Santa Monica Pictures, LLC, Perry Lerner, Tax Matters Partner - Page 11

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          thereafter filed an amended 1998 partnership tax return, which it           
          dated October 22, 1999.  During the taxable years at issue, SMP             
          reported Mr. Lerner, Rockport Capital, Somerville S Trust,                  
          Generale Bank, and CLIS as having varying interests in SMP’s                
          profits, losses, and ownership of capital.                                  
               On its 1997 tax return, SMP reported that the adjusted basis           
          of the $974 million in receivables from Generale Bank was                   
          $974,296,601; that the adjusted basis of the $79 million                    
          receivable was $79,912,955; and that the adjusted basis of the              
          SMHC stock was $665 million.  On its 1998 return, SMP reported              
          that the adjusted basis of one portion of the $974 million in               
          receivables was $81,590,418; that the adjusted basis of the                 
          remaining portion was $512,793,227; and that the adjusted basis             
          of the SMHC stock was $665 million.                                         
               On Schedule D, Capital Gains and Losses, of its 1997                   
          partnership tax return, SMP reported its sales of the $150                  
          million (face value) notes receivable to TroMetro, and its sales            
          to Imperial of 14.8 and 79.2-percent interests in Corona.  As               
          described in more detail supra, SMP reported a long-term capital            
          loss of $147,486,000 on its sale of the receivable; a short-term            
          capital loss of $11,647,367 with respect to the sale of the 14.8-           
          percent Corona interest; and a long-term capital loss of                    
          $62,237,061 with respect to the sale of the 79.2-percent Corona             
          interest.                                                                   






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