In December 2009, the Securities and Exchange Commission (“SEC”) amended Rule 206(4)-2 (the “Custody Rule”) and related rules under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), to strengthen controls over the custody of client assets by registered investment advisers. Under the Custody Rule, a registered investment adviser must, in most cases, maintain client funds and securities with a “qualified custodian,” such as a bank or a registered broker-dealer. While the amendments to the Custody Rule and related provisions will impact all timberland investment managers (“TIMOs”) that are registered investment advisers under the Advisers Act, TIMOs that advise “separate account” clients on their timberland investments will be more significantly impacted by these amendments than TIMOs that advise only pooled investment funds.

Effect on Separate Account Business

The amendments require a TIMO that has custody of separate account client funds or securities (1) to undergo an annual surprise examination by an independent public accountant to verify client assets and (2) to have the qualified custodian maintaining the client funds or securities send account statements directly to the client.