<PAGE>   1
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE YEAR ENDED DECEMBER 31, 1997

Commission File Number:

         333-264

Exact name of Registrant as specified in its charter:

         South Seas Properties Company Limited Partnership

State or other Jurisdiction of incorporation or organization:

         Ohio

I.R.S. Employer Identification Number:

         59-2541464

Address of Principal Executive Offices:

         12800 University Drive, Suite 350
         Fort Myers, FL 33907

Registrant's Telephone Number, including Area Code:

         (941) 481-5600

         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.    X   YES             NO
                                         -----------     ----------

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

         Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
                          YES            NO
                 ------------   -----------



                                      -1-
<PAGE>   2

<TABLE>
<CAPTION>

                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                                    FORM 10-K
                                DECEMBER 31, 1997
                                      INDEX                                   PAGE NO.
COVER LETTER                                                                    N/A
<S>                                                                             <C>
PART I
    ITEM 1 - BUSINESS                                                           1-4
    ITEM 2 - PROPERTIES                                                         4-7
    ITEM 3 - LEGAL PROCEEDINGS                                                  7
    ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
                   HOLDERS - FIRST AMENDMENT TO AMENDED AND RESTATED
                   AGREEMENT OF LIMITED PARTNERSHIP                             7

PART II
    ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND
                   RELATED STOCKHOLDER MATTERS - NOT APPLICABLE                 ----
    ITEM 6 - SELECTED FINANCIAL DATA                                            7-10
    ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                   FINANCIAL CONDITION AND RESULTS OF OPERATIONS                10-21
    ITEM 8 - CONSOLIDATED FINANCIAL STATEMENTS - SEE SEPARATE
                    DOCUMENT                                                    ----
    ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                   ACCOUNTING AND FINANCIAL DISCLOSURE - NOT APPLICABLE         ----

PART III
    ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS AND KEY
                    EMPLOYEES                                                   21-26
    ITEM 11 - EXECUTIVE COMPENSATION                                            26-27
    ITEM 12 - OWNERSHIP OF INTERESTS IN SOUTH SEAS, THE
                    GENERAL PARTNER AND THE MANAGEMENT COMPANY                  27-29
    ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                    29-32

SIGNATURES                                                                      33
</TABLE>

PART IV- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K
    EXHIBIT 3.1 - FIRST AMENDMENT TO AMENDED & RESTATED AGREEMENT OF
        LIMITED PARTNERSHIP
    EXHIBIT 10.1 - SECOND AMENDMENT (CAPITAL IMPROVEMENTS) TO AMENDED AND
        RESTATED LOAN AGREEMENT
    EXHIBIT 10.2 - FIRST SUPPLEMENTAL INDENTURE
    EXHIBIT 10.3 - AMENDMENT NO.4 TO FIRST AMENDED AND RESTATED AGREEMENT &
         CERTIFICATE OF LIMITED PARTNERSHIP OF SOUTH SEAS RESORT LIMITED
         PARTNERSHIP
    EXHIBIT 20.1 - PUBLISHED REPORT REGARDING MATTERS SUBMITTED TO VOTE OF
         SECURITY HOLDERS
    EXHIBIT 27.1 - FINANCIAL DATA SCHEDULE
    EXHIBIT 99.1 - CALCULATION OF WEIGHTED AVERAGE UNITS OUTSTANDING





                                      -2-
<PAGE>   3



                                     PART I

Item 1 - BUSINESS

Overview

     South Seas Properties Company Limited Partnership (?South Seas?) is one of
the largest owners and operators of upscale beachfront destination resorts and
hotels in Florida. South Seas owns seven resort and hotel properties, plus an 18
hole golf course, and manages one additional resort property, (collectively
referred to as the ?Properties"), all located on Sanibel, Captiva, Estero and
Marco Islands off Southwest Florida's gulf coast. South Seas, through its 99%
owned subsidiary, South Seas Resorts Company Limited Partnership (?Management
Company"), leases and operates a resort and spa located on Tampa Bay, Florida.
The Properties are designed to appeal to families, leisure and retired travelers
and business groups. The Properties range in size and style from the 552-unit
South Seas Plantation resort on Captiva Island, to the 269 unit, 11 story Marco
Radisson, to the 30-unit Song of the Sea Inn, a bed-and-breakfast located on
Sanibel Island. By offering a wide variety of price points and vacation
experiences, South Seas is able to appeal to a broad section of the vacation
market. The Properties offer a combined total of approximately 1,700 condominium
and hotel units, consisting of approximately 2,300 guestrooms, including
luxurious beach homes, fully equipped condominiums, suites, cottages and hotel
rooms. South Seas owns and operates The Dunes Golf and Tennis Club on Sanibel
Island, which features an 18-hole, par 70 golf course, seven soft surface tennis
courts, full banquet and restaurant facilities and other amenities. Guests
staying at any of the Properties have access to the amenities and vacation
activities offered at all of the Properties. South Seas believes that this
feature, combined with the Properties' attractive locations, enhances customer
satisfaction and guests' perceptions of value.

     Overall management and marketing of the Properties is coordinated through
the Management Company, which is headquartered in Fort Myers. The day-to-day
operation of each Property is the responsibility of an on-site general manager.
Management functions provided on a centralized basis include marketing,
reservations, human resources, property renovation and development, management
information systems, finance and accounting. By providing these functions on a
centralized basis, South Seas is able to achieve improved results on a more
cost-effective basis. Marketing of the Properties is accomplished through a
combination of South Seas' own sales force and arrangements with both national
and international representatives.

Lodging Industry

     According to published industry data, the United States lodging industry
consists of approximately 47,000 different properties offering approximately 3.6
million rooms for daily rental. The most common classifications used to analyze
and compare properties within the lodging industry are location, average daily
room rate, size, region and age. Additionally, each such classification can be
further divided by service level (i.e., luxury, upscale, mid-price, economy or
budget). Toward the end of the 1980s and through the

                                      -3-
<PAGE>   4

early 1990s, the lodging industry experienced increasing occupancy but declining
profitability. This was due to a significant increase in the supply of rooms
that offset almost all of the increase in demand. Overall, the lodging industry
had net losses of approximately $12 billion in the five years ended 1992. Over
the last five years, however, lodging industry profitability has improved. It is
believed that this increase in profitability is due principally to room rate
increases exceeding inflation, moderately increasing demand, and increased
attention to costs and lower interest rates. The lodging industry made profits
of $12.5 billion in 1996.

     The following chart profiles the U.S. lodging industry: (i) as a whole,
(ii) by service and (iii) by property location for the years ending
December 31, 1995, 1996 and 1997.

<TABLE>
<CAPTION>
                                        LODGING INDUSTRY PROFILE
                                                                  Percentage Change
                   Average Occupancy        Average Daily              1996-97
Segment                                       Room Rate
                    1995      1996     1997      1995       1996        1997      Sales    Supply Demand
<S>                 <C>      <C>      <C>      <C>         <C>         <C>         <C>      <C>    <C>
U.S.
Industry            65.1%    65.0%    64.5%    $ 67.17     $ 70.81     $ 75.15     8.8%     3.4%   2.5%

By service:
 Luxury             72.2%    73.7%    73.6%    $117.70     $121.84     $128.61     9.6%     4.0%   3.9%
 Upscale            68.4%    67.6%    67.4%    $ 81.17     $ 84.08     $ 88.33     9.0%     4.0%   3.7%
 Mid-price          66.3%    65.3%    64.6%    $ 61.50     $ 64.17     $ 68.04     9.8%     4.6%   3.5%
 Economy            62.5%    61.3%    60.6%    $ 47.87     $ 49.57     $ 52.16     7.6%     3.5%   2.3%
 Budget             61.7%    60.9%    59.8%    $ 36.27     $ 39.84     $ 42.54     5.5%     0.7%   -1.2%

By property
location:
 Urban              67.9%    69.8%    69.7%    $ 94.01     $106.56     $114.80     10.0%    1.9%   2.1%
 Suburban           65.7%    66.3%    65.9%    $ 60.80     $ 68.31     $ 72.23     10.5%    5.1%   4.5%
 Airport            70.8%    71.0%    70.5%    $ 66.20     $ 72.10     $ 77.98     9.2%     1.7%   0.9%
 Highway            62.7%    61.7%    60.8%    $ 48.03     $ 52.46     $ 55.16     6.9%     3.2%   1.6%
 Resort             68.6%    69.1%    69.7%    $103.82     $108.69     $114.85     8.4%     1.8%   2.6%

Source:       Smith Travel Research Lodging Outlook

</TABLE>

     The above table indicates that sales have increased 9.0% from 1996 to 1997
in the upscale hotel segment and that supply of rooms has slightly exceeded
demand. By property location, resort sales have increased 8.4% from 1996 to
1997, while demand has out paced supply by a margin of .8%.

     Smith Travel Research has not provided any form of consultation, advice or
counsel regarding any aspect of, and is in no way associated with this document.

Item 2 - PROPERTIES

Description of Properties

     South Seas currently owns, manages or leases nine resort/hotel properties
and a golf and tennis club. The Properties are all located in Southwest Florida
and are managed by the Management Company.



                                      -4-
<PAGE>   5

Owned Properties

     South Seas Plantation. South Seas Plantation is the largest of the resort
properties in which South Seas owns an interest. South Seas holds a 99% limited
partnership interest in South Seas Resort Limited Partnership (SSRLP), the
entity that owns South Seas Plantation. San-Cap Resort, L.C., a Florida limited
liability company (owned equally by Mr. Taylor and Mr. Ten Broek. See
?Management") holds the 1% general partner interest in SSRLP. South Seas
Plantation is a 330-acre resort on the north end of Captiva Island, Florida. The
resort consists of approximately two miles of beach frontage on the Gulf of
Mexico, a major tennis facility, a nine-hole golf course, a major conference
center, a shopping complex, three restaurants and a major marina complex
accessible from the Gulf of Mexico and the Intracoastal waterway. Over 900
dwelling units have been developed since 1972, including hotel rooms (107) and
employee housing owned by SSRLP (approximately 160), condominiums and
single-family homes (580) and interval ownership or time-share condominiums
(110). SSRLP offers a rental program to condominium and single family home
owners at South Seas Plantation which includes a guaranteed lease or a sharing
of actual rental income between the owner of the property and SSRLP.

     Radisson Suite Beach Resort ("Marco Radisson"). The Marco Radisson, located
on 7.8 acres on Marco Island, Florida, consists of 268 hotel units, 168 of that
are one-bedroom suites, 46 of which are two-bedroom suites and 54 of which are
guestrooms. Amenities at the Marco Radisson include approximately 360 feet of
direct beach frontage overlooking the Gulf of Mexico, a swimming pool, tennis
courts, a game room, a conference facility and two restaurants. South Seas
acquired it in September 1994.

     Sundial Beach Resort. Sundial Beach Resort is located on Sanibel Island,
Florida. All 407-condominium units at the Sundial Beach Resort are privately
owned, and South Seas presently manages 271 of these units as rental units on
behalf of the owners. The Sundial Beach Resort consists of a main registration
building, an administrative building and various recreational facilities, all
located on approximately seven acres, including approximately 2,300 feet of Gulf
of Mexico beach frontage. In addition to rental units, meeting and banquet rooms
and executive offices, the main registration building includes three
restaurants, a deli and gift shop and a pool bar. The Sundial Beach Resort
complex also includes 12 tennis courts as well as a tennis pro shop and a retail
boutique. Other amenities on this property, some of which are owned by the
condominium associations and not by South Seas, include six swimming pools,
shuffleboard courts and covered outdoor recreation and banquet areas.

     The Dunes Golf & Tennis Club. The Dunes Golf & Tennis Club on Sanibel
Island, Florida, is a semi-private golf and tennis club and the only
non-hospitality property in South Seas' portfolio. Guests staying at any of the
Properties are generally granted temporary golf and tennis privileges at The
Dunes Golf & Tennis Club on a fee basis. The club features an 18-hole, par 70
golf course designed by Mark McCumber, seven soft-surface tennis courts, a
swimming pool, volleyball courts, pro shop, full banquet facilities and a
full-

                                      -5-
<PAGE>   6

service restaurant. In 1995, The Dunes Golf & Tennis Club underwent a $2.8
million renovation providing a completely new clubhouse, kitchen, dining area,
pro shop, putting greens, maintenance building and significant renovations to
the golf course and irrigation system.

     Sanibel Inn. The Sanibel Inn is located on Sanibel Island, Florida. The
Sanibel Inn offers 96 guest rooms and includes approximately 570 feet of direct
beach frontage on the Gulf of Mexico, two meeting rooms, a swimming pool, tennis
courts, sailing and windsurfing, a full service restaurant and cabana service.
Phase I of a refurbishment program was completed in 1995 at a total cost of
$880,000. The scope of Phase I included renovations to its room interiors,
grounds and building exteriors. Phase II renovation program, consisting of
additional room interior upgrades, redesign of the entryway, and enhanced
landscaping throughout the property, costing approximately $225,000 was
completed in 1997. Twenty-eight of the 30 condominium units at Sanibel Inn are
presently managed as rental units by South Seas on behalf of the owners.

     Best Western-Sanibel Island Beach Resort ("Best Western-Sanibel"). The Best
Western-Sanibel is located on Sanibel Island, Florida. It offers 46 guestrooms
and includes approximately 350 feet of direct beach frontage overlooking the
Gulf of Mexico, a swimming pool, tennis courts and shuffleboard courts. Unit
interiors were refurbished in 1997, totaling approximately $200,000.

     Song of the Sea Inn. The Song of the Sea Inn is located on Sanibel Island,
Florida. The Song of the Sea Inn offers 30 guest rooms and includes
approximately 200 feet of direct beach frontage overlooking the Gulf of Mexico,
a swimming pool, whirlpool, tennis courts and laundry facilities. Unit interiors
were refurbished in 1997, totaling approximately $200,000.

     Seaside Inn. The Seaside Inn on Sanibel Island consists of seven buildings
that house 32 rental units. This property is located on approximately 200 feet
of direct frontage on the Gulf of Mexico and features a swimming pool and a "Key
West" type of atmosphere for its guests. In 1995, the Seaside Inn underwent a
renovation of its rooms and exterior at a total cost of approximately $1.0
million.

Leased Property

    Safety Harbor Spa and Resort ("Safety Harbor"). Safety Harbor is located on
Tampa Bay in Safety Harbor, Florida, near Clearwater, Florida. The resort
consists of 172 guestrooms, a 27,000-square-foot conference center, a
50,000-square-foot spa and fitness center (including natural underground water
springs), a tennis facility and two dining facilities. Safety Harbor is operated
by the Management Company under the terms of a lease agreement between Safety
Harbor Spa & Fitness Center, Inc. (the owner of Safety Harbor) and Safety Harbor
Management Company, Ltd. (a wholly-owned Subsidiary of the Management Company).

Managed Property

    Best Western Pink Shell Beach Resort. The Best Western Pink Shell Beach
Resort is located on Estero Island, Florida, near Fort Myers Beach, overlooking
the Gulf of Mexico and Matanzas Bay. The 208


                                      -6-
<PAGE>   7


guestrooms consist of one-, two- and three-bedroom cottages, one- and
two-bedroom suites, gulf front condominiums, efficiencies and hotel rooms. This
resort features a 200 foot fishing dock, meeting facilities, three swimming
pools, two lighted tennis courts, a beachfront bar and grill, a bayside cafe and
supervised children's programs. The Best Western Pink Shell Beach Resort is
owned by Florida Income Fund III, L.P. Mariner Capital Management, Inc., an
Affiliate of South Seas, and MCD Real Estate, Inc., an Affiliate of McDonald &
Company Securities, Inc., are the general partners of Florida Income Fund III,
L.P. The property was placed on the market for sale in 1997. The resort is
currently subject to a signed contract with a public REIT to purchase the
property. South Seas has agreed to lease the resort under a 10-year lease
arrangement with the public REIT. (See audited financial statements - Subsequent
Events footnote).

Item 3 - Legal Proceedings

     South Seas and the Management Company are involved in legal proceedings
that have arisen in the ordinary course of business. While complete assurance
cannot be given as to the outcome of any litigation, South Seas believes any
financial impact or effect on the business of South Seas of pending litigation
would not be material.

Item 4 - Submission of Matters to a Vote of Security Holders

     In March 1998, South Seas partners voted to amend the partnership agreement
providing the general partner the ability to elect to enter into a transaction
involving all or substantially all of the partnership's properties, without a
vote of over 50% of the limited partners. Additionally, the amendment also
included language to continue the partnership subsequent to a transaction
involving all or substantially all of the partnership's properties.

                                     PART II

Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters -
not applicable

Item 6 - SELECTED HISTORICAL FINANCIAL DATA (dollars in thousands, except
ratios, notes and per unit data)

     The selected historical financial data presented below as of and for each
of the three years ended December 31, 1995, 1996 and 1997 are derived from the
audited consolidated financial statements of South Seas and should be read in
conjunction with such consolidated financial statements and related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The selected historical data presented below for the
years ended December 31, 1993 and 1994 is also derived from the audited
consolidated financial statements of South Seas, which statements are not
presented separately herein.

