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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-K



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|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended September 30, 2006

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from            
to

Commission file number 033-80655



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MOHEGAN TRIBAL
GAMING AUTHORITY

(Exact name of registrant as specified in its charter)



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|                                                              |  |                                  
|------------------------------------------------------------- |  | ---------------------------------
|Connecticut                                                   |  | 06-1436334                       
|(State or other jurisdiction ofincorporation or organization) |  | (IRS employer Identification No.)
|                                                              | 
|One Mohegan Sun Boulevard, Uncasville, CT                     |  | 06382                            
|(Address of principal executive offices)                      |  | (Zip Code)                       

(860) 862-8000

(Registrants telephone number, including area code)

Securities registered pursuant to
Section 12(b) of the Act:



|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of Each Class |  | Name of Each Exchange On Which
Registered
|NONE                |  | NONE                                     

Securities registered pursuant to Section 12(g) of the Act:

Title of Class

NONE



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Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:    Yes ̈No    x

Indicate by check mark if the registrant is
not required to file reports pursuant to Section 13 or Section 15(d) of the Act:    Yes ̈No    x

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 12 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 Form 10-K or any amendment to
this Form 10-K:  x

Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act):    Yes ̈No  x



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##### Table of Contents

MOHEGAN TRIBAL GAMING AUTHORITY

INDEX TO FORM 10-K



|                                                           |  |                                                                                                              |  |           
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----------
|                                                           |  |                                                                                                              |  | PageNumber
|CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS       |  | 1                                                                                                           
|                                                          
|PART I                                                    
|                                                           |  |                                                                                                             
|Item 1.                                                    |  | Business                                                                                                     |  | 2         
|                                                           |  |                                                                                                             
|Item 1A.                                                   |  | Risk Factors                                                                                                 |  | 33        
|                                                           |  |                                                                                                             
|Item 1B.                                                   |  | Unresolved Staff Comments                                                                                    |  | 44        
|                                                           |  |                                                                                                             
|Item 2.                                                    |  | Properties                                                                                                   |  | 44        
|                                                           |  |                                                                                                             
|Item 3.                                                    |  | Legal Proceedings                                                                                            |  | 45        
|                                                           |  |                                                                                                             
|Item 4.                                                    |  | Submission of Matters to a Vote of Security Holders                                                          |  | 45        
|                                                          
|PART II                                                   
|                                                           |  |                                                                                                             
|Item 5.                                                    |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 46        
|                                                           |  |                                                                                                             
|Item 6.                                                    |  | Selected Financial Data                                                                                      |  | 46        
|                                                           |  |                                                                                                             
|Item 7.                                                    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 47        
|                                                           |  |                                                                                                             
|Item 7A.                                                   |  | Quantitative and Qualitative Disclosures about Market Risk                                                   |  | 72        
|                                                           |  |                                                                                                             
|Item 8.                                                    |  | Financial Statements and Supplementary Data                                                                  |  | 73        
|                                                           |  |                                                                                                             
|Item 9.                                                    |  | Changes in and Disagreements with Accountants on Accounting and FinancialDisclosure                          |  | 73        
|                                                           |  |                                                                                                             
|Item 9A.                                                   |  | Controls and Procedures                                                                                      |  | 73        
|                                                           |  |                                                                                                             
|Item 9B.                                                   |  | Other Information                                                                                            |  | 74        
|                                                          
|PART III                                                  
|                                                           |  |                                                                                                             
|Item 10.                                                   |  | Directors and Executive Officers of the Registrant                                                           |  | 75        
|                                                           |  |                                                                                                             
|Item 11.                                                   |  | Executive Compensation                                                                                       |  | 77        
|                                                           |  |                                                                                                             
|Item 12.                                                   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 80        
|                                                           |  |                                                                                                             
|Item 13.                                                   |  | Certain Relationships and Related Transactions                                                               |  | 80        
|                                                           |  |                                                                                                             
|Item 14.                                                   |  | Principal Accounting Fees and Services                                                                       |  | 82        
|                                                          
|PART IV                                                   
|                                                           |  |                                                                                                             
|Item 15.                                                   |  | Exhibits, Financial Statement Schedules                                                                      |  | 83        
|                                                           |  |                                                                                                             
|Signatures                                                 |  |                                                                                                              |  | 84        
|                                                           | 
|Supplemental Information                                   |  | 85                                                                                                          
|                                                           | 
|Index to Consolidated Financial Statements                 |  | F-1                                                                                                         
|                                                           | 
|Schedule IIValuation and Qualifying Accounts and Reserves |  | S-1                                                                                                         



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References in this Form 10-K to the Authority and the Tribe are to the Mohegan
Tribal Gaming Authority and the Mohegan Tribe of Indians of Connecticut, respectively. The terms we, us and our refer to the Authority.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-K contains statements about future
events, including without limitation, information relating to business development activities, as well as capital spending, financing sources and the effects of regulation (including gaming and tax regulation) and increased competition. All
statements other than statements of historical fact are, or may be deemed to be, forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
statements sometimes can be identified by our use of forward-looking words such as may, will, anticipate, estimate, expect, or intend and similar expressions. Such
forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ materially from those expressed in any forward-looking statements made
by us or on our behalf. You should review carefully all of the information in this Form 10-K, including the consolidated financial statements.

