species Act (ESA), State environmental Policy Act (SEPA;
Chapter 222-10 WAC), and the Clean Water Act. The National Environmental Policy
Act (NEPA) could also apply under certain circumstances.

The database query identified one stream, Joe Creek, on the Aloha
property as having reticulate sculpin, a state monitor species. In addition to
the reticulate sculpin, this creek is also identified as having critical
spawning habitat for resident fish, anadromous fish runs, and priority fish
present. The Aloha block is within the Copalis River watershed, Boone Creek
watershed, and Moclips River watershed; however, the rivers themselves are not
on the property. Both the Copalis River and the Moclips River have chum salmon,
chinook salmon, sockeye salmon, and bull trout, plus the species identified for
Joe Creek. None of these streams are currently protected under the Endangered
Species Act. However, sea-run cutthroat trout are a candidate species for
listing and are under review.

Elk Creek, on the Riffe Lake property was also identified as
containing anadromous fish, but did not provide specific information about
species presence or absence. Elk Creek is not a tributary to Riffe Lake, but
flows into the Green River, which is a tributary of the North Fork Toutle River
(Cowlitz watershed). Elk Creek is identified as having anadromous fish
throughout the reach on the property. Although not identified in the database
report, the anadromous species referred to are likely sea-run cutthroat trout,
steelhead trout, and coho salmon. Because a dam has blocked passage of
anadromous fish into the lake, all fish in Riffe Lake tributaries are resident
fish only. Weyerhaeuser, the former owner of the property, was contacted in
1998 for information on fish or stream surveys for the Riffe Lake property. No
information was on file.

As stated above, there are no known threatened or endangered wildlife
species on or within close proximity of the Aloha block (WDFW 1998). According
to a representative of Weyerhaeuser, there are no known spotted owl nests and
no known marbled murrelet nests on the property. Two bald eagle nest sites have
been located but both are over one mile from Pioneer ownership. A marbled
murrelet detection area is centered in T19N R12W S12 according to the WDFWs
marbled murrelet detection map (October 1998) which places the southwestern
portion of the tract in a special management zone.

The database query identified a bald eagle nest on the Pioneer
Resources property along

20
<PAGE> 21

the margin of Riffe Lake. There are no known spotted owl nests on the property,
although the property is within the range of this species, and several spotted
owl circles are known to occur within 2 miles of the property boundary. The
majority of the property is within the range for the marbled murrelet but none
have been detected within 1.5 miles of the property.

No threatened or endangered plant species are known to occur on or
within one mile of either the Aloha block or the Riffe Lake property. The
Natural Heritage Information System has no records for rare plants or high
quality ecosystems in the vicinity of property (WDNR 1999). There are no
requirements to survey for listed plant species, A list of sensitive plants for
Grays Harbor and Lewis Counties shows the Western Washington properties may
contain three different sensitive plant species, but no sitings were reported.

Timber harvesting and land management in Washington State is subject
all relevant state and federal laws. Timber harvest activities must comply with
Washington Forest Practices Act (FPA) (RCW 76.09), as governed by the
Washington Department of Natural Resources. Other relevant laws include federal
Endangered Species Act (ESA), State Environmental Policy Act (SE Chapter 222-1
0 WAC), and the Clean Water Act. The National Environmental Policy Act (NEPA)
could also apply under certain circumstances.

The NMFS is still in an adjustment period following the recent
listings of many salmon and steelhead stocks in the Pacific Northwest. As such,
many new field staff and management personnel have joined NMFS, and the agency
culture is early in its development process. As a result the agency is
continually developing and refining its policies and positions regarding, among
other things, the adequacy of state forest practice rules to adequately protect
fish. NMFS's positions described in this document regarding various regulatory
issues may not necessarily reflect their current or future position.

PENDING REGULATIONS

In our work we completed a review of known pending regulations
applying to each state of the Pacific Northwest region of your properties:

California

Resolution No. 98-66, an amendment to the Water Quality Control Plan
for the North Coast, by the North Coast Region California Regional Water
Quality Control Board, was adopted establishing a Total Maximum Daily Load
(TMDL) for sediment in the Garcia River watershed. Upon approval it will be
sent to the Office of Administrative Law for review and final approval before
becoming law.