     The selected historical financial data includes operations of businesses
(as disclosed in Note 1 of the consolidated financial statements) for all
periods presented or since formation if the entity began operations after
January 1, 1994. These controlled entities include the businesses acquired from
The Mariner Group, Inc.




                                      -7-
<PAGE>   8

on January 1, 1994 and the resorts which were acquired from the Song of the Sea
Company, Ltd., and Jolly Roger Resort, Ltd. (formed July 23, 1992) on June 1,
1995. On December 31, 1993, South Seas increased its ownership interest in SSRLP
to 99% through the acquisition of the remaining limited partnership interests.
Prior to December 31, 1993, South Seas owned a 70.5% interest in SSRLP. The
Marco Radisson has been included since its acquisition on September 23, 1994,
the Sanibel Inn has been included since its acquisition on June 1, 1995, the
Safety Harbor Resort and Spa has been included since the commencement of its'
lease on June 1, 1995, and the Seaside Inn has been included since its'
acquisition on January 1, 1997.



                                      -8-
<PAGE>   9




<TABLE>
<CAPTION>
                                        Years Ended December 31,
                                          1993                1994             1995                1996             1997
<S>                                   <C>                 <C>              <C>                 <C>              <C>
Income Statement Data:
 Total Revenues                       $  73,243           $  79,485        $  99,083           $ 110,325        $ 119,433
 Operating Expense                       51,466              54,228           66,000              74,622           77,980
 Gen and Admin                           10,665              13,773           19,957              19,987           22,119
 Deprec and Amortiz                       3,666               4,423            5,703               7,326            9,105
 Interest expense                         4,284               5,485            9,391              10,536           10,181
 Other (income) exp                      (2,844)(a)             (72)             606                 181              677
 Minority int income                      1,301                  14               13                  10               19
 Extraordinary item                        --                  --               --                 2,046             --
 Net income/(loss)                    $   4,705           $   1,634        $  (2,587)          $  (4,383)       $    (648)
 Net income/(loss)
  per partnership
  unit (b)                                 1.12                0.39             (.60)              (1.00)            (.15)
 Distributions per
  partnership unit                         0.37                 .85              .40(c)              .28              .30
Other data:
EBITDA (d)                            $  12,655           $  11,542        $  12,507           $  13,479        $  18,638
 Capital expenditures (e)             $   1,391           $  25,403        $   8,389           $   8,969        $   8,779
 Consolidated Net Operating
  Profit (f)                          $  11,112           $  11,484        $  13,126           $  15,716        $  19,334

Balance Sheet Data:
 Total assets                         $  57,874           $  84,938        $ 110,826           $ 111,042        $ 115,383
 Long-term obliga-
  tions (incl current
  portion)                            $  54,317           $  80,211        $ 105,049           $ 112,808        $ 116,468
 Partners' capital
  deficiency                          $  (7,529)          $  (9,522)       $ (13,527)          $ (18,529)       $ (19,711)
<FN>

(a)      In 1993, South Seas recovered $1,866,000 of prior period costs expended
         to repair certain condominium units as a result of a litigation
         settlement. Also in 1993, South Seas recorded a gain in the amount of
         $978,000 in connection with the sale of a real estate parcel.

(b)      Includes distributions made by Song of the Sea Company, Ltd. and Jolly
         Roger Resort, Ltd. of $479,000 and $759,000 in 1993 and 1994,
         respectively.

(c)      Distribution represents a return of capital.

(d)      EBITDA (earnings before interest, depreciation, and amortization) is
         presented here not as a substitute for operating income, net income or
         cash flows from operating activities determined in accordance with
         generally accepted accounting principles, but rather as a measure of
         South Seas' operating performance and ability to service debt. South
         Seas has included EBITDA because it is commonly used by certain
         investors and analysts to analyze and compare companies on the basis of
         operating performance, leverage and liquidity and to determine a
         company's ability to service debt.

(e)      Excludes capital expenditures incurred by acquired resorts prior to
         acquisition.

(f)     Consolidated Net Operating Profit is not determined in accordance with
        generally accepted accounting principles and it is presented here not as
        a substitute for consolidated net operating income as determined in
        accordance with generally accepted accounting principles, but rather as
        a defined term from the Indenture to determine compliance with certain
        covenants contained in the Indenture. South Seas has defined
        Consolidated Net Operating Profit as net income (loss) without regard to
        depreciation and amortization, interest expense, minority interest and
        any non-recurring, unusual items of income or expense.
</TABLE>

Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

                                      -9-
<PAGE>   10

    The following discussion should be read in conjunction with the audited
consolidated financial statements for South Seas and the notes thereto.

GENERAL

    South Seas is one of the largest owners and operators of upscale beachfront
and/or destination resorts and hotels on Southwest Florida's gulf coast. South
Seas owns seven resort and hotel properties, leases, operates and manages one
resort spa, owns a golf and tennis club, and manages one additional resort
property located on Ft. Myers Beach. South Seas consolidates the results of
operations of its owned properties and records management fees on the managed
property.

    South Seas has implemented a growth strategy that focuses on improving
results at existing properties through increased revenues and increasing its
operating leverage through centralized management. South Seas' growth strategy
also focuses on acquiring and, to a lesser extent, developing new resorts and
hotels in targeted markets with demographic and business characteristics
consistent with its market profile. The Sanibel Inn was acquired on June 1,
1995 in exchange for 71,374 limited partnership units ("Units") plus a
contingent, deferred cash payment of up to $700,000. This acquisition was
accounted for under the purchase method for financial reporting purposes, and
its results of operations have been included in the consolidated financial
statements of South Seas for periods subsequent to the date of acquisition. In
June 1995, South Seas entered into a long-term lease agreement (the "Safety
Harbor Lease" amended in January, 1997) through a wholly owned subsidiary,
Safety Harbor Management Company, Ltd. ("Safety Harbor Management Co.") with an
unrelated party pursuant to which it operates and manages the Safety Harbor
Resort and Spa ("Safety Harbor," Safety Harbor and the Sanibel Inn are
collectively referred to herein as the "New Resorts"). The lease period, as
amended, expires May 31, 2000. The Safety Harbor Lease also provides Safety
Harbor Management Co., with an option, expiring on May 31, 2000, to purchase
Safety Harbor for an aggregate purchase price of $11.4 million (less
approximately $3.0 million in option payments payable over the term of the
lease), with an additional earn-out arrangement of $8.0 million payable over a
number of years based upon the financial performance of the property.
Management views the Safety Harbor Lease as a turnaround opportunity at an
under-performing resort, as evidenced by its occupancy rate of approximately
35% in 1994 and 1995. Management believes that the performance of Safety Harbor
can continue to be improved by making certain renovations at the resort and
also utilizing South Seas' marketing resources and operating skills. The Safety
Harbor Lease requires that South Seas spend a minimum of $3.0 million in
capital toward renovation during the term of the lease. South Seas has
benefited, following a period where the resort was renovated and repositioned,
from improved operating results at Safety Harbor. In 1997, Safety Harbor's net
operating income improved by $2.9 million over 1996, with occupancy of 66.0%
versus 39.6% in 1996. On January 6, 1997, South Seas purchased from an
affiliated limited partnership, real and personal property used in the
operation of a resort (Seaside Inn) on Sanibel Island, Florida for $6.5
million. In connection with the acquisition, South Seas assumed liabilities of
$2.5 million.

                                      -10-
<PAGE>   11

SEASONALITY

    Properties owned or operated by South Seas are affected by normally
recurring seasonal patterns. Room rates are substantially higher and occupancy
is somewhat higher during the months of January, February, March and April than
during the remainder of the year. Approximately 45% of South Seas' revenues are
earned in the first four months of each year. Accordingly, South Seas'
operations are seasonal in nature, with lower revenue and net income in the
second, third and fourth calendar quarters.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1996

    Revenues. Revenues consist principally of room rentals, food and beverage
sales, retail sales, spa and fitness revenues, and golf course operations. Other
revenue includes marina operations, long distance telephone charges, and fees
for the use of recreation facilities, commissions from realty sales, interest
income and other miscellaneous items. Revenues for the year ended December 31,
1997 increased by $9.1 million, or 8.3% over the prior period.

    Rooms revenues increased by $6.3 million, or 9.8% over 1996. Approximately
$1.6 million, or 24.6% of the increase represents room revenues attributable to
the Seaside Inn ("New Resort"). Room revenues at resorts owned throughout both
periods ("Comparable Resorts") increased by approximately 7.4%. The increase in
room revenues at Comparable Resorts resulted from an increase in the average
daily rate ("ADR"), and an increase in occupancy. ADR at Comparable Resorts was
$186.82 for 1996, compared to $190.91 in 1997, an increase of $4.09, or 2.2%.
Occupancy percentage at Comparable Resorts increased to 70.5% for 1997 from
66.4% for 1996. The increase in ADR and occupancy reflects South Seas' efforts
to maximize revenue per available room ("REVPAR") during peak demand periods.
During 1997, REVPAR for Comparable Resorts increased $10.45, or 8.4% over 1996.
The New Resort had an occupancy percentage of 81.0%, ADR of $165.12 and REVPAR
of $133.70 during 1997.

    Food and beverage revenues for 1997 increased by $1.8 million, or 9.6%. All
properties with food and beverage operations experienced strong growth in
revenues over 1996, consistent with the growth in room revenues. Safety Harbor
experienced a 32.5% increase primarily due to their significant room night
growth.

    Golf revenues for 1997 increased by $484,000 or 14.8%. Predominantly fair
weather, combined with increased daily fee play (vs. member play) were the
primary factors in the revenue growth.

    Spa and fitness revenues increased by $192,000, or 7.8% reflecting the
significantly higher occupancy experienced at Safety Harbor.

    Other revenues for the year ended December 31, 1997 increased by $141,000 or
1.0% over the prior period. Safety Harbor experienced a $534,000 increase
in other revenues due to higher occupancy and thus greater utilization of other
facilities.  This increase was offset by a decrease in interest income. South
Seas entered into a revolving line of credit in late 1996, and therefore
experienced lower interest income earnings offset by savings in interest expense
due to the ability to pay down the line with excess cash balances.

                                      -11-
<PAGE>   12

    Expenses. Expenses for 1997 increased by $7.7 million, or 7.6%, over the
prior year. The dollar increase resulted from expenses associated with the New
Resort (approximately $1.0 million), as well as increases in depreciation and
amortization (approximately $1.8 million), general and administrative-corporate
(approximately $1.5 million) and a non-recurring, non-cash expense of $480,000,
related to the termination of general partner fee in exchange for units.

    Room expense increased by $1.7 million, or 11.4% over 1996. Room expense at
Comparable Resorts increased $1.4 million, or 9.3%. As a percentage of room
revenues, room expense remained fairly constant with a slight increase from
23.3% to 23.7%, primarily due to higher payroll from improved service levels.

    Food and beverage costs increased $1.2 million or 7.8% over the prior year.
As a percentage of food and beverage revenues, food and beverage expense
decreased from 78.9% to 77.6%.

    Total general and administrative expense increased by $2.1 million, or
10.7%, over 1996. As a percentage of revenues, general and administrative
expense increased from 18.1% to 18.5%. Approximately $293,000, or 13.7%, of the
increase was related to expenses associated with the operations of the New
Resort. Approximately $1.0 million in additional bonuses and profit sharing was
recognized in 1997, due to actual performance exceeding operating budgets.

    Depreciation and amortization expense increased by $1.8 million, or 24.3%
over 1996. As a percentage of revenues, depreciation and amortization expense
increased from 6.6% to 7.6%. The increase, both in dollars and as a percentage
of revenues, resulted from the impact of increased depreciation expense on the
significant fixed asset additions placed in service within the last year, and
the increased amortization of goodwill (due to New Resort acquisition) and
increased amortization on loan costs.

    Net Loss. As a result of the foregoing factors, net loss for 1997 was a $3.7
million improvement over 1996, $2.0 million or 54.1% of which was the result of
not having an extraordinary item write-off in 1997.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1995

    Revenues. Revenues consist principally of room rentals, food and beverage
sales, retail sales, spa and fitness revenues, and golf course operations. Other
revenue includes marina operations, long distance telephone charges, and fees
for the use of recreation facilities, commissions from realty sales, interest
income and other miscellaneous items. Revenues for the year ended December 31,
1996 increased by $11.2 million, or 11.4% over the prior period.

    Rooms revenues increased by $6.2 million, or 10.6% over 1995. Approximately
$4.3 million, or 69.0% of the increase represents room revenues attributable to
Safety Harbor and the Sanibel Inn ("New Resorts" included for seven months in
1995 and full year in 1996). Room revenues at resorts owned throughout both
periods ("Comparable Resorts") increased by approximately 3.4%. The increase in
room revenues at Comparable Resorts resulted from an increase in the


                                      -12-
<PAGE>   13

average daily rate (?ADR?), and an increase in occupancy. ADR at Comparable
Resorts was $194.79 for 1996, compared to $192.22 in 1995, an increase of $2.57,
or 1.3%. Occupancy percentage at Comparable Resorts increased to 74.8% for 1996
from 74.0% for 1995. The increase in ADR and occupancy reflects South Seas?
efforts to maximize revenue per available room (?REVPAR?) during peak demand
periods. During 1996, REVPAR for Comparable Resorts increased $3.60, or 2.5%
over 1995. The New Resorts had an occupancy percentage of 49.6%, ADR of $137.55
and REVPAR of $68.29 during 1996. Management of South Seas believes that the
lower occupancy levels at the New Resorts can be attributed to the continuing
low occupancy levels at Safety Harbor.

    Food and beverage revenues for 1996 increased by $945,000, or 5.3%. The
increase was primarily due to the additional food and beverage operations
related to the New Resorts. Food and beverage revenues for Comparable Resorts
for 1996 decreased slightly by $29,000 compared to the prior year. The decrease
was primarily due to a decrease of $448,000 at South Seas Plantation, attributed
to the closing for renovation of the King?s Crown restaurant, offset by an
increase of $216,000, at The Dunes Golf & Tennis Club (closed for renovation in
1995), and an increase of $301,000 at the Marco Radisson due to an increase in
banquet revenues. Food and beverage sales at the New Resorts contributed
$977,000 to increased sales over 1995.

    Retail revenues for 1996 increased by $297,000, or 5.1%. Retail operations
at the New Resorts were up by $165,000 or 127.9% over the prior period. Retail
revenues for Comparable Resorts for 1996 increased by $132,000, compared to the
prior year.

    Golf revenues for 1996 increased by $945,000 or 40.5%. The increase in golf
revenues was primarily due to the reopening of the Dunes Golf & Tennis Club,
which was closed for six months in 1995 for renovations.

    Spa and fitness revenues increased by $1.2 million, or 99.0% reflecting the
results of operations at Safety Harbor, which was leased effective June 1, 1995.
Thus, 1996 results reflect 12 months of activity versus seven months in 1995.

    Other revenues for the year ended December 31, 1996 increased by $1.7
million or 12.2% over the prior period. Approximately $1.3 million of the
increase was attributable to the Comparable Resorts. Additional club membership
revenue at the renovated Dunes Golf & Tennis Club accounted for $257,000 of the
increase. Other revenues at Sundial were up approximately $236,000, primarily in
the recreation department. This is a result of termination of the bike and boat
concession agreement, which provided only a percentage of rental income. This
operation is now owned and directly provided by the resort to its guests. Total
telephone fees company-wide increased by $263,000 due to a combination of rate
increases and due to improved systems to capture telephone charges by guests.
The New Resorts contributed $435,000 or 26.1% of the total increase in other
revenues.

    Expenses. Expenses for 1996 increased by $10.3 million, or 11.2%, over the
prior year. The dollar increase resulted principally from


                                      -13-
<PAGE>   14

expenses associated with the New Resorts, as well as increases in depreciation
and amortization and interest expense.

    Room expense increased by $1.9 million, or 14.7% over 1995. Room expense at
Comparable Resorts increased $1.1 million, or 9.3%. Approximately $767,000 of
the total increase reflects the additional expenses associated with the New
Resorts. Also, in February, 1996, South Seas appointed a vice president of
reservations (see ?Management"). Costs associated with this position are
included in room expense. As a percentage of room revenues, room expense
increased slightly from 22.5% to 23.3%.

    Food and beverage costs increased $1.3 million or 10.0% over the prior year.
Approximately $720,000 or 54.0% of the total increase was attributable to the
New Resorts. As a percentage of food and beverage revenues, food and beverage
expense increased from 75.6% to 78.9%.

    Sales and marketing costs for the year ended December 31, 1996 increased
$1.7 million or 27.3% over the prior period, of which $887,000 or 53.2% of the
total increase was associated with operations of the New Resorts. The $779,000
or 14.7% increase experienced at the Comparable Resorts is above the percentage
growth in revenues and reflects marketing efforts targeted for the off-season.
As a percentage of total revenues, sales and marketing increased from 6.2% in
the year ended December 31, 1995 to 7.1% in 1996, primarily due to increased
marketing effort to reposition Safety Harbor.

