<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, 1996

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




<PAGE>   2



                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                                    FORM 10-K
                                DECEMBER 31, 1996

                                      INDEX
<TABLE>
<CAPTION>

<S>                                                                         <C>
                                                                            PAGE NO.
COVER LETTER                                                                   1-3
PART I

    ITEM 1 - BUSINESS

    ITEM 2 - PROPERTIES

    ITEM 3 - LEGAL PROCEEDINGS

    ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
                   HOLDERS - NOT APPLICABLE

PART II

    ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND
                   RELATED STOCKHOLDER MATTERS - NOT APPLICABLE

    ITEM 6 - SELECTED FINANCIAL DATA

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

    ITEM 8 - FINANCIAL STATEMENTS

    ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                   ACCOUNTING AND FINANCIAL DISCLOSURE - NOT APPLICABLE

PART III

    ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE
                    REGISTRANT

    ITEM 11 - EXECUTIVE COMPENSATION

    ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                    OWNERS AND MANAGEMENT

    ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

SIGNATURES

EXHIBITS:


    EXHIBIT 10.1 - SAFETY HARBOR AMENDED LEASE AGREEMENT
    EXHIBIT 10.2 - PURCHASE OF SEASIDE INN
    EXHIBIT 10.3 - LETTER OF CREDIT
    EXHIBIT 27 - FINANCIAL DATA SCHEDULE
    EXHIBIT 99.1 - CALCULATION OF WEIGHTED AVERAGE
                 UNITS OUTSTANDING
    EXHIBIT 99.2 - RATIO OF EARNINGS TO FIXED CHARGES
</TABLE>



<PAGE>   3



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 six resort and hotel properties, plus an 18
hole golf course, and manages two additional resort properties, all located on
Sanibel, Captiva, Estero and Marco Islands off Florida's gulf coast
(collectively referred to as the "Properties"). South Seas, through its 99%
owned subsidiary, South Seas Resorts Company Limited Partnership ("Management
Company"), also 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 guest rooms, including
luxurious beach homes, fully equipped condominiums, suites, cottages and hotel
rooms. South Seas also 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, purchasing, 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 45,000 different properties offering approximately 3.4
million rooms for daily rental. The most common classifications used to analyze
and compare properties within the lodging industry are location, average price,
size, region and age. Additionally, each such classification can be further
divided by service (i.e., luxury, upscale, mid-price, economy or budget). Toward
the end of the 1980s and through the early 1990s, the lodging industry
experienced increasing occupancy

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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 close to $15 billion in the five years ended
1992. Over the last four years, however, lodging industry profitability has
improved. It is believed that this increase in profitability is due principally
to a steady level of supply, moderately increasing demand, increased attention
to costs and lower interest rates. The lodging industry made profits of $8.5
billion in 1995.

        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, 1994, 1995 and 1996.

<TABLE>
<CAPTION>
                            LODGING INDUSTRY PROFILE
                                                                                     Percentage Change
                      Average  Occupancy                  Average Daily                  1995-96
Segment                                                     Room Rate
                     1994     1995     1996       1994       1995       1996        Sales Supply Demand
<S>                <C>     <C>       <C>     <C>        <C>        <C>        <C>      <C>      <C>
U.S.
Industry            64.7%    65.1%    65.7%    $ 64.24     $ 67.17     $ 71.66     10.0%    2.3%   3.1%

By service:
 Luxury             71.3%    72.2%    73.4%    $112.79     $117.70     $125.96     10.3%    1.4%   3.0%
 Upscale            68.1%    68.4%    68.1%    $ 77.19     $ 81.17     $ 85.54      9.0%    3.4%   3.4%
 Mid-price          65.9%    66.3%    66.3%    $ 58.26     $ 61.50     $ 65.63     10.2%    3.3%   3.3%
 Economy            62.0%    62.5%    62.6%    $ 45.18     $ 47.87     $ 51.01      9.1%    2.3%   2.4%
 Budget             61.4%    61.7%    61.7%    $ 34.34     $ 36.27     $ 38.48      6.9%    0.7%   0.7%

By property
location:
 Urban              67.0%    67.9%    69.2%    $ 89.32     $ 94.01     $102.15     11.8%    0.9%   2.9%
 Suburban           64.9%    65.7%    65.8%    $ 57.44     $ 60.80     $ 64.59      9.9%    3.2%   3.4%
 Airport            70.5%    70.8%    71.2%    $ 62.67     $ 66.20     $ 71.01      9.0%    1.1%   1.6%
 Highway            62.4%    62.7%    62.0%    $ 45.32     $ 48.03     $ 50.73      7.5%    3.0%   1.8%
 Resort             68.2%    68.6%    70.1%    $ 95.31     $103.82     $109.72      8.4%    0.3%   2.5%

</TABLE>

Source:       Smith Travel Research Lodging Outlook

     The above table indicates that sales have increased 9.0% from 1995 to 1996
in the upscale hotel segment and that demand for rooms has remained steady with
supply. By property location, resort sales have increased 8.4% from 1995 to
1996, while demand has out paced supply by a margin of 2.2%.

     It should be noted that 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.

Strategy

     South Seas' strategy is to capitalize on its position in the Southwest
Florida upscale resort and hotel market and to acquire and, to a lesser extent,
develop new resorts and hotels in targeted markets that have the demographic and
business characteristics that fit South Seas' market profile. In addition, South
Seas may from time to time enter into operating leases for and/or manage new
resorts and hotels that are owned by both related and unrelated parties. In
implementing this strategy,

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South Seas will build upon a base established over a 25-year period which
includes the following four key elements:

     Leveraging Reputation and Extensive Local Market Knowledge. South Seas
believes that one of its primary strengths is its well-recognized name and
reputation in the South Florida market for high-quality, well-managed properties
and commitment to a high level of guest satisfaction. The Management Company has
sought to instill in all of its employees high standards of attentiveness to
guests' needs and thoroughness in property management and maintenance. The size
and structure of South Seas have given it the ability to implement such
standards through the accountability, control and flexibility that result from
having in-house capabilities to perform many maintenance and other guest
services that others obtain by contract with unrelated parties. South Seas will
attempt to enhance revenues, cash flow and profitability by relying on the
substantial base of information concerning rent levels, operating and
construction costs, comparable sales and regulatory processes and personnel that
it and the executive officers of the Management Company have accumulated from
having operated in the Southwest Florida market for over 25 years.

     High Quality Product. South Seas intends to continue its focus on high
quality properties which are difficult to replicate and which provide high
quality accommodations and amenities in unique settings. By providing full
service, greater-than-usual amenities and outstanding guest service in such
unique settings, South Seas is able to attract a broad range of guests who
desire the look and feel of an upscale resort, and are willing to pay the
associated premium rate for that market.

     Operating Cost Efficiencies. South Seas has made considerable investments
in recent years in order to develop an infrastructure permitting it to
centralize certain management functions for the Properties. South Seas believes
that its centralized management structure will enable it to achieve operating
cost efficiencies through shared staffing among Properties and large combined
purchasing volume. As one of the largest resort and hotel owners and operators
in the South Florida market, based on total rooms, South Seas is able to realize
substantial savings in purchasing both goods and services. In addition, through
concentration in the South Florida market, South Seas has acquired extensive
knowledge of prevailing pricing structures, goods and services suppliers and
contracting practices.

     Owner/Operator. South Seas believes that its ownership or option interest
in the Properties results in product quality and service at a consistently
higher level than many of its competitors, which are often operated by
third-party management companies. South Seas' ownership and management of the
Properties permits immediate integration of new services and allows South Seas
to directly control expansion, effect pricing and execute other marketing
decisions on a local basis without the time delay of consulting third-party
owners or management companies. Management believes that the combined ownership
and management of the Properties will provide South Seas with significant
economies of scale thereby increasing South Seas' ability to control costs

                                       -3-

<PAGE>   6



and allocate resources efficiently among the Properties. South Seas intends to
continue to be an owner and operator of resorts and hotels instead of strictly
an operator because of the existing competitive hotel management market. South
Seas plans to continue the business of managing resort and hotel properties of
owners (both related and unrelated with South Seas) with a view toward the
potential acquisition of certain of such properties, although there can be no
assurance in this regard.

Guaranteed Lease and Rental Programs

     South Seas offers condominium and single family home owners at South Seas
Plantation, Sundial Beach Resort and Sanibel Inn the ability to participate in a
guaranteed lease or rental program (the "Rental Program"), pursuant to which
South Seas will either enter into a guaranteed lease or a best-efforts rental
agreement with the property owner. See "Description of Properties."

     Under the guaranteed lease program, South Seas enters into a lease with the
property owner and pays the property owner a fixed lease payment every month
during the term of the lease. In addition to its fixed lease payment, property
owners are typically paid additional rent based on the amount by which a stated
percentage (typically 40%) of annual gross rental receipts exceeds the fixed
annual lease payments. Under the guaranteed lease program, the property owner is
restricted in its usage of the property. For example: the property owner may use
the property for two weeks during high season and two weeks during low season,
during which periods owners pay a per day rate of $10. If a property owner uses
the property in excess of the foregoing limit, the property owner is required to
pay some stated percentage (typically 80%) of the full published rate. The
typical guaranteed lease arrangement is for a period of two years.

     Under the best-efforts rental program, South Seas does not lease the
property nor guarantee any level of fixed monthly payments. Rather, South Seas
and the property owner enter into a rental sharing agreement which typically
provides that the property owner receives approximately 42.5% of the rental
income and South Seas receives approximately 57.5%. Under the rental program,
the property owners are not restricted from occupying the property for their own
use. The rental program is typically terminable upon six months notice.

Marketing and Sales

     Since the formation of South Seas, a number of initiatives have been taken
to enhance the marketing and sales of the Properties in national, international
and local markets. In late 1995, South Seas appointed a vice president of
marketing and sales at its centralized reservations center in Fort Myers to
coordinate individual resort marketing and sales efforts, as well as to identify
new cooperative strategies to achieve economies to improve the return on
investment from marketing and sales expenditures.

     South Seas' core market consists of affluent leisure travelers to Florida
principally originating from the midwest, the northeast

                                       -4-

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and Florida domestic markets, as well as certain European markets (principally
Germany and the United Kingdom). The profile of the target customer is a college
educated head of household with an annual income in excess of $70,000. South
Seas focuses on reaching its target customers through an integrated marketing
communications mix of advertising, direct mail and public relations. In 1995,
additional initiatives were launched to improve upon these efforts by
consolidating individual resort advertising with one agency to facilitate
cooperative programs, by building "South Seas Resorts" as a regional brand and
by centralizing media and brochure purchasing in order to reduce costs. These
initiatives were further developed in 1996 to include a South Seas magazine
("Shorelines") distributed in-room and via mail to past guests, a website
featuring all resorts and a cross property lead incentive program for group
sales.

