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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

( X )

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

( )	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-9035

POPE RESOURCES, A DELAWARE

LIMITED PARTNERSHIP

(Exact name of registrant as specified in its charter)

Delaware		91-1313292
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

19245 10th Avenue NE, Poulsbo, WA 98370

Telephone: (360) 697-6626

(Address of principal executive offices including zip code)

(Registrant's telephone number including area code)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer” “accelerated filer” and “smaller reporting company” in rule 12b-2 of the Exchange Act. (check one)

Large Accelerated Filer____ Accelerated Filer X__ Non-accelerated Filer ____Smaller Reporting Company____

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-2 of the Exchange Act) Yes ____No__X_

Partnership units outstanding at November 1, 2008: 4,652,622

Pope Resources

Index to Form 10-Q Filing

For the Quarter Ended September 30, 2008

Description		Page Number
Part I. Financial Information

Item 1 Financial Statements (unaudited)
Condensed Consolidated Balance Sheets		4
Condensed Consolidated Statements of Operations		5
Condensed Consolidated Statements of Cash Flows		6
Notes to Condensed Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14

Item 3. Quantitative and Qualitative Disclosures about Market Risk		37

Item 4. Controls and Procedures		37

Part II. Other Information

Item 1. Legal Proceedings		37

Item 1A. Risk Factors		38

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		39

Item 3. Defaults Upon Senior Securities		40

Item 4. Submission of Matters to a Vote of Security Holders		40

Item 5. Other Information		40

Item 6. Exhibits		40

Signatures		41

P A R T I – FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

Pope Resources
September 30, 2008 and December 31, 2007

(Thousands)
	2008			2007

Assets
Current assets:
Cash and cash equivalents	$	12,268		$	2,174
Auction rate securities, current		9,298			30,775
Accounts receivable		990			442
Land held for sale		535			780
Current portion of contracts receivable		994			622
Prepaid expenses and other		208			252
Total current assets		24,293			35,045

Properties and equipment at cost:
Land held for development		22,710			21,159
Land and land improvements		20,097			22,318
Roads and timber (net of accumulated
depletion of $52,117, and $48,418)		92,040			94,635
Buildings and equipment (net of accumulated
depreciation of $7,253 and $7,017)		3,619			3,577
		138,466			141,689

Other assets:
Contracts receivable, net of current portion		1,000			1,420
Auction rate securities, non-current		3,707			-
Other		210			1,171
		4,917			2,591

Total assets	$	167,676		$	179,325

Liabilities and Partners' Capital
Current liabilities:
Accounts payable	$	886		$	1,371
Accrued liabilities		1,001			2,112
Environmental remediation		465			250
Current portion of long-term debt		1,342			1,342
Deferred revenue		298			268
Deposits		177			108
Total current liabilities		4,169			5,451

Long-term debt, net of current portion		28,042			29,385
Environmental remediation, net of current portion		1,295			1,744
Other long term liabilities		226			298

Minority interest		44,435			45,803

Partners' capital (units outstanding 4,591 and 4,663)		90,811			96,644
Accumulated other comprehensive loss		(1,302	)		-
Total partners' capital		89,509			96,644

Total liabilities and partners' capital	$	167,676		$	179,325

See accompanying notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

For the Three Months and Nine Months Ended September 30, 2008 and 2007


(Thousands, except per unit data)		Three Months Ended September 30,						Nine Months Ended September 30,
		2008			2007			2008			2007

Revenues		$	7,436		$	12,171		$	25,028		$	34,284
Cost of timber and land sold			(4,167	)		(5,171	)		(13,135	)		(14,302	)
Operating expenses			(2,536	)		(2,815	)		(6,946	)		(7,426	)
General and administrative expenses			(1,022	)		(957	)		(2,916	)		(3,688	)
Income (loss) from operations			(289	)		3,228			2,031			8,868


Other income (expense):
Interest expense			(613	)		(637	)		(1,853	)		(1,939	)
Capitalized interest			321			294			940			812
Interest income			237			453			850			1,264
SLARS impairment			(293	)		-			(293	)		-
Total other income (expense)			(348	)		110			(356	)		137

Income (loss) before income taxes and minority interest			(637	)		3,338			1,675			9,005

Income tax benefit (expense)			51			(5	)		(6	)		(22	)
Income (loss) before minority interest			(586	)		3,333			1,669			8,983

Minority interest-ORM Timber Funds			563			218			932			237

Net income (loss)		$	(23	)	$	3,551		$	2,601		$	9,220

Allocable to general partners		$	-		$	45		$	34		$	118
Allocable to limited partners			(23	)		3,506			2,567			9,102
		$	(23	)	$	3,551		$	2,601		$	9,220