In addition to the risk factors described under Part I. Item 1A. Risk Factors, the following important factors, among others, could affect our future financial condition or results of operations, causing actual results to
differ materially from those expressed in the forward-looking statements:



| |  |  | increased competition (including the legalization or expansion of gaming in New England, New York, New Jersey or Pennsylvania);
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | the financial performance of Mohegan Sun, Pocono Downs and the Pocono Downs off-track wagering (OTW) facilities;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | our ability to develop an approximately 1.2 million square foot expansion at Mohegan Sun, known as Project Horizon, which includes a new 1,000-room hotel, on time and within
budget;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to successfully integrate the new amenities from the expansion into Mohegan Sun's current operations and manage the expanded resort;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to develop a Phase II gaming facility at Pocono Downs on time and within budget;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | our ability to implement successfully our diversification strategy;
| | - |  | -------------------------------------------------------------------



| |  |  | our dependence on existing management;
| | - |  | --------------------------------------



| |  |  | the local, regional, national or global economic climate;
| | - |  | ---------------------------------------------------------



| |  |  | an act of terrorism in the United States of America;
| | - |  | ----------------------------------------------------



| |  |  | our leverage and ability to meet our debt service obligations, including significant increases expected to finance Project Horizon and Phase II at Pocono Downs;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in federal or state tax laws or the administration of such laws;
| | - |  | ------------------------------------------------------------------------



| |  |  | changes in gaming laws or regulations (including the limitation, denial or suspension of licenses required under gaming laws and regulations); and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the continued availability of financing.
| | - |  | ----------------------------------------

These factors
and the other risk factors discussed in this Form 10-K are not necessarily all of the important factors that could cause our actual results to differ materially from those expressed in any of the forward-looking statements. Other unknown or
unpredictable factors also could have material adverse effects on our future results. The forward-looking statements included in this Form 10-K are made only as of the date of this Form 10-K. We cannot assure you that any projected results or events
will be achieved. We do not have and do not undertake any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances.



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##### Table of Contents

PART I

Item 1. Business.

Overview

The Mohegan Tribe of Indians of Connecticut, or the Mohegan Tribe or the Tribe, is a federally recognized Indian tribe with an approximately 507-acre reservation situated in southeastern Connecticut, located in
Uncasville, Connecticut. Under the Indian Gaming Regulatory Act of 1988, or IGRA, federally recognized Indian tribes are permitted to conduct full-scale casino gaming operations on tribal lands, subject to, among other things, the negotiation of a
gaming compact with the state in which they operate. The Tribe and the State of Connecticut have entered into such a compact, the Mohegan Compact, which has been approved by the United States Secretary of the Interior. We were established as an
instrumentality of the Tribe, with the exclusive power to conduct and regulate gaming activities on tribal lands and the non-exclusive authority to conduct such activities elsewhere. Our gaming operation at Mohegan Sun is one of only two legally
authorized gaming operations in New England offering traditional slot machines and table games. Through our subsidiary, Downs Racing, L.P., we also own Mohegan Sun at Pocono Downs, or Pocono Downs, a gaming and entertainment facility offering slot
machines and harness racing in Plains Township, Pennsylvania, as well as five off-track wagering, or OTW, facilities located elsewhere in Pennsylvania. We are governed by a nine-member Management Board, whose members also comprise the Mohegan Tribal
Council (the governing body of the Tribe). Any change in the composition of the Mohegan Tribal Council results in a corresponding change in our Management Board.

Our mailing address is One Mohegan Sun Boulevard, Uncasville, CT 06382 and our telephone number is (860) 862-8000. Our website is located at www.mtga.com. Through our website, we make available, free of
charge, our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) under the Securities Exchange Act of 1934. These
reports are available as soon as reasonably practicable after we electronically file these materials with, or furnish them to, the Securities and Exchange Commission.

Mohegan Sun

In October 1996, we opened a gaming and entertainment complex known as Mohegan
Sun. Mohegan Sun is located on a 240-acre site on the Tribes reservation overlooking the Thames River with direct access from Interstate 395 and Connecticut Route 2A via a four-lane access road. Mohegan Sun is approximately 125 miles from New
York City and approximately 100 miles from Boston, Massachusetts. In fiscal year 2002, we completed a major expansion of Mohegan Sun known as Project Sunburst. The first phase of Project Sunburst, the Casino of the Sky, which included increased
gaming, restaurant and retail space and an entertainment arena, opened in September 2001. The remaining components, including an approximately 1,200-room luxury hotel and approximately 100,000 square feet of convention space, were fully opened in
June 2002.

Mohegan Sun operates in an approximately 3.0 million square foot facility, which includes the following two casinos:

Casino of the Earth

The Casino of the Earth has approximately 179,500 square feet of gaming space and offers:



| |  |  | approximately 3,800 slot machines and 195 table games (including blackjack, roulette, craps and baccarat);
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | food and beverage amenities, including the Uncas American Indian Grill, a 285-seat full-service restaurant and bar that opened in July 2005, three full-service themed fine dining
restaurants, with a fourth area featuring cuisine from all three adjacent restaurant themes, a 610-seat buffet, a ten-station food court featuring international and domestic cuisine and multiple service bars, all operated by us, for a current total
of approximately 1,700 restaurant seats;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | an approximately 10,000 square foot, 410-seat lounge featuring live entertainment seven days a week;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | an approximately 11,000 square foot simulcasting race book facility; and
| | - |  | ------------------------------------------------------------------------



| |  |  | four retail shops providing shopping opportunities ranging from Mohegan Sun logo souvenirs to cigars.
| | - |  | -----------------------------------------------------------------------------------------------------

Casino of the Sky

The Casino
of the Sky has approximately 119,000 square feet of gaming space and offers:



| |  |  | approximately 2,400 slot machines and 120 table games (including blackjack, roulette, craps and baccarat);
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | food and beverage amenities, including two full-service restaurants, two quick-service restaurants, a 24-hour coffee shop, a 320-seat buffet and five lounges and bars operated by
us, as well as four full-service restaurants, three quick-service restaurants and a multi-station food court operated by third parties, for a total of approximately 2,600 restaurant seats;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Mohegan After Dark, consisting of a nightclub, a lounge and a pub, all operated by a third party;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | the Mohegan Sun Arena with seating for up to 10,000;
| | - |  | ----------------------------------------------------



| |  |  | a 350-seat Cabaret;
| | - |  | -------------------



| |  |  | the Shops at Mohegan Sun containing 29 different retail shops, seven of which we own;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | an approximately 1,200-room luxury hotel with a private high limit table games suite on the 36thfloor;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | an approximately 20,000 square foot spa operated by a third party;
| | - |  | ------------------------------------------------------------------



| |  |  | approximately 100,000 square feet of convention space; and
| | - |  | ----------------------------------------------------------



| |  |  | a child care facility and an arcade style entertainment area operated by a third party.
| | - |  | ---------------------------------------------------------------------------------------

Mohegan Sun has parking spaces for approximately 13,000 guests and 3,100 employees. In addition, we operate a gasoline and convenience center, an approximately 4,000 square foot, 20-pump facility located adjacent to
Mohegan Sun.