     Significant secondary target markets of South Seas include planners of
corporate, association and social meetings and travel agents who book individual
leisure travel. South Seas' marketing and sales force is divided between
Property dedicated directors of marketing and sales, with sales managers
responsible for group business, and a corporate travel industry sales team
representing all Properties. While the group sales effort remains Property
focused, initiatives have been made to enhance this segment's sales volume and
operating efficiency through shared participation in database profiling of
prospects, trade shows, sales calls and external, contracted representation. The
centralization of South Seas' travel industry sales was initiated in 1995 to
eliminate redundancy among the Properties, to expand the reach of South Seas'
sales effort without growth in corresponding expenditures, and to increase sales
from the travel agent and wholesale channels through cross-selling.

     These efforts are further supported by new, internal, corporate service
bureaus providing research, database/electronic marketing, public relations and
graphic services. By centralizing these efforts as service bureaus, costs have
been reduced at individual Properties (which previously employed these services
on a dedicated basis) and these services have been made available to Properties
previously unable to fund these efforts.

     Management believes that these initiatives, together with development of
South Seas' central reservations center, will achieve economies and greater
market penetration through consolidation/centralization and result in both
increased revenues as well as lower marketing and sales cost as a percentage of
revenues. Management also believes such initiatives will enable South Seas to
tap new markets on a cost-effective basis.

Acquisition and Development

     South Seas has followed a strategy, of pursuing growth by developing,
acquiring, owning, operating and managing high-quality properties for long-term
income generation and value appreciation.

     South Seas believes that current hotel market conditions and the outlook in
the South Florida market create acquisition and development opportunities that
South Seas can best realize as a

                                       -5-

<PAGE>   8



larger, more diversified organization. Consequently, South Seas will seek to
expand its portfolio of Properties by acquiring existing properties and, to a
lesser extent, by developing new properties. In addition, South Seas will also
seek to increase earnings from its existing portfolio of Properties.

     South Seas believes that there are a significant number of opportunities to
acquire properties in the South Florida market whose performance would benefit
from the application of South Seas' management expertise and capabilities. See
"Management." South Seas will actively pursue such acquisitions, both in
exchange for Units and for outright cash purchase. In both cases, South Seas'
approach will be to target specific situations in which it believes its
expertise will make a difference.

     In seeking acquisitions in exchange for its partnership units ("Units"),
South Seas will target two types of potential sellers: (i) private and family
owners who may wish to exchange the risks and responsibilities of individual
property ownership for greater diversification and other benefits of the
ownership of Units in South Seas and (ii) owners who may particularly value the
possible tax deferral of an exchange of property for Units. In pursuing
acquisitions from both of these types of property owners, South Seas believes
its reputation and its experience as an operator of properties similar to those
of the potential sellers will provide important competitive advantages.

     In pursuing direct cash acquisitions, South Seas will target hotel
properties that it believes have the potential for improved performance under
South Seas' management practices. South Seas believes that its experience in
acquiring properties will be of significant assistance in assessing acquisition
opportunities. See "Management." South Seas will also target for acquisition
hotel properties (including existing Properties) that it manages. South Seas
believes that managing properties prior to acquiring them presents it with
increased opportunities to purchase such properties and provides management with
better knowledge of the operating results of such properties prior to making any
acquisition decision.

     In evaluating acquisitions of existing resort or hotel properties, South
Seas will consider the quality and condition of the physical facilities, design,
materials and construction as well as market potential, operating and
maintenance costs, average daily rates, occupancy rate, cash flow and other
relevant factors. South Seas will seek properties for acquisition that it
believes are under performing under current ownership and management and that
will permit South Seas to realize improved performance through the management
approach and capabilities of South Seas.

     In developing new properties, South Seas intends to emphasize quality of
design, materials and construction in order to minimize ongoing operating and
maintenance costs and maximize market appeal and long-term investment value. In
selecting new development sites, South Seas will consider relevant factors,
including: (i) employment growth and other demographic characteristics of the
surrounding area; (ii) characteristics and performance of competitive properties
in the area; (iii) costs that affect

                                       -6-

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profitability of the investment, including construction, financing, operating
and maintenance costs; and (iv) potential for periodic increases in room rates.
Acquisition and development activities will be primarily concentrated in
Florida.

     Other than with respect to the Seaside Inn and Safety Harbor, South Seas
has not entered into options to purchase or definitive purchase agreements for
the acquisition of any specific properties, although South Seas in the normal
course of its business evaluates potential acquisitions and development
opportunities.

Operations/Management

     The Properties are managed by the Management Company, a 99%-owned
Subsidiary of South Seas, pursuant to certain management agreements between
South Seas and the Management Company (the "Management Agreements").
Accordingly, 99% of net income or loss is consolidated and reported in the
results of operations of South Seas. Under the Management Agreements, the
Management Company collects all revenues generated by the Properties and remits
all revenues to South Seas or the owners of managed Properties, as the case may
be, after deducting (i) all expenses incurred in the operation of the Properties
(including salaries and other benefits of employees of the Management Company
and its general partner), (ii) base management fees ranging from 2% to 6% of
gross revenues and (iii) incentive management fees of up to 15% of all or a part
of net operating income.

     Management of the Properties is coordinated by a management team at South
Seas' headquarters. This team is responsible for managing the financial and
strategic needs of South Seas and the Properties. The management team
administers insurance plans and business contract review, oversees human
resources, management information systems, financial budgeting and forecasting
for the Properties, and debt and capital negotiations and management, analyzes
the financial feasibility of new resorts and hotels and identifies new systems
and procedures to employ within the Properties to improve efficiency and
profitability. The management team also coordinates each Property's sales force,
designing sales training programs, tracking future business under contract and
identifying, employing and monitoring marketing programs aimed at specific
target markets. The management team also oversees refurbishment of the
Properties. The day-to-day operations of each Property are coordinated by an
on-site general manager of each Property.

     Management of South Seas utilizes information systems that track each
Property's daily occupancy, average room rate, and revenues in room, food and
beverage and retail store operations. By having the latest available information
at all times, management is better able to respond to changes in the market by
focusing sales and field management efforts on periods of demand extremes and
controlling variable expenses to maximize the profitability of each Property.

     Creating operating, cost and guest service efficiencies in each Property
is a high priority to South Seas.  With a total of nine

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resort and hotel properties and one golf course under management in the same
geographic location, South Seas is able to realize significant cost savings due
to economies of scale. By leveraging off of the total hotels/rooms under its
management, South Seas is able to secure volume pricing from its vendors that is
not always available to smaller management companies.

Competition

     Each of the Properties competes in its market area with numerous full
service hotels, especially in the resort segment, and with numerous motels and
other lodging establishments. Competitive factors in the lodging industry
include reasonableness of rates, quality of accommodations, service levels and
convenience of locations. South Seas believes it is competitively positioned to
take advantage of its unique position on Sanibel and Captiva Islands. The
Properties represent approximately 61% of the total available overnight rental
units on Sanibel and Captiva Islands, a market which has added no significant
new capacity over the last five years.

 Regulation and Insurance

     General

     A number of states, including Florida, regulate the licensing of hotels and
restaurants, including liquor license grants, by requiring registration,
disclosure statements and compliance with specific standards of conduct. In
addition, various federal and state regulations mandate certain disclosure and
practices with respect to license agreements and the licensor/licensee
relationship. South Seas believes that each of the Properties has the necessary
permits and approvals to operate its business. Umbrella, auto, commercial
liability and workers' compensation insurance are provided to the Properties
under a "maximum loss" policy with Aetna and a property "maximum loss" policy
with AIG. The AIG policy includes a special rider to provide insurance against
interruptions of business. South Seas is self-insured up to the "maximum loss"
provided in each policy. Insurance expense for the Properties was approximately
$2.1 million, $2.7 million and $1.4 million in 1996, 1995 and 1994,
respectively. South Seas maintains property and casualty insurance on the
Properties in amounts that it believes to be adequate.

     In 1994 and 1995, South Seas was self-insured on health insurance with
"maximum loss" caps (insurance provided on individual cases that could have
exceeded $75,000). Sufficient and appropriate reserves have been established for
claims (including future costs) incurred during that period. Effective January
1, 1997, South Seas entered into a fully insured program.

     Americans with Disabilities Act ("ADA")

     The Properties and any newly acquired or constructed resort/hotel
properties must comply with Title III of the ADA to the extent that such
properties are "public accommodations" and/or "commercial facilities" as defined
by the ADA. The ADA requires removal of structural barriers to access by persons
with

                                       -8-

<PAGE>   11



disabilities in certain public areas where such removal is readily achievable.
Noncompliance could result in the imposition of fines or an award of damages to
private litigants. The ADA considers hotel properties to be public
accommodations. South Seas has taken into account an estimate of funds required
to make any changes required by the ADA in determining the appropriate level of
reserves and the expected level of debt service payments and distributions and
believes that such costs can be covered by funds from operations and established
reserves without any material adverse effect on South Seas' financial condition
or results of operations.

     Environmental Matters

     Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real property may become liable for the costs of removal or
remediation of certain hazardous substances released on or in its property. Such
laws often impose such liability without regard to whether the owner or operator
knew of, or was responsible for, the release of such hazardous substances. The
presence of such substances when released, or the failure to remediate such
substances properly, may adversely affect the owner's ability to sell such real
estate or to borrow, using such real estate as collateral. In addition to
cleanup actions brought by federal, state and local agencies, the presence of
hazardous wastes on a property could result in personal injury or similar claims
by private litigants. South Seas Plantation, the largest of the Properties, has
purchased a Florida Storage Tank Third-Party Liability and Corrective Action
Policy insuring, subject to certain limits, against pollution emanating from its
storage tank systems. In addition, environmental surveys conducted within the
last five years in connection with the acquisition and/or financings of South
Seas Plantation, Sundial Beach and Tennis Resort, the Marco Radisson and The
Dunes Golf & Tennis Club have not revealed the presence of any hazardous wastes
or materials, the cost of remediation of which would materially adversely effect
South Seas.

Employee Relations

         South Seas has no employees. As of December 31, 1996, the Management
Company had approximately 1,870 employees, and no organized labor union existed.
In mid-1996, a single employee at South Seas Plantation promoted unionization of
portions of the hourly employee force at that property. Support for further
activity did not and has not occured. Moreover, South Seas believes that labor
relations with employees of the Management Company are good, and does not
believe the aforementioned unionization activity will materialize. South Seas
provides housing to certain on-site employees at South Seas Plantation at
below-market rent. South Seas maintains employee incentive programs for
employees in areas such as housekeeping, maintenance, food & beverage and
retail.

Description of Properties

     South Seas currently owns six resort/hotel properties and a golf and tennis
club, leases with an option to purchase one resort and manages two other resort
and hotel properties (Seaside Inn was

                                       -9-

<PAGE>   12



purchased in January 1997). The Properties are all located in Southwest Florida
and are managed by the Management Company.

