ML MACADAMIA ORCHARDS L P, 10-K405, 1999-03-29

ML MACADAMIA ORCHARDS L P
10-K405, 1999-03-29
AGRICULTURAL PRODUCTION-CROPS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-9145
-------

ML MACADAMIA ORCHARDS, L.P.
-----------------------------------------------------
(Exact Name of registrant as specified in its charter)

DELAWARE 99-0248088
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

828 FORT STREET, HONOLULU, HAWAII 96813
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (808) 532-4130
--------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Name of Each Exchange
Title of Each Class on Which Registered
----------------------------------- -----------------------
Depositary Units Representing
Class A Limited Partners' Interests New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

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 twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this 10-K or any amendment to this
10-K. /X/

As of March 15, 1999, 7,500,000 shares of the registrant's Class A Units were
outstanding, and the aggregate market value of such Units held by non-affiliates
was $28,125,000 (based on the closing price on that date of $3.75 per Unit).

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PART I

ITEM 1. BUSINESS OF THE PARTNERSHIP

GENERAL DESCRIPTION OF THE BUSINESS

ML Macadamia Orchards, L.P. (the "Partnership") is a publicly-traded
partnership, organized under the laws of the State of Delaware, and engaged
in the business of growing macadamia nuts in Hawaii. It is one of the world's
largest growers of macadamia nuts. The Partnership owns or leases
approximately 4,027 tree acres of macadamia nut orchards in three locations
within a 50-mile radius on the island of Hawaii, where macadamia nut yields
are among the world's highest. ("Tree acres" are acres of the Partnership's
owned or leased lands utilized for macadamia nut orchards. "Gross acres"
includes areas not utilized for orchards.) The Partnership is managed by its
sole general partner, ML Resources, Inc. ("MLR" or the "Managing Partner").
The Managing Partner is owned by Mauna Loa Macadamia Nut Corporation ("Mauna
Loa"). Mauna Loa is a wholly owned subsidiary of C. Brewer and Company,
Limited ("CBCL"), which in turn is wholly owned by Buyco, Inc. ("Buyco").

Ownership of Class A Units confers no direct or indirect interest in Buyco,
CBCL, Mauna Loa or any of their affiliated corporations.

The Partnership commenced operations in June 1986, following its acquisition
of interests in approximately 2,423 tree acres of macadamia nut orchards from
Mauna Loa and one of Mauna Loa's affiliates. In December 1986 and October
1989, respectively, the Partnership acquired from affiliates of Mauna Loa
interests in approximately 266 and 1,260 additional tree acres of macadamia
orchards. In September 1991 the Partnership acquired approximately 78 tree
acres of producing macadamia orchards.

NARRATIVE DESCRIPTION OF THE BUSINESS

The Partnership sells all of its macadamia nuts to Mauna Loa, under four
long-term nut purchase contracts. Mauna Loa processes and markets the nuts
under the MAUNA LOA-Registered Trademark- brand name and is the largest
processor and marketer of macadamia nuts in the world. The Partnership is
Mauna Loa's largest single supplier of macadamia nuts. All farming activities
are performed for the Partnership by CBCL subsidiaries under long-term
farming contracts.

NUT PURCHASE CONTRACTS.

The Partnership is a party to four nut purchase contracts with Mauna Loa.
They cover all nuts produced by the orchards acquired in June 1986, December
1986, October 1989, and September 1991, respectively. The first two contracts
expire in 2006, while the third contract expires in 2019 and also provides
for the exclusion of unusable nuts from those purchased by Mauna Loa. The
first three contracts are identical in all other material respects. The
fourth contract was acquired by assignment with the purchase in September
1991 of the Lot 10 orchard and expires in 2003. The fourth contract is
similar to the first three contracts, but the nut price is calculated on a
crop year (July 1 through June 30) rather than a calendar year basis, which
results in a slightly different nut price. All four contracts use a pricing
formula based 50% on a two-year trailing average of the macadamia nut price
published annually by the United States Department

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of Agriculture and 50% on Mauna Loa's "netback component." The netback
component is calculated by subtracting Mauna Loa's processing and marketing
costs per pound and a "capital charge" of 20% from its nut revenues per
pound. The first three nut purchase contracts may be terminated by Mauna Loa
upon thirty days' notice if the Managing Partner is involuntarily removed as
the managing general partner and replaced by a person or entity not
affiliated with Mauna Loa. The fourth nut purchase contract may be terminated
at any time by mutual agreement in writing, or it may be terminated by the
Partnership as of the end of any calendar year by giving Mauna Loa at least
twelve months advance notice of its intention to terminate.

COMPETITION

Because the Partnership's revenues from nut sales (and therefore its overall
financial results) are tied to a formula dependent in large part upon Mauna
Loa's market performance, the Partnership bears certain risks associated with
Mauna Loa's marketing of the nuts, including the likelihood of increased
future competition.

Mauna Loa considers its primary competition to be other premium nut products,
except in Hawaii where its products compete with those of other macadamia nut
producers and other food and non-food tourist items. As a premium nut,
macadamia nuts compete with cashews, almonds and pistachios.

Mauna Loa sells macadamia nuts as "retail" nuts and "commercial" nuts and
produces and sells various macadamia nut products. These include pristine
salted and unsalted roasted macadamia nuts, packages of diced macadamia nuts
and macadamia oil (for cooking and baking), value-added products such as
candy-glazed macadamia nuts, chocolate-covered macadamia nuts, chocolate
macadamia nut candy bars, honey-roasted macadamia nuts and macadamia nut
brittle.

Macadamia nuts comprised less than 5% of the sales of branded premium nuts
sold through mass merchandisers, drug and grocery stores on the U.S.
mainland. Cashews and mixed nuts represent the bulk of the dollar sales in
this segment, followed by pistachios. Macadamia nuts are the highest priced
of all premium nuts, and, therefore, they may be sensitive to price
competition from other nuts.

Approximately fifty percent of sales of the MAUNA LOA-Registered
Trademark- brand are made in the U.S. mainland, where Mauna Loa sells its
products through brokers to food stores, club stores, drug store chains, mass
merchandisers and commercial customers.

Approximately thirty percent of sales of the MAUNA LOA-Registered
Trademark- brand are made in Hawaii where Mauna Loa sells through its own
direct sales force primarily to retailers. Substantial portions of the
macadamia nut products sold are purchased by visitors for gifts and
souvenirs. Mauna Loa believes that it is the largest seller of macadamia
products in the State of Hawaii.

Outside the United States, Mauna Loa's other major market is Japan and the
Far East. Approximately fifteen percent of sales of the MAUNA LOA-Registered
Trademark- brand are made in Japan and the Far East.

The remaining sales are comprised of ingredient nuts, visitor center sales,
and mail order sales.

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In addition to the State of Hawaii, mature macadamia nut orchards are located
in Australia, Africa, and Central America. For the 1998/99 crop year, Hawaii
is expected to supply 30% of the world crop, and Australia, the world's
largest producer, is expected to supply 44%.

A general decline in nut prices would adversely affect the prices which Mauna
Loa could charge for its macadamia nut products and could have a negative
effect on its profitability. Since the purchase price for the Partnership's
nuts under all of its nut purchase contracts is based in part on nut prices
reported by the industry and in part on the marketing success of Mauna Loa, a
general decline in macadamia nut prices could also adversely affect the
Partnership's revenues.

FARMING CONTRACTS

All of the Partnership's orchards are farmed by two subsidiaries of CBCL
under four long-term farming contracts. The orchards are located at three
separate locations on the island of Hawaii ("Keaau", "Ka'u" and "Mauna Kea").
Because each area has different terrain and weather conditions, farming
methods vary somewhat among the three locations.

FARMING CONTRACTS. The Partnership is a party to four farming contracts with
two affiliates of CBCL, Ka'u Agribusiness Company, Inc. ("KACI") and Mauna
Kea Agribusiness Company, Inc. ("MKACI"). Services under these contracts
include cultivation, weed and pest control, fertilization, pruning and
hedging, replanting, harvesting, husking and related services for the
Partnership's orchards. In return, the Partnership reimburses KACI and MKACI
for their direct and indirect costs incurred in providing such services,
including an equipment utilization charge and an annual farming fee. The
first two contracts (the "1986 contracts") expire in 2006, while the third
contract (the "1989 contract") expires in 2019. The fourth contract (the "Lot
10 contract") was acquired with the purchase of the Lot 10 orchard in 1991
and expires in 2006. The four contracts are identical in all other material
respects. The contracts are terminable if the Managing Partner is
involuntarily removed and replaced by a person or entity not affiliated with
Mauna Loa.

Each of the farming contracts was amended effective January 1, 1998 to
provide that farming fees would equal 2 1/2% of the Partnership's gross
profits from farming operations, rather than 3% of the Partnership's
operating cash flow, attributable to the relevant orchard.

ORCHARD MAINTENANCE. Maintenance of an orchard is essential to macadamia nut
farming. Pruning and hedging of trees is necessary to allow space for
mechanical harvesting and cultivating equipment to operate safely and
efficiently and to remove dead branches. Where mechanical equipment is used,
the orchard floor must be maintained in a condition that will permit its
operation. Soil and gravel are used to repair mud holes and other surface
irregularities caused by soil erosion from heavy rain and by farming
equipment, though this operation is not performed as frequently due to
current cost controls. Pruning and surface maintenance are usually performed
after the harvest season.

Orchard management also requires the proper selection and application of
fertilizers, pesticides (to control rodents, insects and fungi) and
herbicides (to control weeds). Insects, rodents and fungi, as well as wild
pigs, if not controlled, can cause losses to nut production.

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HARVESTING. The harvest period begins in the late summer and runs through the
spring. Mature nuts fall from the trees and are harvested using mechanized
harvest equipment when the orchard floor is level enough to permit its use.
Nuts are harvested by hand when the orchard floor is too uneven to permit
mechanical harvesting, when the nut drop is very light and when nuts remain
after harvesting. At Keaau, Ka'u and Mauna Kea, seasonal labor for hand
harvesting and other operations is generally available from nearby Hilo and
adjacent communities.

Mechanical harvesting is less costly than hand harvesting, but mechanical
harvesting is possible only where the orchard floor is relatively flat.
Approximately 56% of the orchards acquired in 1986, 81% of the orchards
acquired in 1989 and all of the orchard acquired in 1991 are currently
mechanically harvested. The remaining acreage of the 1986 and 1989 orchards
is too uneven for mechanical harvesting and must be harvested by hand.

During the harvest season, the nuts are collected every six to ten weeks.
Nuts suffer loss in quality if they remain on the ground too long. The
harvested nuts are then transported to the husking facility. The Keaau and
Ka'u areas have husking facilities, which are not owned by the Partnership.
Nuts harvested in the Mauna Kea area are transported to the husking facility
in the Keaau area. At the husking facility, the outer husk is removed and the
nuts, still in their shell, are weighed and sampled to determine moisture
content and kernel quality. Title to the nuts passes to Mauna Loa after
weighing, and the nuts are then moved to a drying facility.

PROCESSING. The nuts purchased from the Partnership by Mauna Loa are
primarily processed at Mauna Loa's processing plant located adjacent to the
orchards located in the Keaau area. The plant was built in 1966 and is
presently capable of handling approximately 210,000 pounds of dry-in-shell
(commonly abbreviated "DIS") nuts per day. Processing at the plant includes
drying, cracking, roasting, inspecting and packaging. The plant also includes
separate warehouses, a machine shop, storage facilities, husking facilities,
nut drying facilities, a generator and a 10,000 square foot chocolate
processing plant. None of these processing facilities are owned by the
Partnership.

At Mauna Loa's plant in Keaau, the harvested nuts pass by conveyors over
metal screens, blowers and rock separators that remove everything but the
in-husk nuts. The husks are then split and removed by pressing the nuts
between steel roller bars and a rubber pad. At this stage, the nut kernels
are still encased in their hard round shells and roughly 20% of their weight
is attributable to moisture content. At this point, the nuts are referred to
as wet-in-shell (commonly abbreviated "WIS"). The WIS weight of the nuts is
used to determine payments to be made by Mauna Loa under the Nut Purchase
Contracts. Approximately 20% of the WIS weight of the nuts will become dry
salable kernels when all further processing is completed.

After the nuts are weighed the moisture content of the nuts is reduced by
blowing warm air over them, producing DIS nuts. The nuts are then cracked by
metal rollers to remove the shell. Mechanical and optical equipment, as well
as hand sorting, are used to separate the nut kernels from pieces of broken
shell.

The dry nut kernels are roasted and then sorted into retail and commercial
grades. At this stage, less than half of the nuts are bulk-packed and sent to
four co-packers on the U.S. mainland for packaging. At Mauna Loa's plant in
Keaau the nuts may be salted, or covered with chocolate or one of several
candy glazes, and finally packaged, labeled and readied for shipment.