Earnings (loss) per unit:
	Basic	$	(0.01	)	$	0.76		$	0.57		$	1.97
	Diluted	$	(0.01	)	$	0.74		$	0.55		$	1.91

Weighted average units outstanding:
	Basic		4,585			4,687			4,596			4,679
	Diluted		4,585			4,831			4,720			4,823

Distributions per unit		$	0.40		$	0.40		$	1.20		$	0.96

See accompanying notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Pope Resources
Nine Months Ended September 30, 2008 and 2007

(Thousands)	2008			2007
Net income	$	2,601		$	9,220
Add back non-cash charges (credits):
Deferred revenue		30			(1,091	)
Depletion		3,537			4,179
Equity based compensation		422			492
Depreciation and amortization		578			604
Deferred taxes		(17	)		45
SLARS impairment		293			-
Minority interest		(932	)		(237	)
Cost of land sold		2,560			532
Change in working capital accounts:
Accounts receivable		(106	)		(1,059	)
Contracts receivable		48			(138	)
Prepaid expenses and other current assets		18			13
Accounts payable		(485	)		365
Accrued liabilities		(746	)		(1,338	)
Deposits		69			12
Environmental remediation		(234	)		(78	)
Other long term liabilities		(72	)		(69	)
Other long term assets		381			547
Other		(3	)		(5	)
Net cash provided by operating activities		7,942			11,994

Cash provided by (used in) investing activities:
Redemption (purchases) of investments		16,175			(2,000	)
Reforestation and roads		(723	)		(699	)
Proceeds from fixed asset sale		42			8
Capitalized development activities		(2,225	)		(6,071	)
Other capital expenditures		(481	)		(651	)
Net cash provided by (used in) investing activities		12,788			(9,413	)

Cash used in financing activities:
Minority interest distribution		-			(75	)
Unit repurchase		(3,642	)		-
Repayment of long-term debt		(1,343	)		(1,377	)
Proceeds from option exercises		352			649
Timber Fund II, capital call		370			-
Unitholder distributions		(6,373	)		(5,032	)
Net cash used in financing activities		(10,636	)		(5,835	)

Net increase (decrease) in cash and cash equivalents		10,094			(3,254	)
Cash and cash equivalents at beginning of period		2,174			7,194

Cash and cash equivalents	$	12,268		$	3,940

See accompanying notes to condensed consolidated financial statements.

POPE RESOURCES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 30, 2008

The condensed consolidated financial statements as of September 30, 2008 and December 31, 2007 and for the three-month (quarter) and nine-month periods ended September 30, 2008 and September 30, 2007 have been prepared by Pope Resources, A Delaware Limited Partnership (the “Partnership”) pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). The condensed consolidated financial statements are unaudited, but, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments and accruals) necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The financial information as of December 31, 2007, is derived from the Partnership’s audited consolidated financial statements and notes thereto for the year ended December 31, 2007, and should be read in conjunction with such financial statements. The results of operations for the interim periods are not indicative of the results of operations that may be achieved for the entire fiscal year ending December 31, 2008.

2.	The financial statements in the Partnership's 2007 annual report on Form 10-K include a summary of significant accounting policies of the Partnership and should be read in conjunction with this Quarterly Report on Form 10-Q.

3.	Basic net earnings (loss) per unit are based on the weighted average number of units outstanding during the period. Diluted net earnings (loss) per unit are based on the weighted average number of units and dilutive unit equivalents outstanding during the period.

	Quarter Ended September 30,				Nine Months Ended September 30,
	2008		2007		2008		2007
Weighted average units outstanding (in thousands):
Basic		4,585		4,687		4,596		4,679
Dilutive effect of unit plans		-		144		124		144
Diluted		4,585		4,831		4,720		4,823

Options to purchase 190,000 units at prices ranging from $9.30 to $37.73 per unit were outstanding as of September 30, 2008. For computing the dilutive effect of unit options for the nine month period ended September 30, 2008, options to purchase 927 units at prices ranging from $30.98 to $37.73 were not included in the calculation as they were anti-dilutive. For the three month period ended September 30, 2008 all unit equivalents outstanding were excluded from the calculation of fully diluted units outstanding due to the net loss for the quarter which made those units anti-dilutive.

Options to purchase 214,000 units at prices ranging from $9.30 to $37.73 per unit were outstanding as of September 30, 2007. For computing the dilutive effect of unit options for the quarter and nine months ended September 30, 2007, no options were excluded from the calculation.