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, 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 remaining 1% ownership interest in South Seas Resort Limited Partnership.
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.
Approximately 900 dwelling units have been developed since 1972, including hotel
rooms (106) and employee housing owned by South Seas Resort Limited Partnership
(approximately 160), condominiums and single-family homes (580) and interval
ownership or time-share condominiums (110). South Seas Resort Limited
Partnership 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 South Seas Resort
Limited Partnership. See "Business - Guaranteed Lease and Rental Programs." Of
the 580 condominiums and single family homes at South Seas Plantation, 459 are
presently managed as rental units by South Seas on behalf of the owners. South
Seas Plantation benefited from a $2.0 million renovation in 1996 consisting of
substantial reconstruction of its fine dining restaurant (King's Crown) and a
complete facelift of its entrance, tennis center and south end common area
facilities.

     Radisson Suite Beach Resort ("Marco Radisson"). The Marco Radisson, located
on 7.8 acres on Marco Island, Florida, consists of 269 hotel units, 168 of which
are one-bedroom suites, 46 of which are two-bedroom suites and 55 of which are
guest rooms. 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. It was acquired
by South Seas in September 1994. The Marco Radisson has undergone approximately
$4.5 million in renovations through December 31, 1996. An additional $2.4
million in renovations are currently scheduled for 1997.

     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 262 of these units are presently managed as rental units by South
Seas on behalf of the owners. See "Business Guaranteed Lease and Rental
Programs." 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 the Windows on the
Water

                                      -10-

<PAGE>   13



Restaurant, Noopies Restaurant, Beaches Bar & Grill, a Deli & Gift Shoppe and
Crocodile's 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 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-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. The scope of Phase I
included renovations to its room interiors, grounds and building exteriors.
Phase II renovation program, estimated at $225,000 is scheduled for 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. See "Business - Guaranteed
Lease and Rental Programs."

     Best Western-Sanibel Island Beach Resort ("Best Western-Sanibel"). The Best
Western-Sanibel is located on Sanibel Island, Florida. It offers 46 guest rooms
and includes approximately 350 feet of direct beach frontage overlooking the
Gulf of Mexico, a swimming pool, tennis courts and shuffleboard courts.

     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.

     The following table presents information concerning each Property owned by
South Seas for the years ended 1994, 1995 and 1996:

                                      -11-

<PAGE>   14

<TABLE>
<CAPTION>

                     # of   Average   Occupanc.          Average Room Rates               REVPAR(4)
                     Units   1994   1995    1996       1994    1995     1996      1994      1995       1996
Property
<S>                 <C>      <C>    <C>     <C>     <C>       <C>      <C>      <C>       <C>      <C>
South Seas
 Plantation          565(1)  72.7%  71.1%   71.8%   $216.23   $229.20  $231.25   $157.27   $163.00   $166.00
Marco Radis-
 son(2)              269     75.6%  73.8%   79.5%   $125.83   $136.56  $138.51   $ 95.13   $100.76   $110.07
Sundial Beach
 Resort              262     77.0%  76.3%   73.1%   $184.26   $192.28  $200.00   $141.88   $146.62   $146.23
Sanibel Inn(3)        96     68.2%  70.6%   68.0%   $159.45   $174.99  $178.91   $108.74   $123.54   $121.63
Best Western-
 Sanibel              46     86.1%  84.8%   84.6%   $134.65   $146.21  $147.97   $115.93   $123.94   $125.12
Song of the
 Sea Inn              30     86.0%  83.9%   83.8%   $169.11   $177.38  $175.21   $145.43   $148.83   $146.87

Weighted Average             74.7%  73.6%   74.3%   $179.08   $191.13  $193.61   $133.82   $140.66   %143.85

</TABLE>
(1)            Includes 9 single-family homes located adjacent to South Seas
               Plantation whose owners participate in South Seas' guaranteed
               lease and rental programs.
(2)            Acquired September 23, 1994.
(3)            Acquired June 1, 1995, under management during all periods
               presented.
(4)            Revenue per available room night.

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 guest rooms, a 16,500-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).
The lease (as amended in January 1997, see subsequent event footnoote to the
audited financial statements) is through May 2000 and commenced in June 1995.
Safety Harbor Management Company, Ltd. has an option to purchase Safety Harbor.
The option is exercisable no later than May 31, 2000. The exercise price of the
option is $11.4 million with an additional earn-out arrangement, payable over a
number of years based on the financial results of the property, of $8.0 million.
The lease requires minimum capital improvements of $3.0 million during the term
of the lease. As of December 31, 1996, $1.9 million had been invested in rooms
refurbishment. An additional $750,000 is planned in 1997 in a refurbishment
program targeting areas such as the main lobby, meeting rooms, retail and
additional guest room improvements.

Managed Properties

    Seaside Inn. The Seaside Inn on Sanibel Island consists of seven buildings
which 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.

                                      -12-

<PAGE>   15



    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. 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, L.P. 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.

    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 guest rooms 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, two swimming pools, two lighted tennis courts,
a beachfront bar and grill, a bayside cafe and award winning 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.
South Seas plans to negotiate to acquire this property in 1997. There can be no
assurance that an acquisition will be achieved.

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.

SELECTED HISTORICAL FINANCIAL DATA (dollars in thousands, except
ratios and notes)

     The selected historical financial data presented below as of and for each
of the three years ended December 31, 1994, 1995 and 1996 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, 1992 and 1993 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

                                      -13-

<PAGE>   16



entity began operations after January 1, 1992. These controlled entities include
the businesses acquired from The Mariner Group 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 South Seas Resort Limited
Partnership ("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, and the Safety Harbor Resort and Spa has been included since the
commencement of its lease on June 1, 1995.

<TABLE>
<CAPTION>
                                                         Years Ended December 31,
                                      1992           1993          1994          1995          1996
<S>                                 <C>      <C>        <C>         <C>       <C>
Income Statement Data:
 Total Revenues                      $69,317        $73,243       $79,485      $ 98,854      $110,103
 Operating Expense                    49,350         51,466        54,228        65,720        74,311
 Gen and Admin                         9,287         10,665        13,773        20,008        20,076
 Deprec and Amortiz                    3,308          3,666         4,423         5,703         7,326
 Interest expense                      5,025          4,284         5,485         9,391        10,536
 Other (income) exp                      613         (2,844)          (72)          606           181
 Minority int income                      71          1,301            14            13            10
 Extraordinary item                        -              -             -             -         2,046
 Net income (loss)                    $1,663         $4,705        $1,634       $(2,587)     $ (4,383)
 Net income (loss)
  per partnership
  unit (b)                              0.42           1.12          0.39          (.61)        (1.00)
 Distributions per
  partnership unit                                     0.37          0.85           .40  (c)      .28
Other data:
 Ratio of earnings to
 fixed charges (d)                     1.169x         1.500x(f)     1.146X               (e)          (e)
 EBITDA (g)                           $9,996        $12,655       $11,542       $12,507       $13,479
 Capital expenditures (h)              6,184          1,391        25,403         8,389         8,969
 Consolidated Net Operating
  Profit (i)                          10,067         11,112        11,484        13,126        15,716

Balance Sheet Data:
 Total assets                       $ 53,808        $57,874       $84,938      $110,826      $111,042
 Long-term obliga-
  tions (incl current
  portion)                          $ 51,905  (j)   $54,317       $80,211      $105,049      $112,808
 Partners' capital
  deficiency                        $(10,674)       $(7,529)      $(9,522)     $(13,527)     $(18,529)
</TABLE>

(a)     Included in operating results for 1991 and 1992 were costs of $1,400,000
        and $613,000, respectively, related to repairs to certain condominium
        units. In 1993, South Seas recovered $1,866,000 of these costs 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 $100,000, $479,000, and $759,000 in 1992, 1993,
        and 1994, respectively.

(c)     Distribution represents a return of capital.



                                      -14-

<PAGE>   17



(d)       For the purpose of calculating the ratio of earnings to fixed charges
          (i) earnings consist of consolidated net income (loss) from operations
          plus fixed charges (excluding capitalized interest) and (ii) fixed
          charges consist of interest expense (including capitalized interest)
          on all indebtedness, amortization of loan costs and that portion of
          rental expense that is representative of interest.

(e)       Earnings did not cover fixed charges by $2,587,000 in 1995 and
          $4,383,000 in 1996. Fixed charges include $10,171,000 and $11,315,000
          of interest and amortization of loan costs in 1995 and 1996,
          respectively.

(f)       The ratio of earnings to fixed charges for 1993 reflects the impact of
          certain non-recurring revenues. Excluding the effect of such
          non-recurring revenues, the ratio of earnings to fixed charges for
          1993 would have been 1.278x.

(g)       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.

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

(i)       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.

(j)       Included in current liabilities as of December 31, 1992 was
          approximately $30,400,000 of mortgage notes payable. In 1993, South
          Seas refinanced approximately $29,700,000 of mortgage notes payable,
          which were classified as long-term indebtedness as of December 31,
          1993.



                                      -15-

<PAGE>   18
                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP

                       CONSOLIDATED FINANCIAL STATEMENTS,
                 TOGETHER WITH REPORT OF INDEPENDENT ACCOUNTANTS

                           DECEMBER 31, 1995 and 1996


<PAGE>   19

                            C O N T E N T S
<TABLE>
<CAPTION>
                                                                          Page
<S>                                                                  <C>
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 - 20
</TABLE>




<PAGE>   20


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

Advisory Board
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, 1995 and 1996 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, 1996.
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, 1995 and 1996 and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.

The consolidated financial statements give retroactive effect to the 1995
acquisitions which, because there was a high degree of common ownership and
control, have been accounted for as a reorganization, in a manner similar to a
pooling of interests, as described in Note 1 to the consolidated financial
statements.

COOPERS & LYBRAND, L.L.P.