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STABILIZATION PAYMENTS

In December 1986, the Partnership acquired a 266 acre orchard that was
several years younger than other orchards of the Partnership. Because of the
relative immaturity of the newer orchard, its productivity (and therefore its
cash flow) was expected to be correspondingly lower for the first several
years than for the other older orchards.

Accordingly, the seller of this orchard (KACI) agreed to make cash
stabilization payments to the Partnership for each year through 1993 in which
the cash flow (as defined) from this orchard fell short of the target cash
flow level, which equaled $507,000. Stabilization payments for any given year
were limited to the lesser of the amount of the shortfall or a maximum
payment amount. For the years from 1987 through 1993, inclusive, the
Partnership received a total of $1,628,000 (including a 4% Hawaii general
excise tax) in stabilization payments under this agreement.

The Partnership accounted for stabilization payments (net of the 4% Hawaii
general excise tax) as a reduction in the cost basis of the orchard. As such,
these payments are being reflected in the Partnership's net income ratably
through 2019 as a reduction to the depreciation expense reported for this
orchard.

In return, the Partnership is obligated to pay the seller 100% of any year's
cash flow from this orchard in excess of the target cash flow as additional
percentage rent until the aggregate amount of the additional percentage rent
paid equals 150% of the total amount of stabilization payments previously
received. Thereafter, the Partnership is obligated to pay the seller 50% of
this orchard's cash flow in excess of the target cash flow as additional
incentive rent. The Partnership paid KACI $54,000 under these provisions for
1996 and $297,000 for 1997. No additional rent was due in 1998, and no
amounts were payable with respect to prior years.

RISKS INVOLVED IN OPERATING MACADAMIA ORCHARDS

Macadamia nut trees are subject to damage or destruction from diseases,
pests, floods, droughts, windstorms, hurricanes, volcanic activity and other
natural causes. Partnership tree replacements for all orchards from all
causes were 1.3% in 1996, 2.0% in 1997 and 0.9% in 1998.

DISEASES AND PESTS. The Partnership's Keaau orchards have experienced tree
replacements of 2.1% in 1996, 2.7% in 1997 and 1.9% in 1998. Other macadamia
growers in the vicinity have also experienced higher than normal tree losses
due to a problem known as "Macadamia Quick Decline" ("MQD"). Based upon
research by the University of Hawaii and other experts, it is believed that
the situation is due to fungi associated with high moisture conditions. It is
also believed that a particular variety of macadamia nut tree (variety 333)
is most susceptible to MQD. Another tree variety (variety 344) has also been
identified as being more susceptible to MQD than other varieties. Based on
the latest research, Mauna Loa and the University of Hawaii are working to
identify the specific causes of the problem and potentially to develop
feasible control measures. There is no assurance, however, that a feasible
control measure can be developed. Approximately 9% of the Partnership's
orchards are variety 333 and 45% are variety 344. Both the Keaau and Mauna
Kea orchards are areas with high moisture conditions, and may be more
susceptible to the MQD problem. MQD is present in the Ka'u orchards, but tree
losses to date have been less than 1% in the Ka'u area.

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There are also two types of fungal diseases, which can affect nut production
but are not fatal to the trees themselves. One of these is Phytophthora,
which affects the macadamia flowers and nutlets, and the other is Botrytis
cinerea. These types of fungal disease were generally controllable with
fungicides, but many of these fungicides are no longer available.
Historically, these fungi have attacked the orchards located in Keaau every
three or four years. There was a Phytophthora occurrence in the Keaau and
Mauna Kea orchards in the spring of 1994 and, as there are currently no
feasible methods available to treat Phytophthora, the 1995-96 crop year
production for these orchards was affected.

WINDSTORMS AND INSURANCE. The Partnership's orchards are located in areas on
the island of Hawaii that are susceptible to windstorms. Twenty-four major
windstorms have occurred on the island of Hawaii since 1961, and four of
those caused material losses to Partnership orchards. Several of the
Partnership's orchards are surrounded by windbreak trees, which provide
limited protection. Younger trees that have not developed extensive root
systems are particularly vulnerable to windstorms.

On February 24, 1997, high winds hit the Hilo side of the island of Hawaii,
resulting in the loss of 5,381 trees (about 1.5% of all of the Partnership's
trees) in the Mauna Kea and Keaau orchards. Clean-up and replanting costs
were approximately $275,000. There was no insurance recovery because losses
were below the deductible amount.

For 1999, the Partnership has secured tree and crop insurance coverage under
a federally subsidized program. The tree insurance provides coverage up to a
maximum of approximately $36 million against loss of trees due to wind, fire
or volcanic activity. The crop insurance provides coverage up to a maximum of
approximately $7.5 million against loss of nuts due to wind, fire, volcanic
activity, earthquake, adverse weather, wildlife damage and failure of
irrigation water supplies.

VOLCANOES. The orchards are located on the island of Hawaii, where there are
two active volcanoes. To date, no lava flows from either volcano have
affected or threatened the orchards.

RAINFALL. The productivity of orchards depends in large part on moisture
conditions. Inadequate rainfall can reduce nut yields significantly, while
excessive rain without adequate drainage can foster disease and hamper
harvesting operations. While rainfall at the orchards located in the Keaau
and Mauna Kea areas has generally been adequate, the orchards located in the
Ka'u area generally receive less rainfall and, as a result, a portion of the
Ka'u orchards is presently irrigated. Irrigation can mitigate the effects of
a drought, but it cannot completely protect a macadamia nut crop from the
effect of a drought. Recorded rainfall at each of the three locations of the
Partnership's orchards for the past five years is shown below:

Year Ka'u Keaau Mauna Kea
---- ------ ------- ---------
<S> <C> <C> <C>
1994 68.7" 173.3" 249.7"
1995 27.0" 88.6" 123.1"
1996 69.3" 125.2" 146.6"
1997 54.9" 142.3" 157.5"
1998 8.8" 115.5" 153.7"
</TABLE>

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For the first eleven months of 1995 very dry conditions prevailed in the
Partnership's orchards, with the Ka'u area being particularly affected.
Though the rainfall returned to more normal levels in the second half of 1996
and 1997, the Partnership's 1995-96 crop year production was adversely
affected by this drought.

The heavy rainfall experienced in January and February 1994 in the Keaau
orchards (forty inches compared to a historical average of twenty-one)
induced flower disease and limited pollination. The 1994-95 crop year
production for the Keaau orchards was adversely impacted by these unusual wet
conditions.

The 1998 El Nino related drought affected all of Hawaii for the first three
months of 1998 and continued for the full year in Ka'u. The Ka'u region
recorded the lowest rainfall in the Partnership's history, with less than
nine inches of rain. The 1998-99 crop year will be substantially reduced for
Ka'u orchards, and the 1999-2000 crop year may also be affected. Production
in Keaau and Mauna Kea was not adversely affected by the drought.

WATER SUPPLY FOR IRRIGATION

In June 1986, the Partnership and KACI entered into an agreement (the "Water
Agreement") pursuant to which KACI agreed to supply water to that portion of
the June 1986 Orchards located at Ka'u ("Ka'u I") which had been irrigated
historically. In 1989, the Water Agreement was amended to supply water to
that portion of the October 1989 Orchards at Ka'u ("Ka'u II") which had been
irrigated historically. The Water Agreement, as amended, provides that KACI
will supply water to such portion of the Ka'u I Orchards and the Ka'u II
Orchards (the "Irrigated Orchards") from a well (the "Sisal Well") located on
property owned by KACI as requested by the Partnership from time to time in
an amount equal to, at the time of request, the lesser of (i) the amount
necessary to irrigate the Irrigated Orchards in accordance with prudent
farming practices or (ii) 95% of the Sisal Well's present operating capacity
of 1,700 gallons per minute, provided that the amount of water required to be
provided under clause (ii) will not exceed approximately 643 million gallons
of water per year. The cost to the Partnership for receiving such water is a
pro rata share of the cost incurred by KACI in providing such water.

If the amount of water provided to the Irrigated Orchards by the Sisal Well
becomes insufficient to irrigate the Irrigated Orchards in accordance with
prudent farming practices as determined by the Partnership in good faith,
KACI will be obligated, at the request of the Partnership, to use reasonable
efforts to increase the capacity of the Sisal Well, to drill an alternative
well into the historical source which provides water to the Sisal Well or to
obtain water from other sources in order to provide such amount of water. If
KACI incurs capital costs in connection with any such actions, the
Partnership will be required to pay its pro rata shares of such costs. If
water is not supplied to the Partnership as required under the Water
Agreement, the Partnership will be entitled to drill for water on the portion
of the Ka'u I Orchards which is held in fee by the Partnership. The Water
Agreement also provides that, if KACI sells or otherwise transfers all or any
portion of the retained water rights beneath the Irrigated Orchards or the
property containing the Sisal Well, the right of the Partnership to receive
water under the Water Agreement will be reasonably provided for.

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On a historical basis, the quantity of water available under the Water
Agreement to the irrigated portion of the Ka'u I Orchards has been generally
sufficient to irrigate these orchards in accordance with prudent farming
practices. The irrigated portion of the Ka'u II Orchards is expected to need
greater quantities of water as the orchards mature. The Managing Partner
anticipates that the amount of water available under the Water Agreement, as
amended, will be generally sufficient, assuming average levels of rainfall,
to irrigate the Irrigated Orchards in accordance with prudent farming
practices for the next several years. If no irrigation water is available to
the Irrigated Orchards, then, based on historical average rainfall levels,
diminished yields of macadamia nut production can be expected.

EMPLOYEES

The Partnership presently has no employees. Instead, the employees, officers
and directors of the Managing Partner perform all management functions for
the Partnership. As of December 31, 1998, the Managing Partner employed three
people.

ITEM 2. PROPERTIES.

LOCATION. The Partnership owns or leases approximately 4,027 tree acres of
macadamia orchards on the island of Hawaii. The orchards are located in three
areas: Ka'u, Keaau and Mauna Kea. The Ka'u area is located in the south part
of the island about fifty miles from Hilo. The Keaau area is located six
miles south of Hilo on the east side of the island, and the Mauna Kea area is
located three miles north of Hilo on the east side of the island.

The majority of macadamia nut trees grown in the State of Hawaii are grown on
the island of Hawaii in volcanic soil that permits drainage during heavy
rainfall. While the orchards are located approximately within a 50-mile
radius, the climate and other conditions which affect the growing of
macadamia nuts are different. These differences are the result of prevailing
wind patterns and island topography which produce a variety of microclimates
throughout the island.

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[MAP OF STATE OF HAWAII]

AGE AND DENSITY. The productivity of macadamia nut orchards depends on
several factors including, among others, the age of the trees, the number of
trees planted per acre, soil condition, climate, rainfall and/or irrigation.
The most significant characteristic affecting yields is maturity. The trees
in a macadamia nut orchard generally begin to produce nuts at a commercially
acceptable level at around nine years of age. Thereafter, nut yields increase
gradually until the trees reach maturity, after which the nut yield remains
relatively constant except for variances produced by rainfall, cultivation
practices, pest infestation and disease.

Macadamia orchards normally reach peak production after fifteen to eighteen
years of age. Of the 4,027 tree acres of macadamia orchards owned or leased
by the Partnership, 2,721 tree acres are over eighteen years of age and
roughly 1,306 tree acres are under eighteen years of age. Around 2% of trees
are lost to various causes each year and are replaced.

RAINFALL. Macadamia trees grow best in climates with substantial and evenly
distributed rainfall (or equivalent irrigation) and in soil that provides
good drainage. Inadequate rainfall can significantly reduce nut yields, while
excessive rain without adequate drainage can impede healthy tree growth,
promote the growth of harmful fungal diseases and produce mud holes that
require repair of the orchard floor.

At Keaau, normal rainfall is adequate without irrigation, and the volcanic
soil provides good drainage. However, short droughts and occasional flooding
have occurred. At Mauna Kea,

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normal rainfall is adequate without irrigation and the volcanic soil provides
adequate drainage. In the event of a very long drought, production at Keaau
and Mauna Kea might be affected. At Ka'u, located on the drier side of the
island, the rainfall averages substantially less than at Keaau, particularly
at the lower elevations. Approximately 652 acres at the lower elevations of
Ka'u are irrigated to provide for additional water when required. Under
extremely dry conditions at Ka'u, such as a prolonged drought, irrigation is
not sufficient, and production will be affected negatively.