In 2005, we adopted the 2005 Unit Incentive Plan. Following adoption of this new plan the Human Resources Committee of the Board of Directors began issuing restricted units instead of unit options as its primary method of granting equity based compensation. However, that plan permits the issuances of unit options, unit appreciation rights and other equity compensation at the discretion of the Human Resources Committee.

Restricted Units

Units issued as a result of option exercises and restricted unit grants are provided by the issuance of new units. As of September 30, 2008, total compensation expense related to non-vested restricted unit awards not yet recognized was $1,135,000 with a weighted average 39 months remaining to vest.

Restricted units	Outstanding
Number outstanding		61,875
Aggregate intrinsic value	$	1,738,688

The Partnership issued 19,500 restricted units in August 2008 to employees and directors of the Partnership and its General Partner. At the time of issuance the market value of the units issued was $32.99. The restricted unit value on the date of grant is being amortized to expense over the shorter of the vesting period or the date when the employee or director becomes retirement eligible.

Unit Options

Unit options have not been granted since December 2005. Units options granted prior to January 1, 2006 were non-qualified options granted at an exercise price not less than 100% of the fair value on the grant date. Unit options granted to employees vested over four or five years. Board members had the option of receiving their annual retainer in the form of unit options and those options vested immediately as they were granted monthly for services rendered during the month. Options granted have a life of ten years. As of September 30, 2008 all compensation cost related to unit options granted has been recognized as all options are fully vested.

Options	Outstanding
Number outstanding and exercisable		189,973
Weighted average exercise price	$	15.59
Aggregate intrinsic value	$	2,386,557
Weighted average remaining contractual term		3.57

Supplemental disclosure of cash flow information: interest paid, net of amounts capitalized, totaled $1.1 million for each of the nine month periods ended September 30, 2008 and 2007 Income taxes paid for the nine months ended September 30, 2008 was $12,000 compared to $353,000 of income taxes paid for the nine-month period ended September 30, 2007.

5.	The fair value of cash and cash equivalents and investments held at September 30, 2008 and December 31, 2007 are as follows:

	September 30, 2008
			Gross
	Amortized		Unrealized			Estimated
	Cost		Loss			Fair Value
Cash and cash equivalents	$	12,268	$	-		$	12,268
Securities expected to be redeemed within one year:
Auction rate securities, current	$	10,600	$	(1,302	)	$	9,298
Securities maturing after ten years:
Auction rate securities, non-current	$	4,000	$	(293	)	$	3,707

	December 31, 2007
			Gross
	Amortized		Unrealized		Estimated
	Cost		Loss		Fair Value
Cash and cash equivalents	$	2,174	$	-	$	2,174
Securities expected to be redeemed within one year:
Auction rate securities, current	$	30,775	$	-	$	30,775

There were no realized gains or losses for the quarter and nine-month periods ended September 30, 2008.

At September 30, 2008, Pope Resources held AAA-rated Student Loan Auction Rate Securities (“SLARS”) with a par value of $14.6 million and an estimated fair value, based on the methodology described below, of $13.0 million. SLARS are collateralized long-term debt instruments that historically provided liquidity through a Dutch auction process that resets the applicable interest rate at pre-determined intervals, typically every 28 days. Beginning in February 2008, auctions failed for approximately $17 million in par value of SLARS we held because sell orders exceeded buy orders. When these auctions failed to clear, higher interest rates for those securities went into effect. However, the principal amount of these securities associated with these failed auctions will not be accessible until the issuer calls the security, a successful auction occurs, a buyer is found outside of the auction process, or the security matures.

In October 2008, SLARS with a par value of $10.6 million were repurchased at par by the broker-dealer that sold us the securities. As of September 30, 2008 the estimated fair value of these securities was $9.3 million therefore we recorded a temporary impairment of $1.3 million and reclassified the $9.3 million to a current asset. We will reverse the impairment allowance, with no impact to net earnings or loss, in the fourth quarter of 2008.

Total comprehensive loss for the three month period ended September 30, 2008 is $171,000 and total comprehensive income for the nine month period ended September 30, 2008 is $1,299,000 which includes the unrealized loss of $1,302,000 on SLARS.