Fort Myers, Florida
March 17, 1997


                                       -1-


<PAGE>   21





               SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                          CONSOLIDATED BALANCE SHEETS
                                 (In Thousands)
<TABLE>
<CAPTION>

                                                                      December 31
                                                               -----------------------
   ASSETS                                                        1995             1996
                                                                 ----             ----
<S>                                                      <C>             <C>
CURRENT ASSETS
   Cash and cash equivalents                                    $7,340          $6,459
   Restricted cash                                               5,818             201
   Accounts receivable, trade                                    6,261           6,743
   Receivables from affiliates                                       -             543
   Inventories                                                   1,847           1,677
   Prepaid expenses and other                                    1,975           1,637
                                                              --------        --------
       Total current assets                                     23,241          17,260

PROPERTY, PLANT AND EQUIPMENT, net                              76,668          79,904

LOAN COSTS, net                                                  2,450           5,660

GOODWILL, net                                                    6,805           6,440

OTHER ASSETS                                                     1,662           1,778
                                                              --------        --------
       Total assets                                           $110,826        $111,042
                                                              ========        ========
   LIABILITIES AND PARTNERS' CAPITAL DEFICIENCY

CURRENT LIABILITIES
   Current maturities of notes and mortgages payable           $13,602          $1,750
   Current maturities of bonds payable                          12,998               -
   Current obligations under capital leases                        398             265
   Accounts payable                                              3,146           4,410
   Accrued expenses                                              9,540           4,940
   Customer deposits                                             4,708           4,976
   Deferred revenue                                              1,073           1,585
                                                              --------        --------
       Total current liabilities                                45,465          17,926

NOTES AND MORTGAGES PAYABLE, less current maturities            75,555          65,357

BONDS PAYABLE, less current maturities                               -          43,500

LONG-TERM OBLIGATIONS UNDER CAPITAL LEASES,
   less current obligations                                      1,112             631

OTHER LONG-TERM OBLIGATIONS                                      1,384           1,305

COMMITMENTS AND CONTINGENCIES                                        -               -

PARTNERSHIP UNITS SUBJECT TO REDEMPTION                            825             825

MINORITY INTERESTS                                                  12              27

PARTNERS' CAPITAL DEFICIENCY                                   (13,527)        (18,529)
                                                              --------        --------
       Total liabilities and partners' capital deficiency     $110,826        $111,042
                                                              ========        ========
</TABLE>

The accompanying notes are an integral part of these financial statements

                                      -2-


<PAGE>   22

               SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                                                   Year Ended December 31
                                                                              1994         1995        1996
                                                                            ---------    ---------    ---------
<S>                                                                         <C>          <C>          <C>
REVENUES
   Rooms                                                                    $  44,965    $  58,259    $  64,427
   Food and beverage                                                           13,957       17,060       18,007
   Retail                                                                       5,427        5,948        6,632
   Golf                                                                         2,568        2,331        2,868
   Spa and fitness                                                                 --        1,230        2,448
   Other                                                                       12,568       14,026       15,721
                                                                            ---------    ---------    ---------
            Total  revenues                                                    79,485       98,854      110,103
                                                                            ---------    ---------    ---------
EXPENSES
   Rooms                                                                        9,860       13,093       14,995
   Food and beverage                                                           10,521       12,972       14,306
   Retail                                                                       3,884        4,348        4,670
   Golf                                                                         1,003          902        2,148
   Spa and fitness                                                                 --          731        1,408
   Other                                                                        5,087        6,130        5,469
   Condominium lease and rental expenses                                       14,800       16,823       18,296
   Sales and marketing                                                          4,186        6,107        7,773
   Maintenance and grounds                                                      4,887        4,614        5,246
   General and administrative - resort properties                              11,830       16,935       17,221
   General and administrative - corporate overhead                              1,943        3,073        2,855
   Depreciation and amortization                                                4,423        5,703        7,326
   Interest expense                                                             5,485        9,391       10,536
                                                                            ---------    ---------    ---------
            Total expenses                                                     77,909      100,822      112,249
                                                                            ---------    ---------    ---------
Income/(loss) before non-operating items and extrao                             1,576       (1,968)      (2,146)

   Net gain/(loss) on disposal/sale of fixed assets                                72         (266)           4
   Acquisition costs                                                               --         (340)        (185)
   Minority interests                                                             (14)         (13)         (10)
Income/(loss) before extraordinary item                                         1,634       (2,587)      (2,337)
                                                                            ---------    ---------    ---------
   Extraordinary expense (write-off of loan costs)                                 --           --       (2,046)
                                                                            ---------    ---------    ---------
            Net income/(loss)                                               $   1,634    $  (2,587)   $  (4,383)

Net income/(loss) per unit before extraordinary exp                         $    0.39    $   (0.61)   $    (.53)
                                                                            =========    =========    =========
Net loss per unit for extraordinary expense                                 $      --    $      --    $    (.47)
                                                                            =========    =========    =========
Net income/(loss) per unit                                                  $    0.39    $    (.61)   $   (1.00)
                                                                            =========    =========    =========
Weighted average units outstanding                                              4,219        4,271        4,370
                                                                            =========    =========    =========
</TABLE>

The accompanying notes are an integral part of these financial statements

                                      -3-


<PAGE>   23
               SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
             CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL DEFICIENCY
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                       Outstanding Units
                                                  ----------------------------
                                                  General    Limited              General      Limited
                                                  Partners   Partners     Total   Partners     Partners     Total
<S>                                              <C>        <C>         <C>      <C>          <C>         <C>
Balance, December 31, 1993                           851       3,368      4,219   $    347     $(7,876)    $(7,529)

Net Income for the year ended
  December 31, 1994                                   --          --         --        295       1,339       1,634

Distributions ($.80 per unit)                         --          --         --       (681)     (2,946)     (3,627)
                                                    ----       -----      -----   --------     -------     -------
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)
                                                    ====       =====      =====      =====     =======     =======

</TABLE>


The accompanying notes are an integral part of these financial statements



                                      -4-
<PAGE>   24




               SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   Page 1 of 2
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                                     Year Ended December 31
                                                              -----------------------------------
                                                                1994         1995         1996
                                                              ---------    ---------    ---------
<S>                                                           <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Cash received from customers and others                    $  78,538    $ 102,747    $ 109,233
   Cash paid to suppliers, employees and affiliates             (66,807)     (86,985)     (94,952)
   Interest paid                                                 (4,157)      (9,191)     (12,527)
   Interest received                                                202          520          656
                                                              ---------    ---------    ---------
       Net cash provided by operating activities                  7,776        7,091        2,410
                                                              ---------    ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                                          (1,749)      (8,389)      (8,969)
   Purchase of resort property assets                           (23,654)          --           --
   Proceeds from sale of assets                                       3          202            2
   Loans to affiliates, net of repayments                          (724)         433         (543)
   Change in restricted cash                                       (666)      (4,896)       5,617
   Acquisition costs                                                 --         (572)        (185)
   Cash acquired in purchase of resort property                      --          353           --
   Other                                                            (34)          --           --
                                                              ---------    ---------    ---------
       Net cash used in investing activities                    (26,824)     (12,869)      (4,078)
                                                              ---------    ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from long-term debt                                  25,821       28,589       70,480
   Deferred loan costs                                             (626)      (1,173)      (6,438)
   Principal payments, long-term debt                            (2,410)     (13,404)     (38,645)
   Principal payments, under capital lease obligations             (219)        (422)        (613)
   Principal payments, bonds payable                                 --       (1,890)     (12,998)
   Payments under line of credit                                     --           --      (11,885)
   Draws under line of credit                                        --           --        1,500
   Proceeds from sale of equity units under option plan              --           --          610
   Distributions to partners                                     (3,596)      (1,724)      (1,229)
   Distributions to minority interest, net of contributions         (13)         (10)           5
   Other                                                             --         (113)          --
                                                              ---------    ---------    ---------
       Net cash provided by financing  activities                18,957        9,853          787
                                                              ---------    ---------    ---------
Net increase/(decrease) in cash                                     (91)       4,075         (881)

Cash and cash equivalents, beginning of year                      3,356        3,265        7,340
                                                              ---------    ---------    ---------
Cash and cash equivalents, end of year                        $   3,265    $   7,340    $   6,459
                                                              =========    =========    =========
</TABLE>


The accompanying notes are an integral part of these financial statements

                                      -5-




<PAGE>   25



               SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   Page 2 of 2
                                 (In Thousands)
<TABLE>
<CAPTION>
                                                         Year Ended December 31
                                                      -----------------------------
                                                       1994       1995       1996
                                                      -------    -------    -------
<S>                                                   <C>        <C>        <C>
RECONCILIATION OF NET INCOME/(LOSS) TO NET CASH
    CASH PROVIDED BY OPERATING ACTIVITIES:
   Net income/(loss)                                  $ 1,634    ($2,587)   ($4,383)
                                                      -------    -------    -------
   Adjustments to reconcile net income to net cash
     provided by operating activities
       Depreciation/amortization expense                4,423      5,703      7,326
       (Gain)/loss on disposal/sale of fixed assets       (72)       266         (4)
       Minority interest                                   15         13         10
       Acquisition costs                                   --        340        185
       Extraordinary item - write-off of loan costs        --         --      2,046
   Changes in assets and liabilities
     (Increase) decrease in:
       Accounts receivable, net                        (1,241)       (93)      (482)
       Inventories                                       (301)      (150)       170
       Prepaid expenses and other assets                 (822)      (412)       222
   Increase (decrease) in:
       Accounts payable                                 1,400       (855)     1,264
       Accrued expenses                                 2,134      2,651     (4,724)
       Customer deposits                                  612      1,325        268
       Deferred revenues                                   (6)       890        512
                                                      -------    -------    -------
          Total adjustments                             6,142      9,678      6,793
                                                      -------    -------    -------
Net cash provided by operating activities             $ 7,776    $ 7,091    $ 2,410
                                                      =======    =======    =======
</TABLE>



Supplemental schedule of noncash investing and financing activities:

     Capital lease obligations of $1,056 and $491 were incurred during 1994 and
     1995, respectively, when South Seas entered into leases for the upgrade of
     equipment. The significant increase in 1994 was due to opening of a
     consolidated vacation planning center to combine all reservation activity
     of the group.

     In 1995, South Seas acquired the Sanibel Inn in exchange for 71,374
     partnership units. As part of the ex- change, 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 1994, South Seas incurred a long-term obligation of $1.5 million related
     to the acquisition of the Marco Radisson.

The accompanying notes are an integral part of these financial statements



                                      -6-
<PAGE>   26

                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (Dollars In Thousands)

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 six 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 the north end of
                    Captiva Island to the 30-unit Song of the Sea
                    bed-and-breakfast inn on the east end of 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
                    two other hospitality properties located in southwest
                    Florida 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 AND ACQUISITION TRANSACTIONS

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

                    On January 1, 1994, 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. Because there was a high degree of
                    common ownership and control, the acquisition has been
                    accounted for as a reorganization, 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.

                    In 1995, South Seas acquired two 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
                    which also served as general partner. Because there was a
                    high degree of common ownership and control, the acquisition
                    has been accounted for as a reorganization, 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.

                    Both the January 1, 1994 and 1995 transactions consisted of
                    an exchange of assets for units of limited partnership
                    interest in South Seas. No cash payments or other monetary
                    payments were made in connection with the reorganizations.


                                       -7-


<PAGE>   27



                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (Dollars In Thousands)

NOTE 1.         NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES CONTINUED

                  In June 1995, South Seas purchased the Sanibel Inn from a
                  non-affiliated partnership. Pursuant to the agreement, the
                  former owners received 71,374 units of South Seas. Also in
                  June 1995, South Seas entered into a four year operating lease
                  agreement on the Safety Harbor Resort and Spa. Accordingly,
                  1995 results of operations and cash flows include the Sanibel
                  Inn and Safety Harbor for the seven months owned or operated
                  (see also Note 2).

                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 maturities of
                  three months or less to be cash equivalents. There were no
                  amounts invested in such agreements at December 31, 1995 or
                  1996.

                RESTRICTED CASH

                  South Seas holds restricted cash for future capital
                  expenditures as required under loan agreements. In addition,
                  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 (see Note 7).

                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 of
                  the assets. 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.