At the time of the conveyance of these orchards to the Partnership, Mauna Loa
and KACI reserved the water rights to the land underlying the orchards. To
supply water to that portion of the orchards located at Ka'u which had been
irrigated historically, KACI and the Partnership entered into a water
agreement whereby KACI agreed to supply water to the Partnership from a well
which is on property retained by KACI to irrigate this property. The water
agreement has been amended to provide for water to be supplied for irrigation
purposes to the portion of the October 1989 Ka'u Orchards which have
historically been irrigated.

ORCHARDS. The following table lists each of the orchards, the year
acquired, gross and tree acres, tenure, and lease rents:

TREE LEASE MIN. RENT
ORCHARD ACQUIRED ACRES TENURE EXPIRATION PER ANNUM
- --------------------- ----------- ---------- ------------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Keaau I June 1986 1467 Fee simple
Ka'u I June 1986 456 Fee simple
" June 1986 500 Leasehold (1) 2019 $10,500
Ka'u Green Shoe I Dec. 1986 266 Leasehold (1) 2019 $ 5,586
Keaau II Oct. 1989 220 Fee simple
Ka'u II Oct. 1989 327 Leasehold (2) 2034 $32,702
" Oct. 1989 175 Leasehold (1) 2028 $17,314
" Oct. 1989 26 Leasehold (3) 2029 $ 1,020
" Oct. 1989 137 Leasehold (1) 2031 $12,757
" Oct. 1989 49 Leasehold (1) 2031 $ 5,828
Mauna Kea Oct. 1989 326 Leasehold (2) 2034 $32,560
Keaau Lot 10 Sept. 1991 78 Fee simple
----
Total acres 4027

</TABLE>

(1) Lease of land only; trees may be removed at termination of lease.
(2) Lease of land only; lessor may purchase trees from lessee at any time after
June 30, 2019.
(3) Lease of land; trees revert to lessor upon termination of lease.

For certain additional information concerning farming leases, see Item 13,
page 41.

In addition to the minimum annual lease payment amount, all the leases
require the Partnership to pay various expenses with respect to the leased
premises as well as an additional rental payment based on the market price
per pound of macadamia nuts sold in Hawaii.

<PAGE>

With respect to the Ka'u Green Shoe I Orchard, the lease requires the
Partnership to pay KACI, the seller and lessor, additional rent equal to 100%
of any year's cash flow generated by such orchard in excess of a target level
of $507,000 until the aggregate amount paid equals 150% of the aggregate
amount of the stabilization payments previously received by the Partnership.
Thereafter, the Partnership is required, with respect to any year prior to
the expiration of the lease, to pay as additional rent, 50% of the cash flow
generated by such orchard for such year in excess of a target level of
$507,000 of cash flow.

CERTAIN INFORMATION REGARDING LEASES. The 715 tree acres comprising the Ka'u
II Orchards are situated on approximately 1,424 actual acres of land. Such
1,424 acres of land are located on larger tracts of land which cover an
aggregate of approximately 10,358 acres. Under a Hawaii county subdivision
ordinance, in order to transfer or lease a discrete portion of a tract if the
entire tract is not being transferred or leased, certain government approvals
must be obtained. Because such approvals were not obtained prior to the
consummation of the acquisition of the Ka'u II Orchards in 1989 with respect
to the transfer to the Partnership of leasehold interests relating to only a
portion of such tracts containing the Ka'u II Orchards, the Partnership
acquired (i) a lease of an undivided interest in the larger tracts of land
within which the property relating to the Ka'u II Orchards are located, (ii)
an undivided interest in the entire leasehold estate relating to the larger
tracts of land within which a portion of the property relating to the Ka'u II
Orchards are located and (iii) the entire leasehold estate of the remaining
portion of the property relating to the Ka'u II Orchards Leasehold Interest.
The acquisition of such interests by the Partnership did not require any
government approvals. Mauna Loa and the KACI agreed that they would use all
reasonable efforts to obtain preliminary county subdivision approval for the
larger tracts of land prior to July 1, 1992. Mauna Loa and KACI met this
deadline and received final subdivision approval in January 1995. Upon
obtaining all necessary approvals to partition such larger tracts, the
Partnership will be required to revest in Mauna Loa and KACI the
Partnership's undivided leasehold interest in the 8,934 additional acres not
related to the land upon which the Ka'u II Orchards are located, at which
time the Partnership's undivided leasehold interest in the remaining portions
of such larger tracts will be converted to a leasehold interest of the
entirety of such remaining portions. That work is proceeding.

ITEM 3. LEGAL PROCEEDINGS.

13
<PAGE>

representing approximately triple the amount of its claimed attorney's time
of $146,905, plus expenses of $79,276.95. Exhibits to the Plaintiff's motion
indicate that the great majority of the time spent by attorneys and more than
90% of the costs related to the proxy contest rather than the litigation. A
hearing was held on the Motion for attorney's fees and expenses on January
29, 1999, and the court has ruled that the Plaintiff is not entitled to any
attorney fees or expenses.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders.

PART II

ITEM 5. MARKET FOR REGISTRANT'S CLASS A UNITS AND RELATED UNITHOLDER MATTERS.

The Partnership's Class A Depositary Units are listed for trading on the New
York Stock Exchange (symbol = NUT). There were 1,741 registered holders Class
A Depositary Units on December 31, 1998.

Distributions declared and high and low sales prices of the Class A
Depositary Units, based on New York Stock Exchange daily composite
transactions, are shown in the table below:

- ----------------------------------------------------------------------
Distribution High Low
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998: 4th Quarter $0.075 3 11/16 3 1/4
3rd Quarter 0.075 4 3 1/2
2nd Quarter 0.075 4 3/16 3 1/8
1st Quarter 0.075 4 3

1997: 4th Quarter $0.075 4 3/8 3 1/2
3rd Quarter 0.075 4 1/4 3 11/16
2nd Quarter 0.075 4 1/8 3 5/8
1st Quarter 0.075 4 5/8 3 1/8

</TABLE>

14
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.
(In thousands, except per pound and per unit data)

1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Financial:
Total revenue $12,408 $12,128 $13,216 $10,590 $10,107
Net cash provided by
operating activities (1) 3,675 4,613 2,062 3,370 1,568
Income before taxes 1,039 1,831 3,033 1,192 157
Net income 963 15,581 3,033 1,192 486
Distributions declared 2,273 2,273 1,515 1,515 2,273
Total working capital 5,785 5,213 4,342 1,235 219
Total assets 64,842 66,727 65,953 64,455 67,544
Long-term debt - - - - 264
Total partners' capital 59,655 60,965 47,656 46,138 46,461
Class A limited partners' capital 59,058 60,355 47,179 45,676 45,996
Net cash flow (2) 2,566 3,435 4,635 2,793 3,206

Operations (3):
Macadamia nuts harvested (lbs.) (4) 19,463 20,315 22,110 18,820 18,943
Net price $/lb. (4)(5) $0.6375 $0.5970 $0.5977 $0.5627 $0.5363

Per Class A Unit (6):
Income before taxes $ 0.14 $ 0.24 $ 0.40 $ 0.16 $ 0.02
Net income 0.13 2.06 0.40 0.16 0.06
Net cash flow 0.34 0.45 0.61 0.37 0.42
Distributions 0.30 0.30 0.20 0.20 0.30
Partners' capital 7.87 8.05 6.29 6.09 6.13
</TABLE>

(1) See "Statement of Cash Flows" in the financial statements for method of
calculation.
(2) See Footnote 5 in the notes to financial statements for method of
calculation.
(3) During all periods presented there were 4,027 acres of trees harvested.
(4) Wet-in-shell at 25% moisture.
(5) Weighted average for all orchards.
(6) 7,500,000 Class A Units were issued and outstanding for all periods
presented.

15
<PAGE>

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

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

RESULTS OF OPERATIONS - 1998, 1997 AND 1996

PRODUCTION AND YIELDS

Production and yield data for the seven orchards are summarized below
(expressed in wet-in-shell pounds at 25% moisture):

<TABLE>
<CAPTION>
Average Yield per Acre
1998 -----------------------------
Orchard Acquired Acreage Production 1998 1997 1996
- ------------------------ ---------- ------- ---------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Keaau I June 1986 1,467 7,122,987 4,855 4,212 5,104
Keaau II Oct. 1989 220 733,894 3,336 2,686 3,513
Keaau Lot 10 Sept. 1991 78 285,589 3,661 3,551 3,884
Ka'u I June 1986 956 6,872,976 7,189 6,168 7,029
Ka'u Green Shoe I Dec. 1986 266 864,329 3,249 8,617 6,063
Ka'u II Oct. 1989 714 2,720,933 3,811 5,746 4,829
Mauna Kea Oct. 1989 326 862,193 2,645 2,994 5,420
----- ---------
Totals (except yields
which are averages) 4,027 19,462,901 4,833 5,045 5,490
----- ----------
----- ----------
</TABLE>

For 1998, overall nut production was down 4%. The Keaau orchards, affected by
the drought only through March 1998, increased production by 16% compared to
1997. The combined Ka'u orchards, where the El Nino related drought had the
most effect, were down 15%. The Ka'u Green Shoe I orchard is without
irrigation and suffered the most, down 62%. However, its 1997 harvest was
exceptionally large due to the timing difference of an early 1997 winter
harvest and a late 1996 winter harvest. Although from two different crop
years (the crop year being from July 1 to June 30), both harvests occurred in
the same calendar year, thereby increasing its 1997 reported production.

For 1997, yields were down 18% for the combined Keaau orchards and down 55%
for Mauna Kea compared to 1996. This was partly the result of high winds that
hit the Hilo side of the island of Hawaii in February 1997 causing a loss of
5,381 trees.

The Ka'u Green Shoe I orchard and the Mauna Kea orchard are not yet fully
mature. As a result, the yields from these orchards are expected to be lower
on average over the next few years than for the Partnership's mature
orchards. At full maturity under favorable growing conditions, a macadamia
orchard can produce between 5,500 and 7,500 WIS pounds of macadamia nuts per
acre each year at Ka'u and between 4,000 and 6,000 WIS pounds of macadamia
nuts per acre each year at Keaau. No trees have reached full maturity in the
Mauna Kea area, but we expect that production at maturity at the Mauna Kea
orchard will approximate Keaau levels.

16
<PAGE>

REVENUE

Macadamia nut revenues depend on the number of producing acres, yields per
acre and the nut purchase price. The impact of these factors is summarized in
the following table:

1998 1997
over over
1998 1997 1996 1997 1996
------ ------ ------ ---- ----
<S> <C> <C> <C> <C> <C>
Trees acres harvested 4,027 4,027 4,027 - -
Average yield (WIS lbs./acre) 4,833 5,045 5,490 - 4% - 8%
------ ------ ------
Nuts harvested (000's WIS lbs.) 19,463 20,315 22,110 - 4% - 8%
Nut price ($/WIS lbs. @ 25%) 0.6375 0.5970 0.5977 + 7% -
------ ------ ------
Gross nut sales ($000's) 12,408 12,128 13,216 + 2% - 8%
------ ------ ------
------ ------ ------
</TABLE>

All of the Partnership nut production is sold under long-term contracts to
Mauna Loa Macadamia Nut Corporation ("Mauna Loa"). The price for these nuts
is based 50% on the two-year trailing average of USDA published macadamia nut
prices and 50% on a "netback component". The netback component is determined
by subtracting from Mauna Loa's gross revenues from the sale of macadamia
products (i) allocable processing, packaging, marketing, selling and
advertising costs and (ii) a 20% capital charge on the difference between
those aggregate gross revenues and aggregate allocable costs.

The following table sets forth the manner in which the nut purchase price per
pound was determined for 1998, 1997 and 1996 ($/lb.):

1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
USDA price - two years prior (a) 0.6886 0.6413 0.6391
USDA price - one year prior (a) 0.7125 0.6886 0.6413
------ ------ ------
USDA price - two year trailing average 0.7006 0.6650 0.6402
------ ------ ------
------ ------ ------

Gross revenues 2.2741 2.1673 2.0544
Less allocable processing, packaging,
marketing, sales and advertising costs 1.5654 1.5150 1.3692
Less 20% capital charge 0.1417 0.1305 0.1370
------ ------ ------
Net-back component 0.5670 0.5218 0.5482
------ ------ ------
------ ------ ------

USDA price - two year trailing average 0.7006 0.6650 0.6402
Net-back component 0.5670 0.5218 0.5482
------ ------ ------
Average of USDA two year trailing
average price and net-back component 0.6338 0.5934 0.5942
Plus Hawaii general excise tax (0.5%) 0.0032 0.0030 0.0030
------ ------ ------
Net purchase price (b) 0.6369 0.5964 0.5972
------ ------ ------
------ ------ ------
</TABLE>

(a) Mauna Loa's own purchases comprise a substantial portion of nut purchases
reported to the USDA. Therefore, the USDA price component of the purchase
price is, to a substantial

17
<PAGE>

degree, the average price that Mauna Loa has paid to purchase macadamia
nuts from the Partnership and from third parties during the previous two
years.

