NNERF TIMBERLAND INVESTMENTS, LLC. Financial Statements Quarter Ended September 30, 2013

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1 Financial Statements September 30, 2013

2 Table of Contents Independent Accountant s Compilation Report 1 Statements of Net Assets 2 Statements of Operations 3 Statements of Changes in Net Assets 4 Statements of Cash Flows 5

3 CERTIFIED PUBLIC ACCOUNTANTS ADVISORY AUDIT TAX 216 Summit Boulevard Suite 300 Birmingham, AL Main Fax INDEPENDENT ACCOUNTANT S COMPILATION REPORT City of Newport News Employees Retirement Fund NNERF Timberland Investments, LLC Newport News, Virginia We have compiled the accompanying statements of net assets of NNERF Timberland Investments, LLC (Fund) as of September 30, 2013 and June 30, 2013, and the related statements of operations, changes in net assets, and cash flows for the quarters ended September 30, 2013 and We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or provide any assurance about whether the financial statements are in accordance with accounting principles generally accepted in the United States of America. Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America and for designing, implementing, and maintaining internal control relevant to the preparation and fair presentation of the financial statements. Our responsibility is to conduct the compilations in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. The objective of a compilation is to assist management in presenting financial information in the form of financial statements without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements. Management has elected to omit all of the disclosures required by accounting principles generally accepted in the United States of America. If the omitted disclosures were included in the financial statements, they might influence the user's conclusions about the Fund s financial position, results of operations, and cash flows. Accordingly, these financial statements are not designed for those who are not informed about such matters. December 16, 2013 The McGladrey Alliance is a premier affiliation of independent accounting and consulting firms. The McGladreyAlliance member firms maintain their name, autonomy and independence and are responsible for their own client fee arrangements, delivery of services and maintenance of client relationships.

4 Statements of Net Assets September 30, 2013 and June 30, 2013 Assets September 30, 2013 June 30, 2013 Timber and timberlands Timber and timberlands, at cost $ 35,008,518 $ 35,051,850 Unrealized appreciation of timber and timberlands 13,291,482 12,998,150 Total timber and timberlands, at fair value 48,300,000 48,050,000 Cash and cash equivalents 742,730 1,113,290 Prepaid assets 18,262 31,029 49,060,992 49,194,319 Liabilities and Net Assets Liabilities Accounts payable 87,866 98,819 Accrued expenses 84,649 74,752 Deferred revenue 220, , , ,445 Net Assets $ 48,667,529 $ 48,732,874 See independent accountant's compilation report. 2

5 Statements of Operations Quarters Ended September 30, 2013 and 2012 September 30, 2013 September 30, 2012 Investment Income Timber Sales Timber sales, stumpage $ 34,550 $ 54,101 Depletion, cost of timber sold (20,834) (43,045) Harvesting commission (1,382) (3,054) Expenses of timber sales (3,173) (340) 9,161 7,662 Other Investment Income Hunt license income 74,593 72,895 Other income ,707 73,018 83,868 80,680 Operating Expenses Investment management fees 71,340 70,388 Property management fees 41,788 38,388 Forestry management expenses 10,650 18,495 Professional fees 23,250 23,868 General operating expenses 56,890 75, , ,908 Net investment loss (120,050) (146,228) Realized and Unrealized Gains Realized gains from timberland sales Gross proceeds from timberland sales 38,325 - Selling expenses (2,857) - Net proceeds from timberland sales 35,468 - Cost of timberland sold (24,095) - Realized gains from timberland sales 11,373 - Change in unrealized appreciation of timber and timberlands 293,332 39,567 Net increase (decrease) in net assets from operations $ 184,655 $ (106,661) See independent accountant's compilation report. 3

6 Statements of Changes in Net Assets Quarters Ended September 30, 2013 and 2012 September 30, 2013 September 30, 2012 Net Assets Beginning of period $ 48,732,874 $ 42,660,734 Member equity distributions (250,000) (300,000) Net increase (decrease) in net assets from operations 184,655 (106,661) End of period $ 48,667,529 $ 42,254,073 See independent accountant's compilation report. 4

7 Statements of Cash Flows Quarters Ended September 30, 2013 and 2012 September 30, 2013 September 30, 2012 Cash Flows from Operating Activities Net increase (decrease) in net assets from operations $ 184,655 $ (106,661) Adjustments to reconcile net increase (decrease) in net assets from operations to net cash used in operating activities Realized gain on sale of timberlands (11,373) - Depletion, cost of timber sold 20,834 43,045 Change in unrealized appreciation of timber and timberlands (293,332) (39,567) Changes in assets and liabilities Prepaid assets 12,767 8,272 Accounts payable and accrued expenses (1,056) 23,222 Deferred revenue (66,926) (56,418) Timber sale deposits - (5,000) Net cash used in operating activities (154,431) (133,107) Cash Flows from Investing Activities Timberland capitalized improvements (1,597) (3,478) Net proceeds from timberland sales 35,468 - Net cash provided by (used in) investing activities 33,871 (3,478) Cash Flows from Financing Activities Payment of distributions to member (250,000) (300,000) Net cash used in financing activities (250,000) (300,000) Net decrease in cash and cash equivalents (370,560) (436,585) Cash and Cash Equivalents Beginning of period 1,113,290 1,273,644 End of period $ 742,730 $ 837,059 See independent accountant's compilation report. 5