    In 1996, maintenance and grounds expense increased by $1.1 million or 22.6%
over the prior period, of which $232,000 or 22.1% of the total increase was
attributable to the New Resorts. Increase at the Comparable Resorts for the same
period was $819,000 and was consistent with expected maintenance costs for 1996.
The Dunes Golf & Tennis Club attributed approximately $241,000 of 29.4% of the
increase from comparable resorts. This is due to the facility being closed and
under renovation in 1995. As a percentage of total revenues, maintenance and
grounds expense increased from 4.7% to 5.2%.

    Total general and administrative expense increased slightly by $30,000, or
 .2%, over 1995. As a percentage of revenues, general and administrative expense
decreased from 20.1% to 18.1%. Approximately $1.5 million of the increase was
attributable to general and administrative expenses associated with the
operations of the New Resorts. These costs were offset by a decrease at the
Comparable Resorts of $1.4 million. Effective January 1,1996, South Seas changed
its health insurance plan from a self-insured plan (with maximum loss caps) to a
fully insured program. This resulted in substantial savings company-wide, the
most significant of which was realized at South Seas Plantation (approximately
$250,000), Sundial Beach Resort ($130,000) and a reduction in reserves based on
expected claims from prior periods of $115,000. Also in 1996, South Seas
experienced reduced workers compensation claims, casualty reserve adjustments
resulted in reduced costs over 1995, the most significant of which were $359,000
at South Seas Plantation and $318,000 at Sundial Beach Resort. Finally, due to
results of operations, the bonuses paid to the Management Company's corporate
staff were reduced

                                      -14-
<PAGE>   15

by approximately $362,000 in 1995 over 1996.

    Depreciation and amortization expense increased by $1.6 million, or 28.5%
over 1995. As a percentage of revenues, depreciation and amortization expense
increased from 5.7% to 6.7%. The increase, both in dollars and as a percentage
of revenues, resulted from the impact of New Resorts acquired in June, 1995
($453,000 or 28.3% of the total), increased depreciation expense on the
significant fixed asset additions placed in service within the last year and
higher amortization of loan costs associated with the public debt offering and
the $80 million consolidation loan (see ?Liquidity and Capital Resources").

    Interest expense increased by $1.1 million, or 12.2% over 1995. The increase
was attributable to the additional indebtedness that was incurred in March 1996
with the issuance of $43.5 million of convertible bonds.

    Extraordinary item - early extinguishment of debt. In March, 1996 and
September, 1996, South Seas obtained new loan facilities that paid off
significant amounts of debt prior to their original maturities. Therefore,
approximately $2.0 million in unamortized loan costs and pre-payment penalties
have been treated as an extraordinary item.

         Net Loss. As a result of the foregoing factors, net loss for 1996
increased by $1.8 million, or 69.4%, compared to 1995.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1994

    Revenues. Revenues consisted principally of room rentals, food and beverage
sales, retail sales and golf course operations. Other revenue includes marina
operations, long distance telephone charges, fees for the use of recreation
facilities and spa facilities, management fees, commissions from realty sales,
interest income and other miscellaneous items. Revenues for the year ended
December 31, 1995 increased by $19.4 million, or 24.4%, over the prior year,
principally as a result of significant increases in room revenues, food and
beverage revenues and other revenues offset slightly by a decrease in golf
revenues.

    Room revenues increased by $13.3 million, or 29.6%, over 1994. Approximately
$10.3 million, or 77%, of the increase represents room revenues attributable to
the New Resorts. Room revenues at resorts owned throughout both periods
("Comparable Resorts") increased by approximately 6.9%. The increase in room
revenues at Comparable Resorts resulted from an increase in the average daily
rate ("ADR"), partially offset by a decrease in occupancy. ADR at Comparable
Resorts was $210.58 for 1995, compared to $199.61 in 1994, an increase of
$10.97, or 5.5%. Occupancy percentage at Comparable Resorts decreased to 73.9%
for 1995 from 75.3% for 1994. The increase in ADR reflects South Seas' efforts
to maximize revenue per available room ("REVPAR") during peak demand periods.
During 1995, REVPAR for Comparable Resorts increased $5.30, or 3.5% over 1994.
The New Resorts had an occupancy percentage of 67.4%, ADR of $137.98 and REVPAR
of $93.04 during the period of their ownership or operation, as the case may be,
by South Seas or the Management


                                      -15-
<PAGE>   16

Company. Management of South Seas believes that the lower occupancy levels at
the New Resorts can be attributed, in part, to the timing of the acquisitions
(See "Seasonality"), the major refurbishment work that was being undertaken at
the Sanibel Inn and the continuing low occupancy levels at Safety Harbor.

    Food and beverage revenues for 1995 increased by $3.1 million, or 22.2%. The
increase was primarily due to the additional food and beverage operations
related to the New Resorts. Food and beverage revenues for Comparable Resorts
for 1995 increased by $531,000 compared to the prior year. The increase was
primarily due to growth in food and beverage revenues at existing properties of
$770,000, offset by a decrease of $238,000 due to the closing of The Dunes Golf
& Tennis Club for renovation. Food and beverage sales at the New Resorts
contributed $2.6 million to increased sales over 1994. The Marco Radisson
(reflecting 12 months of activity vs. three months) generated approximately $1.4
million, and Safety Harbor generated $1.2 million.

    Retail revenues for 1995 increased by $521,000 or 9.6%. The increase was
primarily due to retail operations at the New Resorts. Retail revenues for
Comparable Resorts for 1995 increased by $59,000, compared to the prior year.
The increase was primarily due to increased volume at existing Properties of
$155,000 offset by a decrease at The Dunes Golf & Tennis Club of $96,000 (due to
its closure for renovations).

    Golf revenues for 1995 decreased by $237,000, or 9.2%. The decline in golf
revenues was primarily due to the closing of The Dunes Golf & Tennis Club for
renovations during 1995.

    Other revenues for 1995 increased by $1.5 million, or 11.6%. Approximately
$978,000 of the increase was attributable to the addition of the New Resorts.

    Expenses. Expenses for 1995 increased by $22.9 million, or 29.4%, over the
prior year. As a percentage of revenues, expenses increased from 98.0% to
101.9%. The dollar increase resulted principally from expenses associated with
the New Resorts. The increase in expenses as a percentage of revenues resulted
primarily from the timing of the leasing of Safety Harbor and the acquisition of
the Sanibel Inn after the peak tourist season. See ?Seasonality.?

    Room expense increased by $3.2 million, or 32.8%, over 1994. Room expense at
Comparable Resorts increased $1.3 million, or 15.8%. Approximately $2.4 million
of the total increase reflects the additional expenses associated with the New
Resorts. As a percentage of room revenues, room expense increased from 21.9% to
22.5% The increase in room expense as a percentage of room revenues primarily
resulted from the lower occupancy percentage at the New Resorts and the decrease
in occupancy percentage at the Comparable Resorts.

    General and administrative expense increased by $6.2 million, or 45.3%, over
1994. As a percentage of revenues, general and administrative expense increased
from 17.3% to 20.2%. Approximately $3.8 million of the increase was attributable
to general and administrative expenses associated with the operations of the New
Resorts. The balance of the increase, or approximately $2.4 million,


                                      -16-
<PAGE>   17

reflected increases in management and support personnel costs relating to South
Seas? centralized operations, including marketing, purchasing, sales, accounting
and management information systems and approximately $2.0 million of additional
insurance expense. The increase in insurance expense, both in dollars and as a
percentage of revenues, resulted from the impact of increased employee claims
under South Seas? health and workers compensations self-insurance programs as
well as increases associated with the addition of New Resorts. Management
believes that the upward trend in general and administrative expense as a
percentage of revenues was due primarily to two factors: (i) increased costs
associated with establishing the corporate infrastructure (i.e., centralized
operations, including marketing, purchasing, sales, accounting and management
information systems) needed to integrate and operate the New Resorts and (ii)
the effect of normally recurring seasonal patterns on revenues at the New
Resorts subsequent to their acquisition.

    Depreciation and amortization expense increased by $1.3 million, or 28.9%,
over 1994. As a percentage of revenues, depreciation and amortization expense
increased from 5.6% to 5.7%. The increase, both in dollars and as a percentage
of revenues, resulted from the impact of New Resorts acquired in 1995 and the
opening of a centralized reservations facility.

    Interest expense increased by $3.9 million, or 71.2% over 1994. The increase
was primarily attributable to the indebtedness that was incurred in late 1994
and early 1995 to acquire the Marco Radisson and provide funds for renovations.
South Seas incurred $23.5 million of debt to acquire the Marco Radisson (the
acquisition loan was in place for the last three months of 1994), $4.9 million
of debt in 1995 to make renovations at the Marco Radisson and assumed $11.35
million of debt in June 1995 in connection with its acquisition of Sanibel Inn.

    Net Income. As a result of the foregoing factors (including the effect of
normally recurring seasonal patterns on revenues at the New Resorts subsequent
to their acquisition), net income for 1995 decreased by $4.2 million, or 258.3%,
compared to 1994. Net income was also adversely affected by a $340,000 charge to
operations associated with the write-off of certain offering and transfer costs
associated with the acquisition of the Best Western-Sanibel and Song of the Sea.
In addition, net income was adversely affected by a $458,000 non-cash loss
realized on the disposal of certain fixed assets related to renovations at The
Dunes Golf & Tennis Club.

LIQUIDITY AND CAPITAL RESOURCES

    South Seas has historically financed its operations and capital expenditures
through a combination of cash generated from operations, bank borrowings,
borrowings from private investors, bond offerings and short-term credit
facilities.

    On March 28, 1996, South Seas completed the public offering of
$43,500,000 of its 10% subordinated notes as offered in the Form S-1
Registration Statement (?Notes Offering"). The total aggregate principal amount
raised was $43,500,000, including the full $3.5 million over-allotment, with
interest payable monthly at 10%, and with no principal reduction until maturity
on April 15, 2003.

                                      -17-
<PAGE>   18

    The Notes are non-callable during the first four years of the term then
become redeemable, in whole or in part, at the option of South Seas at various
redemption prices (108.24% to 112.62% of principal) during or after the year
2000. Subsequent to the occurrence of certain events, at any time during the
term of the Notes, the holders of Notes will be offered the opportunity to
convert the Notes at an exchange rate of $12 per partnership unit (subject to
adjustment in certain circumstances). Upon the stated maturity of the Notes,
holders of Notes will be offered the opportunity to convert the Notes at an
exchange rate of $10.50 per unit (subject to adjustment in certain
circumstances).

    South Seas believes that cash generated by operations, together with the
proceeds from the Notes Offering will be adequate to meet its working capital,
debt service and capital expenditure requirements. South Seas? outstanding
indebtedness, together with the Notes, places certain debt service obligations
on the partnership. South Seas believes that it may be necessary to obtain
additional debt or equity capital in order to accommodate its plan for growth
and expansion in 1998 and beyond. South Seas intends to pursue resort and/or
hotel acquisitions and to a lesser extent development opportunities in order to
achieve growth in its portfolio of properties.

  South Seas anticipates that implementation of its growth strategy will require
it to obtain additional debt or equity financing. The amount of additional
financing required by South Seas in order to implement its growth strategy will
depend on several factors, including the purchase price and renovation costs
associated with acquisitions and South Seas? available cash resources at the
time of a particular transaction. Although there can be no assurance as to South
Seas? ability to obtain financing in the amounts it requires on commercially
reasonable terms, if at all, South Seas believes that, based upon its current
financial condition and results of operations, such financing will be available
to it. South Seas? inability to obtain additional financing could have a
material adverse effect on its results of operations, financial condition and
future prospects. The indenture places restrictions on the amount of additional
Funded Indebtedness (as defined in the prospectus delivered in connection with
the Notes Offering) that South Seas may incur.

    In December 1996, South Seas obtained an irrevocable, transferable letter of
credit in an amount not to exceed $3.26 million, for use as a replacement for a
reserve fund established in connection with the 10% Subordinated Notes. No
amounts had been drawn at December 31, 1996 or 1997.

    In March 1997 South Seas retained Nationsbanc Montgomery Securities
("Montgomery"), to advise the partnership on various strategic financial
alternatives. South Seas has had discussions with a number of potential parties
and capital sources. South Seas and Montgomery are continuing to evaluate South
Seas' options.

    On December 31, 1997, South Seas had cash and cash equivalents of $2.9
million; and restricted cash of $144,000. Cash and cash equivalents decreased by
$3.5 million during the year ended December 31, 1997.

                                      -18-
<PAGE>   19

    Cash flow from operations was approximately $11.1 million for the year ended
December 31, 1997 as compared to $2.4 million in the prior period. Cash flow
from operations was positively impacted by a $2.3 million decrease in interest
paid during 1997. This significant decrease in interest paid was attributed to
the early retirement of numerous notes, bonds and accrued interest (of
approximately $1.1 million) thereon with the proceeds from the public offering
in 1996. Net proceeds of $2.7 million (from the line of credit) were used
towards the purchase of capital assets. In addition to funding its operating
activities, South Seas? major uses of cash during the 1997 period were principal
payments on outstanding debt of approximately $2.1 million, capital expenditures
and purchase of resort assets of approximately $12.2 million, and distributions
to partners of approximately $1.3 million.

    Cash flow from operations was approximately $2.4 million for the year ended
December 31, 1996 as compared to $7.1 million in the prior period. Cash flow
from operations was negatively impacted by a $3.3 million increase in interest
paid during 1996. This significant increase in interest paid was attributed to
the early retirement of numerous notes, bonds and accrued interest (of
approximately $1.1 million) thereon with the proceeds from the public offering
and now having higher debt balances with monthly interest payments. South Seas?
other major source of cash in the 1996 period was proceeds of $43.5 million from
the Notes Offering. In addition to funding its operating activities, South Seas?
major uses of cash during the 1996 period were principal payments and
refinancing on outstanding debt of approximately $64.1 million (primarily
through proceeds of the Notes Offering, including $11.9 million under revolving
lines), capital expenditures and asset purchases of approximately $9.0 million,
and distributions to partners of approximately $1.2 million.

    Cash flow from operations was approximately $7.1 million in 1995, as
compared to $7.8 million in 1994. Cash flow from operations was negatively
impacted by a $5.0 million increase in interest paid during 1995. South Seas'
other major source of cash for 1995 was proceeds of approximately $28.6 million
from the issuance of long-term debt. In addition to funding its operating
activities, South Seas' major uses of cash during 1995 were principal payments
and refinancing on outstanding long-term debt of approximately $15.7 million,
capital expenditures and asset purchases of approximately $8.4 million, and
distributions to partners of approximately $1.7 million.

    Under the terms of the Indenture, South Seas is obligated to make capital
expenditures in respect of the Properties in an amount equal to 2.5% of its
consolidated resort related revenues for the immediately preceding fiscal year.
South Seas? intends to make capital expenditures and additional refurbishment of
certain properties of approximately $10.3 million during 1998. In addition,
management plans anticipate spending $4.8 million in maintenance and repairs.

    At December 31, 1997, South Seas had $69.8 million in aggregate principal
amount of long-term indebtedness (net of current maturities) outstanding under
four notes payable. These notes are secured by various mortgages on the
Properties and by security


                                      -19-
<PAGE>   20

interests in substantially all of South Seas' other assets. The outstanding
principal of these notes is due in increasing annual amounts until maturity in
2003. Approximately $67.1 million of these notes bear interest at approximately
8.7% per annum, and $3.5 million bear interest at 8.5%.

    At December 31, 1997, South Seas had $43.5 million in subordinated
indebtedness, represented by bonds payable. The interest rate on this
subordinated indebtedness is 10% per annum.

    Aggregate principal amount of current maturities due as of
December 31, 1997 was approximately $1.3 million of notes and $228,000 of
capital leases.

    On September 26, 1996, South Seas secured a $80 million mortgage note
payable with $40 million in term and $40 million under a revolving credit
facility. Simultaneously with closing, South Seas entered into an interest rate
swap on the combined $26.75 million loan and the $18.25 million advance, which
effectively fixed the interest rate at 8.47% per annum, beginning September,
1996 through June, 1998. On January 9, 1998, South Seas entered into another
interest rate swap on this amortizing note beginning July 1998 through September
2001, which effectively fixed the interest rate at 8.61%.

    The agreements governing South Seas' outstanding indebtedness contain
various covenants limiting its ability to incur additional indebtedness, merge
or sell a controlling interest in South Seas, dispose of or acquire material
assets, issue securities, create liens, make capital expenditures, make
distributions to partners, or engage in transactions with related parties, and
requiring it to maintain certain levels of insurance, interest rate protection,
specified levels of net worth and operating income, make a minimum level of
capital improvements annually, maintain a minimum level of working capital, and
satisfy certain financial ratios.