(b) The nut purchase contract covering nut production from the 78 acre Keaau
Lot 10 orchard acquired in September 1991 defines the "two-year trailing
average" provision slightly differently from the other nut purchase
contracts, and thus, results in a slightly different nut price. This
orchard accounts for less than 2% of the Partnership's nut production.

The 1998 average nut price of $0.6375 per pound was 6.8% higher than 1997.
The USDA trailing average component increased by $0.0357, and the netback
component increased by $0.0451. The netback increase is attributable mostly
to a 5% increase in Mauna Loa's revenues per pound.

The 1997 average nut price of $.5970 per pound was nearly the same as the
price for 1996. Although the USDA trailing average increased by $.0248, the
netback component decreased by $.0264. This decrease is attributable to a 10%
increase in Mauna Loa's processing costs and a 13% increase in marketing
costs. Mauna Loa's revenues increased by 6%, but not enough to offset the
higher expenses.

The USDA published price for the 1997-98 crop year was $0.6996 per pound (WIS
at 25% moisture), which is 1.8% lower than the 1996-97 price of $0.7125 and
1.6% higher than the 1995-96 of $0.7125. The USDA two-year trailing average
which affects the Partnership's 1999 nut price will be $0.7061, a 0.8 %
increase over the 1998 two-year average.

COST OF GOODS SOLD

Agricultural unit costs depend on the operating expenses required to maintain
the orchards and to harvest the crop as well as on the quantity of nuts
actually harvested.

The Partnership's unit costs (expressed in dollars per wet-in-shell pound at
25% moisture), which are calculated by dividing all agricultural costs for
each orchard (including lease rent, property tax and tree insurance) by the
number of pounds of macadamia nuts produced by that orchard, are summarized
below ($/lb.):

Cost per pound
-------------------------------
Orchard Acquired 1998 1997 1996
- ----------------- ---------- ---- ---- ----
<S> <C> <C> <C> <C>
Keaau I June 1986 0.4557 0.4972 0.4374
Keaau II Oct. 1989 0.5640 0.6385 0.5170
Keaau Lot 10 Sept. 1991 0.3297 0.3145 0.2662
Ka'u I June 1986 0.4270 0.4429 0.3992
Ka'u Green Shoe I Dec. 1986 0.4669 0.3881 0.3115
Ka'u II Oct. 1989 0.5387 0.3819 0.4089
Mauna Kea Oct. 1989 0.8802 0.8059 0.5468

All Orchards 0.4787 0.4623 0.4192

</TABLE>

<PAGE>

Total production costs charged to the income statement decreased by $69,000
in 1998, but increased by 3.5% in cost per pound. Production costs were
generally down due to the overall lower production, but irrigation costs were
higher by $300,000 in 1998 due to the drought. Total production costs were
higher in 1997 compared to 1996 by $238,000. The higher costs were mostly due
to the additional percentage rent of $297,000 incurred on the Ka'u Green Shoe
I lease.

GENERAL AND ADMINISTRATIVE COSTS

General and administrative expenses are comprised of accounting and reporting
costs, reimbursements to the Managing Partner for compensation, directors'
fees, office expenses and liability insurance, and the management fee. These
costs were $95,000 higher in 1998 than in 1997. Until 1998, the general
partner and Partnership offices were located in the corporate offices of C.
Brewer and Company, Limited ("CBCL"), and office costs, such as office rent,
telephone and postage, were absorbed by CBCL. CBCL moved their headquarters
to Hilo, Hawaii, in early 1998, and these occupancy costs were incurred for
the first time by the Partnership. Total general and administrative costs in
1997 were $47,000 higher than in 1996. The management fee was $57,000 for
1998, $75,000 for 1997 and $102,000 for 1996.

INTEREST INCOME AND EXPENSE

The Partnership funds its working capital needs through funds on hand and,
when needed, from short-term borrowings, generating interest expense in the
process. Net interest income or expense, therefore, is partly a function of
any balance carried over from the prior year, the amount and timing of cash
generated and distributions paid to investors in the current year, as well as
the current level of interest rates. Throughout 1998 the Partnership had cash
on hand, earned $244,000 in interest income (net of line of credit fees), and
incurred no interest expense. Interest income was $171,000 in 1997 and
$33,000 in 1996, which was offset by interest expense and line of credit fees
totaling $33,000.

MERGER TRANSACTION COSTS

The Partnership incurred special charges of $1.1 million in the second
quarter of 1998 resulting from the write off of costs related to the
cancelled merger of the Partnership with Hawaii Land and Farming (formerly C.
Brewer Homes, Inc.).

INFLATION AND TAXES

In general, prices paid to macadamia nut farmers fluctuate independently of
inflation. Macadamia nut prices are influenced strongly by prices for
finished macadamia products, which depend on competition and consumer
acceptance. Farming costs, particularly labor and materials, and general and
administrative costs do generally reflect inflationary trends.

The Partnership is subject to a gross income tax as a result of its election
to continue to be taxed as a partnership rather than to be taxed as a
corporation, as allowed by the Taxpayer Relief Act of 1997. This tax is
calculated at 3.5% on partnership gross income (net revenues less cost of
goods sold) beginning in 1998. With this election, the deferred tax liability
was reduced in the third quarter 1997 from $14,982,000 to $1,232,000,
creating a deferred tax credit of $13,750,000.

19
<PAGE>

SEASONALITY, CAPITAL RESOURCES AND LIQUIDITY

Macadamia nut farming is seasonal, with production peaking late in the fall.
However, farming operations continue year round. As a result, additional
working capital is required for much of the year. The Partnership meets its
working capital needs with cash on hand, and when necessary, through
short-term borrowings under a $4.0 million revolving line of credit. The line
was extended for one year on June 1, 1997, again on June 1, 1998, and may be
extended for additional one-year intervals upon the payment of extension fees.

The Partnership had a cash balance of $4.3 million at year-end 1998, and
there were no line of credit drawings during 1998 or 1997. Line of credit
borrowings were $430,000 in 1996. It is the opinion of management that the
Partnership has adequate cash on hand and borrowing capacity available to
meet anticipated working capital needs for operations as presently conducted.

ASSESSMENT OF YEAR 2000

The issue of Year 2000 concerns the situation that many computer systems may
not be able to distinguish the year 2000 from the year 1900 unless
modifications are made. Many experts fear that this programming flaw could
debilitate computer systems worldwide.

The Partnership is in the process of assessing the issue of Year 2000 to
determine its state of readiness and if adverse consequences will have a
material effect on business, results of operations, or financial condition.

The Partnership has determined that it has no internal information technology
("IT") or non-IT systems that could have adverse consequences if not
modified. There are, however, numerous third parties having a material
relationship with the Partnership, and the assessment of the Year 2000
readiness of these third parties is still in process. The key third parties
to be assessed are the managing partner, the contract farmers, the exclusive
customer, the CPA firm doing tax accounting and tax returns, the stock
exchange, stockbrokers and their agents, and our transfer agent. Most of
these third parties have announced their schedules of Year 2000 testing and
dates of modification for IT systems applicable to the Partnership.

The cost to the Partnership to address Year 2000 issues is not anticipated to
be material. If some third party suppliers have not become Year 2000
compliant, the reporting of buy and sell transactions from stockbrokers or
reporting agencies could be inaccurate or incomplete. Any delay in the
completion of this task could delay the completion of our Year 2000 tax
return and related K-1 schedules to unitholders.

RECENT DEVELOPMENTS

The Ka'u region received 8.8 inches of rainfall in 1998, compared to 43
inches of rainfall in 1997. Production in Ka'u, which accounts for 48% of the
Partnership's orchards, was lower by 15% in 1998 compared to 1997, and may be
negatively impacted in 1999 due to the drought. So far in 1999, Ka'u has
received approximately 10 inches of rainfall.

20
<PAGE>

LEGAL PROCEEDINGS

On November 6, 1997, the Partnership announced a proposed merger with C.
Brewer Homes, Inc. Waterside Partners, which alleged that it was a limited
partner who owned 1,000 units at the time, filed a derivative complaint in
the Delaware Chancery Court on January 5, 1998, asking for (1) an injunction
enjoining the proposed merger; (2) a rescission of the merger if it was
consummated; (3) an accounting to the Partnership for any damages sustained
by the Partnership; and (4) an award to plaintiff for its attorney's fees and
costs. The Plaintiff did not obtain an injunction, but commenced a letter and
telephone campaign for the purpose of persuading unitholders to vote against
the proposed merger at the unitholders' meeting. The meeting took place as
scheduled on June 26, 1998, and the proposed merger failed to secure the
necessary favorable vote of a majority of the unitholders. The lawsuit was
dismissed on July 14, 1998. The plaintiff filed a motion on July 13, 1998
asking that it be awarded its costs and expenses, for prosecution of the
lawsuit and the proxy contest. Plaintiff claimed $450,000 in attorney's fee,
representing approximately triple the amount of its claimed attorney's time
of $146,905, plus expenses of $79,276.95. Exhibits to the Plaintiff's motion
indicate that the great majority of the time spent by attorneys and more than
90% of the costs related to the proxy contest rather than the litigation. A
hearing was held on the Motion for attorney's fees and expenses on January
29, 1999, and the court has ruled that the Plaintiff is not entitled to any
attorney fees or expenses.

21
<PAGE>

ITEM 8. FINANCIAL STATEMENTS, SUPPLEMENTARY DATA AND SCHEDULES.

INDEX TO FINANCIAL STATEMENTS
-----------------------------
Page
Number
------
Report of Independent Accountants 23

Balance Sheets, December 31, 1998 and 1997 24

Income Statements, for the Years Ended December 31, 1998, 1997 and 1996 25

Statements of Partners' Capital, for the Years Ended December 31, 1998,
1997 and 1996 26

Statements of Cash Flows for the Years Ended December 31, 1998,
1997 and 1996 27

Notes to Financial Statements, Including Supplementary Data 28

22
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

Limited Partners
ML Macadamia Orchards, L.P.

In our opinion, the accompanying balance sheets and the related income
statements, statements of partners' capital and statements of cash flows
present fairly, in all material respects, the financial position of ML
Macadamia Orchards, L.P. at December 31, 1998 and 1997, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, 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 the opinion expressed above.

PRICEWATERHOUSECOOPERS LLP

Honolulu, Hawaii
February 5, 1999

<PAGE>

ML MACADAMIA ORCHARDS, L.P.
BALANCE SHEETS
(in thousands)

DECEMBER 31,
1998 1997
ASSETS
------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 4,317 $ 2,914
Accounts receivable, primarily from related parties 5,435 6,809
Other current assets - 20
------- -------
Total current assets 9,752 9,743
Land, orchards and equipment, net 55,090 56,692
Capitalized acquisition costs - 292
------- -------
Total assets $64,842 $66,727
------- -------
------- -------

LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities
Accounts payable to related parties $ 3,021 $ 3,681
Cash distributions payable 568 568
Other current liabilities 378 281
------- -------
Total current liabilities 3,967 4,530
Deferred income tax liability 1,220 1,232
------- -------
Total liabilities 5,187 5,762
------- -------
Commitments and contingencies
Partners' capital
General partner 597 610
Class A limited partners, no par or assigned value,
7,500 units issued and outstanding 59,058 60,355
------- -------
Total partners' capital 59,655 60,965
------- -------
Total liabilities and partners' capital $64,842 $66,727
------- -------
------- -------

</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

24
<PAGE>

ML MACADAMIA ORCHARDS, L.P.
INCOME STATEMENTS
(In thousands, except per unit data)

1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Macadamia nut sales to related party $ 12,408 $ 12,128 $ 13,216
Cost of goods sold
Costs expensed under farming contracts
with related parties 7,466 7,301 7,316
Depreciation and amortization 1,603 1,604 1,602
Other 369 602 351
-------- -------- --------
Total cost of goods sold 9,438 9,507 9,269
-------- -------- --------
Gross income 2,970 2,621 3,947
General and administrative expenses
Costs expensed under management
contract with related party 584 503 493
Other 472 458 421
-------- -------- --------
Operating income 1,914 1,660 3,033
Merger transaction costs (1,119) - -
Interest income 244 171 -
-------- -------- --------
Income before tax 1,039 1,831 3,033
Income tax benefit (expense) (76) 13,750 -
-------- -------- --------
Net income $ 963 $ 15,581 $ 3,033
-------- -------- --------
-------- -------- --------