In 1996 the state of California identified the Garcia River as a high
priority waterbody according to the requirements in Section 303(d) of the
federal Clean Water Act (CWA). Section 303(d)(1)(A) of the CWA requires that
states list those waters for which existing management practices are not
sufficient to achieve water quality standards. The Garcia River was identified

21
<PAGE> 22

due to excessive sedimentation. When the Garcia River was designated a
high-priority waterbody the development of a Total Maximum Daily Load (TMDL)
for the river became necessary.

These regulations pertaining to TMDL compliance that are pending and
may have the effect of law are being applied by the regulatory agencies at this
time. These regulations are resulting in additional costs for land
administration, preparing harvesting plans and harvesting costs. These costs as
they apply to harvesting have been taken into account. However, the costs for
planning may not be accounted for.

Eastern Oregon

The recent listing of the various salmon species by NMFS affects the
harvest near streams. The effect of these listings have been considered and
anticipated in our analysis of harvest.

Western Washington

The Washington Department of Fish and Wildlife's Timber, Fish and
Wildlife regulations are in the process of change. The impact of the pending
regulations has been estimated and the results under those regulations have
been included in our analysis.

III TIMBER PRICES

We defined the separate market area for each of the four Pacific
Northwest forests by identifying those mills that are within sufficient
proximity of the particular forest to purchase its timber on a cost-efficient
basis. The Commander market is comprised of twenty lumber mills in nine
counties of Siskiyou, Shasta, Trinity, Lassen, Plumas, Placer, El Dorado,
Sacramento, and Sierra. Twenty-two mills in Mendocino, Humboldt, and Sonoma
counties in coastal California comprise the Coastal forest market.

In the market for the Oregon forests there are fourteen lumber mills
in the Grant, Jefferson, Crook Union, Wallowa, Umatilla, and Morrow counties
east of the Cascade Mountains. Thirty-one mills in the seven counties of Grays
Harbor, Mason, Pierce, Thurston, Pacific, Lewis, and Cowlitz in the western
part of the state comprise the Washington market.

We conducted market surveys for logs developed from trees matching
your trees on the Northwest Properties to provide the table of estimated
average delivered log prices, prices of standing trees, and logging costs as of
March 31, 1999 shown below. The surveys included consideration of size and
grade of log within species as necessary to develop the averages set out. Log
prices tend to follow, rather than lead, product markets and redwood and fir
log prices appear to be moving up now in reaction to some improved lumber
market prices.

22
<PAGE> 23

As of March 31, 1999
------------------------------------------
Prices of Logging Delivered
Standing Trees Costs Log Prices
------------------------------------------
(Per MBF)
<S> <C> <C> <C>
California - Coastal Forest
Second-growth redwood $508 $282 $790
Douglas-fir 238 282 520

California - Commander Forest
Ponderosa pine 285 245 530
Douglas-fir 275 245 520

Oregon
Ponderosa pine 286 184 470
Douglas-fir 278 182 460

Washington
Douglas-fir 471 180 651
Western Hemlock 368 144 512
Cedar 835 135 970
</TABLE>

IV TIMBER SALES PLAN

We reviewed your timber sales plan, as set out below in the table. We
considered regulatory limitations, local stocking levels and growth rates, and
the demand for logs in each of the Pacific Northwest market areas. In each
instance, the plan is consistent with, or lower than, regulatory limitations
would allow. With respect to Coastal, your plan calls for significantly less
harvesting than permitted by the "Option A" document.

The timber sales plan we reviewed and confirmed provides as follows:

<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ---- ----

<S> <C> <C> <C> <C> <C> <C> <C>
California Coastal 9,701 14,139 19,058 24,430 25,542 26,712 27,944

California Commander 47,044 40,803 26,543 13,553 13,464 13,648 9,366

Oregon 22,157 22,202 34,108 33,027 32,992 32,820 32,514

Washington 33,346 25,273 19,154 14,517 11,002 8,339 6,320
------- ------- ------- ------ ------ ------ ------

Total 112,248 102,417 98,863 85,527 83,000 81,519 76,144
</TABLE>

The demand for logs in the relevant markets is sufficient to
accommodate your planned

23
<PAGE> 24

sales and resulting harvest volumes without adversely affecting stumpage prices
in any of the markets. We base the foregoing pricing and volume comments on our
acquaintance with the general market situation in the vicinity of your
properties, which we regularly analyze for clients.