    South Seas exercised an option to purchase the Seaside Inn on Sanibel Island
in January, 1997 (previously a managed property). The purchase price was $6.5
million. South Seas assumed approximately $2.5 million of aggregate principal
indebtedness encumbering this property, which was refinanced in the first half
of 1997. The funds used to pay the balance of the purchase price were derived
from the revolving credit facility. South Seas did not incur any significant
additional general and administrative expense in connection with integrating the
Seaside Inn's operation.

    Based on a lease amendment executed in January 1997, South Seas has an
option to purchase Safety Harbor from its current owner for an exercise price
of $11.4 million (less approximately $3.0 million in scheduled option
payments payable over the term of the lease) with an additional earn-out
arrangement of $8.0 million, payable over a number of years based on the
financial results of the property. The payment term is subject to a minimum
payment with a maximum term of 40 years. The option will expire on May 31,
2000. Management believes that it can continue to substantially improve Safety
Harbor's operating results during future periods by renovating the resort and
utilizing South Seas' marketing and operating management resources.

    Under the terms of its agreement with the former owner of the Marco


                                      -20-
<PAGE>   21

Radisson, South Seas is obligated to make an additional payment upon the sale of
the Property in an amount equal to at least $1.5 million. Prior to such a
transaction, the former owner of the property has an option to receive a payment
equal to 15% of the increase in the value of the property determined in
accordance with a formula based upon a multiple of the property's adjusted net
operating income less South Seas' cost basis in the property. Upon exercise of
this option, South Seas would become obligated to pay the former owner the
formula amount over a five-year period together with interest thereon at the
rate of 8% per annum.

    In the opinion of management, no material adverse effect on either results
of operations or financial position is anticipated due to the modification or
replacement of existing information systems in order to accommodate year 2000
implications. As of December 31, 1997 substantially all computerized systems
have been modified or replaced.

    South Seas is not currently a party to any legal proceeding which, in
Management's opinion, is likely to have a material adverse effect on its
operating results or financial position.

Item 8 - Consolidated Financial Statements

Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure - not applicable

                                    PART III

Item 10 - Directors, Executive Officers and Key Employees

     South Seas does not have any directors, executive officers or employees.
South Seas does, however, have a seven-member advisory board consisting of the
following individuals: Robert M. Taylor, Allen G. Ten Broek, Robert F. Anderson,
Michael B. Peceri, Timothy R. Bogott, Paul J. Powers and Peter C. Yesawich. The
advisory board's primary function is to render nonbinding advice to the General
Partner of South Seas with respect to strategic policies and decisions affecting
South Seas.

     T&T Resorts, L.C., the General Partner of South Seas, has no directors or
employees but does have a manager and executive officers. Robert M. Taylor is
the sole manager, Chairman and Chief Executive Officer of T&T Resorts, L.C. and
Allen G. Ten Broek is the Vice-Chairman and President of T&T Resorts, L.C. The
following is a biographical summary of the experience of Messrs. Taylor and Ten
Broek.

     Robert M. Taylor. Mr. Taylor is Chairman and Chief Executive Officer of T&T
Resorts, L.C., a position in which he has served since its formation in February
1996. Mr. Taylor also serves as Chairman and Chief Executive Officer of S.S.
Resort Management, L.C. (the general partner of the Management Company), a
position in which he has served since its formation in 1994. In 1971, Mr. Taylor
founded The Mariner Group, Inc., a company that has developed and managed
numerous condominium resorts and other properties along Florida's southwest
coast. Before founding The Mariner Group, Inc., Mr. Taylor worked for McKinsey &
Company, a worldwide management consultant


                                      -21-
<PAGE>   22

company, in the firm's Cleveland, Ohio, office. Prior to that, he served in the
U.S. Army for two years, during which time he was stationed in Virginia and on
the Island of Okinawa. Before his military service, Mr. Taylor worked with AT&T
in Chicago. Mr. Taylor served from 1983 to 1996 as a director of Acme Cleveland
Corp., a maker of industrial sensors and telecommunications equipment. Mr.
Taylor also has served on the boards of a number of corporate, banking and
community organizations, including the Miami branch of the Federal Reserve Bank
and the Executive Committee of the Florida Council of 100. He currently serves
as Chairman of the Board of Colonial Bank of Southwest Florida, and on the board
of the Foundation for Lee County Schools, as well as the Lee County Port
Authority Special Airport Management Committee. A native of Columbus, Ohio, Mr.
Taylor graduated from The Ohio State University in 1965 with a master of
business administration degree and was the University's outstanding senior
graduate in 1965.

     Allen G. Ten Broek. Mr. Ten Broek is the Vice Chairman and President of T&T
Resorts, L.C., a position in which he has served since its formation in February
1996. Mr. Ten Broek is also President and CEO of The Mariner Group, Inc., a
position in which he has served since October 1995 and earlier held from 1979 to
1992. From 1992 through 1995, Mr. Ten Broek served as Vice Chairman and Managing
Executive of Hilton Grand Vacations Company, timeshare sales, development and
vacation club affiliated with Hilton Hotels. Mr. Ten Broek is an original
shareholder of The Mariner Group, Inc. and has been a director of The Mariner
Group, Inc. since 1973. Mr. Ten Broek is a former director of the Bank of the
Islands and Florida National Bank of Lee County, and was a founding director of
Community Bank of the Islands. He has held a variety of director and officer
positions with local community organizations. Mr. Ten Broek is the Chairman
Emeritus of the Florida Shore and Beach Preservation Association and has served
as chairman of two statewide task forces appointed by the Governor. He was
recently elected Chairman of the newly formed American Coastal Coalition. Mr.
Ten Broek is an officer or director of various other affiliates of the
Partnership.

     As noted earlier, the Management Company currently manages each of the
Properties, of which South Seas owns a 99% limited partnership interest (the 1%
general partnership interest in the Management Company is held by S.S. Resort
Management L.C., a Florida limited liability company). The Management Company is
a Florida limited partnership. The Management Company is responsible for the
day-to-day management of the Properties on behalf of South Seas. The Management
Company has general responsibility and authority for all aspects of property
management, including the establishment of operations policies, leasing,
marketing, advertising, maintenance and security of the Properties, the
supervision of construction, repairs and improvements and the employment and
supervision of on-site personnel and consultants. The Management Company also
renders certain administrative services to South Seas, including supervising the
preparation of investor reports, handling investor inquiries, coordinating
federal and state tax filings, maintaining books and records, handling financing
and refinancing and investing uncommitted funds.

     The Management Company does not have any directors or executive officers.
The general partner of the Management Company is S.S.


                                      -22-
<PAGE>   23

Resort Management, L.C., and a Florida limited liability company. Robert M.
Taylor, Timothy R. Bogott and Richard E. Krichbaum serve as the managers of S.S.
Resort Management, L.C. The managers of S.S. Resort Management, L.C., by
majority vote, have the power to appoint executive officers of S.S. Resort
Management, L.C.

     The following sets forth certain information concerning the executive
officers of S.S. Resort Management, L.C.
<TABLE>
<CAPTION>

Name                    Age                  Position
<S>                     <C>             <C>
Robert M. Taylor        56              Chairman and Chief Executive Officer
Michael B. Peceri       71              Vice Chairman
Timothy R. Bogott       51              President
Richard E. Krichbaum    42              Vice President of Finance & Administration
G. Scott Siler          48              Vice President of Development
Salvatore S. Dickinson  38              Vice President of Marketing and Sales
Leonard P. Myers        51              Vice President of Human Resources
Ralph G. Suda           51              Vice President of Reservations
Brian P. Garavuso       35              Vice President of Technology
</TABLE>

     The following is a biographical summary of the experience of the executive
officers of S.S. Resort Management, L.C. (other than Mr. Taylor, whose
biographical summary is previously set forth):

     Michael B. Peceri. Mr. Peceri is Vice Chairman of S.S. Resort Management,
L.C., and a position in which he has served since its formation in 1994. Mr.
Peceri was the Vice President of the International Hotel and Motel Association
and became its president for a one-year term beginning in 1996. Mr. Peceri began
his hospitality industry career in 1972 as manager of the Song of the Sea Resort
Motel in southwest Florida. From the Song of the Sea, Mr. Peceri progressively
moved into additional senior positions, serving as executive vice president and
general manager of South Seas Plantation from 1976 to 1980, president of Marquis
Hotels and Resorts (an Affiliate of The Mariner Group, Inc. and South Seas) from
its inception in 1980 until 1991, when he became chairman (a position in which
he served until he was appointed vice chairman of S.S. Resort Management, L.C.).
Mr. Peceri was the 1994 chairman of the American Hotel and Motel Association,
past president of the Florida Hotel and Motel Association, the past president of
the Sanibel/Captiva Chamber of Commerce and former vice chairman of the Lee
County Tourist Development Council. Mr. Peceri also has served on the Advisory
Council to the State of Florida's director of tourism and on the Governor's Task
Force for Tourism Funding. Mr. Peceri was named "Florida Hotelier of the Year"
in 1986.

     Timothy R. Bogott. Mr. Bogott is President of S.S. Resort Management, L.C.,
and a position in which he has served since its formation in 1994. A veteran of
both the real estate and hospitality industries, Mr. Bogott joined The Mariner
Group, Inc. in 1976 as project manager and director of administration. In 1979,
he was elected as the secretary/treasurer of The Mariner Group, Inc., and in
1983 was named its vice president of finance. From 1984 to 1993, Mr. Bogott
served as president and chief executive officer and as director of Mariner
Capital Management Inc. and Mariner Capital Investment Corporation, both
Affiliates of The Mariner Group, Inc. Before joining The Mariner Group, Inc.,
Mr. Bogott was assistant vice


                                      -23-
<PAGE>   24

president of Palmetto Savings and Loan Association in Ft. Myers, Florida. Prior
to that he held various management positions with The First National Bank of Ft.
Myers and the American National Bank of Denver, Colorado. Mr. Bogott is a former
member of Lee Memorial Hospital's Finance Committee. He is currently a member of
the Board of Directors of the Florida Hotel Motel Association. He is a graduate
of the University of Colorado business school. He also attended the Florida
School of Banking and the School of Banking of the South.

     Richard E. Krichbaum. Mr. Krichbaum is Vice President of Finance and
Administration and Chief Financial Officer of S.S. Resort Management, L.C., and
a position in which he has served since its formation in 1994. Mr. Krichbaum
joined The Mariner Group, Inc. in 1984 as director of project finance and was
promoted to treasurer and vice president of finance in 1987 before being named
vice president and chief financial officer in 1992. Before joining The Mariner
Group, Inc., Mr. Krichbaum worked seven years with the E.J. DeBartolo Corp. in
Youngstown, Ohio. Mr. Krichbaum currently serves on the Advisory Board of the
University of South Florida, Fort Myers campus; as a director of the United Way
of Lee County; a director and officer of South Ft. Myers Little League baseball,
and he has also served as a director of the Boy Scouts of Southwest Florida. A
native of Youngstown, Ohio, Mr. Krichbaum graduated from Youngstown State
University in 1979 with a bachelors of science degree in accounting. He received
his master's degree in finance from Youngstown State University in 1986.

     G. Scott Siler. Mr. Siler is Vice President of Development of S.S. Resort
Management, L.C., and a position in which he has served since its formation in
1994. Mr. Siler joined The Mariner Group, Inc. in 1972 as director of food and
beverage operations for South Seas Plantation, a post he held until 1977. During
his 25-plus years with The Mariner Group, Inc., Mr. Siler has held a variety of
other management and senior management positions, serving as vice president of
food and beverage operations for Mariner Properties Inc., vice president of food
and beverage operations for Marquis Hotels and Resorts, and vice president of
operations for Marquis Hotels and Resorts. Mr. Siler has also served as general
manager of Sundial Beach and Tennis Resort, vice president of development for
Marquis Hotels and Resorts, and president of Marquis Hotels and Resorts. Mr.
Siler is a member of the Tourist Development Council of Lee County, Florida, and
the Cornell Society of Hotelmen.

     Salvatore S. Dickinson. Mr. Dickinson is Vice President of Marketing and
Sales of S.S. Resort Management, L.C., and a position in which he has served
since September 1994. Prior to joining S.S. Resort Management, L.C. in 1994, Mr.
Dickinson served for more than nine years with Yesawich, Pepperdine & Brown,
Inc., the nation's largest advertising, marketing and public relations firm
specializing in serving travel industry clients, during which time he managed
accounts such as the Lee County Visitor and Convention Bureau, Premier Cruise
Lines (The Big Red Boat), Hilton International and The Continental Companies
(TCC). Mr. Dickinson is an active member who serves on the board of directors of
the Hospitality Sales & Marketing Association International as well as its
foundation's board and is a member of the American Advertising Federation. He
also serves as an adjunct faculty of the business school of Florida Gulf Coast
University and on the marketing committee for VisitFLA, the public-


                                      -24-
<PAGE>   25

private partnership responsible for the state's tourism promotion. Mr. Dickinson
received his bachelor's degree in advertising and master's degree in marketing
communications from Florida State University.

     Leonard P. Myers. Mr. Myers is Vice President of Human Resources of S.S.
Resort Management, L.C., and a position in which he has served since its
formation in 1994. Mr. Myers joined The Mariner Group, Inc. in 1981 to direct
employee relations, including recruiting, training, quality assurance and
employee services at South Seas Plantation. Prior to joining The Mariner Group,
Inc., Mr. Myers served as a psychologist at the Lee Mental Health Center in Ft.
Myers, Florida, as a Training Specialist at Sunland Training Center in Orlando,
Florida, and as Personnel Manager for Imhoff Brothers Inc., a restaurant
franchise company in Windam, Minnesota. Mr. Myers is a board member on the Wages
Coalition and is also a member of the Organizational Flexibility Profile
Advisory Board. He also serves on the board for the Association for
International Practical Training. Mr. Myers is the past chairman of the Human
Resources Committee for the Lee County School Board. He is a past president of
the Health Care Coalition and the Career Education Advisory Council. Mr. Myers
received his masters' degree in community/industrial psychology in 1976 from the
University of Central Florida in Orlando.

     Ralph G. Suda. Mr. Suda is Vice President of Reservations for S.S. Resort
Management, L.C., and a position he has held since February 1996. Prior to
joining S.S. Resort Management, L.C., Mr. Suda served as the Vice President of
Reservations for The Ritz-Carlton Hotel Company in Atlanta for two years.
Previously, he spent 19 years with the Hyatt Hotels Corporation in a variety of
positions and locations ranging from Rooms Director to General Manager. He is
past president of the Lexington Hotel/Motel Association, and has served on the
boards of the Lexington Chapter, Kentucky Restaurant Association, and the
Advisory Board, University of Kentucky Hospitality Management Program. Mr. Suda
also served on the boards of Junior Achievement and Big Brothers/Big Sisters. He
received a bachelor's degree in business administration from the University of
Hawaii. Effective January 1998, Mr. Suda assumed the responsibilities of general
manager of the Marco Radisson.

     Brian P. Garavuso. Mr. Garavuso is the Vice President of Technology for
S.S. Resort Management, L.C., a promotion from his previous title of Director of
Management of Information Systems, a position he has held since its formation in
1994. He has been with the company since 1983 and has held a variety of
management positions. Specific duties included the establishment of the
company's Vacation Planning Center, the central reservations facility. He also
served as vice president and controller for Marquis Hotels and Resorts. Mr.
Garavuso serves on the technology sub-committee for the American Hotel & Motel
Association and he is past chairman of the Springer-Miller Host Systems Users
Group. A native of Long Island, New York, he graduated from the University of
South Florida in 1986 with a bachelor's degree in business administration.

General Partner

     T&T Resorts, L.C., the General Partner of South Seas, has the power and
authority to manage and control the activities of South


                                      -25-
<PAGE>   26

Seas and is liable for all the debts of South Seas (to the extent not paid by
South Seas), except with respect to the Notes and any other indebtedness
incurred by South Seas which is nonrecourse to the General Partner.

     South Seas does not directly employ any of the persons responsible for
managing its resort and hotel operations. Rather, the officers of S.S. Resort
Management, L.C., the general partner of the Management Company manage South
Seas' operations.

Compensation of the General Partner

     T&T Resorts, L.C., the General Partner of South Seas, receives no
management fee or similar compensation in connection with its services as
general partner of South Seas and will receive no remuneration other than (i)
distributions in respect of its equity interest in South Seas and (ii)
reimbursement for all direct and indirect costs and expenses incurred on behalf
of South Seas and all other expenses necessary or appropriate to the conduct of
the business of, and allocable to, South Seas.

Item 11 - Executive Compensation

     The executive officers of S.S. Resort Management, L.C., manage and operate
South Seas' business. The following table sets forth compensation for 1997 of
the executive officers of S.S. Resort Management, L.C.
earning more than $100,000.