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

Net cash flow (as defined in the
Partnership Agreement) $ 2,566 $ 3,435 $ 4,635
-------- -------- --------
-------- -------- --------

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

Net income per Class A Unit $ 0.13 $ 2.06 $ 0.40
-------- -------- --------
-------- -------- --------

Net cash flow per Class A Unit $ 0.34 $ 0.45 $ 0.61
-------- -------- --------
-------- -------- --------

Cash distributions per Class A Unit $ 0.30 $ 0.30 $ 0.20
-------- -------- --------
-------- -------- --------

Class A Units outstanding 7,500 7,500 7,500
-------- -------- --------
-------- -------- --------

</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

25
<PAGE>

ML MACADAMIA ORCHARDS, L.P.
STATEMENTS OF PARTNERS' CAPITAL
(in thousands)

1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Partners' capital at beginning of period:
General partners $ 610 $ 477 $ 462
Class A limited partners 60,355 47,179 45,676
------- ------- -------
60,965 47,656 46,138
------- ------- -------

Allocation of net income:
General partners 10 156 30
Class A limited partners 953 15,426 3,003
------- ------- -------
963 15,582 3,033
------- ------- -------

Cash distributions:
General partners 23 23 15
Class A limited partners 2,250 2,250 1,500
------- ------- -------
2,273 2,273 1,515
------- ------- -------

Partners' capital at end of period:
General partners 597 610 477
Class A limited partners 59,058 60,355 47,179
------- ------- -------
$59,655 $60,965 $47,656
------- ------- -------
------- ------- -------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

26
<PAGE>

ML MACADAMIA ORCHARDS, L.P.
STATEMENT OF CASH FLOWS
(in thousands)

1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from macadamia nut sales $ 13,837 $ 12,218 $ 10,412
Cash paid under farming and management contracts (8,404) (6,746) (7,641)
Cash paid to other suppliers (2,002) (1,030) (704)
Interest received (paid), net 244 171 (5)
-------- -------- --------
Net cash provided by operating activities 3,675 4,613 2,062
-------- -------- --------

Cash flows from investing activities:
Capital acquisition costs expenditures - (292) -
Capital expenditures - - (23)
-------- -------- --------
Net cash used in investing activities - (292) (23)
-------- -------- --------

Cash flows from financing activities:
Principal payments of mortgage note - - (265)
Distributions paid (2,272) (2,083) (1,519)
-------- -------- --------
Net cash used in financing activities (2,272) (2,083) (1,784)
-------- -------- --------

Net increase in cash 1,403 2,238 255
Cash at beginning of period 2,914 676 421
-------- -------- --------
Cash at end of period $ 4,317 $ 2,914 $ 676
-------- -------- --------
-------- -------- --------

Reconciliation of net income to net
cash provided by operating activities:
Net income $ 963 $ 15,581 $ 3,033
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 1,602 1,604 1,602
Deferred income tax credit (12) (13,750) -
(Increase) decrease in accounts receivable 1,374 90 (2,804)
Increase (decrease) in accounts payable (660) 1,058 168
Other 408 30 63
-------- -------- --------
Total adjustments 2,712 (10,968) (971)
-------- -------- --------
Net cash provided by operating activities $ 3,675 $ 4,613 $ 2,062
-------- -------- --------
-------- -------- --------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

<PAGE>

ML MACADAMIA ORCHARDS, L.P.
NOTES TO FINANCIAL STATEMENTS

(1) OPERATIONS AND OWNERSHIP

ML Macadamia Orchards, L.P. (the "Partnership") owns or leases 4,027 tree
acres of macadamia orchards on the island of Hawaii. Once the nuts are
harvested, the Partnership sells them to another entity, which processes and
markets the finished products.

The Partnership is owned 99% by limited partners and 1% by the managing
general partner, ML Resources, Inc. ("MLR"). MLR is a subsidiary of Mauna Loa
Macadamia Nut Corporation ("Mauna Loa"), which in turn is a subsidiary of C.
Brewer and Company, Limited ("CBCL"), whose parent company is Buyco, Inc.
("Buyco"). Mauna Loa was the Partnership's special general partner, with a
.01% ownership interest, until December 1997, when it assigned its interest
as a general partner to MLR and withdrew as a special general partner.

Limited partner interests are represented by Class A Units, which are
evidenced by depositary receipts that trade publicly and are listed on the
New York Stock Exchange. Mauna Loa Orchards, L.P., an affiliate of the
general partner, held 30,000 Class A Units at December 31, 1997 and 1998.

Although Mauna Loa and certain of its affiliates formerly held Class B Units
in the Partnership, all Class B Units were cancelled in November 1997 for
nominal consideration. Ownership of Class A Units confers no direct or
indirect interest in CBCL, Mauna Loa or any of their affiliated corporations.

On September 10, 1998 the Board of Directors of ML Resources, Inc., the
managing general partner, approved changing the name of the Partnership from
Mauna Loa Macadamia Partners, L.P. to ML Macadamia Orchards, L.P. Trading of
the Partnership's units on the New York Stock Exchange under the new name
began on October 5, 1998. The trading symbol, "NUT", remains unchanged.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) CASH AND CASH EQUIVALENTS. Cash and cash equivalents include unrestricted
demand deposits with banks and all highly liquid deposits with an original
maturity of less than three months. The cash equivalents are not protected by
federal deposit insurance.

(b) FINANCIAL INSTRUMENTS. The fair value of all financial instruments
approximates the carrying value, as the majority of the financial instruments
have fairly short durations until maturity, or the market and risk factors
associated with the instruments have not changed.

(c) FARMING COSTS. In accordance with industry practice in Hawaii, orchard
maintenance and harvesting costs for commercially producing macadamia orchards
are charged against earnings in the year that the costs are incurred.

(d) LAND, ORCHARDS AND EQUIPMENT. Land, orchards and equipment are reported
at cost, net of accumulated depreciation and amortization. Net farming costs
for any "developing" orchards

28
<PAGE>

are capitalized on the balance sheet until revenues from that orchard exceed
expenses for that orchard (or nine years after planting, if earlier).
Depreciation of orchards and other equipment is reported on a straight-line
basis over the estimated useful lives of the assets (40 years for orchards
and between 5 and 12 years for other equipment). A 5% residual value is
assumed for orchards. The macadamia orchards acquired in 1986 situated on
leased land are being amortized on a straight-line basis over the terms of
the leases (approximately 33 years from the inception of the Partnership)
with no residual value assumed. The macadamia orchards acquired in 1989
situated on leased land are being amortized on a straight-line basis over a
40 year period (the terms of these leases exceed 40 years) with no residual
value assumed. For income tax reporting, depreciation is calculated under
accelerated methods.

(e) INCOME TAXES. The accompanying statements of operations do not include a
provision for corporate income taxes, as the income of the Partnership is not
taxed directly; rather, the Partnership's tax attributes are included in the
individual tax returns of its partners. Neither the Partnership's financial
reporting income nor the cash distributions to unitholders can be used as a
substitute for the detailed tax calculations which the Partnership must
perform annually for its partners.

Deferred tax liabilities are recognized for the future tax consequences
attributable to differences between the projected financial reporting and tax
reporting basis of assets and liabilities.

(f) 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 amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

(g) NET INCOME PER CLASS A UNIT. The Partnership computed net income per
Class A Unit for all periods presented under the provisions of Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE, which was
required to be implemented for financial statements for periods ending after
December 15, 1997. The adoption of this statement had no impact on the
Partnership's reported net income per Class A Unit. Net income per Class A
Unit is calculated by dividing 99% of Partnership net income by the average
number of Class A Units outstanding for the period.

(3) RELATED PARTY TRANSACTIONS

(a) NUT PURCHASE CONTRACTS. The Partnership is a party to four nut purchase
contracts with Mauna Loa. They cover all nuts produced by the orchards acquired
in June 1986, December 1986, October 1989 and September 1991, respectively. The
first two contracts run for 20 years, while the third contract runs for 30 years
and also provides for the exclusion of unusable nuts

29
<PAGE>

from those purchased by Mauna Loa. The first three contracts are identical in
all other material respects. The fourth contract was acquired by assignment
with the purchase of the September 1991 orchard and expires in 2003. The
fourth contract is similar to the first three contracts, but the nut price is
calculated on a crop year (July 1 through June 30) rather than calendar year
basis, which results in a slightly different nut price. All four contracts
use a pricing formula based 50% on a two-year trailing average of the
macadamia nut price published annually by the U.S. Department of Agriculture
and 50% on Mauna Loa's "netback component". The netback component is
calculated by subtracting Mauna Loa's processing and marketing costs per
pound and a "capital charge" of 20% from its nut revenues per pound. The nut
price paid to the Partnership under the first three nut purchase contracts
was $0.5972 for 1996, $0.5964 for 1997 and $0.6369 for 1998. The average nut
price paid to the Partnership under the fourth nut price contract was $0.6353
for 1996, $0.6434 for 1997 and $0.6796 for 1998.

(b) FARMING CONTRACTS. The Partnership is a party to four farming contracts
with two subsidiaries of CBCL, Ka'u Agribusiness Company, Inc. ("KACI") and
Mauna Kea Agribusiness Company, Inc. ("MKACI"), that together cover all
farming, harvesting and husking activities for the orchards acquired in June
1986, December 1986, October 1989 and September 1991, respectively. The first
two contracts run for 20 years, the third contract runs for 30 years and the
fourth contract, acquired with the purchase of the September 1991 orchard,
expires in 2006.

The contracts provide KACI and MKACI with reimbursement of their direct and
indirect costs incurred under these contracts. The reimbursements paid to the
two farm managers were $7.2 million for 1996, $6.8 million for 1997 and $6.9
million for 1998.

Each of the farming contracts was amended effective January 1, 1998 to
provide farming fees equal to two and one-half percent of the Partnership's
gross profits from farming operations (previously three percent for the first
three farming contracts and none for the fourth contract). The two farm
managers earned farming fees of $153,000 in 1996, $113,000 in 1997 and
$121,000 in 1998.

The Partnership is also a party to a water agreement with KACI under which
KACI agreed to supply water to the Partnership from a well on KACI's property
for use on the Partnership's irrigated Ka'u orchards. The Partnership's
allocated share of the costs of that well totaled $79,000 in 1996, $47,000 in
1997 and $372,000 in 1998.

(c) MANAGEMENT COSTS AND FEE. The Partnership Agreement provides the managing
general partner reimbursement of administrative costs (which consist
primarily of compensation costs, board of directors fees, insurance costs and
office expenses) incurred under the agreement as well as a management fee
equal to two percent of the Partnership's operating cash flow (as defined).
Those reimbursable costs totaled $391,000 in 1996, $428,000 in 1997 and
$528,000 in 1998. The managing general partner earned a management fee of
$102,000 in 1996, $75,000 in 1997 and $57,000 in 1998.

In addition to a management fee, the managing general partner is entitled,
under the existing Partnership Agreement, to receive an annual incentive fee
equal to 0.5% of the aggregate fair market value (as defined) of the Class A
Units for the preceding calendar year provided that net

30
<PAGE>

cash flow (as defined) for the preceding calendar year exceeds specified
levels. No incentive fee was earned in 1996, 1997 or 1998.

(d) STABILIZATION PAYMENTS. In December 1986, the Partnership acquired a 266
acre orchard that was several years younger than its other orchards. Because
of the relative immaturity of the newer orchard, its productivity (and
therefore its cash flow) was expected to be correspondingly lower for the
first several years than for the other older orchards.

The Partnership accounted for stabilization payments (net of general excise
tax) as a reduction in the cost basis of this orchard. As a result, the
payments will be reflected in the Partnership's net income ratably through
2019 as a reduction to amortization for this orchard.

In return, the Partnership is obligated to pay KACI 100% of any year's cash
flow from this orchard in excess of the target cash flow as additional
percentage rent until the aggregate amount of additional percentage rent
equals 150% of the total amount of stabilization payments previously
received. Thereafter, the Partnership is obligated to pay KACI 50% of this
orchard's cash flow in excess of the target cash flow as additional incentive
rent. Such additional percentage rent totaled $54,000 in 1996 and $297,000
for 1997. No additional rent was due in 1998.

(e) CASH FLOW WARRANTY PAYMENTS. In October 1989, the Partnership acquired
1,040 acres of orchards that were several years younger on average than the
Partnership's other orchards. Their productivity (and therefore their cash
flow) was expected to be lower for the first several years than for the
Partnership's older orchards.

Accordingly, the sellers of these orchards (affiliates of Mauna Loa) agreed
to make cash flow warranty payments to the Partnership for each year through
1994 in which the cash flow (as defined) from these orchards fell short of a
cash flow target level. Warranty payments for any year were limited to the
lesser of the amount of the shortfall or a maximum payment amount.