Of the remaining $4.0 million held through a different broker-dealer, $2.0 million are subject to a tender solicitation plan by the issuer at 94% of par. This issuer has the option of redeeming these securities if 95% of the holders agree to tender their securities and the issuer is only obligated to redeem the securities if 95% or more of the holders agree to be redeemed and a subsequent refinancing can be arranged. As such, the $2.0 million of SLARS subject to this redemption plan are currently classified as non-current assets since the issuer is not obligated to redeem these securities as of September 30, 2008. We are reporting the remaining $2.0 million of SLARS investments not subject to repurchase or redemption as non-current assets. The underlying assets of the SLARS we hold, including the securities for which auctions have failed, are student loans which are guaranteed by the U.S. Department of Education for 97% of the loan and interest due. We have performed an estimate of fair value for these securities and determined that the estimated fair value is $293,000 below par and as a result we have recorded an asset impairment for this amount. Management believes this loss is other than temporary and as a result has recorded the asset impairment as a charge to earnings. The asset impairment was estimated using the redemption offers by issuers where available, supplemented by a discounted cash flow model incorporating assumptions that management believes market participants would use in their estimates of fair value, including comparison of the yield on the SLARS we own to corporate instruments with similar credit quality, maturities and variable interest rates. If the current market conditions deteriorate further or a recovery in market values does not occur, we may be required to record additional unrealized or realized losses in future quarters.

6.	FASB Statement No. 157 Fair Value Measurement (SFAS No. 157) was followed to determine the fair value of the Partnership’s investments. SFAS No. 157 defines a hierarchy of three levels of evidence used to determine fair value:

Level 1 - quoted prices for identical assets/liabilities in active markets

Level 2 - quoted prices in a less active market, quoted prices for similar but not identical assets/liabilities, inputs other than quoted prices

Level 3 - significant unobservable inputs including the Partnership’s own assumptions in determining the fair value of investments

Those securities that have a current redemption offer from the issuer are valued based upon the redemption amount which is 93% to 94% of par. The redemption offer represents a Level 2 input. Under current credit market conditions there is no active market for SLARS, thus eliminating any available Level 1 inputs to use in determining a market value for the securities. Additionally, there are no markets for similar instruments so that Level 2 data is also unavailable. Currently, there are no actively traded markets that one can observe to determine a value for the SLARS. Accordingly, the SLARS were changed from Level 1 to Level 3 within SFAS 157’s valuation hierarchy since the Partnership’s adoption of SFAS No. 157 on January 1, 2008. The following table provides the fair value measurements of applicable Partnership financial assets according to the levels defined in SFAS No. 157 as of September 30, 2008 and December 31, 2007:

	September 30, 2008
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	12,268		-	$	-	$	12,268
Auction rate securities, current		-		1,870		7,428		9,298
Auction rate securities, non-current		-		1,880		1,827		3,707
Total financial assets at fair value	$	12,268	$	3,750	$	9,255	$	25,273

	December 31, 2007
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	2,174	$	-	$	-	$	2,174
Auction rate securities, current		30,775		-		-		30,775
Total financial assets at fair value	$	32,949	$	-	$	-	$	32,949

We identified market interest rates for similar securities and performed a discounted cash flow calculation using these alternative interest rates. This method represents a Level 3 input, and represents the best evidence we have to indicate value under current market conditions. The table below summarizes the change in the consolidated balance sheet carrying value associated with Level 3 financial assets for the nine months ended September 30, 2008:

	Non-current Investments
Balance at December 31, 2007	$	-
Net sales, settlements and transfers into Level 3		15,850
Issuer redemption offers		(3,750	)
Sales and settlements during the quarter ended September 30, 2008		(1,250	)
Total unrealized losses included in other comprehensive income		(1,302	)
Total unrealized losses included in statement of earnings		(293	)
Balance at September 30, 2008	$	9,255

7.	The Partnership’s general partners hold 60,000 units. The allocation of distributions and income and losses between the general and limited partners is pro rata among all units outstanding.

8.	Non-cash investing activities include $596,000 held in trust by a IRC Section 1031 exchange facilitator as of December 31, 2007 used to acquire timberlands as of March 31, 2008.

In the presentation of the Partnership’s revenue and operating income by segment all intersegment revenue and expense is eliminated to determine externally reported operating income by business segment. The table that follows reconciles internally reported income from operations to externally reported income from operations by business segment, for the quarters and nine-month periods ended September 30, 2008 and 2007:

	Fee Timber									Timberland
	Pope									Management
Three Months Ended	Resources						Total			&			Real			Corporate &
September 30, (Thousands)	Timberland			Timberfunds			Fee Timber			Consulting			Estate			Other			Consolidated
2008
Revenue internal	$	4,349		$	1,944		$	6,293		$	575		$	949		$	-		$	7,817
Eliminations		(52	)		-			(52	)		(320	)		(9	)		-			(381	)
Revenue external		4,297			1,944			6,241			255			940			-			7,436

Cost of timber and land sold		(1,927	)		(2,205	)		(4,132	)		-			(76	)		-			(4,208	)
Eliminations		-			41			41												41
Cost of timber and land sold		(1,927	)		(2,164	)		(4,091	)		-			(76	)		-			(4,167	)