                                      -26-
<PAGE>   27




Summary Compensation Table
<TABLE>
<CAPTION>
                                                            Annual  Compensation
                                                                                               Other
Name and                                             Bonus(1)             Bonus(l)             Annual
Principal Position                Salary            Incentive          Profit Sharing      Compensation(2)
<S>                              <C>                  <C>                  <C>                  <C>
Robert M. Taylor
     Chairman/CEO                $235,004             $ 94,000             $ 32,000             $ 16,200

Timothy R. Bogott
     President                   $170,003             $ 72,000             $ 29,200             $ 14,600

Richard E. Krichbaum
     Vice President              $125,002             $ 43,600             $ 11,400             $  1,600

G. Scott Siler
     Vice President              $121,002             $ 35,500             $  6,200             $  2,691

Salvatore S. Dickinson
     Vice President              $104,501             $ 30,500             $  8,500             $  1,863

Ralph G. Suda
     Vice President              $104,501             $ 31,200             $  9,800             $  1,021

Leonard P. Myers
     Vice President              $ 82,251             $ 23,655             $  5,345             $  1,871

Brian P. Garavuso
     Vice President              $ 78,501             $ 31,000             $  8,100             $  1,826

<FN>
(1)  The Management Company has adopted both an incentive bonus plan and a
     profit sharing bonus plan in which all of the executive officers of the
     Management Company are eligible to participate. Under the incentive bonus
     plan, subject to the achievement of certain financial and other objectives,
     Mr. Taylor and Mr. Bogott may earn up to 40%, which may be adjusted upward
     based on exceptional performance, of their respective base compensation,
     and each other executive officer may earn up to 30%, which may be adjusted
     upward based on exceptional performance, of his respective base
     compensation as an annual bonus. Under the profit sharing bonus plan, an
     aggregate bonus pool is established in the amount of 25% of the excess of
     actual net operating income over budgeted net operating income. The bonus
     pool is then allocated to the executive officers and other employees of the
     Management Company at the discretion of Mr. Bogott. Both the incentive
     bonus plan and the profit sharing bonus plan are payable in cash.

(2)  Amounts reported as other annual compensation represent matching
     contributions made by the Management Company under its Section 401 (k)
     Plan. The 401 (k) Plan allows participants to defer up to the statutory
     maximum of their annual salary on a pre-tax basis. Up to 4% of an
     employee's salary deferred by such employee will be matched by a Management
     Company contribution equal to 50% of the amount deferred. Contributions
     made by the Management Company vest immediately. The amounts reported as
     other annual compensation for Mr. Taylor and Mr. Bogott include Advisory
     Board fees of $13,000 each, paid by South Seas.
</TABLE>

Item 12 - Ownership of Interests in South Seas, The General Partner and the
Management Company

     The following table sets forth certain information with respect to each
beneficial owner of more than 5% of South Seas' voting securities.



                                      -27-
<PAGE>   28




<TABLE>
<CAPTION>
                                       Amount and Nature                 Percentage
Name of Beneficial Owner           of Beneficial Ownership                of Class
<S>                             <C>                                     <C>
T&T Resorts, L.C. (1)           45,158 General Partnership Units             100%
The Mariner Group, Inc.        600,685 Limited Partnership Units           13.44%
Robert M. Taylor (2)           522,861 Limited Partnership Units           11.70%
Robert F. Anderson             452,273 Limited Partnership Units           10.12%
Allen G. Ten Broek             426,785 Limited Partnership Units            9.55%

<FN>

(1)     Mr. Taylor and Mr. Ten Broek are the sole equity owners of T&T Resorts,
        L.C., the General Partner of South Seas. Mr. Taylor owns 51% of the
        membership interests of T&T Resorts, L.C. and Mr. Ten Broek owns 49% of
        the membership interests of T&T Resorts, L.C.

(2)     Robert M. Taylor shares investment and voting power with his spouse with
        regard to 20,000 units.
</TABLE>

     The following table sets forth the beneficial ownership interest in South
Seas held by each executive officer of S.S. Resort Management, L.C., the general
partner of the Management Company.

<TABLE>
<CAPTION>
                                       Amount and Nature                Percentage
Name of Beneficial Owner           of Beneficial Ownership               of Class
<S>                            <C>                                     <C>
Robert M. Taylor (1)            23,031 General Partnership Units           51.00%
Robert M. Taylor (2)           522,861 Limited Partnership Units           11.70%
Timothy R. Bogott (3)          150,000 Limited Partnership Units            3.36%
G. Scott Siler                  47,487 Limited Partnership Units            1.06%
Richard E. Krichbaum            33,060 Limited Partnership Units            0.74%
Leonard P. Myers                14,000 Limited Partnership Units            0.31%
Brian P. Garavuso                8,000 Limited Partnership Units            0.18%
Salvatore S. Dickinson           7,000 Limited Partnership Units            0.16%
Ralph G. Suda                    7,000 Limited Partnership Units            0.16%
<FN>

(1)     Owned indirectly through Mr. Taylor?s 51% ownership interest in T&T
        Resorts, L.C., the General Partner of South Seas.

(2)     Robert M. Taylor shares investment and voting power with his spouse with
        regard to 20,000 Units.

(3)     Eighty-two Thousand Five Hundred (82,500) of Mr. Bogott?s Units are
        subject to a Redemption Agreement between Mr. Bogott and South Seas (the
        ?Redemption Agreement"). The Redemption Agreement reflects certain
        rights that Mr. Bogott was entitled to as an officer of Mariner Capital
        Management, Inc., that South Seas agreed to honor at the time Mr. Bogott
        joined the Management Company. Generally, the Redemption Agreement
        provides that if Mr. Bogott dies or his employment with S.S. Resort
        Management, L.C. is terminated by S.S. Resort Management, L.C., South
        Seas will repurchase, at Mr. Bogott?s request, 82,500 of Mr. Bogott?s
        Units at a price equal to the higher of $12 per Unit or such price as
        the advisory board of South Seas determines. If Mr. Bogott voluntarily
        terminates his employment with S.S. Resort Management, L.C., South Seas
        will repurchase, at Mr. Bogott?s request, 82,500 of Mr.
        Bogott?s Units at a price equal to $10 per Unit.
</TABLE>

     South Seas owns a 99% limited partnership interest in the Management
Company and S.S. Resort Management, L.C. owns the 1% general partnership
interest in the Management Company. The beneficial ownership interests of S.S.
Resort Management, L.C., a Florida limited liability company, are held as
follows: 99% by Mr. Taylor, 0.5% by Mr. Bogott and 0.5% by Mr. Krichbaum.

     The addresses of the persons shown in the tables above are as follows: T&T



                                      -28-
<PAGE>   29

Resorts, L.C., the Mariner Group, Inc., and Messrs. Taylor, Ten Broek, Bogott,
Siler, Krichbaum, Myers, Dickinson, Suda and Garavuso, c/o South Seas, 12800
University Drive, Suite 350, Fort Myers, Florida 33907 and Mr. Anderson, P.O.
Box 08337, Fort Myers, Florida 33907.

Compensation Committee Interlocks and Insider Participation

     Messrs. Taylor, Ten Broek and Bogott made compensation decisions with
respect to the executive officers of the Management Company with respect to
fiscal year 1997.

     The following discussion of certain relationships and transactions includes
transactions involving, directly or indirectly, (i) the following executive
officers of the General Partner: Robert M. Taylor - Chairman and Chief Executive
Officer and Allen G. Ten Broek - Vice Chairman and President; (ii) the following
executive officers of the general partner of the Management Company: Mr. Taylor
- Chairman and Chief Executive Officer, Michael B. Peceri - Vice Chairman,
Timothy R. Bogott - President, Richard E. Krichbaum - Vice President of Finance
and Administration and G. Scott Siler - Vice President of Development; and (iii)
the following owners of more than 5% of the outstanding Units: Mr. Taylor, Mr.
Ten Broek, The Mariner Group, Inc. and Robert F. Anderson.

Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions With The Mariner Group, Inc.

     South Seas paid $4.9 million, $3.5 million and $3.6 million in 1995, 1996
and 1997, respectively, to The Mariner Group, Inc. in exchange for services
performed by The Mariner Group, Inc. as an administrator for insurance coverage.
South Seas expects this relationship to continue for the foreseeable future.

     South Seas paid $236,000, $261,000 and $260,000 in 1995, 1996 and 1997,
respectively, to The Mariner Group, Inc. pursuant to a sublease of office space.
The term of the sublease for such office space expires on May 28, 2000. Under
the sublease, rent increases at a rate of 5% per year.

     Effective January 1, 1994, South Seas issued 381,505 Units to The Mariner
Group, Inc. in exchange for certain property owned by certain wholly-owned
Subsidiaries of The Mariner Group, Inc., including the Sundial Beach and Tennis
Resort, The Dunes Golf & Tennis Club, management agreements for the Sanibel Inn
and a dining club and assets relating to two real estate brokerage services. For
purposes of this transaction, an aggregate value of $4,604,765.35 ($12.07 per
Unit) was ascribed to the Units received by The Mariner Group, Inc. See Note 1
to the Consolidated Financial Statements for a discussion of the accounting
treatment of this transaction.

     Effective January 1, 1994, South Seas issued 210,253 Units to Mariner
Capital Management, Inc. in exchange for certain property owned by Mariner
Capital Management, Inc., including all of the stock of Mariner Capital
Investment Corp. and management rights for the Best Western-Sanibel, the Song of
the Sea Inn, the Best Western Pink Shell Beach Resort and the Seaside Inn. The
Mariner Group, Inc. owned a 60% interest and Mr. Bogott owned a 25% interest in
Mariner Capital Management, Inc. as of January 1, 1994. For purposes of this



                                      -29-
<PAGE>   30

transaction, an aggregate value of $2,537,753.71 ($12.07 per Unit) was ascribed
to the Units received by Mariner Capital Management, Inc. See Note 1 to the
Consolidated Financial Statements for a discussion of the accounting treatment
of this transaction.

     The determination of the per Unit value referred to in the two immediately
preceding paragraphs and the number of Units transferred in each transaction was
based on values ascribed to the Properties owned by South Seas and the
properties transferred to South Seas as described above. The gross values of
these Properties were generally determined by capitalizing income, using
trailing 12-month adjusted operating income available to service debt and
various multiples selected by the parties ranging from 9 to 13, then deducting
outstanding indebtedness and making other adjustments as necessary. Mr. Taylor,
Mr. Bogott and Mr. Krichbaum coordinated the valuation process.

     In January 1997, South Seas exercised an option to purchase the Seaside Inn
from its owner, Florida Income Fund, L.P., for $6.5 million. The exercise price
of the option was determined by negotiation between South Seas and Florida
Income Fund, L.P. The parties to these negotiations valued the Seaside Inn by
capitalizing income, using the Seaside Inn's prospective 12-month adjusted
operating income available to service debt and a multiple selected by the
parties, then deducting outstanding indebtedness and making other adjustments.
An appraisal of the Seaside Inn conducted subsequent to the execution of the
option agreement indicated that the fair market value of the Seaside Inn was
$5,700,000, excluding the value of the management contract. This appraisal made
certain valuation assumptions including a reserve for a lower number of rental
units. Management believes the purchase price for the Seaside Inn is
representative of the fair market value for the property at the time of
purchase. Prior to January 1997, the Management Company managed this Property
pursuant to the terms of a management agreement between the Management Company
and Florida Income Fund, L.P. Under such management agreement, the Management
Company received 6% of the gross revenues generated by this Property, plus
reimbursement of all costs incurred in connection with the operation of this
Property. This management agreement expires on December 31, 1999. Mariner
Capital Management, Ltd., (Mariner Capital Management, Ltd., has an arrangement
with Mariner Capital Management, Inc., whereby Mariner Capital Management, Ltd.,
earns 100% of the net income of Mariner Capital Management, Inc.) and MCD Real
Estate, Inc., an Affiliate of McDonald & Company Securities, Inc., are the
general partners of Florida Income Fund, L.P. The Mariner Group, Inc. owns a 60%
interest and Mr. Bogott owns a 25% interest in Mariner Capital Management, Ltd.
Although South Seas and Florida Income Fund, L.P. believe the exercise price for
the option to be fair, given the relationships of the parties involved, the
exercise price of the option cannot be considered to have been negotiated fully
at arm's length.

     The Management Company currently manages the Best Western Pink Shell Beach
Resort pursuant to the terms of a management agreement between the Management
Company and Florida Income Fund III, L.P. Under such Management Agreement, the
Management Company receives 6% of the gross revenues generated by this Property,
plus reimbursement of all costs incurred in connection with the operation of
this Property. This management agreement expires on the sale of this


                                      -30-
<PAGE>   31

property, which is anticipated to occur in May 1998. South Seas has agreed to
lease the property from the buyer, a public REIT, under a separate transaction.
Mariner Capital Management, Inc. and MCD Real Estate, Inc. are also the general
partners of Florida Income Fund III, L.P. (See audited financial statements -
Subsequent Events footnote).

     The following individuals directly or indirectly owned the following
interests in The Mariner Group, Inc. as of the dates set forth below:
<TABLE>
<CAPTION>

                   Jan 1, 1995        Jan 1, 1996    Jan 1, 1997
<S>                   <C>                <C>            <C>
Robert M. Taylor(l)   16.73%             16.53%         16.51%
Robert F. Anderson(2) 12.61%             15.18%         15.17%
Allen G. Ten Broek    11.09%             11.54%         11.53%
Timothy R. Bogott(3)   0.82%              1.24%          1.24%
Richard E. Krichbaum   0.33%               .32%           .32%
G. Scott Siler         0.81%               .79%           .79%
Michael B. Peceri      1.01%              1.03%          1.03%
<FN>

(1)  Includes shares held by partnerships for the benefit of Mr. Taylor's family
     or in his spouse's name.

(2)  Includes shares held by Mr. Anderson as trustee with respect to trusts
     established for the benefit of Mr. Anderson's family.

(3)  Includes shares held in an IRA account.
</TABLE>

Other Transactions

              In 1997, a $500,000 option payment on land purchase was paid to an
affiliate.

              Mr. Taylor and Mr. Ten Broek (or the limited liability company,
San-Cap, L.C.) received in the aggregate $78,000, $81,000 and $66,000 for the
years 1995, 1996 and 1997, respectively, from South Seas Resort Limited
Partnership, a 99%-owned Subsidiary of South Seas, as fees for services
performed in their capacities as general partners of such limited partnership.
Mr. Taylor and Mr. Ten Broek each received 50% of such fees, which were
calculated by multiplying gross revenues of the partnership by 0.15% pursuant to
the terms of its partnership agreement. Effective October 1997, South Seas
issued a total of 40,000 partnership units to Messrs. Taylor and Ten Broek in
exchange for termination of this fee.

              Between September and November 1994, South Seas issued $2,950,000
aggregate principal amount of promissory notes earning interest at 14% per annum
to 23 accredited purchasers. These notes matured and were redeemed on December
29, 1995. The following individuals purchased notes in the following amounts in
September 1994:
<TABLE>
<CAPTION>

<S>                                                             <C>
       Mr. Anderson (as trustee)                                $200,000
       Mr. Bogott                                               $100,000
       Mr. Peceri                                               $ 50,000
</TABLE>

     Between January and May 1995, South Seas issued $5,000,000 aggregate
principal amount of mortgage notes bearing interest at 13%


                                      -31-
<PAGE>   32

per annum. Mr. Taylor, together with his spouse, purchased $60,000 aggregate
principal amount of these notes. The notes were repaid in full with proceeds of
the public debt offering in March, 1996.

               Effective January 1, 1995, South Seas issued (i) 421,049 Units to
Jolly Roger Resort, Ltd., a Florida limited partnership, in exchange for the
Best Western-Sanibel and (ii) 252,835 Units to Song of the Sea Company, Ltd., a
Florida limited partnership, in exchange for the Song of the Sea Inn. For
purposes of these transactions, an aggregate value of $5,343,111.81 ($12.69 per
Unit) was ascribed to the Units received by Jolly Roger Resort, Ltd. and an
aggregate value of $3,208,476.15 ($12.69 per Unit) was ascribed to the Units
received by Song of the Sea Company, Ltd. See Note 1 to the Consolidated
Financial Statements for a discussion of the accounting treatment of these
transactions. Mariner Capital Partnerships, Inc. was the general partner of each
of Jolly Roger Resort, Ltd. and Song of the Sea Company, Ltd. and its combined
ownership and carried interest equaled 14.5% and 11.4% of Jolly Roger Resort,
Ltd. and Song of the Sea, Ltd., respectively. The Mariner Group, Inc. owned a
60% interest and Mr. Bogott owned a 25% interest in Mariner Capital
Partnerships, Inc. as of January 1, 1995. The following individuals owned the
following interests, directly and indirectly, in Song of the Sea Company, Ltd.
as of January 1, 1995:
<TABLE>
<CAPTION>

<S>                                                                   <C>
       Mr. Taylor......................................................2.2500%
       Mr. Bogott......................................................4.4545%
       Mr. Peceri......................................................4.4545%
       Mr. Krichbaum (and family)......................................0.5728%
</TABLE>

              The determination of the per Unit value referred to in the
preceding paragraph and the number of Units transferred in each transaction was
based on values ascribed to the properties owned by South Seas and the
properties transferred to South Seas as described above. The gross values of
these properties were generally determined by capitalizing income, using
trailing 12-month adjusted operating income available to service debt and
various multiples selected by the parties ranging from 9 to 13, then deducting
outstanding indebtedness and making other adjustments as necessary. Mr. Taylor,
Mr. Bogott and Mr. Krichbaum coordinated the valuation process.