The Partnership accounted for cash flow warranty payments as reductions in
the cost basis of the orchards. As a result, these payments will be reflected
in the Partnership's net income ratably through 2030 as reductions to
depreciation for these orchards.

(4) INDICATED DISTRIBUTIONS

As it is impossible to anticipate every future circumstance, there can be no
assurance that Partnership performance will be sufficient to fund
distributions at historical levels. Distributions are paid approximately
forty-five days after the end of each quarter to investors of record as of
the last business day of that quarter.

Because macadamia nut farming is highly seasonal, distributions are smoothed
to provide a more level payout rate. The managing general partner receives
cash distributions in proportion to its ownership percentage in the
Partnership.

31
<PAGE>

(5) CASH FLOW PERFORMANCE

Cash flow performance (based on definitions used in the Partnership
Agreement) for the past three years is shown below (000's):

1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Gross revenues $12,652 $12,300 $13,216
Less:
Farming costs 7,714 7,790 7,514
Administrative costs 2,194 886 812
------- ------- -------

Operating cash flow 2,744 3,624 4,890
Less:
Farming fee 121 113 153
Management fee 57 76 102
------- ------- -------

Net cash flow $ 2,566 $ 3,435 $ 4,635
------- ------- -------
------- ------- -------
</TABLE>

(6) LAND, ORCHARDS AND EQUIPMENT

Land, orchards and equipment, stated at cost, consisted of the following at
December 31, 1997 and 1998 (000's):

1998 1997
------- -------
<S> <C> <C>
Land $ 8,168 $ 8,168
Producing orchards 64,711 64,711
Other 335 335
------- -------
Land, orchards and equipment (gross) 73,214 73,214
Less accumulated depreciation
and amortization 18,124 16,522
------- -------
Land, orchards and equipment (net) $55,090 $56,692
------- -------
------- -------
</TABLE>

(7) SHORT-TERM AND LONG-TERM CREDIT

The Partnership had a $4.0 million revolving line of credit at December 31,
1996 for working capital purposes. The line was extended for one year on June
1, 1997, again on June 1, 1998 and may be extended for additional one-year
intervals upon the payment of extension fees. Annual extension fees of $8,000
were paid in June 1996 and June 1997, and $5,000 in June 1998. A commitment
fee of 3/8 of one percent of the unused portion is required and borrowings
are charged interest at either the bank's "base rate" or at the one, two or
three month "LIBOR" rate (plus 175 to 200 basis points) at the Partnership's
option. The line of credit currently requires minimum net cash flow (as
defined in the Partnership Agreement) of $1.6 million per year and minimum
net worth levels (before non-cash adjustments due to implementation of FAS
No. 109)

32
<PAGE>

of $40 million. In addition, the line of credit requires a "clean-up" period
of at least thirty consecutive days during each year.

The maximum amount borrowed on the line of credit for 1996 was $470,000 with
a weighted average interest rate of 8.23%. There were no drawings outstanding
at December 31, 1998. No amounts were borrowed during 1997 or 1998.

In September 1991, the Partnership borrowed $0.5 million under an eight-year
mortgage loan to acquire a 78 acre macadamia orchard in Keaau. In February
1996, the Partnership paid off the remaining balance of this mortgage loan in
full. The amount of that payment was $252,000 (including accrued interest).

(8) INCOME TAXES

The components of income tax expense for the year ended December 31, 1998
were as follows (000's):

<TABLE>

<S> <C>
Currently payable $ 88
Deferred (12)
-----
$ 76
-----
-----
</TABLE>

The reconciliation of the total provision for income taxes by applying the
3.5% federal tax rate to gross income for the year ended December 31, 1998 is
as follows (000's):

<TABLE>

<S> <C>
Income tax provision at statutory rate $ 104
Adjustment of deferred balance (28)
------
$ 76
------
------
</TABLE>

The components of the net deferred tax liability reported on the balance
sheet as of December 31, 1998 and 1997 are as follows (000's):

1998 1997
------ ------
<S> <C> <C>
Deferred tax liabilities:
Financial statement bases of land, orchards,
Inventory and equipment is greater than tax bases $ 670 $ 691
Excess of tax depreciation over
Financial statement depreciation 550 541
------ ------
$1,220 $1,232
------ ------
------ ------
</TABLE>

(9) LEASES

The Partnership leases the land underlying 1,806 acres of its orchards under
long-term operating leases. Future minimum lease payments under
non-cancelable leases (exclusive of renewal options) as of December 31, 1998
were as follows (000's):

<PAGE>

<TABLE>
<CAPTION>
<S> <C>
1999 $ 118
2000 118
2001 118
2002 118
2003 118
Later Years 3,262
------
$3,852
------
------
</TABLE>

Each of the above leases also provides for additional lease payments based on
USDA-reported macadamia nut price levels. Those contingent lease payments
totaled $52,000 in 1996, $62,000 in 1997 and $55,000 in 1998.

Total lease rent for all operating leases was $229,000 in 1996, $487,000 in
1997 and $171,000 in 1998.

(10) MERGER PROPOSAL

In December 1997, the Partnership entered into a merger agreement with C.
Brewer Homes, Inc. ("Homes"). The Partnership filed with the Securities and
Exchange Commission on February 13, 1998, a registration statement in
connection with this merger. On June 26, 1998, a special meeting of the
Partnership's unitholders was held for the purpose of voting on the Merger
Proposal. The Merger Proposal was not approved, and all costs related to the
merger were expensed in the quarter ending June 30, 1998.

(11) QUARTERLY OPERATING RESULTS (UNAUDITED)

The following chart summarizes unaudited quarterly operating results for the
years ended December 31, 1998 and 1997 (000's, except per unit data):

Net Gross Income Net Income Net Income (Loss)
Sales (Loss) (Loss) per Class A Unit
-------- ------------ ---------- -------------------
<S> <C> <C> <C> <C>
1998
1st Quarter $ 3,455 $ 958 $ 669 $ 0.09
2nd Quarter 93 (32) (1,227) (0.16)
3rd Quarter 3,480 545 329 0.04
4th Quarter 5,379 1,498 1,192 0.16

1997
1st Quarter $ 1,763 $ 521 $ 226 $ 0.03
2nd Quarter 476 155 43 0.01
3rd Quarter 3,081 506 14,099 1.86
4th Quarter 6,809 1,440 1,214 0.16

</TABLE>

34
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

The Partnership presently has no officers or directors. Instead, the officers
and directors of the Managing Partner perform all management functions for
the Partnership. Each director of the Managing Partner is elected for a term
of one year and until his successor is duly elected and qualified. Each
officer of the Managing Partner is elected by the Board of Directors of the
Managing Partner and is subject to removal by that board at any time.

A. IDENTIFICATION OF DIRECTORS

JAMES S. ANDRASICK. 54 years old; director of Managing Partner since 1986;
chairman and chief executive officer of Mauna Loa; president of CBCL since
September 1992.

JOHN W. A. BUYERS. 70 years old; chairman since 1989 and director of Managing
Partner since 1986; director of Mauna Loa since August 1992; chairman and
chief executive officer of CBCL; chairman and president of Buyco.

JAMES H. CASE. 78 years old; director and member of Conflicts Committee of
Managing Partner since 1986; senior partner of the law firm of Carlsmith
Ball; not an employee, officer, or director of any CBCL affiliate other than
the Managing Partner.

RALPH C. HOOK, JR. 75 years old; director and member of Conflicts Committee
of Managing Partner since 1986; not an employee, officer, or director of any
CBCL affiliate other than the Managing Partner.

KENT T. LUCIEN. 45 years old; president and director of Managing Partner
since September 1995; vice president of Mauna Loa; executive vice president
and chief financial officer of CBCL.

B. IDENTIFICATION OF EXECUTIVE OFFICERS OF THE MANAGING PARTNER

JOHN W. A. BUYERS. 70 years old; chairman and chief executive officer of
Managing Partner since 1989.

KENT T. LUCIEN. 45 years old; president of Managing Partner since September
1995.

GREGORY A. SPRECHER. 51 years old; senior vice president and chief financial
officer of Managing Partner since June 1997; not otherwise an employee,
officer, or director of any CBCL affiliate.

C. IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES

Not applicable

D. FAMILY RELATIONSHIPS

Not applicable

35
<PAGE>

E. BUSINESS EXPERIENCE OF CURRENT DIRECTORS AND EXECUTIVE OFFICERS

CURRENT DIRECTORS OF THE MANAGING PARTNER.

JAMES S. ANDRASICK. Mr. Andrasick was promoted to president and chief
operating officer of CBCL in September 1992, and is one of its directors.
From 1989 until September 1992, he was executive vice president in charge of
the sugar, distribution and Central America operations. From 1983 to 1988 he
served as executive vice president, finance and administration and chief
financial officer with responsibilities for finance and administration as
well as spice and guava operations. He joined CBCL in 1978 as vice president
of planning and controller after serving three years on the IU International
Corporation corporate development staff. In 1980 he became senior vice
president and chief financial officer of CBCL. Previously, he had been
employed by the Ford Motor Company at its world headquarters and product
development groups in various supervisory positions in finance. Mr. Andrasick
received his bachelor's degree with honors from the U.S. Coast Guard Academy
and his master's degree from the Massachusetts Institute of Technology. Mr.
Andrasick is a trustee of the U.S. Coast Guard Foundation, a director and
former chairman of the American Red Cross, Hawaii State Chapter, and outgoing
chairman of the board of governors of the Hawaii Employers Council. He
resides in Honolulu, Hawaii.

JOHN W. A. BUYERS. Mr. Buyers was elected chairman of the Managing Partner in
1988 and has been chairman of Mauna Loa since July 1992. He has been chairman
of the board and chief executive officer of CBCL since 1992. From 1982 to
1992, he was chairman and president of CBCL. He has been chairman and a
director of Hawaii Land and Farming, Inc. since 1992, and chairman and
president of Buyco since 1986. From 1975 to 1982, he was president and chief
executive officer of CBCL. From 1971 to 1975, Mr. Buyers was president and
chief executive officer of General Waterworks Company in Philadelphia,
Pennsylvania. After service in the U.S. Marine Corps, Mr. Buyers graduated
CUM LAUDE from Princeton University in 1952 and later received an M.A. in
Industrial Management from the Massachusetts Institute of Technology as a
Sloan Fellow. He is also a director of First Hawaiian Bank, Honolulu, Hawaii,
Bank West, Inc., Honolulu, Hawaii, John B. Sanfilippo & Sons, Inc., and
several CBCL affiliated companies. He is a member of the U.S. Chamber of
Commerce Committee on Food and Agriculture in Washington, D.C., and is vice
chairman and a director of Pacific International Center for High Technology
in Honolulu, Hawaii. He resides in Hilo, Hawaii.

JAMES H. CASE. Mr. Case is senior partner in the Hawaii law firm of Carlsmith
Ball. Mr. Case graduated with an A.B. from Williams College and received a
J.D. from Harvard Law School. He became associated with the Carlsmith law
firm in 1951 and became a partner in 1959. He has served on the boards of
directors of Hamakua Sugar Company, Inc., Paauilo, Hawaii, InterIsland
Resorts, Ltd., Honolulu, Hawaii, Pacific Club, Honolulu, Hawaii, Central
Union Church, Honolulu, Hawaii, Hanahauoli School, Honolulu, Hawaii, and
Arcadia Retirement Residence, Honolulu, Hawaii. He resides in Honolulu,
Hawaii.

RALPH C. HOOK, JR. Dr. Hook is director of the Family Business Center of
Hawaii, which is part of the College of Business Administration at the
University of Hawaii. He joined the faculty of the University of Hawaii in
1968 as Dean of the College of Business Administration. In 1974, he returned
to teaching as Professor of Marketing in the College of Business
Administration. He became a Professor Emeritus of Marketing in June 1995. Dr.
Hook received a bachelor's and

36
<PAGE>

master's degrees from the University of Missouri at Columbia and a Ph.D. in
Marketing from the University of Texas at Austin. He has been a member of the
board of Pan Pacific Institute of Ocean Science since 1974 and of Hook
Brothers Corporation since 1983. He was appointed a Trustee of Tokai
University, Honolulu Center in 1988. He resides in Honolulu, Hawaii.

KENT T. LUCIEN. Mr. Lucien currently serves as president of the Managing
Partner and has been executive vice president and the chief financial officer
of CBCL since 1991. Previously he served as a vice president and as an
executive vice president of the Managing Partner. He joined CBCL as a senior
analyst in 1980. Mr. Lucien is an honors graduate of Occidental College and
received an M.B.A. from Stanford University. He resides in Honolulu, Hawaii.