Project Horizon

On November 16, 2006, we announced our plans for an estimated $740.0 million expansion at Mohegan Sun named Project Horizon. This expansion is expected to include a new 1,000-room hotel, including 300 House of
Blues-themed hotel rooms and a 7,500-square-foot House of Blues Foundation Room, which will be owned and operated by Mohegan Sun. The hotel is expected to open in two phasesthe 700 Mohegan Sun rooms are expected to open in the spring of 2010
and the 300 House of Blues rooms are expected to open in the summer of 2010.

We plan to connect the new hotel tower to the Sky hotel at
Mohegan Sun as well as the winter section of the Casino of the Earth with approximately 115,000 square feet of new retail and restaurant space, including a new Japanese restaurant, an American contemporary restaurant and a new family-style Italian
restaurant. The new restaurant area is expected to be complemented by approximately 40,000 square feet of new retail space and a 30,000 square-foot recreation lounge featuring bowling and billiards. This expansion also is expected to include a new
1,500 person capacity House of Blues Music Hall and a new 300 seat casual dining House of Blues restaurant. All of these components are scheduled to open in the fall of 2009.

Project Horizon also is expected to expand the amenities offered to the Asian clientele at Mohegan Sun, including a new 5,000-square-foot bus lobby, a
4,000-square-foot Hong Kong Street food outlet and 12,000-square-feet of gaming space offering 46 table games such as Baccarat, Sic Bo and Pai Gow Poker. These new Asian gaming amenities in the Casino of the Earth are scheduled to open
in the summer of 2007.



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A new gaming area that we plan to refer to as the Casino of the Wind also is expected to be developed and
located adjacent to the Casino of the Sky. This new area is expected to include approximately 42,000 square feet of gaming space with over 900 slot machines, 10 table games and a specially-themed House of Blues poker room with 45 tables (operated by
Mohegan Sun), as well as approximately 20,000-square-feet of new dining and retail amenities. The Casino of the Wind is scheduled to open in the spring of 2008.

With significant construction set to begin in the summer of 2007, Project Horizon is expected to add more than 1.2 million square feet of hotel rooms, gaming space and other new amenities to Mohegan Sun. The
total number of slot machines at Mohegan Sun is projected to increase to approximately 7,600 units, complemented by approximately 385 table games in total after the expansion. Project costs are estimated to be incurred as follows: fiscal year 2007
$134.0 million, fiscal year 2008 $269.0 million, fiscal year 2009 $242.0 million and fiscal year 2010 $95.0 million.

Connecticut Sun

In January 2003, we formed a wholly owned subsidiary, the Mohegan Basketball Club LLC, or MBC, for the purpose of owning and
operating a professional basketball team in the Womens National Basketball Association, or WNBA. MBC entered into a membership agreement with the WNBA permitting it to operate the Connecticut Sun basketball team. The team plays its home games
in the Mohegan Sun Arena.

Mohegan Golf

In November 2006, we formed a wholly owned subsidiary, Mohegan Golf, LLC, or Mohegan Golf, to purchase, own and operate a golf course in southeast Connecticut. On November 21, 2006, Mohegan Golf entered into an
agreement to purchase assets owned by Pautipaug Country Club, Incorporated, including a golf course and related facilities on land located in Sprague and Franklin, Connecticut, for $4.4 million. Closing of the acquisition is pending the
sellers satisfaction of certain conditions.

Mohegan Sun at Pocono Downs

On January 25, 2005, we and our wholly owned subsidiary, Mohegan Commercial Ventures PA, LLC, or MCV-PA, acquired all of the partnership interests in
Downs Racing, L.P., or Downs Racing, Mill Creek Land, L.P., Backside, L.P. and Northeast Concessions, L.P., or the Pocono Downs entities, from subsidiaries of Penn National Gaming, Inc. Downs Racing owns the slot machine and harness racing facility
known as Mohegan Sun at Pocono Downs located on approximately 400 acres in Plains Township, Pennsylvania as well as five Pennsylvania OTWs located in Carbondale, East Stroudsburg, Erie, Hazleton and Lehigh Valley (Allentown). Harness racing has been
conducted at Pocono Downs since 1965. The Lehigh Valley (Allentown) OTW is a 28,000 square-foot facility and is the largest OTW in the Commonwealth of Pennsylvania.

Downs Racing completed the 2006 harness racing season at Pocono Downs in November 2006 and will continue the harness racing activities when the 2007 racing season begins in April 2007. Year round simulcast pari-mutuel
wagering activities also are conducted at Mohegan Sun at Pocono Downs and the OTW facilities. A new state of the art, pari-mutuel simulcast facility at Mohegan Sun at Pocono Downs was opened to the public in March 2006.

On August 7, 2006, we entered into an amendment of the Pocono Downs purchase agreement with the seller, a subsidiary of Penn National Gaming, Inc.
Pursuant to the amendment, in exchange for our agreement to modify certain provisions of the purchase agreement, including the elimination of our post-closing termination rights, we will receive an aggregate refund of $30.0 million of the original
purchase price for the Pocono Downs entities, payable in five annual installments of $7.0 million, $7.0 million, $6.5 million, $6.0 million and $3.5 million on November 14, 2007, 2008, 2009, 2010 and 2011, respectively.



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In September 2006, a Conditional Category One Slot Machine License was granted to Downs Racing by the
Pennsylvania Gaming Control Board, or the PGCB, for the operation of slot machines at Mohegan Sun at Pocono Downs. The PGCB awarded a permanent Category One slot machine license to Downs Racing on December 20, 2006. This license initially
permits Downs Racing to install and operate up to 3,000 slot machines at Mohegan Sun at Pocono Downs. A minimum of 1,500 slot machines are required to be in operation within 12 months of the issuance of the conditional slot machine license, unless
otherwise extended by the PGCB for an additional period not to exceed 24 months. Downs Racing plans to request such an extension from the PGCB as a result of the Phase II development plans described below. Under certain circumstances, Downs Racing
may be permitted to install up to a total of 5,000 slot machines at Pocono Downs.