                LOAN COSTS

                  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 $1,294 and $514 at December 31,
                  1995 and 1996, respectively. Counterparties to the interest
                  protection and rate swap agreements are major financial
                  institutions. Credit loss from counterparty non-performance is
                  not anticipated.

                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 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 $2,327 and $2,692 at December 31,
                  1995 and 1996, respectively.


                                       -8-


<PAGE>   28



                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (Dollars In Thousands)

NOTE 1.         NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES CONTINUED

                REVENUES

                  Revenues from operations are recognized when services are
                  provided to guests.

                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.

                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

                  South Seas values financial instruments as required by
                  Statement of Financial Accounting Standards (SFAS) No. 107,
                  "Disclosures about Fair Value of Financial Instruments." 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.

                ALLOCATION OF NET INCOME

                  Income is allocated to the general partner and limited
                  partners based on partnership units owned compared to total
                  outstanding units. As of December 31, 1995, South Seas had
                  outstanding 4,308,568 units of which the general partners
                  owned 851,161 general partner units.

                  As of December 31, 1996, South Seas had outstanding 4,426,568
                  units of which the general partner owned 44, 273 general
                  partner units.

                EARNINGS PER UNIT

                  Earnings per unit are based upon the weighted average number
                  of partnership units and partnership unit equivalents
                  outstanding during the year. Partnership unit equivalents are
                  excluded from the computation in periods in which they have an
                  anti-dilutive effect.

                  In February, 1997, the Financial Accounting Standards Board
                  (the FASB) issued Statement of Financial Accounting Standards
                  No. 128, EARNINGS PER SHARE (FAS 128). FAS 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. FAS 128 is effective for financial statements issued
                  for periods ending after December 15, 1997, including interim
                  periods. The Company does not believe it will have any
                  material effect on its EPS calculation.


                                       -9-


<PAGE>   29



                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (Dollars In Thousands)

NOTE 1.         NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES CONTINUED

                RECLASSIFICATIONS

                  Certain amounts in the financial statements have been
                  reclassified to conform with 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 (see also Note
                8). 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
                current value of approximately $1.5 million ($1.4 million
                long-term), and the balance in cash. Terms of the discounted
                obligation require annual payments of $250 which commenced on
                April 30, 1995 with a final payment of $383 on April 30, 2003.

                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, 1997 or,
                at former owners option, 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.

                Had South Seas acquired the Marco Radisson and the Sanibel Inn
                on January 1, 1994, unaudited proforma revenues for 1994 and
                1995 would have been $92.8 million and $102.4 million,
                respectively and 1994 net income and 1995 net loss would have
                been $.9 million and $2.2 million, respectively.

                In June, 1995, South Seas entered into a four year lease
                agreement, 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 lease requires
                annual rental payments of $1.23 million and minimum annual
                capital improvements of $450. The option price is between $17.5
                million and $22.5 million, depending upon date of exercise. (See
                Note 13 for subsequent event in lease terms).

NOTE 3.         INVENTORIES

                INVENTORIES CONSISTED OF THE FOLLOWING AT DECEMBER 31:
<TABLE>
<CAPTION>
                                                                     1995             1996
                                                                    -------          -------
<S>                                                                 <C>             <C>
                Food and beverage                                   $   460         $    451
                Retail outlets                                          866              912
                Maintenance and rental unit merchandise                 391              215
                Supplies                                                130               99
                                                                    -------          -------
                                                                    $ 1,847          $ 1,677
                                                                    =======          =======
</TABLE>

                                      -10-


<PAGE>   30



                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (Dollars In Thousands)

NOTE 4.         PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                Property, plant and equipment consisted of the following at
                 December 31:
                                                                                                  1995             1996
                                                                                                  ----             ----
<S>                                                                                          <C>              <C>
                Resort, restaurants and recreational facilities, including
                  property held under capital leases of $2,843 and $1,454 at
                  December 31, 1995 and
                  1996, respectively                                                            $110,643         $119,602
                Less:
                  Accumulated depreciation                                                       (32,513)         (38,806)
                  Accumulated amortization on property
                     held under capital leases                                                    (1,462)            (892)
                                                                                                --------         --------
                                                                                                $ 76,668         $ 79,904
                                                                                                ========         ========
</TABLE>


                Included in property, plant and equipment is land with a
                carrying value of $17.6 million at December 31, 1995 and 1996.

                Refer also to Note 5 for indebtedness collateralized by
                property, plant and equipment, and Note 2 regarding the
                acquisition of the Marco Radisson.

                Depreciation and capital lease amortization expense was $3,407,
                $4,520 and $5,756 for the years ended December 31, 1994, 1995
                and 1996, respectively.

                During 1995, South Seas capitalized interest of approximately
                $97 during the period that its' 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.         NOTES AND MORTGAGES PAYABLE

                Notes and Mortgages Payable consisted of the following at
                 December 31:
<TABLE>
<CAPTION>
                                                                                              1995           1996
                                                                                              ----           ----
<S>                                                                                      <C>               <C>
                  Mortgage note payable to financial institution, interest at
                     LIBOR plus 225 to 300 basis points (the spread is
                     determined by loan covenants relating to South Seas'
                     financial performance each quarter), (8.475% at December
                     31, 1996) interest due monthly, quarterly principal
                     payments of $438 in 1997, $550 in 1998, $675 in 1999, $813
                     in 2000, and $937 in 2001, with a balloon payment of
                     approximately
                     $28.2 million in September, 2001                                      $           -    $40,000
                                                                                           -------------    -------
                Subtotals carried forward                                                  $           -    $40,000
</TABLE>


                                      -11-


<PAGE>   31



                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (Dollars In Thousands)

NOTE 5.         NOTES AND MORTGAGES PAYABLE CONTINUED
<TABLE>
<CAPTION>
                                                                                                    December 31
                                                                                           -------------------------------
                                                                                               1995                 1996
                                                                                               ----                 ----
<S>                                                                                        <C>                     <C>
               Subtotals carried forward                                                   $           -           $40,000

                 $40 million revolving credit note to financial institution,
                     interest at LIBOR plus 225 to 300 basis points (the spread
                     is determined by loan covenants relating to South Seas'
                     financial performance each quarter), (8.31% at December 31,
                     1996) interest due monthly, no principal payments required
                     until maturity in September, 2001                                                 -           $27,107

                  Mortgage note payable to financial institution, interest at
                     prime + 2% or LIBOR + 3%, interest due monthly, paid in
                     full in September 1996                                                       45,000                 -

                  Mortgage note payable to financial institution, interest at
                     10.8%, principal and interest payments due monthly based on
                     a 20 year amortization, (revolving line capability during 1996),
                     paid in full in September, 1996                                              19,235                 -

               First mortgage note payable to financial institution in equal
                     installments of $69, including interest at prime +.75%,
                     (revolving line capability during 1996)
                     paid in full in March, 1996                                                   7,045                 -

               Mortgage note payable to financial
                     institution, interest at 10.5%, equal monthly
                     installments of $32, paid in full in March, 1996                              3,226                 -

               Mortgage note payable at 10% interest per year, equal quarterly
                     installments of interest only, sum of which aggregates $150
                     for calendar year 1995 and aggregates $190 for calendar year 1996,
                     paid in full in March, 1996                                                   3,206                 -

               Mortgage note payable to affiliate, quarterly installments of
                     interest only at prime plus 2.5%, with a minimum rate of
                     9.5% and maximum rate of 11.5%, paid
                     in full in March, 1996                                                        2,784                 -

               Note payable to Connecticut Mutual
                     Life Insurance Company bearing interest at 8%,
                     paid in full in March, 1996                                                   2,752                 -
                                                                                                 -------           -------
                     Subtotals carried forward                                                   $83,248           $67,107

</TABLE>
                                      -12-


<PAGE>   32



                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (Dollars In Thousands)

NOTE 5.         NOTES AND MORTGAGES PAYABLE CONTINUED
<TABLE>
<CAPTION>
                                                                                                       December 31
                                                                                                 -------------------------
                                                                                                  1995              1996
                                                                                                  ----              ----
<S>                                                                                              <C>               <C>
                Subtotals carried forward                                                        $83,248           $67,107

                Unsecured notes payable to financial investment firms, interest
                     at average rate of 14%, interest payable
                     quarterly, paid in full in March, 1996                                        4,000                 -

                Other notes and mortgages payable                                                  1,909                 -
                                                                                                 -------           -------
                                                                                                  89,157            67,107

                  Less current maturities                                                        (13,602)           (1,750)
                                                                                                 -------           -------
                                                                                                 $75,555           $65,357
                                                                                                 =======           =======
</TABLE>

                Substantially, all assets are pledged as collateral on the above
debt at December 31, 1996.

                Notes and mortgages payable are scheduled to mature
approximately as follows:
<TABLE>
<CAPTION>
                        Year Ending
                        December 31
                        -----------
<S>                        <C>                                                                  <C>
                           1997                                                                 $  1,750
                           1998                                                                    2,200
                           1999                                                                    2,700
                           2000                                                                    3,250
                           2001                                                                   57,207
                           ----                                                                 --------
                                                                                                $ 67,107
                                                                                                ========
</TABLE>

                The weighted average interest rate on current maturities of
                notes and mortgages payable was 11.4% and 8.5% on December 31,
                1995 and 1996, respectively.

                DEBT RELATED DERIVATIVES

                In order to decrease its exposure to interest rate fluctuation
                on its floating rate debt, South Seas entered into the following
                agreements:
<TABLE>
<CAPTION>
                                                                                                   Estimated
                                      Notional                 Dates               Fixed             Fair
                     Hedge             Amount                 Covered                Rate           Value
                     -----             ------                 -------                ----           -----
<S>                                    <C>                <C>                     <C>              <C>
                     Swap              $40 million         Sept 96-June 98          5.475%           $195
                     Collar            $37.15 million      June 98-Sept 01          7.50%, 5.00%      313
                                                                                                     ----
                                                                 Net Value                           $508
                                                                                                     ====
</TABLE>

                The estimated fair value of the hedge agreements is the
                estimated amount that South Seas would receive to terminate the
                hedge agreements at the reporting date, taking into account
                current interest rates and the current credit worthiness of the
                hedge counterparties.

                As noted in Note 1, South Seas includes the cost of purchasing
                these agreements in loan costs and amortizes them over the term
                of the loan. Unamortized costs associated with these hedge
                agreements was $465 at December 31, 1996.


                                      -13-


<PAGE>   33



                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (Dollars In Thousands)

NOTE 5.         NOTES AND MORTGAGES PAYABLE CONTINUED

                Mariner had a limited guarantee of $1 million on the $45 million
                mortgage note payable at December 31, 1995.

                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.

                In accordance with Statement of Financial Accounting Standards
                No. 107, "Disclosures about Fair Value of Financial
                Instruments," management has determined that the carrying amount
                of its debt approximate its fair value as of December 31, 1995
                and 1996.

                The revolving credit note has a maximum commitment of $40
                million. Unused commitment fees are 3/8 of 1% per annum on the
                unused portion to be billed quarterly in arrears, calculated on
                the average balance during the preceding quarter.