EXECUTIVE OFFICERS WHO DO NOT SERVE AS DIRECTORS.

GREGORY A. SPRECHER. Mr. Sprecher has served as senior vice president and
chief financial officer of the Managing Partner since June 1997. From 1974 to
1990 Mr. Sprecher served as treasurer and controller for Young Laundry & Dry
Cleaning, in Honolulu. He served as Young's chief financial officer and
treasurer from 1990 to 1994. In 1994, the company was sold to American Linen,
and Mr. Sprecher served there as project manager until 1995. Mr. Sprecher has
a B.S. in Finance from California State College at Long Beach. He resides in
Honolulu, Hawaii.

F. SECTION 16 DISCLOSURE

Under Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), each director and certain officers of ML Resources, Inc.,
the managing general partner of Registrant (a "Reporting Person"), are
required to report their ownership and changes in ownership of Class A
Depositary Units to the Securities and Exchange commission, the New York
Stock Exchange and Registrant. Based on reporting forms submitted to
Registrant, no Reporting Person has failed to file on a timely basis reports
required by Section 16(a) of the Exchange Act during 1998.

<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

A. SUMMARY COMPENSATION TABLE

The Partnership is managed by the Managing Partner. Compensation paid by the
Managing Partner to its chief executive officer and other executive officers
is reimbursed by the Partnership, as provided in Section 4.5 of the
Partnership Agreement. The following table reflects the aggregate
compensation for services in all capacities paid by the Managing Partner to
its executive officers for the years ended December 31, 1998, 1997 and 1996.
There were no long-term compensation awards or payouts during those years.

Name and Principal Position Annual Compensation
--------------------------- -------------------
Year Salary Bonus Other
---- ------ ----- -----
<S> <C> <C> <C> <C>
John W. A. Buyers, 1998 $ - $ - $11,700
chief executive officer 1997 - - 9,600
1996 - - 8,400

Gregory A. Sprecher 1998 100,000 16,500 -
chief financial officer 1997 58,333 - -
1996 - - -
</TABLE>

B. NO OPTION, SAR, LONG-TERM INCENTIVE OR PENSION PLANS. The Managing Partner
does not presently have an option plan, SAR plan, or long-term incentive
plan. The present executive officers of the Managing Partner are included in
the pension plan and other benefits plans of its parent company, CBCL. As
such, the Managing Partner is not responsible for making any payments on the
retirement of any of its present executive officers.

C. NO EMPLOYMENT CONTRACTS OR TERMINATION AGREEMENTS

The Managing Partner does not have any employment or severance agreements
with any of its present executive officers.

D. COMPENSATION OF EXECUTIVE OFFICERS

The Managing Partner does not have a compensation committee since the chief
executive officer of the Managing Partner is not compensated for serving in
that position. The only executive officer of the Managing Partner employed by
it is Mr. Sprecher, who has served as its chief financial officer since June
1997. Mr. Sprecher's salary and guideline bonus percentage are administered
under the salary policies of CBCL. Any bonus payments are approved by the
Managing Partner's Board of Directors annually, based on the overall
performance of the Partnership (as evidenced by its net income for the year)
and on general and administrative cost control performance. Performance in
both categories is measured relative to the original Partnership operating
budget approved by the Managing Partner's Board of Directors at the beginning
of each year.

38
<PAGE>

F. DIRECTOR COMPENSATION

Directors of the Managing Partner presently receive a quarterly retainer of
$3,000 and a meeting fee of $750 per meeting. Members of the Managing
Partner's conflicts committee receive a meeting fee of $750 per meeting.
There are no other agreements or arrangements between the Managing Partner
and its directors.

E. STOCK PERFORMANCE CHART

The following chart compares the Partnership's total return to (i) the
Russell 2000 (a small business index) and (ii) a peer group index composed of
publicly traded limited partnerships with either similar capitalization or in
commodity based markets (other than gas and oil) or both.

12/31/93 12/31/94 12/30/95 12/29/96 12/31/97 12/31/98
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NUT 100 88.128 73.7588 106.6872 123.5672 118.0996
Russell 2000 100 90.178 126.100 146.899 179.747 175.169
Peer Group 100 (10.121) 126.2527 138.3339 171.6778 154.3701

</TABLE>

39
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of December 31, 1998, and subsequent to that date to the date of this
report, (i) no person (including any "group" as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934) is known by the Partnership
or the Managing Partner to be the beneficial owner of more than 5% of the
Class A Units; (ii) the Managing Partner did not own any Class A Units; and
(iii) no director or executive officer of the Managing Partner owned more
than 1% of the Class A Units.

The table below sets forth certain information as to the Class A Units
beneficially owned by the directors of the Managing Partner, and all
directors and executive officers of the Managing Partner as a group, as of
December 31, 1998.

<TABLE>
<CAPTION>
Percent
Class A of
Name of Units Class A
Beneficial Owner Owned Units
---------------- -------- -------
<S> <C> <C>
James S. Andrasick - *
John W.A. Buyers 4,176 *
James H. Case (1) 8,000 *
Ralph C. Hook (2) 4,000 *
Kent T. Lucien 7,500 *
Gregory A. Sprecher 2,000 *
All directors and executive officers 25,676 0.3%
as a group (6 persons)
</TABLE>

* Less than 1%

(1) Beneficially owned by James H. Case pursuant to a self-directed retirement
plan sponsored by Carlsmith Ball Wichman Case & Ichiki, a law firm in which
Mr. Case is a partner, and administered by Pacific Century Trust.
(2) Beneficially owned by Ralph C. Hook pursuant to the Ralph C. Hook Revocable
Living Trust dated March 1, 1993.

In addition, Mauna Loa Orchards L.P. ("MLO"), a limited partnership whose
partners are CBCL and certain direct or indirect wholly-owned subsidiaries of
CBCL, owns 30,000 Class A Units.

40
<PAGE>

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

1. GENERAL

The Managing Partner makes all decisions relating to the management of the
Partnership. The Managing Partner, as such, has the duty to act in good faith
and to manage the Partnership in a manner that is fair and reasonable to all
unitholders. Mauna Loa owns all of the capital stock of the Managing Partner.
Certain officers and directors of CBCL and/or its affiliates also act as
officers and directors of the Managing Partner and certain directors of the
Managing Partner are substantial shareholders of Buyco, Inc., the parent
company of CBCL. Disputes that might otherwise develop between the Managing
Partner and CBCL or its affiliates may not develop because the parties
representing the entities are identical. As a result of these relationships,
certain conflicts of interest could arise with respect the administration of
and allocation of costs under the Partnership Agreement and in situations
described below, among others.

A committee of the Managing Partner's Board of Directors composed of two
persons who are independent of CBCL and its affiliates (the "Conflicts
Committee") reviews, on an annual basis, or more frequently as such committee
may deem appropriate, the Managing Partner's management of the Partnership
and any conflicts of interest that may have arisen or may arise as a result
of the relationships among CBCL and its affiliates, the Managing Partner and
the Partnership. The Partnership Agreement states that, except for one
initial member of the Conflicts Committee, no member of the Conflicts
Committee may be an officer, director, employee or shareholder of the
Managing Partner, Mauna Loa or any of their affiliates. The Conflicts
Committee presently consists of two individuals who are not affiliated with
CBCL.

2. FARMING LEASES.

At the time of the Partnership's acquisition of the interests in the October
1989 Orchards, MLO assigned to the Partnership all of MLO's rights and
obligations under three 45-year farming leases relating to 327 tree acres of
the Ka'u II Orchards and all of the Mauna Kea Orchards. The farming leases
permit the Partnership to conduct macadamia nut farming operations on such
macadamia orchard properties. The farming leases provide for fixed minimum
annual lease payments to be paid to either KACI or MKACI (collectively, the
"Agribusiness Companies"), as the case may be. Such annual rental payments
are subject to increase after ten years, twenty years and thirty years based
on then current fair market lease rates. The then current fair market lease
rate will be determined by mutual agreement between the Partnership, on the
one hand, and either KACI or MKACI, as the case may be, on the other hand. If
mutual agreement cannot be reached, the then current fair market lease rate
will be determined by appraisal. Whether determined by mutual agreement or by
appraisal, the then current fair market lease rate will be determined as a
fair market lease rate for use of such premises as macadamia orchards.

The Partnership acquired its interests in the trees situated on such leased
macadamia orchard properties subject to repurchase options retained by the
Agribusiness Companies. The repurchase options grant the Agribusiness
Companies the continuing right to repurchase all or any portion of such trees
after June 30, 2019 at a price equal to the then current fair market value of
the trees, according to their value as producing macadamia nut trees, as
determined by mutual

41
<PAGE>

agreement between the Partnership, on the one hand, and either KACI or MKACI,
as the case may be, on the other hand. If mutual agreement cannot be reached,
the then current fair market value will be determined by appraisal. Whether
determined by mutual agreement or by appraisal, the fair market value of such
trees will be determined according to their value as producing macadamia nut
trees, assuming that the owner thereof has rights to farm and harvest such
trees and has ongoing arrangements with respect to land leases, farming and
nut purchases of the same type as the Partnership has immediately prior to
such time.

At the end of the 45-year lease terms of such leases, the Agribusiness
Companies will be required to repurchase such trees at their then current
fair market value as orchards if such entities do not offer to extend such
farming leases at the then current fair market lease rates. The then current
fair market lease rate and the then current market value of the trees for
such purposes will be determined through mutual agreement between the
Partnership, on the one hand, and either KACI or MKACI, as the case may be,
on the other hand or, if mutual agreement cannot be obtained, by appraisal,
in each case in the manner described above. Such repurchase obligations will
apply with respect to the expiration of each extension of the lease terms of
such leases until such leases have been in effect for a total of 99 years, at
which time the leases will expire and the ownership interests in such trees
will revert back to the Agribusiness Companies.

In the event that the Partnership decides not to accept an offer to extend
the leases at the then current fair lease rates upon the expiration of the
leases or any extension thereof (or does not assign the leases to a third
party who elects to accept such offer), the leases will expire, the
Agribusiness Companies will not be required to repurchase the trees covered
thereby and ownership of such trees will revert back to the Agribusiness
Companies (and in any event ownership of such trees will revert back to the
Agribusiness Companies after 99 years). As the Managing Partner and the
Agribusiness Companies are each direct or indirect wholly owned subsidiaries
of CBCL, a decision to renew the farming leases will involve the Managing
Partner in a conflict of interest.

As described above, the farming leases provide for determinations of the fair
market lease rate to be paid by the Partnership under the farming leases and
the fair market value of the Partnership's trees situated on property covered
by such leases by mutual agreement between the Partnership, on the one hand,
and with KACI or MKACI, as the case may be, on the other hand, or, if mutual
agreement cannot be reached, by appraisal. As any determination by the
Partnership with respect to any such mutual agreement will be made by the
Managing Partner and as the Managing Partner and the Agribusiness Companies
are each direct or indirect wholly owned subsidiaries of CBCL, such
determination on behalf of the Partnership will involve the Managing Partner
in a conflict of interest. Accordingly, the Conflicts Committee of the Board
of Directors of the Managing Partner will review any such determinations made
by mutual agreement.

3. NUT PURCHASE CONTRACTS AND FARMING CONTRACTS.

Mauna Loa purchases from the Partnership all of the macadamia nut production
from the orchards acquired in 1986 pursuant to the 1986 nut purchase
contracts, all of the macadamia nut production from the orchards acquired in
1989 (excluding "unusable nuts") under the 1989 nut purchase contract and all
of the macadamia nut production from the Lot 10 orchard under the Lot

42
<PAGE>

10 nut purchase contract. In addition, KACI farms the orchards acquired in
1986 for the Partnership pursuant to the 1986 orchards farming contracts and,
along with MKACI, farms the orchards acquired in 1989 for the Partnership
pursuant to the 1989 farming contract. KACI also farms the Lot 10 Orchard for
the Partnership pursuant to the Lot 10 farming contract. Various conflicts of
interest exist or may arise with respect to the Partnership's sale and Mauna
Loa's purchase of nuts under the nut purchase contracts, the allocation of
costs reimbursed by the Partnership under the farming contracts for purposes
of determining the netback component of the purchase price for nuts under the
nut purchase contracts and the allocation of personnel and resources with
respect to services provided by KACI and MKACI under the farming contracts.
For example, the purchase price under the nut purchase contracts will depend
on Mauna Loa's processing, packaging, marketing, sales and advertising
expenses and nonagricultural overhead costs, all of which are controlled and
allocated by Mauna Loa. Mauna Loa also has complete control over the
identification and weighing of nuts at its processing plants.