                                      -32-
<PAGE>   33





                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                                   SIGNATURES
                                DECEMBER 31, 1997

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.









/s/ Robert M. Taylor                                 /s/ Richard E. Krichbaum
ROBERT M. TAYLOR                                     RICHARD E. KRICHBAUM
CHAIRMAN OF T&T RESORTS, L.C.                        VICE PRESIDENT OF FINANCE
GENERAL PARTNER OF                                   S.S. RESORT MANAGEMENT L.C.
SOUTH SEAS PROPERTIES                                GENERAL PARTNER OF
COMPANY LIMITED PARTNERSHIP                          SOUTH SEAS RESORTS
(SIGNATURE)                                          COMPANY, L.P.
MARCH 31, 1998                                       (SIGNATURE)
                                                     MARCH 31,1998




/s/ Timothy R. Bogott                                /s/ Virginia S. Brooks
TIMOTHY R. BOGOTT                                    VIRGINIA S. BROOKS
PRESIDENT                                            CORPORATE CONTROLLER
S.S. RESORT MANAGEMENT, L.C.                         S.S. RESORT MANAGEMENT,
GENERAL PARTNER OF SOUTH SEAS                        L.C.
RESORTS COMPANY, L.P.                                GENERAL PARTNER OF SOUTH
(SIGNATURE)                                          SEAS RESORTS COMPANY, L.P.
MARCH 31, 1998                                       (SIGNATURE)
                                                     MARCH 31, 1998




                                      -33-
<PAGE>   34




                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP


                       CONSOLIDATED FINANCIAL STATEMENTS,
                 TOGETHER WITH REPORT OF INDEPENDENT ACCOUNTANTS

                                      AS OF
                           DECEMBER 31, 1996 AND 1997
          AND FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997





<PAGE>   35








                                 C O N T E N T S


                                                                       Page

REPORT OF INDEPENDENT ACCOUNTANTS                                         1

CONSOLIDATED FINANCIAL STATEMENTS

   Consolidated balance sheets                                            2

   Consolidated statements of operations                                  3

   Consolidated statements of partners' capital deficiency                4

   Consolidated statements of cash flows                                  5 - 6

   Notes to consolidated financial statements                             7 - 18


<PAGE>   36







                        REPORT OF INDEPENDENT ACCOUNTANTS
                        ---------------------------------






Advisory Board and Partners
South Seas Properties Company Limited Partnership
Fort Myers, Florida


We have audited the accompanying consolidated balance sheets of South Seas
Properties Company Limited Partnership as of December 31, 1996 and 1997 and the
related consolidated statements of operations, partners' capital deficiency, and
cash flows for each of the three years in the period ended December 31, 1997.
These consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated 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 audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of South
Seas Properties Company Limited Partnership as of December 31, 1996 and 1997 and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.







COOPERS & LYBRAND, L.L.P.


Miami, Florida
February 21, 1998




                                      -1-
<PAGE>   37
<TABLE>
<CAPTION>
                         SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                                      CONSOLIDATED BALANCE SHEETS
                                             (IN THOUSANDS)

                                                                                                       December 31
                                                                                           -----------------------------------
      ASSETS                                                                                   1996                 1997
                                                                                              -----                 ----

<S>                                                                                       <C>                   <C>
CURRENT ASSETS
      Cash and cash equivalents                                                           $   6,459             $   2,933
      Restricted cash                                                                           201                   144
      Accounts receivable, trade                                                              6,743                 5,814
      Receivables from affiliates                                                               543                    27
      Inventories                                                                             1,677                 1,714
      Prepaid expenses and other                                                              1,637                 2,255
                                                                                          ---------             ---------
             Total current assets                                                            17,260                12,887

PROPERTY, PLANT AND EQUIPMENT, net                                                           79,904                87,684

LOAN COSTS, net                                                                               5,660                 4,386

GOODWILL, net                                                                                 6,440                 6,942

OTHER ASSETS                                                                                  1,778                 3,484
                                                                                          ---------             ---------

             Total assets                                                                 $ 111,042             $ 115,383
                                                                                          =========             =========


      LIABILITIES AND PARTNERS' CAPITAL DEFICIENCY

CURRENT LIABILITIES
      Current maturities of notes and mortgages payable                                   $   2,015             $   1,500
      Accounts payable                                                                        4,410                 4,986
      Accrued expenses                                                                        2,197                 1,767
      Accrued payroll and related                                                             2,743                 3,772
      Customer deposits                                                                       4,976                 5,297
      Deferred revenue                                                                        1,585                 1,949
                                                                                          ---------             ---------
             Total current liabilities                                                       17,926                19,271

NOTES AND MORTGAGES PAYABLE, less current maturities                                         65,988                70,163

BONDS PAYABLE, less current maturities                                                       43,500                43,500

OTHER LONG-TERM OBLIGATION                                                                    1,305                 1,305

COMMITMENTS AND CONTINGENCIES

PARTNERSHIP UNITS SUBJECT TO REDEMPTION                                                         825                   825

MINORITY INTERESTS                                                                               27                    30

PARTNERS' CAPITAL DEFICIENCY                                                                (18,529)              (19,711)
                                                                                          ---------             ---------

             Total liabilities and partners' capital deficiency                           $ 111,042             $ 115,383
                                                                                          =========             =========

</TABLE>

The accompanying notes are an integral part of these financial statements

                                      -2-


<PAGE>   38

<TABLE>
<CAPTION>
                              SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                    (IN THOUSANDS, EXCEPT PER UNIT DATA)

                                                                                                Year Ended December 31
                                                                               ----------------------------------------------------

                                                                                         1995               1996              1997
                                                                                         ----               ----              ----
<S>                                                                                   <C>               <C>               <C>
REVENUES
      Rooms                                                                           $  58,259         $  64,427         $  70,768
      Food and beverage                                                                  17,756            18,701            20,496
      Retail                                                                              5,811             6,108             6,263
      Golf                                                                                2,331             3,276             3,760
      Spa and fitness                                                                     1,230             2,448             2,640
      Other                                                                              13,696            15,365            15,506
                                                                                      ---------         ---------         ---------
             Total  revenues                                                             99,083           110,325           119,433
                                                                                      ---------         ---------         ---------

EXPENSES
      Rooms                                                                              13,106            15,033            16,755
      Food and beverage                                                                  13,413            14,756            15,913
      Retail                                                                              4,215             4,333             4,561
      Golf                                                                                  902               874               940
      Spa and fitness                                                                       731             1,408             1,590
      Other                                                                               6,043             6,438             6,319
      Condominium lease and rental expenses                                              16,823            18,296            18,212
      Sales and marketing                                                                 6,107             7,773             7,599
      Maintenance and grounds                                                             4,660             5,711             6,091
      General and administrative - resort properties                                     16,884            17,132            18,180
      General and administrative - corporate overhead                                     3,073             2,855             3,939
      Termination of  fee paid to subsidiary's general partner                             --                --                 480
      Depreciation and amortization                                                       5,703             7,326             9,105
                                                                                      ---------         ---------         ---------

             Total operating expenses                                                    91,660           101,935           109,684
                                                                                      ---------         ---------         ---------

Income before non-operating items and extraordinary item                                  7,423             8,390             9,749

      Interest expense                                                                   (9,391)          (10,536)          (10,181)
      Net gain/(loss) on disposal/sale of fixed assets                                     (266)                4              --
      Acquisition costs and other                                                          (340)             (185)             (197)
      Minority interests                                                                    (13)              (10)              (19)
                                                                                      ---------         ---------         ---------
Loss before extraordinary item                                                           (2,587)           (2,337)             (648)
      Extraordinary expense (write-off of loan costs)                                      --              (2,046)             --
                                                                                      ---------         ---------         ---------

             Net loss                                                                 $  (2,587)        $  (4,383)        $    (648)
                                                                                      =========         =========         =========

Net loss per unit before extraordinary expense                                        $    (.60)        $    (.53)        $    (.15)
                                                                                      =========         =========         =========
Net loss per unit for extraordinary expense                                           $    --           $    (.47)        $    --
                                                                                      =========         =========         =========
Net loss per unit, basic and diluted                                                  $    (.60)        $   (1.00)        $    (.15)
                                                                                      =========         =========         =========

Weighted average units outstanding                                                        4,279             4,370             4,461
                                                                                      =========         =========         =========
</TABLE>

The accompanying notes are an integral part of these financial statements




                                      -3-
<PAGE>   39
<TABLE>
<CAPTION>


                                      SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                                   CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL DEFICIENCY
                                            (IN THOUSANDS, EXCEPT PER UNIT DATA)

                                                               Outstanding Units
                                                       --------------------------------
                                                        General     Limited               General      Limited
                                                       Partners    Partners       Total   Partners     Partners      Total
                                                       --------    --------       -----   --------     --------      -----

<S>                                                    <C>         <C>         <C>        <C>         <C>         <C>
Balance, December 31, 1994                                  851       3,368       4,219   $    (39)   $ (9,483)   $ (9,522)


Net loss for the year ended
  December 31, 1995                                          --          --          --       (511)     (2,076)     (2,587)

Units issued to purchase resort property                     --          71          71         --         906         906

Units issued for conversion of debt to equity                --          18          18         --         225         225

Partnership units subject to redemption                      --          --          --         --        (825)       (825)

Distributions ($.40 per unit)                                --          --          --       (341)     (1,383)     (1,724)
                                                       --------    --------    --------   --------    --------    --------


Balance, December 31, 1995                                  851       3,457       4,308       (891)    (12,636)    (13,527)


Net loss for the year ended
  December 31, 1996                                          --          --          --        (44)     (4,339)     (4,383)

Distributions ($.28 per unit)                                --          --          --        (12)     (1,217)     (1,229)

Management equity units issued                               --         118         118         --       1,180       1,180

Notes receivable on management equity units                  --          --          --         --        (570)       (570)

Units exchanged into limited partner units                 (807)        807          --         --          --          --
                                                       --------    --------    --------   --------    --------    --------

Balance, December 31, 1996                                   44       4,382       4,426       (947)    (17,582)    (18,529)


Net loss for the year ended
  December 31, 1997                                          --          --          --         (6)       (642)       (648)

Distributions ($.30 per unit)                                --          --          --        (13)     (1,325)     (1,338)

Management equity units issued                               --          50          50         --         597         597

Units issued in exchange for termination
     of fee paid to subsidiary's general partner             --          40          40         --         480         480

Notes receivable on management equity units                  --          --          --         --        (273)       (273)

Units  exchanged into general partner units                   1          (1)         --         --          --          --
                                                       --------    --------    --------   --------    --------    --------

Balance, December 31, 1997                                   45       4,471       4,516   $   (966)   $(18,745)   $(19,711)
                                                       ========    ========    ========   ========    ========    ========


</TABLE>


The accompanying notes are an integral part of these financial statements



                                      -4-
<PAGE>   40

<TABLE>
<CAPTION>

                             SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                                               PAGE 1 OF 2
                                             (IN THOUSANDS)

                                                                                           Year Ended December 31
                                                                          -----------------------------------------------------
                                                                                1995              1996               1997
                                                                                ----              ----               ----
<S>                                                                         <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Cash received from customers and others                               $ 102,747         $ 109,233         $ 121,214
      Cash paid to suppliers, employees and affiliates                        (86,985)          (94,952)         (100,132)
      Interest paid                                                            (9,191)          (12,527)          (10,189)
      Interest received                                                           520               656               208
                                                                            ---------         ---------         ---------
             Net cash provided by operating activities                          7,091             2,410            11,101
                                                                            ---------         ---------         ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Capital expenditures                                                     (8,389)           (8,969)           (8,779)
      Net cash acquired (used) in resorts property purchases                      353              --              (3,411)
      Proceeds from sale of assets                                                202                 2              --
      Loans to affiliates, net of repayments                                      433              (543)              190
      Change in restricted cash                                                (4,896)            5,617                57
      Acquistion costs and deposits                                              (572)             (185)             (967)
      Option payments                                                            --                --                (911)
                                                                            ---------         ---------         ---------
             Net cash used in investing activities                            (12,869)           (4,078)          (13,821)
                                                                            ---------         ---------         ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Proceeds from long-term debt                                             28,589            70,480                79
      Deferred loan costs                                                      (1,173)           (6,438)             (260)
      Principal payments, long-term debt                                      (13,404)          (38,645)           (1,803)
      Principal payments, under capital lease obligations                        (422)             (613)             (267)
      Principal payments, bonds payable                                        (1,890)          (12,998)             --
      Payments under line of credit                                              --             (11,885)          (11,007)
      Draws under line of credit                                                 --               1,500            13,673
      Proceeds from sale of equity units under option plan                       --                 610               324
      Distributions to partners                                                (1,724)           (1,229)           (1,338)
      Distributions to minority interest, net of contributions                    (10)                5               (16)
      Other                                                                      (113)             --                (191)
                                                                            ---------         ---------         ---------

             Net cash provided by/(used in) financing  activities               9,853               787              (806)
                                                                            ---------         ---------         ---------

Net increase/(decrease) in cash                                                 4,075              (881)           (3,526)

Cash and cash equivalents, beginning of year                                    3,265             7,340             6,459
                                                                            ---------         ---------         ---------

Cash and cash equivalents, end of year                                      $   7,340         $   6,459         $   2,933
                                                                            =========         =========         =========

</TABLE>

The accompanying notes are an integral part of these financial statements




                                       -5-
<PAGE>   41
<TABLE>
<CAPTION>

                             SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                                               PAGE 2 OF 2
                                             (IN THOUSANDS)

                                                                                         Year Ended December 31
                                                                          -----------------------------------------------------
                                                                              1995            1996            1997
                                                                             -----           -----            ----
RECONCILIATION OF NET LOSS TO NET CASH
    CASH PROVIDED BY OPERATING ACTIVITIES:
<S>                                                                        <C>             <C>             <C>
      Net loss                                                             $ (2,587)       $ (4,383)       $   (648)
                                                                           --------        --------        --------
      Adjustments to reconcile net loss to net cash
        provided by operating activities
             Depreciation/amortization expense                                5,703           7,326           9,105
             (Gain)/loss on disposal/sale of fixed assets                       266              (4)             --
             Minority interest                                                   13              10              19
             Acquisition costs and other                                        340             185             197
             Extraordinary item - write-off of loan costs                        --           2,046              --
             Termination of fee paid to subsidiary's general partner             --              --             480
      Changes in assets and liabilities (net of acquisitions) (Increase)
        decrease in:
             Accounts receivable, net                                           (93)           (482)            946
             Inventories                                                       (150)            170             (37)
             Prepaid expenses and other assets                                 (412)            222            (409)
      Increase (decrease) in:
             Accounts payable                                                  (855)          1,264             299
             Accrued expenses                                                 2,651          (4,724)            561
             Customer deposits                                                1,325             268             224
             Deferred revenues                                                  890             512             364
                                                                           --------        --------        --------

                Total adjustments                                             9,678           6,793          11,749
                                                                           --------        --------        --------

Net cash provided by operating activities                                  $  7,091        $  2,410        $ 11,101
                                                                           ========        ========        ========

Supplemental schedule of noncash investing and financing activities:

      Capital lease obligations of $491 were incurred during 1995 when South
      Seas entered into leases for the upgrade of equipment.

      In 1995, South Seas acquired the Sanibel Inn in exchange for 71,374
      partnership units. As part of the exchange, South Seas acquired $13.4
      million in assets and assumed $12.3 million in liabilities.

      In 1995, South Seas issued 17,730 partnership units for the satisfaction
      of $225 of accrued interest payable.

      In 1997, South Seas issued 40,000 partnership units in exchange for the
      termination of fee paid to subsidiary's  general partner's charged at
      South Seas Resort, L.P. (South Seas Plantation, a consolidated
      partnership).

      In 1997, depreciable land improvements (due to a beach renourishment
      program completed by Lee County), of approximately $480 were recorded, as
      well as, the related note payable.


The accompanying notes are an integral part of these financial statements

</TABLE>


                                       -6-
<PAGE>   42




                              SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                     (IN THOUSANDS, EXCEPT PER UNIT DATA)

NOTE 1.         NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

                NATURE OF BUSINESS

                  South Seas Properties Company Limited Partnership (South Seas)
                  is a beachfront and destination resort owner/operator in
                  Florida. South Seas owns seven resort properties and a golf
                  and tennis club all located on Florida's southwest coast. The
                  properties range from the 552-room (including leased
                  condominiums) South Seas Plantation on Captiva Island to the
                  30-unit Song of the Sea bed-and-breakfast inn on Sanibel
                  Island. The resorts contain numerous facilities and amenities,
                  including leased condominium units, hotel rooms, restaurants,
                  conference centers, retail outlets and recreation facilities.
                  In addition, South Seas' management company subsidiary, South
                  Seas Resorts Company, L.P. manages one other hospitality
                  property located on Ft. Myers Beach and operates a resort and
                  spa located in the Tampa/Clearwater area on Florida's west
                  coast.