After the satisfaction of certain regulatory conditions
and the payment of a one-time slot machine license fee of $50.0 million to the PGCB in October 2006, Downs Racing was the first to offer slot machine gaming in the Commonwealth of Pennsylvania when a Phase I gaming and entertainment facility opened
to the public on November 14, 2006. The total cost for development of the Phase I facility is expected to be approximately $72.6 million, exclusive of the $50.0 million one-time slot machine license fee. The two-level casino includes 90,000
square feet of gaming space, operates 24 hours a day, seven days a week and houses approximately 1,100 new slot machines with denominations ranging from one cent to $25. The facility also offers two casino bars, a food court and a retail shop.

A Phase II gaming and entertainment facility at Mohegan Sun at Pocono Downs is planned for development on land adjacent to the existing
gaming location. When completed, the combined facility is anticipated to include approximately 2,500 slot machines, a variety of restaurants, a 300 seat buffet, an expanded food court, retail shopping, nightlife venues, additional parking and bus
amenities. Construction is expected to commence in the spring of 2007 with a grand opening planned in the summer of 2008. Development of the Phase II facility is anticipated to cost between $140.0 million and $150.0 million.

Other Diversification Projects

The Tribe has determined that it is in its long-term best interest to pursue diversification of its business interests, both directly and through us. As a result, from time to time, we and the Tribe receive and evaluate various business
opportunities. These opportunities primarily include the management or ownership of, or investment in, other gaming enterprises through direct investments, acquisitions, joint venture arrangements and loan transactions. In addition to the
developments described below, we and the Tribe are currently exploring other opportunities, although there is no assurance that we or the Tribe will continue to pursue any of these other opportunities or that any of them will be consummated.

Cowlitz Project

In
July 2004, we formed Mohegan Ventures-Northwest, LLC, or Mohegan Ventures-NW, one of three members in Salishan-Mohegan LLC, or Salishan-Mohegan. Salishan-Mohegan was formed to participate in the development and management of a casino to be located
in Clark County, Washington, or the Cowlitz Project. The proposed casino would be owned by the Cowlitz Indian Tribe. The Mohegan Tribe is also a member of Salishan-Mohegan. Currently, Mohegan Ventures-NW holds a 49.15% membership interest, the
Mohegan Tribe holds a 7.85% membership interest and Salishan Company, LLC, or Salishan Company, holds a 43.0% membership interest in Salishan-Mohegan. Mohegan Ventures-NW and the Mohegan Tribe each hold one of four seats on the Board of Managers of
Salishan-Mohegan.

In September 2004, Salishan-Mohegan entered into development and management agreements with the Cowlitz Indian Tribe
regarding the Cowlitz Project. Under the terms of the development agreement, Salishan-Mohegan administers and oversees the planning, designing, development, construction, and furnishing, as well as providing assistance with the financing, of the
Cowlitz Project. The development agreement provides for certain development fees of 3% of total Project Costs, as defined in the development agreement, which are payable to



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Mohegan VenturesNW and the Mohegan Tribe through Salishan-Mohegan pursuant to the operating agreement. As of April 2006, Salishan-Mohegan purchased the
land to be used as the site for the planned casino, which will be assigned to the Cowlitz Indian Tribe under certain conditions in the development agreement. The management agreement is for a period of seven years commencing with the opening of the
planned casino, during which Salishan-Mohegan will manage, operate and maintain the planned casino. The management agreement provides for a management fee of 24% of Net Revenues, as defined in the management agreement, which approximates net income
from the Cowlitz Project. Pursuant to the operating agreement, management fees will be allocated to the members of Salishan-Mohegan based on their respective membership percentages. Development of the Cowlitz Project is subject to certain
governmental and regulatory approvals, including, but not limited to, negotiating a gaming compact with the State of Washington and the United States Department of the Interior accepting land into trust on behalf of the Cowlitz Indian Tribe. The
management agreement is subject to approval by the National Indian Gaming Commission, or the NIGC.

On August 4, 2006, we purchased a
5.0% membership interest in Salishan-Mohegan from Mohegan Ventures-NW and sold such 5.0% interest to the Mohegan Tribe for approximately $351,000. Mohegan Ventures-NW now holds a 49.15% interest in Salishan-Mohegan. We designated Mohegan Ventures-NW
as a restricted subsidiary under our bank credit facility and certain of the indentures relating to our senior and senior subordinated notes. On August 4, 2006, Mohegan Ventures-NW became a guarantor of our debt obligations under the bank
credit facility and certain of our senior and senior subordinated notes.

On October 17, 2006, Salishan-Mohegan entered into a $25.0
million revolving loan agreement with Bank of America (the Salishan Credit Facility). The obligations of Salishan-Mohegan under the Salishan Credit Facility are guaranteed by the Mohegan Tribe. In exchange for the Mohegan Tribes
guarantee of the Salishan Credit Facility, a 2.85% membership interest in Salishan-Mohegan was transferred from Salishan Company to the Mohegan Tribe on October 17, 2006. Immediately following the execution of the loan agreement, $10.0 million
in loan proceeds were used by Salishan-Mohegan to provide a partial repayment of its outstanding loan balance with Mohegan Ventures-NW.

Menominee Project

In October 2004, we entered into a management agreement with the Menominee Indian Tribe of Wisconsin, or
the Menominee Tribe, and the Menominee Kenosha Gaming Authority. The terms of the management agreement grant us the exclusive right and obligation to manage, operate and maintain a planned casino and destination resort to be located in Kenosha,
Wisconsin, or the Menominee Project, for a period of seven years commencing with the opening of the planned casino, in consideration of a management fee of 13.4% of Net Revenues, as defined in the management agreement, which approximates net income
earned from the Menominee Project. The management agreement is subject to approval by the NIGC.

