This report describes modifications incorporated into the finite-difference model for simulation of groundwater flow in three dimensions. These modifications extend the application of this model to simulations involving head-dependent sources and sinks (i.e., rivers, evapotranspiration, and springs or drains). Other modifications are made that enhance the iterative-solution process of the Strongly Implicit Procedure (SIP). An acceleration (or dampening) factor is introduced to the matrix equation that is to be solved, and optional methods of computing iteration parameters are incorporated into the original model. This report also describes corrections to the model that eliminate errors in the equation formulation and in mass-balance computations of certain types of simulations. Additional data-input instructions, definitions of new variables, and a list of program-statement changes are given in an appendix. (USGS)