Operating expenses internal		(1,038	)		(429	)		(1,467	)		(484	)		(925	)		(1,022	)		(3,898	)
Eliminations		10			236			246			94			-			-			340
Operating expenses external		(1,028	)		(193	)		(1,221	)		(390	)		(925	)		(1,022	)		(3,558	)

Income (loss) from operations internal		1,384			(701	)		683			102			(52	)		(1,022	)		(289	)
Eliminations		(42	)		288			246			(237	)		(9	)		-			-
Income (loss) from operations external	$	1,342		$	(413	)	$	929		$	(135	)	$	(61	)	$	(1,022	)	$	(289	)

2007
Revenue internal	$	8,697		$	1,180		$	9,877		$	612		$	1,979		$	-		$	12,468
Eliminations		(41	)		-			(41	)		(246	)		(10	)		-			(297	)
Revenue external		8,656			1,180			9,836			366			1,969			-			12,171

Cost of timber and land sold		(3,522	)		(1,106	)		(4,628	)		-			(543	)		-			(5,171	)

Operating expenses internal		(1,231	)		(347	)		(1,578	)		(667	)		(867	)		(957	)		(4,069	)
Eliminations		27			232			259			57			(19	)		-			297
Operating expenses external		(1,204	)		(115	)		(1,319	)		(610	)		(886	)		(957	)		(3,772	)

Income (loss) from operations internal		3,944			(273	)		3,671			(55	)		569			(957	)		3,228
Eliminations		(14	)		232			218			(189	)		(29	)		-			-
Income (loss) from operations external	$	3,930		$	(41	)		3,889			(244	)		540			(957	)		3,228

	Fee Timber									Timberland
	Pope									Management
Nine Months Ended	Resources						Total			&			Real			Corporate &
September 30, (Thousands)	Timberland			Timberfunds			Fee Timber			Consulting			Estate			Other			Consolidated
2008
Revenue internal	$	17,252		$	4,799		$	22,051		$	1,477		$	2,436		$	-		$	25,964
Eliminations		(162	)		-			(162	)		(744	)		(30	)		-			(936	)
Revenue external		17,090			4,799			21,889			733			2,406			-			25,028

Cost of timber and land sold internal		(7,763	)		(4,874	)		(12,637	)					(549	)		-			(13,186	)
Eliminations		-			51			51												51
Cost of timber and land sold external		(7,763	)		(4,823	)		(12,586	)					(549	)		-			(13,135	)

Operating expenses internal		(2,730	)		(1,090	)		(3,820	)		(1,387	)		(2,624	)		(2,916	)		(10,747	)
Eliminations		30			645			675			210			-			-			885
Operating expenses external		(2,700	)		(445	)		(3,145	)		(1,177	)		(2,624	)		(2,916	)		(9,862	)

Income (loss) from operations internal		6,759			(1,165	)		5,594			90			(737	)		(2,916	)		2,031
Eliminations		(132	)		696			564			(534	)		(30	)		-			-
Income (loss) from operations external	$	6,627		$	(469	)		6,158		$	(444	)	$	(767	)	$	(2,916	)	$	2,031

2007
Revenue internal	$	28,039		$	2,726		$	30,765		$	1,763		$	2,598		$	-		$	35,126
Eliminations		(123	)		-			(123	)		(689	)		(30	)		-			(842	)
Revenue external		27,916			2,726			30,642			1,074			2,568			-			34,284

Cost of timber and land sold		(11,556	)		(2,150	)		(13,706	)		-			(596	)		-			(14,302	)

Operating expenses internal		(3,206	)		(872	)		(4,078	)		(1,757	)		(2,433	)		(2,731	)		(10,999	)
Eliminations		50			675			725			139			(22	)		(957	)		(115	)
Operating expenses external		(3,156	)		(197	)		(3,353	)		(1,618	)		(2,455	)		(3,688	)		(11,114	)

Income (loss) from operations internal		13,277			(296	)		12,981			6			(431	)		(3,688	)		8,868
Eliminations		(73	)		675			602			(550	)		(52	)		-			-
Income (loss) from operations external	$	13,204		$	379			13,583			(544	)		(483	)		(3,688	)		8,868