Strategy

Our overall strategy is to profit from expanding demand in the gaming market in our market areas as well as to diversify the Tribes business
interests in the gaming industry outside of Mohegan Sun, as discussed above. Mohegan Suns initial success has resulted primarily from patronage from guests residing within 100 miles of Mohegan Sun, which represents our primary market. We have
also enjoyed additional patronage from guests residing within a 100 to 200 mile radius of Mohegan Sun, which represents our secondary market. Based upon Mohegan Suns results and experience, we believe the gaming market in our market areas
continues to be strong. With the completion of Project Sunburst in 2002, we have developed Mohegan Sun into a full-scale entertainment and destination resort, which has led to increases in the number of guests and lengthened the duration of their
stays at our facility. We believe our Project Horizon expansion also will enable us to further strengthen our position in the northeastern gaming market by capitalizing on the increasing demand for gaming and non-gaming amenities and providing a
premier destination resort that will mitigate impacts from future competition.



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With the opening of the Mohegan Sun at Pocono Downs slot machine facility in November 2006, we have taken
a significant step in our diversification efforts. After the completion of the Phase II slot machine facility at Mohegan Sun at Pocono Downs expected in the summer of 2008, we believe we will have another first class gaming and entertainment
destination in our property portfolio that will enable us to profit from a new gaming market outside of Mohegan Sun.

Market and Competition from Other
Gaming Operations

Mohegan Sun and Foxwoods Resort Casino, or Foxwoods, are the only two legally authorized gaming operations offering
both traditional slot machines and table games in New England. Foxwoods, operated by the Mashantucket Pequot Tribe under procedures approved by the United States Department of the Interior, is located approximately 10 miles from Mohegan Sun and is
currently the largest gaming facility in the United States in terms of total gaming positions. Based on the size and success of Foxwoods and the rapid growth of Mohegan Sun, we believe that the gaming market in New England and our remaining market
area remains underserved.

The existing gaming industry in our market area is highly competitive. Mohegan Sun currently competes primarily
with Foxwoods, which has been in operation for approximately fourteen years and may have greater financial resources and operating experience than us.

Since the completion of Project Sunburst in 2002, we have broadened Mohegan Suns target market beyond day-trip customers to include guests making overnight stays at the resort. Consequently, Mohegan Sun also now
competes directly for customers with resort casinos in Atlantic City, New Jersey. Some of these casinos have greater resources, operating experience and name recognition than Mohegan Sun.

Under current law, outside of Atlantic City, New Jersey, full-scale commercial casino gaming in the northeastern United States may be conducted only by
federally recognized Indian tribes operating under federal Indian gaming laws or on cruise ships in international waters. In recent years, there has been an increase in the number of Indian tribes seeking to engage in commercial casino gaming,
including full-scale commercial casinos, in the northeastern United States and in the number of individual groups seeking to obtain federal recognition as Indian tribes so that they may engage in commercial casino gaming in the northeastern United
States. Under federal law, after obtaining federal recognition and before gaming operations may commence, a tribe must, among other things, have land taken into trust by the federal government, negotiate a gaming compact with the state in which they
intend to engage in commercial casino gaming, adopt a tribal gaming ordinance and construct a facility. A tribe may also need to negotiate a gaming management agreement and obtain funding to construct a facility. As described below, many Indian
tribes and individual groups seeking to gain federal recognition as Indian tribes are pursuing commercial casino gaming in the northeastern United States.

A number of states, including Maine, Massachusetts, Rhode Island and New York, have considered legalizing one or more forms of commercial casino gaming in one or more locations. We also face existing and future
competition in the immediate Pennsylvania gaming market (refer to Mohegan Sun at Pocono Downs below). Based on internal analysis of the existing and potential gaming market in our market areas, we believe that competition from other
commercial casino gaming operations will continue to increase in the future.

We are unable to predict whether any of the efforts by other
federally recognized Indian tribes or individual groups attempting to gain federal recognition as Indian tribes or legalization of commercial casino gaming by non-Indians will lead to the establishment of additional commercial casino gaming
operations in the northeastern United States. If established, we are uncertain of the impact such commercial casino gaming operations will have on our operations and our ability to meet our financial obligations.



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Mohegan Sun

The following is an assessment of the competitive prospects in Connecticut and the northeastern United States affecting Mohegan Sun:

Connecticut

Currently, only the Tribe and the Mashantucket Pequot Tribe are authorized to
conduct commercial casino gaming in Connecticut. As required by their individual Memorandum of Understanding, or MOU, with the State of Connecticut, the Tribe and the Mashantucket Pequot Tribe make monthly payments to the State of Connecticut based
on a portion of the revenues from their slot machines. Pursuant to the terms of an exclusivity clause in each MOU, the payments will terminate if there is any change in state law that permits operation of slot machines or other commercial casino
games or if any other person lawfully operates slot machines or other commercial casino games within the State of Connecticut (except those consented to by the Tribe and the Mashantucket Pequot Tribe).

In February 2005, the Mashantucket Pequot Tribe announced its plans to undertake a three-year, $700.0 million expansion at Foxwoods, which is expected to
add over two million square feet to the facility, including an 825-room hotel tower, a 21,000 square foot spa, a 5,000-seat theater, a 50,000 square foot ballroom, a 2,900 car parking garage, 145,000 square feet of meeting and convention space, four
retail stores, two nightclubs, three lounges, four restaurants and additional business meeting and reception space. In addition, the expansion is expected to include 50,000 square feet of gaming space and will accommodate an additional 1,500 slot
machines and 45 table games. Groundbreaking activities occurred in November 2005, and the facility is scheduled to open in the spring of 2008. On December 8, 2006, the Mashantucket Pequot Tribe and MGM Mirage announced that it has completed
agreements to develop the new hotel and casino described above, which will be adjacent to the existing Foxwoods Resort Casino. The new hotel and casino will be known as the MGM Grand at Foxwoods and will be owned and operated by the
Mashantucket Pequot Tribe. In May 2005, the Mashantucket Pequot Tribe completed the construction of two golf courses and a 50,000 square foot clubhouse and subsequently opened eight golf villas and a golf academy.

