The pilot reported that when the aircraft was cruising at 1000 feet above mean sea level, shortly after takeoff, the engine note changed. He immediately turned the aircraft back towards the strip and by this time the engine had begun to run roughly. Attempts to rectify the problem were unsuccessful and the pilot stated that the engine power gradually reduced to nil and a ditching became inevitable. The aircraft was ditched at low speed and floated in a 60 degree nose down attitude. Water began to enter the cabin through the broken windscreen. The four passengers exited through the right door and the pilot opened, and swam out through the left side window. After clinging to the aircraft for a short time they all decided to swim to shore, a distance of about two kilometres. They were subsequently picked up by a rescue boat. The aircraft sunk after about 15 minutes. The aircraft was not recovered from the seabed therefore the cause of the loss of engine power could not be established. Although they were available and the company operations manual requires life-jackets to be worn on overwater flights, none of the occupants were wearing life-jackets on this service. This accident was not the subject of an on-site investigation.