ITEM 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains a number of projections and statements about our expected financial condition, operating results, and business plans and objectives. These statements reflect our management's estimates and present intentions based on our current goals, in light of currently known circumstances and management's expectations about future developments. Statements about expectations, plans and future performance are “forward looking statements” within the meaning of applicable securities laws. Because these statements describe our goals, objectives and anticipated performance, they are inherently uncertain, and some or all of these statements may not come to pass. Accordingly, you should not interpret these statements as promises that we will perform at a given level or that we will take any or all of the actions we currently expect to take. Our future actions, as well as our actual performance, will vary from our current expectations, and under various circumstances these variations may be material and adverse. Some of the factors that may cause our actual operating results and financial condition to fall short of our expectations are set forth in the part of this report entitled “Item 1A: Risk Factors ” below and other factors discussed elsewhere in this report or in our annual report on Form 10-K for the fiscal year ended December 31, 2007. Some of the issues that may have an adverse and material impact on our business, operating results and financial condition include economic conditions that affect consumer demand for our products and the prices we receive for them; the effect of financial market conditions on our investment portfolio and related liquidity; environmental and land use regulations that limit our ability to harvest timber and develop property; and other risks and uncertainties which are discussed in our other filings with the Securities and Exchange Commission. The forward-looking statements in this report reflect our estimates as of the date of the report, and we cannot undertake to update these statements as our business operations and environment change.

This discussion should be read in conjunction with the condensed consolidated financial statements and related notes included with this report.

EXECUTIVE OVERVIEW

Pope Resources, A Delaware Limited Partnership (“we” or the "Partnership"), was organized in late 1985 as a result of a spin-off by Pope & Talbot, Inc. (“P&T”). We are engaged in three primary businesses. The first, and by far most significant segment in terms of owned assets, revenue, income and operations, is the Fee Timber segment. This segment includes timberlands owned directly by the Partnership and operations of ORM Timber Fund I, LP (“Fund I”) and ultimately ORM Timber Fund II, Inc. (“Fund II”) and collectively with Fund I, the (“Funds”). Operations in this segment consist of growing timber to be harvested as logs for sale to domestic manufacturers and to a lesser extent export brokers. The second most significant business in terms of total assets owned is the development and sale of real estate. Real Estate activities primarily take the form of securing permits, entitlements, and, in some cases, installing infrastructure for raw land development and then realizing that land’s value through the sale of larger parcels to buyers who will take the land further up the value chain, either to home buyers or to operators and lessors of commercial property. Since these land projects span multiple years, the Real Estate segment may incur losses for multiple years while a project is developed until that project is sold resulting in operating income. Our third business is providing timberland management and related services to third-party timberland owners and to the Funds, and raising investment capital from third parties for private equity timber funds like the Funds.

Management’s major opportunity and challenge is to grow our revenue base profitably. Our current strategy for adding timberland acreage is centered on our timber fund business model. For example, Fund I acquired 24,000 acres of timberland in late 2006, and our 20% investment in Fund I affords us a share of Fund I’s operations while allowing us to earn asset management and timberland management fees. Management also believes that this strategy allows us to maintain more sophisticated expertise in timberland acquisition, valuation, and management than could be cost effectively maintained for the Partnership’s timberlands alone. Our real estate challenges center around how and when to “harvest” a parcel of land and capture the optimum value increment by selling the property.

RESULTS OF OPERATIONS

The following table reconciles and compares key revenue and cost elements that impact our net income for the quarter and nine-month periods ended September 30, 2008 and September 30, 2007. In addition to the table’s detailed numeric analysis, the explanatory text that follows the table describes many of these changes by business segment.

	Quarter ended			Nine months ended
	September 30, 2008 and 2007			September 30, 2008 and 2007
Net income (loss):
2008 period	$	(23	)	$	2,601
2007 period		3,551			9,220
Variance	$	(3,574	)	$	(6,619	)

Detail of earnings variance:
Fee Timber:
Log price realizations (A)	$	(1,427	)	$	(3,691	)
Log volumes (B)		(2,152	)		(7,450	)
Depletion		(243	)		769
Production costs		780			2,553
Other Fee Timber		50			394
Timberland Management & Consulting (TM&C):
Management fee changes		(159	)		(165	)
Other TM&C		300			265
Real Estate:
Land sales		(619	)		(230	)
Depletion		(20	)		(157	)
Other		38			103
General & administrative costs		(65	)		772
Interest expense		51			214
Other (taxes, minority int., interest inc.)		(108	)		4
Total change in net income	$	(3,574	)	$	(6,619	)

(A) Price variance calculated by applying the change in price to current period volume.
(B) Volume variance calculated by applying the change in sales volume to the average
log sales price for the prior period.

Fee Timber

Fee Timber revenue is earned primarily from the harvest and sale of logs from the Partnership’s 114,000 acres of fee timberland located in western Washington and, to a lesser extent, from leasing cellular communication towers and selling gravel and other resources from our timberlands. Revenue from the sale of timberland tracts and conservation easements will also appear periodically in results for this segment. Fee Timber revenue is driven primarily by the volume of timber harvested, which we ordinarily express in terms of millions of board feet, or “MMBF”, and by the average prices realized on log sales, which we express in dollars per thousand board feet, or “MBF”.