In June 2002, the Bureau of Indian Affairs, or BIA, granted federal recognition to the Historic Eastern Pequot Tribe by combining the individual
applications of the Eastern Pequot Tribe and the Paucatuck Eastern Pequot Tribe. On January 28, 2004, the Schaghticoke Tribe of Kent, Connecticut was granted federal recognition by the BIA. The Historic Eastern Pequot Tribe and the Schaghticoke
Tribe had announced intentions to develop casinos in southeastern and western Connecticut, respectively. The State of Connecticut and several other groups formally appealed each of the BIAs recognition decisions to the Interior Board of Indian
Appeals, or IBIA. On May 13, 2005, the IBIA overturned the federal recognition of the Historic Eastern Pequot Tribe and the Schaghticoke Tribe. The recognition decisions were remanded to the United States Secretary of the Interior for
reconsideration. On October 12, 2005, the BIA upon reconsideration denied the federal recognition of these two Indian tribes. On January 12, 2006, the Historic Eastern Pequot Tribe filed an appeal with the IBIA seeking to reverse the
October 2005 ruling. On January 13, 2006, the IBIA denied the appeal, ruling that it does not have the authority to reconsider the October 2005 decision. The Schaghticoke Tribe also filed an appeal in federal court on January 12, 2006 of
the BIAs October 2005 ruling denying federal recognition to the tribe, which still is pending.

In 2004, the BIA made final
determinations denying federal recognition to another Connecticut tribe, the Golden Hill Paugussett Tribe located in Colchester and Trumbull, Connecticut, and to the Hassanamisco Band of the Nipmuc Tribe officially based in Massachusetts. The
Hassanamisco Band could pursue land claims in Connecticut if granted federal recognition based upon a significant historical presence within the boundaries of the State of Connecticut. If the Hassanamisco Band were ever to receive federal
recognition, it could attempt to develop a casino in northeastern Connecticut near the Connecticut/Massachusetts border. The Hassanamisco Band also has publicized the existence of financial backers for the construction of gaming facilities. These
tribes



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appealed the final determinations to the IBIA in September 2004. In October 2004, the IBIA agreed to accept the Hassanamisco Bands appeal for federal
recognition, but rejected the Golden Hill Paugussetts request to reconsider the denial of its federal recognition. On November 29, 2006, as a result of the denial of federal recognition of the Golden Hill Paugussetts, a Connecticut
federal district court rejected all remaining land claims filed by the tribe.

Rhode Island

Commercial casino gaming does not exist in Rhode Island, although the states two pari-mutuel facilities, Lincoln Greyhound Park and Newport Grand,
together offer approximately 4,700 video slot machines.

In July 2005, BLB Investors, LLC, or BLB, announced the completion of its
acquisition of Lincoln Park in Lincoln, Rhode Island. An announced $125.0 million expansion is expected to add themed bars, upscale restaurants, a 350 seat buffet, a 2,000 seat entertainment venue and approximately 160,000 square feet to increase
video slot machines at the site from 3,000 to 4,750, which has been approved by the Rhode Island legislature. The full expansion is scheduled for completion in 2008; however, the gaming space housing all additional video slot machines is expected to
be open in the first quarter of 2007.

In addition to approving the increase in video slots machines at Lincoln Park, the Rhode Island
legislature has approved the addition of 800 video slot machines at Newport Grand. In order to gain the approval for the additional video slot machines, among other things, Newport Grand must complete a $20.0 million project for improvements and
expansion to the current facilities, including a 90-room hotel. To accommodate the project, Newport Grand sought zoning changes in July 2006 to allow for the expansion; subsequently however, the Newport City Council unanimously rejected changing its
zoning ordinances as requested by Newport Grand.

The Narragansett Indian Tribe of Rhode Island, with a reservation in Charlestown, is the
only federally recognized Indian Tribe in Rhode Island. However, under specific terms of the Narragansett Land Claims Settlement Act with the federal government, the Narragansett Tribe is prohibited from opening a gaming facility under IGRA.
Accordingly, the Narragansett Tribe may only open a gaming facility approved under state law. The Narragansett Tribe and an affiliate of Harrahs Entertainment have pursued a license to operate a casino in West Warwick, Rhode Island, and
proposed to build a 12-story, 500-room hotel and 140,000-square-foot casino with 3,500 slot machines, 50 poker tables and 100 other gaming tables on 86 acres of non-tribal land. On June 1, 2006, the Rhode Island state legislature approved a
joint resolution requiring a statewide referendum to amend the Rhode Island Constitution to allow a casino privately operated by Harrahs Entertainment and the Narragansett Indian Tribe. On November 7, 2006, the amendment to the
Constitution was rejected by the Rhode Island voters by an approximately two to one margin. In December 2006, published reports indicated the Narragansett Tribe would again pursue the development of a $50 million to $100 million casino on its tribal
lands in Charlestown and has requested a meeting with the Rhode Island Congressional delegation in Washington, D.C. in February 2007.

There are several pending federal recognition petitions from other Rhode Island groups. It is not clear if, or when, federal recognition for these groups will be achieved.

New York

Mohegan Sun also
currently faces competition from several casinos and gaming facilities located on Indian tribal lands in New York, and from racetracks in New York that operate video lottery terminals, or VLTs. New York has six federally recognized tribes located in
the central, northern and western parts of the state. Three of these tribes, the Oneida Nation of New York, the Seneca Nation and the St. Regis Mohawk Tribe of New York, currently engage in casino gaming. In addition to these three tribes, other
Indian tribes have been pursuing potential casino projects, which if completed, will add significant casino space and hotel rooms to the northeastern United States gaming market. In addition, racetracks located in Yonkers, Batavia, Hamburg, Nichols,
Vernon, Monticello, Saratoga Springs and Farmington, New York currently operate an aggregate of approximately 8,900 VLTs.