                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 (see Note 7). No
                amounts had been drawn at December 31, 1996.

NOTE 6.         LONG-TERM OBLIGATIONS UNDER CAPITAL LEASES
<TABLE>
<CAPTION>

                Long-term obligations under capital leases consisted of the
                 following at December 31:                                                          1995           1996
                                                                                                    ----           ----
<S>                                                                                             <C>             <C>
                     Capital leases payable to financial institutions, bearing
                        interest from 7.2% to 9.5% per annum, maturing
                        through 2001 (see Note 4)                                                  $ 1,510        $   896

                     Less current maturities                                                          (398)          (265)

                                                                                                   -------        -------
                                                                                                   $ 1,112        $   631
                                                                                                   =======        =======
</TABLE>

                Long-term obligations under capital leases are scheduled to
                mature approximately as follows:
<TABLE>
<CAPTION>
                           Year Ending
                           December 31
                           -----------
<S>                                                                         <C>
                              1997                                             $  265
                              1998                                                231
                              1999                                                253
                              2000                                                133
                              2001                                                 14
                                                                               ------
                                                                               $  896
                                                                               ======
</TABLE>

                  The weighted average interest rate on current maturities of
                  obligations under capital leases was 9.6%, 9.6% and 8.8% at
                  December 31, 1994, 1995 and 1996, respectively.


                                      -14-


<PAGE>   34



                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (Dollars In Thousands)

NOTE 7.           BONDS PAYABLE
<TABLE>
<CAPTION>
                  Bonds payable consisted of the following at December 31:
                                                                                                   1995             1996
                                                                                                   ----             ----
<S>                                                                                           <C>               <C>
                  10% subordinated notes, interest paid monthly, principal
                    due March, 2003                                                              $       -         $43,500

                  1996 debentures, ($7.5 million original face amount)
                    collateralized by a junior mortgage on real estate owned by
                    South Seas, interest paid or added to principal (at option
                    of the bondholder) semi-annually,
                    principal due December, 1996                                                     7,938               -

                  1996 mortgage notes ($5.0 million original
                    face amount) collaterized by a junior mortgage on
                     real estate owned by a wholly owned affiliate of South
                     Seas, interest paid or added to principal (at option of the
                     bondholder) semi-annually, interest at 13% per annum,
                     principal due December 1996                                                     5,060               -
                                                                                                 ---------        --------
                                                                                                    12,998          43,500
                     Less current maturities                                                       (12,998)              -
                                                                                                 ---------        --------
                                                                                                 $       -        $ 43,500
                                                                                                 =========        ========
</TABLE>

                  The weighted average interest rate on current maturities of
                  bonds payable was 12.0% and 10.0% at December 31, 1995 and
                  1996, respectively.

                  The 1995 and 1996 debentures carried a face interest rate of
                  12% per annum and 11.5% per annum, respectively with pay rates
                  of 8% per annum and 8.75% per annum, respectively. The
                  difference between the face interest rate and the pay rate was
                  accrued and paid at maturity.

                  Both series of debentures provided for contingent interest
                  payments based on a percentage of the increase of net
                  operating income (if applicable) of the Sundial Beach and
                  Tennis Resort and The Dunes Golf and Tennis Club. Maximum
                  simple interest rates including the contingent interest rate
                  calculation, were 15% and 14% for the 1995 and 1996
                  debentures. No contingent interest was payable. Both series of
                  debentures were paid in full in March, 1996.

                  The security agreement to the 1995 and 1996 debentures
                  required South Seas to maintain the collateral value, net of
                  any superior mortgages or liens thereon, at 110% of the
                  outstanding principal indebtedness under these debentures.
                  Senior indebtedness amounted to approximately $17.9 million at
                  December 31, 1995. These debentures were redeemable at South
                  Seas's option and were called on March 28, 1996. There was no
                  redemption premium remaining on the 1995 or 1996 debentures.
                  As part of a refinance loan entered into in December, 1995,
                  South Seas had approximately $5.6 million in restricted cash
                  at December 31, 1995 to partially payoff 1996 debentures. This
                  paydown occurred January 12, 1996.

                  Mariner was co-obligor on the 1996 debentures.

                  In March, 1996, South Seas sold $43.5 million 10% subordinated
                  notes (the "Notes") which mature in 2003. The Notes 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 Notes will be offered the
                  opportunity to exchange the


                                      -15-


<PAGE>   35



                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (Dollars In Thousands)

NOTE 7.           BONDS PAYABLE CONTINUED

                  Notes at an exchange rate of $12 per unit (subject to
                  adjustment in certain circumstances). Upon the stated maturity
                  of the Notes, holders of Notes will be offered the opportunity
                  to exchange the Notes 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 expense incurred under these leases was $659, $1,473
                     and $2,099 for the years ended December 31, 1994, 1995 and
                     1996, respectively.

                     The future minimum rental commitments under the equipment
                     leases, office space and resort facility leases are as
                     follows:
<TABLE>
<CAPTION>
                                       Year
                                       ----
<S>                                                        <C>
                                       1997                   $    844
                                       1998                        744
                                       1999                        670
                                       2000                        421
                                       2001                        324
                                                              --------
                                                              $  3,003
                                                              ========
</TABLE>

                     South Seas has rental and lease obligations to certain
                     owners of condominium units for the use of their units in a
                     revenue-sharing program.

                     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 lease programs provide 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 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. The
                     lease agreements may be terminated by either party in
                     writing. Termination shall occur on the second anniversary
                     date of the lease following receipt of written notice.

                     Total lease expense related to the lease programs for the
                     years ended December 31, 1994, 1995 and 1996 was $7.3
                     million, $8.3 million and $8.3 million, respectively. Based
                     on management's intentions to continue to renew these
                     leases on a yearly basis, the expected future minimum
                     rental commitments under condominium leases will
                     approximate $5.6 million for each of the next five years.


                                      -16-


<PAGE>   36



                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (Dollars In Thousands)

NOTE 8.            COMMITMENTS AND CONTINGENCIES CONTINUED

                   Other

                     In connection with the acquisition of the Marco Radisson on
                     September 23, 1994, South Seas entered into an agreement to
                     pay the seller of the property, on a contingency basis, an
                     amount in addition to the purchase price paid at closing.
                     The contingent 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 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.

                     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 employee health, 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 is sufficient to cover future
                     costs related to the program.

                     South Seas was contingently liable as co-obligor under a
                     Mariner loan. The guarantee under this debt was $415 at
                     December 31, 1995. The liability was extinguished in 1996.

                     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.

                     South Seas entered into a purchase option agreement with an
                     affiliated limited partnership, for real and personal
                     property used in the operation of a resort on Sanibel
                     Island, Florida. This option was exercised on January 6,
                     1997 and the Seaside Inn was purchased for $6.5 million.
                     See Note 13.

                     CONCENTRATION OF CREDIT RISK

                     South Seas places cash deposits at major banks. At December
                     31, 1995 and 1996 bank account balances exceeded Federal
                     Deposit Insurance limits by approximately $11.9 million and
                     $6.5 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
                   companies (or individuals) affiliated with the general
                   partners (affiliates):

                     .   Included in general and administrative expenses for the
                         years 1994, 1995 and 1996 are general partner fees of
                         $75, $78, and $81, respectively, for services performed
                         by the general partners of South Seas Resort Limited
                         Partnership.

                     .   In 1994, 1995, and 1996, South Seas paid an affiliate,
                         acting as an administrator for insurance coverage
                         $2,936, $4,860 and $3,543, respectively.


                                      -17-


<PAGE>   37



                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (Dollars In Thousands)

NOTE 9.            RELATED PARTY TRANSACTIONS CONTINUED

                     .   Included in notes and mortgages payable at December 31,
                         1995 is $1.1 million to related parties (individuals).
                         Interest expense on these notes approximated $54, $349
                         and $92 for the years ended December 31, 1994, 1995 and
                         1996, respectively, of which $18 and $109 was payable
                         at December 31, 1994 and 1995, respectively.

                     .   Included in general and administrative expenses is rent
                         expense of $229, $236 and $261 for the years ended
                         December 31, 1994, 1995 and 1996, respectively, under
                         an operating lease with an affiliated entity for office
                         space.

                     .   Included in other income for the year ended December
                         31, 1996, is $22 of interest income earned on notes
                         receivables from employees participating in the
                         Management Equity Incentive Plan (see Note 12), of
                         which $20 was receivable at December 31, 1996.

NOTE 10.           ACQUISITION OF LIMITED PARTNERSHIP INTERESTS

                   On December 31, 1993, South Seas purchased all of Connecticut
                   Mutual Life Insurance Company's (CMLIC) interest in SSRLP,
                   leaving South Seas with a 99% interest in SSRLP. CMLIC's
                   interest was purchased for cash and notes totaling $3.6
                   million. The acquisition of CMLIC's interest in SSRLP has
                   been accounted for under the purchase method of accounting.
                   The excess of the purchase price over the carrying value of
                   net assets (related to CMLIC's interest in net assets of
                   SSRLP) of $4.4 million was allocated to goodwill. This
                   purchase money note was extinguished in 1996.

NOTE 11.           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 $246, $280 and $314 for the years ended
                   December 31, 1994, 1995 and 1996, respectively.

NOTE 12.           MANAGEMENT EQUITY INCENTIVE PLAN

                   In 1996, South Seas adopted a Management Equity Incentive
                   Plan (the "Incentive Plan"). Under the Incentive Plan,
                   eligible employees were offered to purchase a specific number
                   of partnership units at $10 per unit, 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 are interest only at 7%, paid
                   annually, with total principal due at maturity (48 months).
                   With each unit purchased, options were granted to purchase
                   five additional units. Options may be exercised at $12 per
                   unit, all options expire April 1, 2006 and vest according to
                   the schedule below:
<TABLE>
<CAPTION>
                                                         % of Options
                            Date                     that can be exercised
                            ----                     ---------------------
<S>                                                         <C>
                         July 1998                             25%
                         July 1999                             50%
                         July 2000                             75%
                         July 2001                            100%
</TABLE>


                                      -18-


<PAGE>   38



                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (Dollars In Thousands)

NOTE 12.        MANAGEMENT EQUITY INCENTIVE PLAN CONTINUED

                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.

                Under the terms of the Incentive Plan, 132,000 units remain
                available for issuance at a price to be determined at the
                discretion of the Compensation Committee.

                A summary of South Seas Incentive Plan activity during 1996 is
                presented below:
<TABLE>
<CAPTION>
                                         Number of                   Weighted Average
                                          Options                 Exercise Price Per Unit
                                          -------                 -----------------------
                                           (000)
<S>                                           <C>                             <C>
Outstanding at beginning of year              0                               0
Granted                                     590                             $12
Exercised                                     0                               0
Forfeited                                     0                               0
                                            ---                             ---

Outstanding at end of year                  590                             $12
                                            ===                             ===

Options exercisable at end of year            0                               0
                                            ===                             ===
</TABLE>

                The weighted average grant date fair value of options granted
                during 1996 was $10 per unit, and the weighted average exercise
                price was $12.