Very truly yours,

/s/ Glenn Zane
---------------------------
Glenn Zane
Vice President

<PAGE> 1
EXHIBIT 99.6

[LETTERHEAD OF CANAL FOREST RESOURCES, INC.]

May 6, 1999

Board of Directors
Strategic Timber Trust, Inc.
5 North Pleasant Street
New London, NH 03257

Dear Sirs:

Since the inception of your efforts to acquire and manage the Bel-Quatre
timberlands in Kinder, Louisiana, Canal Forest Resources has provided a number
of services relating to the assessment and appraisal of the land and timber
inventory. I am writing to provide a consolidated review of the results of our
work as it relates to the following subjects:

1. Timber inventory.

2. Projected cutting schedule.

3. Timber inventory growth rates.

4. Applicable forestry regulations.

TIMBER INVENTORY

Our initial timber inventory was completed in July 1998. The timber volumes and
sampling errors (at the 95% confidence level) by species and product are
summarized below:

<TABLE>
<CAPTION>
--------------------------------------------------------------------
Species/Product Weight (Tons) Sampling Error
--------------------------------------------------------------------
<S> <C> <C>
Pine Sawtimber 3,134,825
Pine Chip-n-Saw 478,233
Pine Pulpwood (includes tops) 773,444
--------------------------------------------------------------------
Total Pine 4,386,502 1.3%
--------------------------------------------------------------------
Hardwood Sawtimber 502,286
Hardwood Pulpwood 546,222
--------------------------------------------------------------------
Total Hardwood 1,048,508 2.4%
--------------------------------------------------------------------
</TABLE>

We estimated merchantable timber volume using sampling methods and standards
that are used in the Southern United States, including Louisiana. Our sampling
error for this inventory estimate was plus or minus 5% at a 95% confidence
interval. This means that 95 times out of

<PAGE> 2

100, if the property were re-inventoried using the same sampling procedure and
specifications, the resulting volumes would vary by no more than 5%. All timber
volume estimates were calculated in ton and included only trees that met the
merchantability specifications set forth below.

The sampling errors associated with our volume estimates are small, as a result
of the large sample size we established to develop the estimate (6,323 plots on
approximate 62,900 merchantable acres). This is important to establish
confidence in our overall valuation of the property.

Consistent with industry standards in Louisiana, the following wood product
specifications were used in our inventory and subsequent harvest plan:

<TABLE>
<CAPTION>
Product Minimum DBH Minimum Top Minimum Height
------- ----------- ----------- --------------

<S> <C> <C> <C>
Pine Sawtimber 11.6" 7.0" 16'

Pine Chip-n-Saw 8.6" 6.0" 16'

Pine Pulpwood 4.6" 3.0" 25'

Pine Poles 11.0" 5.0" 35'

Hardwood Pulpwood 5.6" 4" 25'

Hardwood Sawtimber 12.6" 9" 16'
</TABLE>

These standards are used to determine timber that would be considered
merchantable in the market area for the Louisiana property. "DBH" refers to
"diameter at breast height," which is an industry convention that measures the
diameter of a tree outside the tree bark at a height of 4.5 feet above the
ground, and is the accepted standard in the Southern United States, including
Louisiana.

Minimum top diameter is measured inside the tree bark at the tip of the log cut,
to the nearest whole inch. Mills in the market area for the Louisiana property
are able to process timber meeting the specifications set forth above.

Since that initial inventory, we have revised the inventory estimates on your
property to account for timber sale activities and to adjust for corrections in
estimates on some of the individual tract and stand acres. However, this
estimate does not reflect any new additional physical inventories.