When discussing our Fee Timber operations, we compare current results to both the previous quarter and the corresponding quarter of the prior year. Both of these comparisons are made to help the reader gain an understanding of trends in market price and harvest volumes that affect Fee Timber results of operations. Revenue and operating income for the Fee Timber segment for the quarters ended September 30, 2008, June 30, 2008 and September 30, 2007 are as follows:

($ Million) Quarter ended	Log Sale Revenue		Mineral, Cell Tower & Other Revenue			Total Fee Timber Revenue		Operating Income (loss)			Harvest Volume (MMBF)
Pope Resources Timber	$	3.8	$	0.5		$	4.3	$	1.3			7.4
Timber Fund		1.9		-			1.9		(0.4	)		4.3
Total Fee Timber September 30, 2008	$	5.7	$	0.5		$	6.2	$	0.9			11.7

Pope Resources Timber	$	7.0	$	0.4		$	7.4	$	2.9			13.8
Timber Fund		0.3		2.4	*		2.7		-			0.7
Total Fee Timber June 30, 2008	$	7.3	$	2.8		$	10.1	$	2.9			14.5

Pope Resources Timber	$	8.1	$	0.5		$	8.6	$	3.9			12.9
Timber Fund		1.2		-			1.2		-			2.3
Total Fee Timber September 30, 2007	$	9.3	$	0.5		$	9.8	$	3.9			15.2

* Conservation easement revenue

The $3.9 million decrease in Fee Timber revenue in the current quarter relative to the second quarter of 2008 is due to decreases in both log sale revenue and other revenue. The decrease in log sale revenue of $1.6 million in the third quarter of 2008 as compared to the second quarter of 2008 is attributable to a 2.8 MMBF decrease in harvest volume combined with a $12/MBF, or 2%, decline in average log price realized. The $2.3 million decrease in other revenue from second quarter 2008 to third quarter 2008 is attributable to the sale of an 8,035-acre conservation easement by Fund I to a third-party land conservancy. While the conservation easement precludes any building or further subdivision on the encumbered acres, there are no restrictions on timberland management or harvesting activities. The $3.6 million decrease in log sale revenue in the current quarter from the comparable quarter in 2007 is due to both a 3.5 MMBF decline in harvest volume and a 20%, or $122/MBF, drop in average log prices.

Fee Timber operating income in the third quarter of 2008 decreased $2.0 million from the second quarter of 2008. This is due to a third quarter decline of $1.6 million in log sale revenue and an increase in third quarter harvest and operating costs of $300,000 in addition to the absence of $110,000 of operating income present in the second quarter associated with Fund I’s conservation easement sale completed in the second quarter.

Fee Timber operating income for the current quarter is $3.0 million lower than the comparable period in the prior year. This decrease is due to the decline in revenue offset by a reduction in harvest and operating costs.

Fund I’s operating loss in the third quarter of 2008 was $413,000 compared to income of $27,000 in the second quarter of 2008 and a loss of $41,000 in the third quarter of 2007. Results were lower based on increased harvest costs in the third quarter of 2008 compared to the second quarter of 2008 and the third quarter of 2007. Fund I’s operating income in the second quarter includes $110,000 realized from the sale of the aforementioned conservation easement.

Revenue and operating income for the Fee Timber segment for the nine-month periods ended September 30, 2008 and 2007 were as follows:

($ Million) Nine Months ended	Log Sale Revenue		Mineral, Cell Tower & Other Revenue			Total Fee Timber Revenue		Operating Income (loss)			Harvest Volume (MMBF)
Pope Resources Timber	$	15.7	$	1.4		$	17.1	$	6.6			30.4
Timber Fund		2.4		2.4	*		4.8		(0.5	)		5.3
Total Fee Timber September 30, 2008	$	18.1	$	3.8		$	21.9	$	6.1			35.7

Pope Resources Timber	$	26.5	$	1.4		$	27.9	$	13.2			43.0
Timber Fund		2.7		-			2.7		0.4			4.9
Total Fee Timber September 30, 2007	$	29.2	$	1.4		$	30.6	$	13.6			47.9

* Conservation easement revenue

The decrease in Fee Timber revenue and operating income for the current nine-month period relative to the comparable period in 2007 is primarily attributable to a 12.2 MMBF decrease in harvest volume and a $104/MBF, or 17%, decline in average log price realized. The decrease in year-to-date 2008 harvest volume over 2007 is driven by the planned reduction in harvest volume from our estimated sustainable harvest level in response to weak log market conditions.