                For purposes of following disclosures required by FAS No. 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 are projected at $.30 in 1997; 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
                was $1.24. Pro forma compensation cost for 1996 awards under the
                Incentive Plan, recognized in accordance with FAS No.123, would
                increase the South Seas net loss from $4,383 ($1.00 per unit),
                to $4,447 ($1.02 per unit). Since the pro forma compensation
                cost of the Incentive Plan is recognized over the six year
                vesting period, the foregoing pro forma increase in South Seas'
                net loss is not representative of anticipated amounts in future
                years.

NOTE 13.        SUBSEQUENT EVENTS

                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. Unaudited revenues and net
                income for the Seaside Inn for the year ended December 31, 1996
                were $1.4 million and $43, respectively.

                In January 1997, South Seas renegotiated the Safety Harbor
                Resort and Spa lease agreement. The amended lease agreement
                requires annual cash payments of $1.2 million for 1997 and 1998,
                $920 in 1999, and $300 in 2000 (new expiration date of May,
                2000). Of the $3.62 million in remaining payments, $3.11 million
                will be treated as option payments with the remainder being
                treated as lease expense, straight-lined over the remaining
                term, beginning January 1997. The revised option price is $11.4
                million, (which includes the $3.11 million in option payments)
                with an additional earn-out arrangement payable to the
                owner/lessor of $8.0 million, payable over a number of years
                based upon the financial results of the property. Revised
                minimum capital improvements are $450 annually in the first four
                years of lease with a cumulative total of $3.0 million to be
                spent by May 31, 2000.


                                      -19-


<PAGE>   39


                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (Dollars In Thousands)

NOTE 13.        SUBSEQUENT EVENTS  CONTINUED

                South Seas anticipates amending the $80 million consolidation
                loan in late March, 1997. This amendment would increase the $40
                million revolver portion to $43.5 million. The additional
                funding would be used to pay off the assumed liabilities on the
                Seaside Inn ($2.5 million) with the remainder available for
                capital expenditures.

NOTE 14.        EXTRAORDINARY EXPENSE

                During 1996, South Seas refinanced substiantially all of its
                outstanding debt in a recapitalization 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.


                                      -20-



<PAGE>   40

                         PART I - FINANCIAL INFORMATION

Item 2 -       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION  AND RESULTS OF OPERATIONS

    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 in Florida. South Seas owns six resort and
hotel properties, leases, operates and manages one resort spa, owns a golf and
tennis club, and manages two additional resort properties located on Florida's
Southwest coast. South Seas consolidates the results of operations of its owned
properties and records management fees on the managed properties.

    South Seas has implemented a growth strategy which 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, 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 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 anticipates that it
will benefit, following a period where the resort will be renovated and
repositioned, from improved operating results at Safety Harbor.

                                      -16-

<PAGE>   41



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 is
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, 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, 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 $11.3 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"). 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 average daily rate ("ADR"), and an increase in the percentage of
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
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. Management of South Seas
believes operating results at Safety Harbor will begin to improve over time as
South Seas operational skills and marketing resources are fully implemented.

    Food and beverage revenues for 1996 increased by $947,000, or 5.6%. 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.


                                      -17-

<PAGE>   42

    Retail revenues for 1996 increased by $684,000, or 11.5%. 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 $519,000, compared to the
prior year. The renovated Dunes Golf & Tennis Club's Pro Shop produced
approximately $213,000 of the growth over the prior period. South Seas
Plantation produced approximately $320,000 over the prior period, primarily
through increased sales at their grocery/convenience store outlets.

    Golf revenues for 1996 increased by $537,000 or 23.0%. 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 12.1% 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 25.7% of the total increase in other
revenues.

    Expenses. Expenses for 1996 increased by $11.4 million, or 11.3%, over the
prior year. As a percentage of revenues, expenses remained constant at 102.0%.
The dollar increase resulted principally from 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 14.5% 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 increases $1.3 million or 10.3% 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 slightly from 76.0% to 79.4%.

    Sales and marketing costs for the year ended December 31, 1996

                                      -18-

<PAGE>   43



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 $632,000 or 13.7% over
the prior period, of which $232,000 or 36.7% of the total increase was
attributable to the New Resorts. Increase at the Comparable Resorts for the same
period was $400,000 or 9.7% and was consistent with expected maintenance costs
for 1996. The Dunes Golf & Tennis Club attributed approximately $241,000 of
60.2% 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 4.8%.

    Total general and administrative expense increased slightly by $68,000, or
 .3%, over 1995. As a percentage of revenues, general and administrative expense
decreased from 20.2% to 18.2%. 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 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.


                                      -19-

<PAGE>   44



    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 the percentage of 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 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. Approximately $1.4
million was generated by the Marco Radisson (reflecting 12 months of activity
vs. three

                                      -20-

<PAGE>   45



months), and $1.2 million was generated by Safety Harbor.

    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, 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
anticipates a significant reduction in insurance expense related to employee
health and workers' compensation due to a restructuring of insurance plans
(including a reduced aggregate cap on the amount of self-insurance claims)
combined with newly implemented safety programs at all of the Properties.
Management believes that the upward trend in general and administrative

                                      -21-

<PAGE>   46



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. Management anticipates that general
and administrative expense as a percentage of revenues will stabilize in the
future because a significant corporate infrastructure is now in place at South
Seas and because the New Resorts have been fully integrated and South Seas will
benefit from revenues generated at the New Resorts during the higher demand
first calendar quarter.

    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.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994
COMPARED TO THE YEAR ENDED DECEMBER 31, 1993

    Revenues. Revenues for the year ended December 31, 1994 increased by $6.2
million, or 8.5%, over the prior year. A majority of the increase was
attributable to increased room revenues, although higher food and beverage,
retail and other revenues also contributed to the increase.

    Room revenues increased by $3.5 million, or 8.5%, over the prior year.
Approximately $2.0 million, or 58.0%, of the increase represented room revenues
attributable to the Marco Radisson. Room revenues at Comparable Resorts
increased by approximately $1.5 million, or 42.0%. The increase in room revenues
at

                                      -22-

<PAGE>   47



Comparable Resorts resulted primarily from an increase in ADR. ADR at Comparable
Resorts was $199.46 for 1994, compared to $192.01 for 1993, an increase of
$7.45, or 3.9%. Occupancy percentage at Comparable Resorts remained constant at
75.3% during 1994 and 1993. During 1994, REVPAR for Comparable Resorts increased
$5.64, or 3.9% over 1993. During the portion of the year in which it was owned
by South Seas, the Marco Radisson had an occupancy percentage of 70%, ADR of
$109.60, and REVPAR of $76.72.

    Food and beverage revenues for 1994 increased by $1.1 million, or 8.6%. Of
that increase, $401,000 was due to the additional food and beverage operations
at the Marco Radisson. Food and beverage revenues for Comparable Resorts for the
year increased by $703,000, or 5.5% over the prior year. The increase in food
and beverage revenues was primarily attributable to increased volume at the
Comparable Resorts.

    Retail revenues for 1994 increased by $280,000, or 5.4%. The Marco
Radisson's retail revenues accounting for $98,000, or 18.9% of the increase.
Retail revenues for Comparable Resorts during 1994 increased by $182,000, or
3.5%, over the prior year. The increase in retail revenues was primarily
attributable to a combination of higher volumes and price increases.

    Other revenues for 1994 increased by $1.3 million primarily as a result of
increased management fees associated with the Properties managed by South Seas.
Prior to January 1, 1994, the Management Company had not been formed. Therefore,
in prior periods, no outside management fee income was recognized and management
fees for all Properties, except South Seas Plantation, during such periods were
paid to third parties and reflected as expenses.

    Expenses. Expenses for the year ended December 31, 1994 increased by $7.8
million, or 11.2%, over the prior comparable period. As a percentage of
revenues, expenses increased from 95.7% to 98.0%. Approximately $3.1 million of
the increase, or 39.7%, resulted from expenses associated with the operation of
the Marco Radisson. The increase in expenses as a percentage of revenues
resulted from significant increases in general and administrative expense,
maintenance and grounds expense, interest expense and depreciation and
amortization.

    Maintenance and grounds expense increased by $919,000, or 23.2% over 1993.
Approximately $400,000 of the increase represented expenses incurred to improve
condominium lands and buildings at South Seas Plantation that are not owned by
South Seas, but are part of its pool of rental units. Because these expenses
were incurred with respect to non-owned assets, they were expenses as incurred
rather than being capitalized. The balance of the increase in maintenance and
grounds expense represents expenses incurred in connection with the renovation
of Comparable Resorts.

    General and administrative expense increased by $3.1 million, or 29.1%, over
1993. As a percentage of revenues, general and administrative expense increased
from 14.7% to 17.3%. Approximately $738,000 of the increase was attributable to
general and administrative expense associated with the operations of the

                                      -23-

<PAGE>   48



Marco Radisson. The balance of the increase, or approximately $2.0 million,
reflected expenses associated with establishing South Seas' corporate
infrastructure in connection with the reorganization transaction.

    Depreciation and amortization expense increased by $757,000, or 20.6%, over
1993. As a percentage of revenues, depreciation and amortization expense
increased from 5.0% to 5.6%. The increase, both in dollars and as a percentage
of revenues, resulted from the impact of new properties acquired in 1994 and
refurbishment efforts at several Properties.

    Interest expense increased by $1.2 million, or 28.0% over 1993. The increase
primarily reflected the higher level of indebtedness outstanding during 1994 as
a result of the acquisition of the Marco Radisson.

    Net Income. As a result of the foregoing factors, net income for 1994
decreased by $3.1 million, or 65.3%, compared to 1993. Net income for 1993 was
favorably impacted by 2.0 million due to $1.9 million in proceeds received from
a legal settlement and a $978,000 gain on the sale of land, offset by the effect
of minority interests of $848,000 on those two transactions.

LIQUIDITY AND CAPITAL RESOURCES

    South Seas has historically financed its operations and capital expenditures
with cash generated from operations, bank borrowings, borrowings from private
investors, corporate bonds 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.

    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

                                      -24-

<PAGE>   49



its plan for growth and expansion in 1997 and in future periods. 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. A portion of the expenditures associated with this growth strategy
will be funded with cash generated from operations and proceeds from the Notes
Offering.

  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.

    In March 1997, South Seas retained an investment banking firm to advise
the partnership on various strategic financial alternatives, to meet its'
future capital needs.

    On December 31, 1996, South Seas had cash and cash equivalents of $6.5
million; and restricted cash of $201,000. Cash and cash equivalents decreased by
$881,000 during the year ended December 31, 1996.

    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
refinancings 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.

                                      -25-

<PAGE>   50



    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
refinancings 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.