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In October 2001, the New York State Legislature approved legislation that permitted as many as six gaming
operations by Indian tribes in New York, in addition to the Oneida Nations Turning Stone Casino and St. Regis Akwesasne Mohawk Casino already in operation. This legislation approved the use of traditional slot machines, rather than VLTs, where
the possession and use of traditional slot machines is authorized pursuant to a tribal-state compact. Up to three of these additional casinos may be owned by the Seneca Nation and the three others may be located in either Ulster County or Sullivan
County in the Catskills region of New York. The Governor of New York reached tentative land claim settlements with various tribes and supported legislation for as many as five tribal casinos in the Catskills. However, a 2005 U.S. Supreme Court
decision regarding tribal jurisdiction over Indian tribal lands not held in trust by the United States and subsequent federal court decisions have dismissed certain of these land claims and stalled negotiations for casino projects in the Catskills,
with the exception of the St. Regis Mohawk proposal for a casino in Monticello.

The Seneca Nation opened one of the additional gaming
operations authorized by the 2001 legislation, the Seneca Niagara Casino, in December 2002 in Niagara Falls, New York. In May 2004, the Seneca Nation opened its second facility, an approximately 125,000 square foot facility on its reservation in
Salamanca, New York. The Seneca Nation also may operate one additional gaming facility in western New York pursuant to an approved gaming compact negotiated with the Governor of New York.

Summarized below is the status of current and potential gaming operations by federally recognized tribes in the State of New York:



| |  |  | Oneida NationThe Oneida Nation of New York operates Turning Stone Casino Resort on its reservation near Syracuse, New York, approximately 270 miles from Mohegan Sun. We
believe that Turning Stone Casino Resort currently has approximately 2,100 VLTs, 100 table games, 20 tables for live poker and 350 hotel rooms. Published reports indicate the Oneida Nation has also completed an approximately $308 million expansion
effort at Turning Stone, which includes, among other things, the addition of approximately 400 hotel rooms and suites and 30,000 square feet of gaming space. Turning Stone currently draws customers primarily from the Syracuse market. In June 2004, a
New York State trial court ruled that the Oneida Gaming Compact with the State of New York was invalid because it had not been approved by the state legislature. In May 2006, the states highest court upheld the 2004 lower court decision, and
in December 2006, the U.S. Supreme Court declined to hear a further appeal by the Oneida Nation. According to news reports, the NIGC has advised the Oneida Nation that if its compact dispute with the State of New York is not resolved, it may face
enforcement actions. Officials for the State of New York and Oneida County are also reported to be considering legal action against the tribe. It is unclear whether any action will ultimately be taken or what the scope of such action may be.
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| |  |  | St. Regis Mohawk TribeOn November 2, 2005, in a letter to the BIA, the St. Regis Mohawk Tribe formally abandoned plans for a $500 million casino at Kutshers Resort
and Country Club in the Catskills (withdrawing its fee to trust application) and resumed its earlier plans for a casino at Monticello Raceway, also located in the Catskills, to be managed by Empire Resorts, Inc. In March 2006, Empire Resorts
announced an agreement with the St. Regis Mohawk Tribe to develop the casino resort. Prior agreements for municipal and county assistance and payments in lieu of taxes also have been extended to apply to the St. Regis Mohawk Tribes ownership
of the approximately 29 acre site in Monticello. Plans for the project include 160,000 square feet of gaming space for 3,500 slot machines and 125 table games, with sufficient space to accommodate an additional 500 slot machines, and a variety of
food and beverage offerings and entertainment venues.
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| |  | In connection with the St. Regis Mohawk Tribes application to acquire the Monticello site, the tribe submitted a new Environmental Assessment for the project,
which received final approval by the BIA on December 14, 2006. If the Governor of New York concurs with the BIAs recommendation that the property be taken into trust, then the land may be taken into trust and casino gaming pursued on the
site without further legislative approval under existing state law and the existing tribal-state compact
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| | between the St. Regis Mohawk Tribe and the State of New York. However, a renegotiation of the tribal-state compact and revenue-sharing agreement is expected
and lawsuits from environmentalist groups against the project may occur. The tribe has reported that, assuming no delays from the foregoing and other matters, a groundbreaking for the casino project could potentially take place in the spring of
2007.
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| |  |  | Seneca NationThe Seneca Nation reached an agreement with the Governor of New York for a gaming compact that allows the Seneca Nation to operate three casinos, which was
approved by the United States Department of the Interior. The Seneca Nation opened one of these three casinos in Niagara Falls in December 2002, in accordance with certain provisions of IGRA that allow gaming on Seneca aboriginal tribal lands. This
casino offers full-scale gaming similar to that offered at Mohegan Sun; however, we do not draw a significant number of customers from the Niagara Falls market. In December 2005, the Seneca Nation opened its new $200 million hotel and casino in
Niagara Falls. The hotel has 604 rooms, two restaurants, a bar and an event center. The casino provides 35,000 square feet of gaming space, which includes approximately 4,200 slot machines and approximately 100 table games. A temporary facility
opened on the Seneca Nation reservation in Salamanca, New York in May 2004, which features approximately 1,800 slot machines and 25 table games. The Seneca Nation began construction on a permanent Salamanca facility in October 2005, which is
projected to have 220 hotel rooms and approximately 64,500 square feet of gaming, including at least 2,100 slot machines. The Seneca Nation plans to locate the third casino permitted under its state compact in Buffalo, New York. The construction of
the 100,000 square foot facility was anticipated to begin in December 2005. That construction has been delayed due to several legal challenges to the Buffalo project.
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| |  |  | Cayuga Indian Nation of New York and Seneca-Cayuga Tribe of OklahomaThese two tribes were plaintiffs in federal land claim litigation (the Cayuga case) against the
State of New York and others and pursued casino projects in the Catskills after receiving a $247.9 million trial court judgment in their favor in October 2001. In June 2005, the U.S. Court of Appeals for the Second Circuit overturned that judgment,
and in May 2006, the U.S. Supreme Court declined to hear the case. As a result, the Cayuga Indian Nation withdrew its land into trust application for the approximately 29 acre site near Monticello Raceway which is now the subject of the St. Regis
Mohawks application. The Cayuga Indian Nation has filed a separate land into trust application for 125 acres in Cayuga and Seneca counties in central New York, and that application is pending. In 2006, the Seneca-Cayuga Tribe also filed a land
into trust application for a 229 acre farm owned by the tribe in Aurelius, New York, in Cayuga County.
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| |  |  | Stockbridge-Munsee Community, Band of Mohican Indians of WisconsinIn December 2004, the Stockbridge-Munsee Community, Band of Mohican Indians of Wisconsin and the Governor of
New York approved an agreement to settle the tribes land claims against the state and permit the tribe to develop and operate a casino in the Catskills. The agreement was subject to the approval of federal and state legislatures. As a result
of the decision in the Cayuga case, that settlement agreement expired on September 1, 2005 without requisite approvals.
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| |  |  | Oneida Tribe of Indians of WisconsinIn December 2004, the Oneida Tribe of Indians of Wisconsin and the Governor of New York approved an agreement to settle the tribes
land claim against the state and permit the tribe to develop and operate a casino in the Catskills. The agreement was subject to the approval of federal and state legislatures. As a result of the decision in the Cayuga case. That settlement
agreement expired on September 1, 2005 without requisite approvals.
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| |  |  | Shinnecock TribeThe Shinnecock Tribe has announced that it intends to construct an approximately 65,000 square-foot commercial casino gaming facility adjacent
to its reservation in Long Island, New York. The Shinnecock Tribe is recognized by the State of New York, but has yet to receive recognition from the BIA. The Shinnecock Tribe has a pending federal recognition petition. In November 2005, a federal
district court in New York found that the Shinnecock Tribe met all the legal requirements to be considered a federally recognized tribe and remanded the case for consideration of other issues, including the Shinnecocks land claims. Although
the federal district court found that the Shinnecock Tribe met the requirements for federal recognition, necessary approvals from the BIA still must be
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| | obtained and a 2005 United States Supreme Court decision has called into question the validity of adding land for casino development purposes into original
reservation lands. Accordingly, the Shinnecock Tribes proposed casino project cannot move forward until the underlying issues regarding federal recognition and land claim status are resolved. In January 2006, the BIA declared that it is not
bound by a November 2005 federal district court ruling that the Shinnecock Tribe is a federally recognized Indian tribe. Accordingly, the Shinnecock Tribe is continuing to pursue the federal recognition process before the BIA, which published
reports indicate could take several years. On November 28, 2006, a New York federal district court rejected the Shinnecock Tribes claim to 3,600 acres in Long Island. However, the tribe has indicated that it will continue to seek the
legal right to build a casino on a smaller parcel it already owns on Long Island.
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Other tribes also may be attempting to
develop various forms of gaming operations in the state of New York. In addition, there are several pending federal recognition petitions from other New York groups, but we believe none are being actively considered by the BIA for federal
recognition. It is not clear if or when federal recognition for these groups will be achieved.