We perform an estimate of our sustainable harvest level bi-annually and we revise those estimates based on our assessment of timber growth rates and changes in the calculation of productive acres based on both land sales and regulatory requirements. Including timberland owned by Fund I, our current projection indicates a long-term sustainable harvest level of 53 MMBF, which represents a reduction of approximately 7% from our most recent previous estimates. As previously described, management varies our actual harvest in any given year based upon changing market conditions.

Revenue generated by Fund I for the nine months ended September 30, 2008 was $4.8 million compared to $2.7 million for the comparable prior year with this increase primarily due to revenue generated by the conservation easement sale. Fund I generated a $469,000 operating loss in 2008 compared to operating income of $379,000 in the same period of 2007 as harvest volumes and log prices are down from the previous year. The conservation easement sale made a relatively small contribution to operating income for the nine months ended September 30, 2008 due to land basis that was expensed against the sale.

The Funds are consolidated into our financial statements and, as a result, Fund I’s harvest and operating results are included in the Fee Timber discussion herein. Fund II has not acquired any timberland but has completed an initial capital call for 1% of committed capital, or $458,000. This capital call includes our co-investment of $88,000. The 80% of the Funds owned by third parties is reflected in our Statement of Operations under the caption “Minority interest-ORM Timber Funds”.

Log Volume

The Partnership harvested the following log volumes by species from its timberlands, including Fund I, for the quarters ended September 30, 2008, June 30, 2008 and September 30, 2007 and the nine-month periods ended September 30, 2008 and 2007:

Log sale volumes (MBF):	Quarter Ended:
Sawlogs	September-08		% Total			June-08		% Total			September-07		% Total
Douglas-fir		7,279		63	%		8,925		62	%		7,602		50	%
Whitewood		1,293		11	%		1,230		8	%		2,272		15	%
Cedar		281		2	%		392		3	%		931		6	%
Hardwood		274		2	%		451		3	%		1,297		8	%
Pulp
All Species		2,578		22	%		3,464		24	%		3,127		21	%
Total		11,705		100	%		14,462		100	%		15,229		100	%

Log sale volumes (MBF):	Nine Months Ended:
Sawlogs	September-08		% Total			September-07		% Total
Douglas-fir		23,405		66	%		30,708		64	%
Whitewood		3,035		8	%		5,985		13	%
Cedar		741		2	%		1,566		3	%
Hardwood		926		3	%		2,304		5	%
Pulp
All Species		7,568		21	%		7,312		15	%
Total		35,675		100	%		47,875		100	%

For the quarter ended September 30, 2008 we harvested 31% of our planned annual harvest as compared to 38% for the quarter ended June 30, 2008 and 28% for the comparable quarter in the prior year. For the nine months ended September 30, 2008, we have harvested 94% of our planned annual harvest volume of 38 MMBF, versus 87% of the total harvest volume of 55 MMBF for the comparable period in prior year. Of this year-to-date total, 5.3 MMBF relates to Fund I. Our 2008 timber harvest volume has been reduced from our long-term sustainable level of 53 MMBF. This is in response to previously anticipated soft prices for logs, as forecasted in late 2007. Management has the discretion to modulate harvest between quarters and years in response to changes in the market. For example, we increased harvest of stands with a higher mix of lower-valued pulpwood in 2008. This was due to both a relatively strong market for pulp logs and an effort to allow the higher valued products to continue to grow during this period of soft prices.

Log Prices

While harvest volume is largely within management’s control, one additional factor that impacts our Fee Timber income is the price we realize upon selling our logs into the market. We work to maximize

Fee Timber revenue by timing harvest volumes within a year to capitalize on seasonal market conditions and we target particular species or sorts to take advantage of strong niche markets. For example, it is common to change the timing of harvest within a year to take advantage of seasonal changes in supply and price that might result from fire danger shutdowns, inclement weather and road closures. Additionally, harvests are adjusted in response to extremely poor markets when deferred volume can be made up in the subsequent year, or incrementally over a number of years. In 2008, we targeted niche markets for subsets of our total harvest that were experiencing lower relative price declines than the commodity log markets, such as Douglas-fir poles, alder veneer logs, pulp logs, and hemlock logs exported to Korea.

We realized the following log prices from our fee timberlands for the quarters ended September 30, 2008, June 30, 2008 and September 30, 2007 and the nine-month periods ended September 30, 2008 and 2007:

		Quarter Ended:
		September-08		June-08		September-07
Average price realizations (per MBF):
Sawlogs
	Douglas-fir	$	520	$	525	$	622
	Whitewood		387		416		446
	Cedar		1,277		1,222		1,347
	Hardwood		593		671		960
Pulp
	All Species		357		366