                RISK FACTORS

                  The business of South Seas is substantially dependent on
                  tourism and leisure and business travel, which is dependent on
                  general economic conditions in the U.S. and Europe. South Seas
                  leases and rents condominiums units at three resort
                  properties. A decline in the number of property owners that
                  participate in the guaranteed lease and rental programs may
                  have a material adverse affect on South Seas? results of
                  operations and financial condition.

                SIGNIFICANT ACCOUNTING POLICIES


                  BASIS OF PRESENTATION

                  The accompanying consolidated financial statements include the
                  accounts of South Seas and its majority owned subsidiaries.
                  All material intercompany transactions and balances have been
                  eliminated in consolidation.

                  On January 1, 19974, South Seas acquired four operating
                  businesses from The Mariner Group, Inc. (Mariner) in exchange
                  for 591,758 partnership units. The acquired businesses
                  included a resort, golf course, reservation system and related
                  real estate sales and management contracts and personnel. In
                  1995, South Seas acquired two additional operating resort
                  properties (Song of the Sea Inn and Best Western-Sanibel
                  Island Beach Resort) in exchange for 673,884 partnership
                  units. The resorts were organized and managed by a Mariner
                  subsidiary that also served as general partner.

                  Because there was a high degree of common ownership and
                  control, the acquisitions discussed above have been accounted
                  for as reorganizations, in a manner similar to a pooling of
                  interests. Accordingly, the accounts of the acquired
                  businesses and partnership units issued have been included in
                  the accompanying financial statements for all periods
                  presented, at historical cost.

                CASH EQUIVALENTS

                  Cash equivalents consist of overnight repurchase agreements
                  with an initial term of less than three months. For purposes
                  of the statement of cash flows, South Seas considers all
                  highly liquid debt instruments with original maturity of three
                  months or less to be cash equivalents. There were no amounts
                  invested in such agreements at December 31, 1996 or 1997.

                                      -7-
<PAGE>   43
                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (IN THOUSANDS, EXCEPT PER UNIT DATA)

NOTE 1.         NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES CONTINUED

                RESTRICTED CASH

                  Deposits from purchasers of condominiums and interval
                  ownership condominium units are deposited in escrow accounts
                  until closing. At December 31, 1995, approximately $5.6
                  million of restricted cash was reserved to retire bonds
                  payable in January 1996.

                INVENTORIES

                  Inventories are stated at the lower of cost (first-in,
                  first-out basis) or market.

                PROPERTY, PLANT AND EQUIPMENT

                  Property, plant and equipment is stated at cost. Depreciation
                  and amortization, which includes the amortization of assets
                  recorded under capital leases, has been computed principally
                  on the straight-line basis over the estimated useful lives as
                  follows:
<TABLE>
<CAPTION>

<S>                                                                         <C>
                     Buildings and leasehold improvements                   Shorter of 39 years or remaining
                                                                            lease term
                     Furniture, fixtures and equipment                      5 years
                     Heavy equipment                                        5-7 years
                     Expendable supplies                                    3 years
</TABLE>

                  Expendable supplies include linens, china, silverware and
                  glassware. They are depreciated to 100% of the cost of initial
                  stock. Replacements are expensed when purchased.

                  When depreciable assets are retired or sold, the cost and
                  related allowance for depreciation are removed from the
                  accounts, and the resulting gain or loss is included in net
                  income or loss. South Seas assesses the carrying value of its
                  fixed assets in order to determine whether an impairment has
                  occurred, taking into account both historical and forecasted
                  cash flows.

                  Maintenance and repairs, including the cost of minor
                  replacements, are charged to property maintenance expense
                  accounts. The cost of additions and betterments of property
                  are capitalized to property and equipment accounts.

                LOAN COSTS

                  South Seas enters into interest rate protection agreements to
                  manage well-defined interest rate risk and does not use them
                  for trading or speculative purposes. Loan costs, including
                  premiums paid for purchased interest rate protection and
                  interest rate swap agreements, incurred in connection with
                  financing agreements, have been deferred and are being
                  amortized over the term of the loans. Accumulated amortization
                  of loan costs was $514 and $2,128 at December 31, 1996 and
                  1997, respectively. Counter-parties to the interest rate swap
                  agreements are major financial institutions. Credit loss from
                  counter-party non-performance is not anticipated.

                  South Seas periodically reviews the net carrying cost of such
                  instruments and adjusts any material variances through
                  accumulated amortization and amortization expense. Similarly,
                  if a derivative were to mature, be sold, be extinguished or is
                  terminated, the asset, at its net carrying value, is removed
                  from the accounts and the resulting gain or loss is included
                  in net income or loss.



                                      -8-
<PAGE>   44
                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (IN THOUSANDS, EXCEPT PER UNIT DATA)



NOTE 1.         NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES CONTINUED

                GOODWILL

                  Goodwill represents the excess of the purchase price over net
                  assets of businesses acquired and is being amortized on a
                  straight-line basis over 20-25 years. On a continual basis,
                  South Seas assesses the carrying value of goodwill in order to
                  determine whether an impairment has occurred, taking into
                  account both historical and forecasted cash flows. Accumulated
                  amortization of goodwill was $2,692 and $3,102 at December 31,
                  1996 and 1997, respectively.

                REVENUES

                  Revenues from operations are recognized when services are
                  provided to guests. Deferred revenues represent prepaid golf
                  or spa memberships and gift certificates sold.

                INCOME TAXES

                  South Seas income or loss is passed through to the partners
                  for inclusion in their respective tax returns; therefore,
                  there is no provision for income taxes in the accompanying
                  financial statements.

                ADVERTISING COSTS

                  South Seas expenses the production costs of advertising the
                  first time the advertising takes place.

                MANAGEMENT'S USE OF ESTIMATES

                  The preparation of financial statements in conformity with
                  generally accepted accounting principles requires 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 amount of revenues and expenses during the
                  reporting period. Actual results could differ from those
                  estimates.

                FAIR VALUE DISCLOSURE

                  The carrying amounts of cash and cash equivalents, short-term
                  debt and long-term, variable rate debt approximates fair
                  value. South Seas estimates the fair value of its long-term,
                  fixed rate debt generally using discounted cash flow analysis
                  based on South Seas current borrowing rates for debt with
                  similar maturities.

                EARNINGS/(LOSS) PER UNIT

                  In February 1997, the Financial Accounting Standards Board
                  issued Statement of Financial Accounting Standards No. 128,
                  (SFAS 128), EARNINGS PER SHARE (EPS). SFAS 128 specifies new
                  standards designed to improve the EPS information provided in
                  financial statements by simplifying the existing computational
                  guidelines, revising the disclosure requirements, and
                  increasing the comparability of EPS data on an international
                  basis. SFAS 128 is effective for fiscal periods ending after
                  December 15, 1997. The required disclosures of this
                  pronouncement have been included in the accompanying notes.

                  Basic net loss per unit is computed by dividing net loss by
                  the weighted average number of partnership units outstanding
                  during the period. Accordingly, units outstanding for per unit
                  purposes is lower than actual units issued and outstanding at
                  year end. Loss per unit assuming dilution is computed by
                  dividing net loss by the weighted average number of units
                  outstanding, increased by assumed conversion of other
                  potentially dilutive securities during the period.


                                      -9-
<PAGE>   45


                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (IN THOUSANDS, EXCEPT PER UNIT DATA)


NOTE 1.         NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES CONTINUED

                ALLOCATION OF NET INCOME/(LOSS)

                  Income/(loss) is allocated to the general partner and limited
                  partners based on partnership units owned compared to total
                  outstanding units. As of December 31, 1996 South Seas had
                  outstanding 4,426,568 units of which the general partners
                  owned 44,273 general partner units. As of December 31, 1997,
                  South Seas had outstanding 4,515,818 units of which the
                  general partner owned 45,158 general partner units.

                NEW ACCOUNTING PRONOUNCEMENTS

                  SFAS 130, Reporting Comprehensive Income, is effective for
                  fiscal years beginning after December 15, 1997. This Statement
                  establishes standards for reporting and display of
                  comprehensive income and its components in a full set of
                  general-purposes financial statements. This Statement requires
                  that all items that are required to be recognized under
                  accounting standards as components of comprehensive income be
                  reported in a financial statement that is displayed with the
                  same prominence as other financial statements. South Seas does
                  not expect this standard to have a significant impact on its
                  reporting practices.

                  SFAS 131, Disclosures about Segments of an Enterprise and
                  Related Information, effective for fiscal years beginning
                  after December 15, 1997, establishes standards for reporting
                  information about operating segments in annual financial
                  statements and interim financial reports issued to
                  unitholders. Generally, certain financial information is
                  required to be reported on the basis that is used internally
                  for evaluating performance of and allocation of resources to
                  operating segments. South Seas has not yet determined to what
                  extent the standard will impact its current practice of
                  reporting operating segment information.

                RECLASSIFICATIONS

                  Certain amounts in the financial statements have been
                  reclassified to conform to the current presentation. These
                  reclassifications had no effect on the results of operations
                  previously reported.

NOTE 2.         ACQUISITIONS/LEASE OF RESORT PROPERTY

                  On September 23, 1994, South Seas purchased the Radisson Suite
                  Beach Resort (Marco Radisson) for $23.5 million. The purchase
                  price was funded through a first mortgage in the amount of
                  $18.5 million, a contractual payment obligation in the amount
                  of $3.1 million, which was discounted at 14.8% to a value of
                  approximately $1.5 million (approximately $1.4 million as of
                  December 31, 1997), and the balance in cash. Terms of the
                  discounted obligation require total annual payments (paid in
                  equal quarterly installments) of $309 in 1998, $344 in 1999,
                  $421 in 2001, $462 in 2002, and three quarterly payments of
                  $126 each in 2003.

                  Also, an additional payment could be due to the seller of the
                  property, under certain conditions. This additional payment is
                  payable upon the following events: i) the sale of the property
                  in which the minimum amount due the seller is $1.5 million or
                  in the alternative ii) prior to any sale, the seller may
                  exercise an option to be paid on 15% of the increased net
                  value of the property which is computed using a multiple of
                  adjusted net operating income (as defined in the agreement)
                  less the cost basis of the property. Upon exercise of the
                  option, which can occur annually, South Seas is obligated to
                  pay the seller the computed amount over a five-year period
                  with interest at 8%. If exercised, this amount would be
                  treated as additional purchase price. As of December 31, 1997
                  no amounts were due.




                                      -10-
<PAGE>   46

                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (IN THOUSANDS, EXCEPT PER UNIT DATA)


NOTE 2.         ACQUISITIONS/LEASE OF RESORT PROPERTY CONTINUED

                  On June 1, 1995, South Seas purchased the Sanibel Inn, a
                  96-room hotel, for $13.4 million. In connection with the
                  acquisition, South Seas assumed liabilities of $12.3 million
                  and issued 71,374 units valued at $906. Pursuant to an
                  agreement between the parties, the former owners may receive
                  up to a maximum of $700 of additional consideration based on a
                  review of net operating income of the acquired resort at
                  December 31, 1998. The purchase price related to the
                  acquisition discussed above was allocated primarily to
                  property, plant and equipment. The contingent consideration,
                  if required to be paid, would be treated as additional
                  purchase price.

                  In June, 1995, South Seas entered into a four year lease
                  agreement, (amended in January 1997) with an option to extend
                  the lease term up to an additional six years and an option to
                  purchase the Safety Harbor Resort and Spa in Safety Harbor,
                  Florida. The amended lease requires annual payments of $1.2
                  million (allocated between rental payments and deposit toward
                  purchase price) and minimum capital improvements of $3.0
                  million during the term of the lease. The option is
                  exercisable no later than May 31, 2000. The exercise price of
                  the option is $11.4 million (less approximately $3.0 million
                  in scheduled option payments payable over the term of the
                  lease) with an additional earn-out arrangement, payable over
                  a number of years based on the financial results of the
                  property, of $8.0 million.

                  On January 6, 1997, South Seas purchased from an affiliated
                  limited partnership, real and personal property used in the
                  operation of the Seaside Inn on Sanibel Island, Florida for
                  $6.5 million. In connection with the acquisition, South Seas
                  assumed liabilities of $2.5 million.

                  All the acquisitions noted above have been accounted for using
                  the purchase method of accounting. Accordingly, the results of
                  operations of the acquired properties and the leased property
                  are included in South Seas results of operations from the
                  respective dates of acquisition or lease.

                  The aggregate consideration for South Seas' acquisitions has
                  been allocated to the assets and liabilities acquired based
                  upon their respective fair values. The components of the
                  purchase price allocation, including fees and expenses are as
                  follows:
<TABLE>
<CAPTION>

                                                                                          1995           1997
                                                                                          ----           ----
<S>                                                                                    <C>            <C>
                    Fair value of net assets acquired, excluding
                       cash acquired                                                   $ 13,067       $  5,184

                      Goodwill                                                             --              911

                     Partnership units issued for the satisfaction
                       of accrued interest payable                                         (225)          --

                     Partnership units issued(906)                                         --

                     Notes payable and other liabilities assumed                        (12,289)        (2,684)
                                                                                       --------       --------

                     Cash used (acquired) in acquisition of properties                 $   (353)      $  3,411
                                                                                       ========       ========
</TABLE>


                The following presents unaudited proforma condensed results of
                operations for the year ended December 31, 1996 as if South Seas
                had acquired Seaside Inn on January 1, 1996. The proforma
                adjustments include elimination of amortization expense related
                to loan costs and restatement of depreciation and interest
                expense for a combined improvement in net income of $82. The
                proforma results are presented for informational purposes only
                and are not necessarily indicative of the future results of
                operations of South Seas or the results of South Seas had the
                acquisition occurred January 1, 1996.



                                      -11-
<PAGE>   47

                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (IN THOUSANDS, EXCEPT PER UNIT DATA)


NOTE 2.         ACQUISITIONS/LEASE OF RESORT PROPERTY CONTINUED

<TABLE>
<CAPTION>
                                                                               Proforma
                                                                               Results
                                                                               -------

<S>                                                                            <C>
                              Net revenues                                     $111,752

                              Net loss                                       $   (4,210)
                                                                             ==========

                              Net loss per unit - basic and
                                diluted                                      $    (0.96)
                                                                             ==========
</TABLE>

NOTE 3.         INVENTORIES

                Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
                                                                                      1996                 1997
                                                                                      ----                 ----
<S>                                                                                 <C>                  <C>
                     Food and beverage                                              $  451               $  498
                     Retail outlets                                                    912                  864
                     Other supplies                                                    314                  352
                                                                                    ------               ------
                                                                                    $1,677               $1,714
                                                                                    ======               ======
</TABLE>

NOTE 4.         PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                Property, plant and equipment consisted of the following
                 at December 31:
                                                                                      1996              1997
                                                                                      ----              ----
<S>                                                                                 <C>              <C>
                Resort, restaurants and recreational
                  facilities, including property held under
                   capital leases of $1,454 and $1,119
                        at December 31, 1996 and 1997, respectively                 $ 119,602        $ 134,400
                     Less:
                       Accumulated depreciation and amortization                      (39,698)         (46,716)
                                                                                    ---------        ---------
                                                                                    $  79,904        $  87,684
                                                                                    =========        =========
</TABLE>

                Included in property, plant and equipment is land with a
                carrying value of $17.6 million and $19.0 at December 31, 1996
                and 1997.

                Depreciation and capital lease amortization was $4,520, $5,756
                and $7,053 for the years ended December 31, 1995, 1996 and 1997,
                respectively.

                During 1995, South Seas capitalized interest of approximately
                $97 during the period that it's golf and tennis club was closed
                for renovation. During 1996, South Seas capitalized interest of
                approximately $44 during the period that it remodeled and
                refurbished a major dining facility and retail center.


