Lakewood Associates, Robert G. Moore, Tax Matters Partner - Page 6

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            portion of the Elbow Lake property that constituted protected                             
            wetlands under the 1987 Manual.  In a preliminary report prepared                         
            in February 1988, Mr. Davis identified approximately one-third of                         
            the property as wetlands.  The Corps performed an on-site                                 
            investigation of the property in early spring of 1988 and advised                         
            Mr. Davis that it was necessary to measure the level of ground                            
            water to determine whether additional wetlands exist on the                               
            interior of the property.  After completing the ground water                              
            monitoring, Mr. Davis prepared an addendum to the preliminary                             
            report which found that the water levels on the property met the                          
            parameters of protected wetlands.                                                         
                  In January 1989, the Corps adopted a new wetlands manual                            
            (1989 Manual), effective as of March 1989, that superseded the                            
            1987 Manual.  The 1989 Manual amended the definition of protected                         
            wetlands, substantially increasing the area of land considered to                         
            be protected wetlands and over which the Corps asserted                                   
            jurisdiction.  Use of the 1989 Manual by a local division of the                          
            Corps was mandatory.  In August 1990, Lakewood engaged the                                
            engineering firm of Langley and McDonald to determine the amount                          
            of wetlands on the Elbow Lake property under the 1989 Manual.                             
            Langley and McDonald determined that wetlands covered                                     
            approximately 74 percent of the property pursuant to the 1989                             
            Manual.                                                                                   







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