In connection with our original inventory of the property, we also conducted
extensive physical samplings, including coring of sample trees, to determine
physical growth characteristics on a stand-by-stand level within the sample. We
used this data to determine growth rates for the timber on the property, and
projected this growth through March 31, 1999. We also eliminate

<PAGE> 3

any merchantable timber removed from the property due to harvesting. Canal
Forest determined removals from June 1998 through December 1998. Strategic
Timber provided Canal Forest with first quarter 1999 timber removal volumes in
gross. The last estimate of inventory (as of 3/31/99) is as follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------
Species/Product Weight (Tons)
-----------------------------------------------------------
<S> <C>
Pine Sawtimber 3,333,993
Pine Chip-n-Saw 475,889
Pine Pulpwood (includes tops) 787,661
-----------------------------------------------------------
Total Pine 4,597,543
-----------------------------------------------------------
Hardwood Pulpwood 550,566
Hardwood Sawtimber 513,165
-----------------------------------------------------------
Total Hardwood 1,063,731
-----------------------------------------------------------
</TABLE>

CFR estimates that 3,156,532 tons (83% of the pine sawtimber volume) on the
Louisiana property is mature pine (35 years or older). This estimate of timber
inventory includes timber growth over the past 9 months--between June 1998 and
March 1999.

Also included in this estimate is the volume associated with approximately 4,500
acres of timber in wetland areas. Harvesting on these 4,500 acres is restricted
to the extent that harvest activities are prohibited by wetland regulations,
which can affect access to the timber on these acres. We identified no acres on
your property having unstable soils that would prohibit harvesting, and no acres
on which harvesting would be prohibited or restricted by virtue of the presence
of a threatened or endangered species. The affected volume by product is:

<TABLE>
<CAPTION>
----------------------------------------------------------
Species/Product Weight (Tons)
----------------------------------------------------------
<S> <C>
Pine Sawtimber 13,870
Pine Chip-n-Saw 158
Pine Pulpwood (includes tops) 739
----------------------------------------------------------
Total Pine 14,767
----------------------------------------------------------
Hardwood Pulpwood 81,828
Hardwood Sawtimber 55,461
----------------------------------------------------------
Total Hardwood 137,289
----------------------------------------------------------
</TABLE>

PROJECTED TIMBER HARVEST SCHEDULE

We have completed multiple analyses of how this property could be managed to
maximize your long-term returns. These analyses are used to identify
detailed--stand-by-stand--cutting schedules, thinning schedules, and management
(site prep, regeneration, and fertilization) schedules for the property. From
these schedules we have determined that the property can

<PAGE> 4

support harvest levels between 250,000-300,000 cunits per year over the next 10
years (for your Louisiana timberlands, one ton of timber converts to 0.3525
cunits).

TIMBER INVENTORY IN 2008 AND 2018

The timber inventory is constantly changing. Changes reflect harvests, growth
and mortality. As mature, slower growing natural pine is replaced with fast
growing plantation pine, the overall vigor and productivity of the forest
improves. The years 2008 and 2018 provide a snap-shot of an improving forest. In
2008, CFR projects that 552,780 tons could be harvested through a final cutting
and 79,468 tons could be harvested via an intermediate thinning. Conversely, by
2018 only 84,315 tons could be harvested through a final cutting, while 189,069
tons could be thinned. During this time, merchantable inventory volume increases
more than 300%, from 1,239,341 tons in 2008 to 3,815,935 tons in 2018.
Furthermore, the weighted mean annual increment of harvested volume is projected
to increase from 1.63 tons/acre/year to 6.61 tons/acre/year, reflecting a four
fold increase in stand productivity. The following chart portrays selected
forest attributes in 10 and 20 years.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Comparison between 2008 and 2018

Harvest Tons Inventory (tons)
----------------------------------------------------------------
Final Thin Total* Annual Growth** MAI***
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2008 552,780 79,468 1,239,341 (136,357) 1.63
2018 84,315 189,069 3,815,935 458,282 6.61
% change -555.6% 137.9% 207.9% n/a 305.5%
---------------------------------------------------------------------------
</TABLE>
*total merchantable tons
**annual growth for year over year period; 2008-2009 and 2018-2019
***mean annual increment, a measure of mean annual growth over rotation