    Cash flow from operations for the year ended December 31, 1994 was $7.8
million, as compared to $6.9 million for the year ended December 31, 1993. South
Seas' major uses of cash for 1994 were capital expenditures of $1.7 million and
asset purchases of $23.7 million (primarily associated with the acquisition of
the Marco Radisson), distributions to partners of $3.6 million and principal
payments on outstanding long-term debt of $2.4 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 $8.0 million during 1997. In addition,
management plans anticipates spending $5.6 million in maintenance and repairs.

    At December 31, 1996, South Seas had $65.3 million in aggregate principal
amount of long-term indebtedness (net of current maturities) outstanding under
two notes payable. These notes are secured by various mortgages on the
Properties and by security interests in substantially all of South Seas' other
assets. The outstanding principal of these notes is due in increasing annual
amounts until maturity in 2001. Approximately $40 million of these notes bear
interest at 8.475% per annum, while approximately $27.1 million bear interest at
8.31%. See Note 5 of Notes to Consolidated Financial Statements.

    At December 31, 1996, South Seas had approximately $43.5 million in
principal amount of subordinated indebtedness, represented by bonds payable. The
interest rate on this subordinated indebtedness is 10% per annum.

    Approximately $1.7 million of notes and $265,000 of capital leases represent
the aggregate principal amount of current maturities due as of December 31,
1996.

    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. Beginning July 1998 through September 2001, South Seas
has purchased an interest rate collar on this amoritizing note with a ceiling of
7.5% and a floor of 5.0%.

                                      -26-

<PAGE>   51



    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 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. Beginning July 1998 through September 2001, South Seas has
purchased an interest rate collar on this amortizing note with a ceiling of 7.5%
and a floor of 5.0%.

    South Seas exercised an option to purchase the Seaside Inn on Sanibel Island
in January, 1997. The purchase price was $6.5 million. South Seas assumed
approximately $2.5 million of aggregate principal indebtedness encumbering this
property, which it expects to refinance into the $80.0 million senior loan in
the first half of 1997. The funds used to pay the balance of the purchase price
were derived from the Offering. South Seas does not anticipate incurring 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 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
substantially improve Safety Harbor's operating results during future periods by
renovating the resort and utilizing South Seas' marketing resources.

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

    South Seas believes that cash generated by operations, together with the
proceeds from the Offering, will be adequate to meet its ongoing, regular
capital expenditure and debt service requirements. In addition, a key component
of South Seas' growth strategy is the acquisition and, to a lesser extent,
development of new resorts and hotels in targeted markets with demographic and
business characteristics consistent with its market profile. South Seas intends
to pursue acquisition and development opportunities in order to achieve growth
in its portfolio of resorts. South Seas anticipates that implementation of its
growth

                                      -27-

<PAGE>   52



strategy will likely require it to obtain significant 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 potential acquisitions, the
real estate purchase price, site improvement and construction costs associated
with development opportunities 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 limits South Seas' ability to incur additional
Funded Indebtedness. See "Description of Notes Restrictions on Additional Funded
Indebtedness" in the Offering Prospectus.

    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.

    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.



                                      -28-

<PAGE>   53

                                   MANAGEMENT


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 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 on the board of First Independence
Bank, and 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 of The Mariner Group, Inc., a position in
which he has served since October 1995. Mr. Ten Broek is the immediate past Vice
Chairman and Managing Executive of Hilton Grand Vacations Company, a 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

                                      -29-

<PAGE>   54



The Mariner Group, Inc. since 1973. Mr. Ten Broek served as President of The
Mariner Group, Inc. from 1979 to 1992. Mr. Ten Broek resigned as President and
Chief Operating Officer of The Mariner Group, Inc., in 1992 to become Vice
Chairman of Hilton Grand Vacations Company, a position in which he served until
October, 1995. He 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, each of the Properties is currently managed by the
Management Company, 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. All costs and expenses of the
management of the Properties are borne by South Seas. 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 financings and refinancings 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.
Resort Management, L.C., a Florida limited liability company.  As
a limited liability company, S.S. Resort Management, L.C. does not
have any directors.  Robert M. Taylor, Timothy R. Bogott and
Richard E. Krichbaum do, however, 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                      55    Chairman and Chief Executive Officer
Michael B. Peceri                     70    Vice Chairman
Timothy R. Bogott                     50    President
Richard E. Krichbaum                  41    Vice President of Finance & Administration
G. Scott Siler                        47    Vice President of Development
Salvatore Dickinson                   38    Vice President of Marketing
Leonard P. Myers                      50    Vice President of Human Resources
</TABLE>

                                      -30-

<PAGE>   55


<TABLE>
<S>                                   <C>   <C>
Ralph Suda                            50    Vice President of Reservations
Brian P. Garavuso                     34    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., 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 two-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.,
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 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 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., 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

                                      -31-

<PAGE>   56



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., 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 20-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 Dickinson. Mr. Dickinson is Vice President of Marketing of S.S.
Resort Management, L.C., 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 Robinson, Yesawich & Pepperdine, 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 (now Carnival Hotels and
Resorts). Mr. Dickinson is an active member of the Hospitality Sales & Marketing
Association International and the American Advertising Federation. He 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., 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 Windom, Minnesota. Mr Myers is a board member on the Wages
Coalition and is also on the board for 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

                                      -32-

<PAGE>   57



School Board. He is a past president of the Health Care Coalition and the Career
Education Advertising Council. Mr. Myers received his masters degree in
community/industrial psychology in 1976 from the University of Central Florida
in Orlando.

     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, a
subsidiary of South Seas Resorts Company. Mr. Garavuso serves on the technology
sub-committee for the American Hotel & Motel Association and he is 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 B.S. in
Business Administration.

     Ralph Suda. Mr. Suda is the Vice President of Reservations for S.S. Resort
Management, L.C., 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, 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 in Business Administration from the University of Hawaii.


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 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, South Seas' operations are
managed by the officers of S.S. Resort Management, L.C., the general partner of
the Management Company.

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

                                      -33-

<PAGE>   58



all other expenses necessary or appropriate to the conduct of the business of,
and allocable to, South Seas.

Executive Compensation

     The executive officers of S.S. Resort Management, L.C., the general partner
of the Management Company, manage and operate South Seas' business. South Seas
does not directly employ any of such executive officers. The following table
sets forth compensation for fiscal year 1996 of the chief executive officer and
executive officers of S.S. Resort Management, L.C. earning more than $100,000.

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                 $227,000           $45,000             $0                      $17,000

Timothy R. Bogott
     President                    $150,000           $30,000             $0                      $17,000

Richard E. Krichbaum
     Vice President               $117,500           $22,000             $0                       $3,000

G.Scott Siler
 Vice President                   $115,000           $15,000             $0                       $3,000

Salvatore Dickinson
     Vice President               $100,250           $15,000             $0                       $2,836
</TABLE>

(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. Taylor and 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 $14,000 each, paid by South Seas.

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

                                      -34-

<PAGE>   59

securities.

<TABLE>
<CAPTION>
                                                 Amount and Nature                          Percentage
Name of Beneficial Owner                    of Beneficial Ownership                          of Class
<S>                                     <C>                                                  <C>
T&T Resorts, L.C. (1)                    44,273 General Partnership Units                      100%
The Mariner Group, Inc.                 610,385 Limited Partnership Units                    13.93%
Robert M. Taylor                        506,912 Limited Partnership Units (2)                11.57%
Robert F. Anderson                      452,273 Limited Partnership Units                    10.32%
Allen G. Ten Broek                      407,219 Limited Partnership Units                     9.29%

</TABLE>

(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.

     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)                     22,579 General Partnership Units                       51%
Robert M. Taylor                        506,912 Limited Partnership Units (2)                11.57%
Timothy R. Bogott                       150,000 Limited Partnership Units (3)                 3.42%
G. Scott Siler                           47,487 Limited Partnership Units                     1.08%
Richard E. Krichbaum                     33,060 Limited Partnership Units                     0.75%
Leonard P. Myers                         14,000 Limited Partnership Units                     0.32%
Salvatore P. Dickinson                    7,000 Limited Partnership Units                     0.16%
Ralph G. Suda                             7,000 Limited Partnership Units                     0.16%
Brian P. Garavuso                         3,000 Limited Partnership Units                     0.07%
</TABLE>

(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.

     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.


                                      -35-

<PAGE>   60

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

     Compensation decisions with respect to the executive officers of the
Management Company with respect to fiscal year 1996 were made by Messrs. Taylor,
Ten Broek and Bogott.

     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.

Transactions With The Mariner Group, Inc.

     South Seas paid $2.9 million, $4.9 million and $3.5 million in 1994, 1995
and 1996, 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 $229,000, $236,000 and $261,000 in 1994, 1995 and 1996,
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
transaction, an aggregate value of $2,537,753.71 ($12.07 per Unit)

                                      -36-

<PAGE>   61



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. The
valuation process was coordinated by Mr. Taylor, Mr. Bogott and Mr. Krichbaum.

     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. The Management Company currently manages 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
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 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. (Mariner Capital
Management, Ltd., has an arrangement with Mariner Capital Management, Inc.,
whereby Mariner Capital Management, Ltd., earns 100% of net income of Mariner
Capital Management, Inc.) 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

                                      -37-

<PAGE>   62



of all costs incurred in connection with the operation of this Property. This
management agreement expires on December 31, 1999. Mariner Capital Management,
Inc. and MCD Real Estate, Inc. are also the general partners of Florida Income
Fund III, L.P.

     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, 1994             Jan 1, 1995           Jan 1, 1996
<S>                                       <C>                    <C>                    <C>
Robert M. Taylor(l)                       17.43%                 16.73%                 16.53%
Robert F. Anderson(2)                     14.51%                 12.61%                 15.18%
Allen G. Ten Broek                         5.2 %                 11.09%                 11.54%
Timothy R. Bogott(3)                       0.57%                  0.82%                  1.24%
Richard E. Krichbaum                       0.13%                  0.33%                   .32%
G. Scott Siler                             0.05%                  0.81%                   .79%
Michael B. Peceri                           .17%                  1.01%                  1.03%
</TABLE>

(1)       Includes shares held by partnerships for the benefit of Mr. Taylor's
          family. With respect to January 1, 1995 and 1996, includes shares
          owned by Mr. Taylor's spouse.

(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.

Other Transactions

              Mr. Taylor and Mr. Ten Broek (or the limited liability company,
San-Cap, L.C.) received in the aggregate $75,000, $78,000 and $81,000 for the
years 1994, 1995 and 1996, 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.

              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% 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

                                      -38-

<PAGE>   63

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. 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. The
valuation process was coordinated by Mr. Taylor, Mr. Bogott and Mr. Krichbaum.



                                      -39-



<PAGE>   64
                SOUTH SEAS PROPERTIES COMPANY LIMITED PARTNERSHIP
                                   SIGNATURES
                                DECEMBER 31, 1996

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.





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, 1997                               (SIGNATURE)
                                             MARCH 31,1997





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, 1997                               (SIGNATURE)
                                             MARCH 31, 1997




                                      -40-