NOTE 5.         OTHER ASSETS

                 Other assets consisted of the following at December 31:




                                      -12-
<PAGE>   48
                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (IN THOUSANDS, EXCEPT PER UNIT DATA)



NOTE 5.         OTHER ASSETS CONTINUED
<TABLE>
<CAPTION>

                                                                                               1996        1997
                                                                                               ----        ----

<S>                                                                                           <C>        <C>
                     Option payments on leased property                                       $   --     $  911

                     Deposits or costs incurred on possible future acquisitions                  436        820

                     Costs incurred with investment banker                                        81        425

                     Investment in unconsolidated affiliates                                     380        550

                     Other                                                                       881        778
                                                                                              ------     ------
                                                                                              $1,778     $3,484
                                                                                              ======     ======
<CAPTION>

NOTE 6.         NOTES AND MORTGAGES PAYABLE

                Notes and Mortgages Payable consisted of the following
                 at December 31:                                                             1996        1997
                                                                                            -----        ----
<S>                                                                                      <C>          <C>
                  Notes payable to financial institution

                        Mortgage note payable                                            $ 40,000     $ 38,250

                        Revolving credit notes                                             27,107       32,350

                     Note payable to Lee County for beach renourishment, annual
                        principal payments of $72, plus accrued
                        interest at 6%, matures November 2003                                  --          434

                     Capital leases payable to financial
                       institutions, interest from
                       7.2% to 9.5% per annum, maturing
                       through 2001                                                           896          629
                                                                                         --------     --------
                                                                                           68,003       71,663

                     Less current maturities                                               (2,015)      (1,500)
                                                                                         --------     --------
                                                                                         $ 65,988     $ 70,163
                                                                                         ========     ========
</TABLE>

                The mortgage note payable of $38,250 at December 31, 1997 bears
                interest at LIBOR plus 225 to 300 basis points (the spread is
                determined by loan covenants relating to South Seas financial
                performance each quarter: 8.69% at December 31, 1997). Interest
                is due monthly, quarterly principal payments (as amended in
                February 1998) are $550 in March and June of 1998, $50 in
                September and December of 1998, $675 per quarter in 1999, $813
                per quarter in 2000, and $937 in 2001, with a balloon payment of
                approximately $29.2 million in September 2001. South Seas had
                two revolving credit notes at December 31, 1997, one under a $40
                million revolver drawn to $28,850 at year end and another fully
                drawn at $3.5 million. The $28,850 note bears interest at LIBOR
                plus 225 to 300 basis points (same covenants on rate as
                mentioned above: 8.70% at December 31, 1997) interest due
                monthly and no principal payments required until maturity in
                September 2001. The $3.5 million revolver is also subject to the
                same interest rate calculation as noted above, interest was
                8.53% at December 31, 1997. Interest is due monthly, with no
                principal payments required until maturity in September 2001.
                The notes and mortgages payable contain various covenants, the
                more restrictive relate to restrictions on additional
                borrowings, distributions to partners, and maintaining a minimum
                cash balance of $1.0 million. Unused commitment fees are 3/8 of
                1% per annum on the unused portion of the revolving credit
                notes, to be billed quarterly in arrears calculated on the
                average balance during the preceding quarter. Substantially, all
                assets are pledged

                                      -13-
<PAGE>   49
                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (IN THOUSANDS, EXCEPT PER UNIT DATA)





NOTE 6.         NOTES AND MORTGAGES PAYABLE  CONTINUED

                as collateral on the above debt at December 31, 1997. The
                weighted average interest rate on current maturities of notes
                and mortgages payable was 8.54% and 8.65% on December 31, 1996
                and 1997, respectively.

                In December, 1996, South Seas obtained an irrevocable
                transferable letter of credit, in an amount not to exceed $3.26
                million, for use as a replacement for a reserve fund established
                in connection with the 10% subordinated bonds. No amounts had
                been drawn at December 31, 1996 or 1997.

                Notes and mortgages payable are scheduled to mature
                approximately as follows:

<TABLE>
<CAPTION>
                              Year Ending
                               December 31
                               -----------
<S>                               <C>                                <C>
                                  1998                               $    1,500
                                  1999                                    3,123
                                  2000                                    3,357
                                  2001                                   63,538
                                  2002 and thereafter                       145
                                                                     ----------
                                                                     $   71,663
                                                                     ==========
</TABLE>

NOTE 7.           BONDS PAYABLE

                  In March 1996, South Seas sold $43.5 million of 10% (interest
                  paid monthly) subordinated bonds (the ("Bonds") which mature
                  in 2003. The Bonds are redeemable, in whole or in part, at the
                  option of South Seas at various redemption prices (108.24% to
                  112.62% of principal) during or after the year 2000.
                  Subsequent to the occurrence of certain events, the holders of
                  Bonds will be offered the opportunity to exchange the Bonds at
                  an exchange rate of $12 per unit (subject to adjustment in
                  certain circumstances). Upon the stated maturity of the Bonds,
                  holders will be offered the opportunity to exchange the Bonds
                  at an exchange rate of $10.50 per unit (subject to adjustment
                  in certain circumstances).

NOTE 8.           COMMITMENTS AND CONTINGENCIES

                  LEASE COMMITMENTS

                     South Seas is obligated under various operating leases for
                     equipment, office space and use of a resort facility. Total
                     lease commitments incurred under these leases was $1,473,
                     $2,099 and $1,994 for the years ended December 31, 1995,
                     1996 and 1997, respectively.

                     The future minimum commitments under the equipment leases,
                     office space and resort facility leases are as follows:
<TABLE>
<CAPTION>

                                   Year
                                  <S>                     <C>
                                   1998                     $1,821
                                   1999                      1,516
                                   2000                        684
                                   2001                        335
                                   2002                        330
                                                            ------
                                                            $4,686
                                                            ======
</TABLE>

                     South Seas has rental and lease obligations to certain
                     owners of condominium units for the use of their units,
                     under two separate programs.



                                  -14-
<PAGE>   50


                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (IN THOUSANDS, EXCEPT PER UNIT DATA)


NOTE 8.           COMMITMENTS AND CONTINGENCIES CONTINUED

                     The revenue-sharing program provides for variable monthly
                     income payments to owners based on the amount of income
                     generated by the owners' units each month. These rental
                     agreements are renewable on a yearly basis. Either party
                     may terminate the contract, provided a six-month written
                     notice is given to the other party.

                     The fixed lease program provides for fixed monthly payments
                     to owners based on the type, size, and condition of the
                     units. In addition, South Seas will pay additional rent to
                     the owners if approximately 40% of the annual gross income
                     generated by their units exceeds the amount of base lease
                     payments in a lease year. These leases are renewable on a
                     yearly basis. Either party may terminate the lease
                     agreement on the second anniversary date of the lease,
                     following receipt of written notice.

                     Total lease expense related to the fixed lease program for
                     the years ended December 31, 1995, 1996 and 1997 was $8.3
                     million, $8.3 million and $7.0 million, respectively. Based
                     on management's intentions to continue to renew these
                     leases on a yearly basis, the estimated future minimum
                     rental commitments under the fixed lease program will
                     approximate $7.0 million in 1998.

                   OTHER

                     South Seas is contingently liable with respect to
                     litigation incidental to the ordinary course of its
                     operations. In the opinion of management, based on the
                     advice of legal counsel, the ultimate disposition of
                     lawsuits will not have a material adverse affect on South
                     Seas financial position, results of operations, or cash
                     flows.

                     South Seas is self-insured, subject to "maximum loss"
                     limits for workers compensation, property and liability.
                     The insurance program is maintained by an affiliate who
                     administers a loss pool reserve into which South Seas pays
                     based upon its experience. Management believes the amount
                     paid and accrued is sufficient to cover future costs
                     related to the program.

                     South Seas has a redemption agreement with a senior
                     management officer to repurchase his partnership units.
                     Upon death or termination of his employment, South Seas is
                     obligated (at the officer's request) to repurchase 82,500
                     partnership units at a price equal to the greater of $12
                     per unit or such price as the advisory board of South Seas
                     determines. If it is a voluntary termination of employment,
                     South Seas will repurchase (at the officer's request)
                     82,500 units at $10 per unit.

                     CONCENTRATION OF CREDIT RISK

                     South Seas places cash deposits at major banks. At December
                     31, 1996 and 1997 bank account balances exceeded Federal
                     Deposit Insurance limits by approximately $6.5 million and
                     $2.7 million, respectively. Management believes credit risk
                     related to these deposits is minimal.

NOTE 9.            RELATED PARTY TRANSACTIONS

                   South Seas entered into the following transactions with
                   affiliates:

                     -   Included in general and administrative expenses for the
                         years 1995, 1996 and 1997 are fees of $78, $81 and $66
                         respectively, for services performed by the general
                         partners of a consolidated partnership.

                     -   In 1995, 1996, and 1997, South Seas paid an affiliate,
                         acting as an administrator , for insurance coverage of
                         $4,860, $3,543 and $3,609, respectively.



                                      -15-
<PAGE>   51


                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (IN THOUSANDS, EXCEPT PER UNIT DATA)




NOTE 9.            RELATED PARTY TRANSACTIONS CONTINUED

                     -   Interest expense on notes payable to related parties,
                         which were extinguished in 1996, was approximately at
                         $349 and $92 for the years ended December 31, 1995 and
                         1996, respectively.

                     -   Included in general and administrative expenses is rent
                         expense of $236, $261 and $260 for the years ended
                         December 31, 1995, 1996 and 1997, respectively, under
                         an operating lease with an affiliated entity for office
                         space.

                     -   Included in other assets is a $500 deposit on land
                         purchase at December 31, 1997.

NOTE 10.           DEFINED CONTRIBUTION PLAN

                   In 1994, South Seas established South Seas Resorts Company
                   Retirement and Savings Plan (the ?Plan?), under Section
                   401(k) of the Internal Revenue Code for all eligible
                   employees. The Plan allows employees to defer up to $9 of
                   their income on a pre-tax basis through contributions. In
                   accordance with the Plan, for every dollar the employee
                   contributes (up to 4% of the employee's compensation), South
                   Seas will contribute fifty cents plus an additional ten cents
                   if length of service is between five years and ten years, or
                   an additional twenty-five cents if length of service exceeds
                   10 years. South Seas may also elect to contribute a
                   discretionary amount determined on an annual basis. South
                   Seas made contributions to the applicable plan on behalf of
                   the employees of $280, $314 and $363 for the years ended
                   December 31, 1995, 1996 and 1997, respectively.

NOTE 11.           MANAGEMENT EQUITY INCENTIVE PLAN

                   In 1996, South Seas adopted a Management Equity Incentive
                   Plan (the ?Incentive Plan?). Under the Incentive Plan,
                   eligible employees were given the right to purchase a
                   specific number of partnership units at $10 per unit and $12
                   per unit in 1996 and 1997, respectively, which approximated
                   fair market value at the date of purchase. Terms provided for
                   up to one-half of the total purchase price being financed by
                   a full recourse promissory note receivable to South Seas. The
                   terms of the promissory notes provide for interest payable
                   annually at 7%, with total principal due at maturity (48
                   months). With each unit purchased, options were granted to
                   purchase five additional units. Options vest over four years
                   and may be exercised at $12.00 per unit and $14.50 per unit,
                   for units issued in 1996 and 1997, respectively. Options
                   expire April 1, 2006 for units purchased in 1996 and April 1,
                   2007 for units purchased in 1997. If South Seas were to
                   achieve a public offering of these units at value in excess
                   of $12 per unit, all options have an immediate right to be
                   exercised without regard to the vesting schedule. A summary
                   of South Seas Incentive Plan activity during 1996 and 1997 is
                   presented below:
<TABLE>
<CAPTION>

                                                                      Number
                                                                       of              Weighted Average
                                                                     Options      Exercise Price Per Unit
                                                                     -------      -----------------------
                                                                      (000)

                  <S>                                              <C>                 <C>
                   Outstanding at January 1, 1996                       0
                   Granted                                            590               $12.00
                   Exercised                                            0
                   Forfeited                                            0
                                                                    -----

                   Outstanding at December 31,1996                    590               $12.00
                   Granted                                            249               $14.50
                   Exercised                                            0
                   Forfeited                                          (13)              $12.00
                                                                  -------

                   Options exercisable at December 31, 1997           826               $12.75
                                                                  =======               ======
</TABLE>



                                      -16-
<PAGE>   52
                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (IN THOUSANDS, EXCEPT PER UNIT DATA)



NOTE 11.           MANAGEMENT EQUITY INCENTIVE PLAN CONTINUED

                Under the terms of the Incentive Plan, 108,500 units remained
                available for issuance as of December 31,1997 at a price to be
                determined at the discretion of the Compensation Committee.

                For purposes of following disclosures required by SFAS 123,
                ?Accounting for Stock Based Compensation? the fair value of each
                option granted has been estimated on the date of grant using the
                minimum value method, with the following assumptions used for
                grants in 1996: annual distributions (with slight growth)
                consistent with South Seas current policy, which resulted in
                payments of $.28 in 1996 and $.30 in 1997, and are projected at
                $.40 in 1998; a risk free interest rate of 7%, and an expected
                life of 6-9.5 years. The minimum fair value of each option
                granted during 1996 and 1997 was $1.24 and $.07, respectively.
                Pro forma compensation cost for 1996 and 1997 awards under the
                Incentive Plan, recognized in accordance with SFAS 123, would
                increase the South Seas net loss from $4,383 ($1.00 per unit),
                to $4,447 ($1.02 per unit) in 1996; and in 1997, would increase
                the net loss from $648 ($.15 per unit) to a net loss of $1,054
                ($.24 per unit). Since the pro forma compensation cost of the
                Incentive Plan is recognized over the four year vesting period,
                the foregoing pro forma increase in South Seas? net loss is not
                representative of anticipated amounts in future years.

NOTE 12.        EXTRAORDINARY EXPENSE

                During 1996, South Seas refinanced substantially all of its
                outstanding debt in a re-capitalization plan designed to
                consolidate and reduce interest costs. As a result, South Seas
                recorded an extraordinary item expense of $2.046 million in the
                write-off of unamortized loan costs and prepayment penalties.

NOTE 13.        TERMINATION OF  FEE PAID TO SUBSIDIARY'S GENERAL PARTNER

                In October 1997, South Seas issued 40,000 partnership units to
                San-Cap, Ltd. (the 1% general partner of South Seas Resort L.P.
                (SSRLP)) in exchange for the termination of the general partner
                fee previously charged at that property (.15% of gross revenues
                of SSRLP, a consolidated partnership).

NOTE 14.        EARNINGS (LOSS) PER UNIT

                Basic and diluted earnings/(loss) per unit for the years ended
                December 31 was calculated as set forth below (in thousands,
                except for per unit data):
<TABLE>
<CAPTION>

                                                                             1995          1996          1997
                                                                             ----          ----          ----

<S>                                                                       <C>            <C>           <C>
                     Net loss                                             $ (2,587)      $(4,383)      $  (648)
                                                                          ========       =======       =======

                        Basic net loss per unit calculation:

                         Weighted average units outstanding                  4,279         4,370         4,461
                                                                           =======       =======       =======


                         Actual units                                        4,309         4,427         4,516
                                                                           =======       =======       =======


                         Basic net loss per unit                           $ (0.60)      $ (1.00)      $ (0.15)
                                                                           =======       =======       =======

</TABLE>


                                      -17-

<PAGE>   53



NOTE 14.        EARNINGS PER UNIT CONTINUED
<TABLE>
<CAPTION>


                                                                              1995         1996          1997
                                                                              ----         ----          ----
<S>                                                                          <C>           <C>           <C>
                      Diluted net loss per unit calculation:

                     Weighted average units outstanding                      4,279         4,370         4,461

                     Effect of dilutive units:

                      Unit options                                            --            --            --

                      10% convertible bonds                                   --            --            --
                                                                            ------        ------        ------


                     Diluted units                                           4,279         4,370         4,461
                                                                            ======        ======        ======


                     Diluted net loss per unit                              $(0.60)       $(1.00)       $(0.15)
                                                                            ======        ======        ======
</TABLE>



                Potentially dilutive units which have not been included in the
                diluted per unit calculation include 3,107 and 4,123 in 1996 and
                1997, respectively, from assumed conversion of convertible bonds
                because their effect would be anti-dilutive due to the net loss
                incurred by South Seas. Unit options issued under the Incentive
                plan were not assumed exercised in 1996 or 1997 due to their
                exercise price not exceeding market value. Accordingly, for the
                periods presented, diluted net loss per unit is the same as
                basic net loss per unit. Neither unit options nor convertible
                bonds were in existence in 1995. Accordingly, there was no
                impact in that year in the calculation of diluted net loss per
                unit.

NOTE 15.        SUBSEQUENT EVENTS

                In March 1998, South Seas entered into a ten-year lease
                agreement on the Best Western Pink Shell Resort on Ft. Myers
                Beach, contingent on the purchaser, a public REIT, closing on
                the purchase of the property. The lease requires annual minimum
                rental payments of $2.2 million, plus a percentage rent based on
                property revenues at various tiers. Terms of the agreement
                include South Seas (through its wholly owned subsidiary)
                purchasing $2.0 million of the existing furniture and fixtures
                (to be used in the operation of the resort) and maintaining a
                net worth of $2.0 million, $1.9 million of which is in the form
                of a guarantee from South Seas. Due to the timing of the
                transaction, the remaining 1998 rental payments have been set at
                $211 per month with no percentage rent from the date of closing,
                which is anticipated to occur in May 1998. Regular lease terms
                become effective January 1, 1999.

                On January 9, 1998, South Seas terminated its then only interest
                rate collar outstanding and entered into an interest rate swap
                agreement. Significant terms include:

                      Notional amount:                $30.2 million
                      Dates covered:                  June 98 - Sept 01
                      Fixed rate:                     5.86%


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