TIMBER INVENTORY GROWTH RATES

Canal Forest Resources uses whole-stand growth projection models to estimate
annual growth for each individual stand based on characteristics such as site
quality, age, current stand density, and species. Thus, we do not use standard
growth rates across all stands or even a species group. However, in looking at
the current yields by age class on your property, we can develop reasonable
estimates of exhibited growth rates. This analysis shows that pine growth rates
will range from a low of 0.66 tons/acre/year in old (90+) natural stands to a
high of 10.68 tons/acre/year in young (15-19) merchantable natural stands. To
provide some comparison with other estimates you may have, I converted some of
these empirical (observed) estimates of mean annual increment (MAI) into
relative growth rates by timber type as shown below:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Empirical Growth Rates (MAI as % of Yield)
----------------------------------------------
Pine Hardwood
Timber Type Min Max Min Max
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hardwood 1.1% 1.6% 1.1% 2.1%
Pine-Hardwood 1.0% 4.4% 1.0% 4.4%
Natural Pine 1.1% 5.7% 1.1% 5.7%
Planted Slash Pine 1.5% 3.6% 1.6% 2.4%
Planted Loblolly Pine 1.4% 3.6% 1.4% 2.4%
- -------------------------------------------------------------------------
</TABLE>

<PAGE> 5

Please note that empirical estimates cannot be adjusted for past partial
harvesting (thinning) or other non-normal timber removal factors. Thus the
percent growth rates shown above likely underestimate the actual rate that would
occur if no thinning had ever taken place on the property.

APPLICABLE FORESTRY REGULATIONS IN THE SOUTHERN UNITED STATES

Although a number of states in the Pacific Northwest and Northeastern United
States currently have regulations that govern forest management and harvesting
practices, the U.S. South is generally free of state regulations.
However, there are some exceptions.

- - Louisiana Right to Farm and Practice Forestry Law renders any legislation
or regulation void if that legislation or regulation diminishes the
property's income or asset value by more than 20%.

- - All southern states, including Louisiana, have some road use permitting
process that affects some percentage of the roads.

- - Maryland Sediment and Erosion Control Laws require a permit when any
operation, including timber harvesting, disturbs soil over more than 5,000
square feet.

- - Virginia Seed Tree Law requires leaving at least six seed trees per acre on
land that is harvested that was predominately pine.

- - Virginia Forestry Water Quality Law states that it is illegal to cause
excessive sedimentation into water courses. This regulation is a state
statute and does have the force of law. A violator can be fined up to
$5,000 per day.

- - Florida Seed Tree, Doyle Log Rule, and Barging Timber Statutes are largely
out of date and not applicable.

- - The Florida Water Management Districts' Water Quality Rules do have force
of law and regulate sedimentation and stream turbidity.

- - Also, there are many local and municipal ordinances that regulate timber
harvesting within the Southern United States.

This is a brief description of the prominent state forestry regulations in the
southern U.S., however this is not meant to be an exhaustive list.

ENDANGERED SPECIES

Pending legislation relative to forest management.

<PAGE> 6

FEDERAL LEVEL

At this time, we are not aware of any pending legislation relative to endangered
species that would hinder the ability to practice forest management in
Louisiana. The current mindset of the US Fish & Wildlife Service is to work with
landowners that have protected species on their property to promote a "win/win"
situation.

STATE LEVEL

At this time, we are not aware of any pending legislation relative to endangered
species that would hinder the ability to practice forest management in
Louisiana.

ENDANGERED SPECIES IN LOUISIANA

There are 17 threatened/endangered animal species that occur or potentially
occur in Louisiana. Based on information obtained from discussions with US Fish
& Wildlife Service personnel located in Lafayette and Louisiana Natural Heritage
Program personnel located in Baton Rouge, 3 of these species could potentially
occur on STT land. One of these three, the American peregrine Falcon, would only
be considered as a migrant and should not impact your ability to practice forest
management.

The other two species, the red cockaded woodpecker and the American bald eagle,
are known to nest and forage in the four-parish area. Both species can
significantly impact your ability to practice forest management.

Canal Forest Resources has conducted site specific surveys on near term harvest
areas to determine the presence of red cockaded woodpeckers. None have been
found. Furthermore, we recommend that prior to any harvesting activities a
thorough survey of the harvest area for the presence of threatened and
endangered species be conducted. If occurrences are found, the impacted area can
be identified and management practices modified to ensure compliance with the
Endangered Species Act.

I hope this information is helpful in consolidating your understanding of the
timber inventory and applicable regulations on the Bel-Quatre forest. Please do
not hesitate to call if I can provide any additional information.

Sincerely,

/s/ Peter J. Stewart

Peter J. Stewart
Manager of Technical Services