Under the terms of the farming contracts, KACI and MKACI are required to
provide certain reports to the Partnership, including an annual report
describing in reasonable detail the conduct of farming and harvesting
operations at the orchards, and they also are required to provide a
statement, certified by its independent accountants, which reflects its
allocation of direct costs and overhead for the relevant year. The reports
submitted to the Managing Partner are reviewed by the Conflicts Committee.
The Managing Partner has the right to object to the information set forth in
such annual reports relating to the calculation of the nut purchase price
and/or farming costs and to engage a certified public accounting firm of its
own selection to verify and confirm such information. The Managing Partner on
behalf of the Partnership has the right to assert claims against Mauna Loa
based on such independent review, and, if any such review and assertion
results in an adjustment favorable to the Partnership in the nut purchase
price or farming cost figures by an amount in excess of 5% of the amount
initially calculated by Mauna Loa, Mauna Loa will be required to reimburse
the Partnership for the expenses incurred in engaging the accounting firm and
asserting such claims. Cost reimbursements under the farming contracts
totaled $7.2 million in 1996, $6.8 million in 1997, and $6.9 million in 1998.
Farming fees totaled $153,000 in 1996, $113,000 in 1997 and $121,000 in 1998.

4. MANAGEMENT FEE.

Under the terms of the Partnership Agreement, the Partnership reimburses the
Managing Partner for all expenses incurred by it in the conduct of
Partnership business, including any expenses reasonably allocated to the
Managing Partner or to the Partnership as well as a management fee equal to
2% of the Partnership's operating cash flow (as defined in the Partnership
Agreement). Certain conflicts may arise in connection with the allocation of
such expenses among the Managing Partner, the Partnership, CBCL and its
affiliates. Management cost reimbursements under the Partnership Agreement
were $391,000 in 1996, $428,000 in 1997 and $528,000 in 1998. The management
fee was $102,000 in 1996, $75,000 in 1997 and $57,000 in 1998.

5. RELATIONSHIPS WITH CBCL.

Since the Partnership began operations in June 1986, the Partnership has
purchased substantially all of its fertilizer and certain transportation
services from subsidiaries of CBCL. Transportation

43
<PAGE>

services purchased consist of transportation of raw nuts from the orchards in
the Mauna Kea and Ka'u areas to the processing plant. For 1998, 1997 and
1996, fertilizer, herbicide, pesticide and transportation services purchased
by the Partnership from CBCL subsidiaries totaled $0.6 million, $0.8 million
and $0.8 million, respectively. It is expected that the Partnership will
continue to purchase its fertilizer and transportation needs from CBCL
subsidiaries as long as, and to the extent that, such purchases can be made
on a basis at least as favorable as that available from third parties. The
Partnership Agreement requires that the price and terms of any such
transactions be no less favorable than those available in comparable
transactions between unrelated parties.

<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

A. LIST OF DOCUMENTS FILED AS A PART OF THIS REPORT.
1. FINANCIAL STATEMENTS. See Index to Financial Statements at page 22 of this
Form 10-K.
2. FINANCIAL STATEMENT SCHEDULES. None required.
3. EXHIBITS. See Exhibit Index at page 47 of this Form 10-K.

B. REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the last quarter of 1998.

45
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

ML MACADAMIA ORCHARDS, L.P.
(Registrant)

By: ML RESOURCES, INC.
(Managing General Partner)

DATED: March 26, 1999 By: /s/ J. W. A. Buyers
---------------- -----------------------
J. W. A. Buyers
Chairman of the Board and
Principal Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been executed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

ML RESOURCES, INC.

Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ J. W. A. Buyers Chairman of the Board March 26, 1999
- ---------------------------- (Principal Executive Officer),
J. W. A. Buyers Director

/s/ Kent T. Lucien President, Director March 26, 1999
- ----------------------------
Kent T. Lucien

/s/ Gregory A. Sprecher Senior Vice President March 26, 1999
- ---------------------------- (Principal Financial Officer
Gregory A. Sprecher and Principal Accounting Officer)

/s/ James S. Andrasick Director March 26, 1999
- ----------------------------
James S. Andrasick

/s/ James H. Case Director March 26, 1999
- ----------------------------
James H. Case

/s/ Dr. Ralph C. Hook, Jr. Director March 26, 1999
- ----------------------------
Dr. Ralph C. Hook, Jr.

</TABLE>

46
<PAGE>

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 Amended and Restated Agreement and Plan of Merger, effective
as of December 18, 1997, between Registrant and C. Brewer
Homes, Inc. (a)

3.1 Agreement of Limited Partnership of Registrant. (b)

3.2 Form of Class A Certificate of Limited Partnership as filed
with the Secretary of State of Delaware. (c)

3.3 Certificate of Limited Partnership of Registrant as filed with
the Secretary of State of Delaware. (c)

4.1 Depositary Agreement between Registrant, Manufacturers Hanover
Trust Company as Depositary and Mauna Loa Resources Inc. as
attorney-in-fact of the limited partners of Registrant. (c)

4.2 Form of Depositary Receipt. (c)

10.1 Macadamia Nut Purchase Contract between Mauna Loa Macadamia
Nut Corporation ("Mauna Loa") and Registrant dated June 12,
1986. (b)

10.2 Macadamia Nut Purchase Contract between Mauna Loa and
Registrant dated December 22, 1986. (b)

10.3 Macadamia Nut Purchase Contract between Mauna Loa and
Registrant dated as of October 1, 1989. (b)

10.4 Contribution Agreement among Mauna Loa Orchards, L.P. ("MLO"),
Ka'u Agribusiness Co., Inc. ("KACI"), Mauna Kea Agribusiness
Co., Inc. ("MKACI"), Mauna Kea Macadamia Orchards, Inc.
("MKMO") and Mauna Loa dated as of July 1, 1989. (b)

10.5 Lease between the Trustees of the Estate of Bernice Pauahi
Bishop ("Trustees of the Bishop Estate") and Mauna Loa. (c)

10.6 Lease between KACI and Registrant. (d)

10.7 MLO/MLMO Conveyance Agreement between MLO and Registrant dated
as of October 1, 1989. (b)

10.8 Butcher/MLMO Contribution Agreement between Howard Butcher III
("Butcher") and Registrant dated as of October 1, 1989. (b)

10.9 Farming Lease between KACI and MLO dated as of July 1, 1989.
(b)

10.10 Farming Lease between MKACI and MKMO dated as of July 1, 1989.
(b)

47
<PAGE>

EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.11 Farming Lease between MKACI and MLO dated as of July 1, 1989.
(b)

10.12 Water Agreement, as amended, between KACI and Registrant dated
as of October 1, 1989. (b)

10.13 Cash Flow Warranty Agreement among KACI, MKACI and Registrant
dated as of July 1, 1989. (b)

10.14 Guarantee Agreement between Mauna Loa and Registrant dated as
of October 1, 1989. (b)

10.15 Agreement of Indemnification between CBCL and each director of
the Managing Partner. (b)

10.16 Indemnification Agreement (Title) among Mauna Loa, KACI and
MKACI in favor of Registrant. (b)

10.17 Indemnification Agreement (Subdivision) among Mauna Loa, KACI
and MKACI in favor of Registrant. (b)

10.18 Deed between MLO and Registrant relating to 14% undivided
interest in 220 tree acres of macadamia orchard properties
located in the Keaau area of the island of Hawaii ("Keaau II
Orchards"). (b)

10.19 Bill of Sale between MLO and Registrant relating to 14%
undivided interest in Keaau II Orchards. (b)

10.20 Deed between Butcher and Registrant relating to 86% undivided
interest in Keaau II Orchards. (b)

10.21 Bill of Sale between Butcher and Registrant relating to 86%
undivided interest in Keaau II Orchards. (b)

10.22 Assignment of Partial Interest in Lease No. 15,020 and consent
from MLO to Registrant. (b)

10.23 Assignment of Partial Interest in Lease No. 16,859 and consent
from MLO to Registrant. (b)

10.24 Assignment of Partial Interest in Lease No. 20,397 and consent
from MLO to Registrant. (b)

10.25 Assignment of Lease from MLO to Registrant relating to Lease
from the Trustees of the Bishop Estate. (b)

48
<PAGE>

EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.26 Assignment from MLO to Registrant relating to certain
orchards. (b)

10.27 Lease from the Trustees of the Bishop Estate to MLO. (b)

10.28 Lease No. 15,020 from the Trustees of the Bishop Estate to
MLO. (b)

10.29 Form of Amendments to Lease No. 15,020 from the Trustees of
the Bishop Estate. (b)

10.30 Lease No. 16,859 from the Trustees of the Bishop Estate to the
Hawaiian Agricultural Company (a predecessor of KACI). (b)

10.31 Form of Amendments to Lease No. 16,859 from the Trustees of
the Bishop Estate. (b)

10.32 Lease No. 20,397 from the Trustees of the Bishop Estate to
CBCL. (b)

10.33 Form of Amendments to Lease No. 20,397 from the Trustees of
the Bishop Estate to CBCL. (b)

10.34 Lease from Richard L. Hughes to Mauna Loa. (b)

10.35 Lease from the Trustees of the Bishop Estate to Mauna Loa. (b)

10.36 Co-ownership and Partition Agreement between KACI and MLO. (b)

10.37 Co-ownership and Partition Agreement among Mauna Loa, KACI and
MLO. (b)

10.38 Co-ownership and Partition Agreement between KACI and MLO
relating to Lease Nos. 15,020 and 16,859. (b)

10.39 Co-ownership and Partition Agreement between MKACI and MLO.
(b)

10.40 Macadamia Nut Purchase Contract between Mauna Loa and Keaau
Macadamia X Corporation ("Keaau Lot 10") dated September 15,
1983. (e)

10.41 Assignment of Owner's Interest in Macadamia Nut Purchase
Contract and Farming Contract between Keaau Lot 10 and
Registrant. (e)

10.42 Warranty Deed between Keaau Lot 10 and Registrant. (e)

10.43 Amended and Restated June 1986 Farming Contract, effective
January 1, 1998, between Registrant and KACI. (f)

10.44 Amended and Restated December 1986 Farming Contract, effective
January 1, 1998, between Registrant and KACI. (f)

<PAGE>

EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.45 Amended and Restated 1989 Farming Contract, effective January
1, 1998, among Registrant, KACI and MKACI. (f)

10.46 Amended and Restated Farming Contract for the Keaau Lot 10
Orchard, effective January 1, 1998, between Registrant and
KACI. (f)

10.47 Restated Kaiwiki Orchards Farming lease between Registrant and
MKACI dated February 26, 1997. (f)

11.1 Statement re: Computation of Net Income per Class A Unit.

27 Financial Data Schedule.

(a) Incorporated by reference to Appendix A of Registrant's Registration
Statement under the Securities Act on Form S-4, Registration Statement No.
333-46271, filed February 13, 1998.
(b) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Registration Statement under the Securities Act
on Form S-1, Registration Statement No. 33-30659, filed October 20, 1989.
(c) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Registration Statement under the Securities Act
on Form S-1, Registration Statement No. 33-4903, filed June 5, 1986.
(d) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Annual Report on Form 10-K, Commission filed No.
1-9145, for the year ended December 31, 1986, filed March 27, 1987.
(e) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Annual Report on Form 10-K, Commission filed No.
1-9145, for the year ended December 31, 1991, filed March 27, 1992.
(f) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Registration Statement under the Securities Act
on Form S-4, Registration Statement No. 333-46271, filed February 13, 1998.

<PAGE>

EXHIBIT 11.1

ML MACADAMIA ORCHARDS, L.P.
COMPUTATION OF NET INCOME PER CLASS A UNIT
(in thousands, except per unit data)

1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net income $ 963 $15,581 $ 3,033

Class A Unitholders' percentage of ownership 99% 99% 99%
------- ------- -------

Net income allocable to Class A Unitholders $ 953 $15,425 $ 3,003
------- ------- -------
------- ------- -------

Class A Units outstanding 7,500 7,500 7,500
------- ------- -------
------- ------- -------

Net income per Class A Unit $ 0.13 $ 2.06 $ 0.40
------- ------- -------
------- ------- -------
</TABLE>

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,317
<SECURITIES> 0
<RECEIVABLES> 5,435
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,752
<PP&E> 73,214
<DEPRECIATION> 18,124
<TOTAL-ASSETS> 64,842
<CURRENT-LIABILITIES> 3,967
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 59,655
<TOTAL-LIABILITY-AND-EQUITY> 64,842
<SALES> 12,408
<TOTAL-REVENUES> 12,408
<CGS> 9,438
<TOTAL-COSTS> 9,438
<OTHER-EXPENSES> 2,175
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,039
<INCOME-TAX> 76
<INCOME-CONTINUING> 963
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 963
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13

</TABLE>