In June 2005, MGM Mirage announced a
definitive agreement to develop and manage a VLT facility at the Aqueduct horse racing track in Queens, New York, which is one of three thoroughbred tracks owned and operated by the New York Racing Authority (NYRA). While the New York
racing oversight board approved a construction contract for an $182 million improvement to the Aqueduct race track facility and the installation of 4,500 VLTs in March 2006, the NYRA filed for Chapter 11 bankruptcy protection in November 2006, and
the New York State Lottery Boards inaction on its application for VLTs at Aqueduct was reported as one of the principal reasons for seeking bankruptcy protection. A state panel is reviewing recommendations for new operators of the NYRA
facilities, including Aqueduct, Belmont and Saratoga racetracks. MGM Mirage and the NYRA have reported plans to seek assurances from the bankruptcy court and the State Lottery and proceed with plans to open the facility for VLTs in 2007. Empire City
at Yonkers Raceway, in Yonkers, New York, opened its new VLT gaming facility in October 2006 and is operating approximately 1,800 machines. It has announced plans to increase the total number of VLTs to 5,500 in the first of two phases of expansion
and ultimately up to 7,500 machines as permitted under state law. Given their geographic location within or in close proximity to New York City, the Yonkers and Aqueduct facilities may have distinct advantages over Mohegan Sun in competition for
day-trip and other customers from the New York metropolitan region.

Currently, there are no non-Indian casinos operating in the State of
New York, and the establishment of non-Indian commercial casino operations would require the approval of two successive state legislatures, followed by the voters in a statewide referendum. However, gambling boats began operating cruises to
nowhere out of the New York City and Long Island areas in January 1998. To date, New York has not prohibited gambling boat operations and only a small number of operators have applied for licenses for offshore gambling cruises. These
cruises to nowhere, during which casino gaming activities are conducted on board once the boat is in international waters, are permitted under federal law unless prohibited by the state from which they operate. Due to the difference in
the gaming experience, we do not believe that the cruises to nowhere are significant competition to Mohegan Sun.

Massachusetts

In October 2005, the Massachusetts State Senate approved legislation that would allow up to 2,000 slot
machines at each of the states four racetracks. However, in April 2006, the Massachusetts House of Representatives rejected this legislation.

The Wampanoag Tribe of Gay Head (Aquinnah) of Massachusetts, located on the island of Marthas Vineyard, is currently the only federally recognized Indian tribe in Massachusetts. The Wampanoag Tribe has announced plans to open a
high-stakes bingo facility in southeastern Massachusetts, and although no state compact would be required, significant hurdles, including local government approval, still remain. To date no such facility has been constructed.



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In March 2006, the Mashpee Wampanoag Tribe received preliminary acknowledgement from the BIA as a
federally recognized Indian tribe. The BIA ruled that the tribe met all seven criteria required for federal acknowledgement. A final decision is required by a court-supervised settlement agreement to be issued by March 31, 2007. Published
reports indicate the tribe has pledged not to build a casino on its owned land in Cape Cod, but may attempt to acquire other land in Massachusetts for a casino. Development of a casino would be subject to several hurdles, including the negotiation
of a gaming compact with the state and the taking of land into trust by the United States Department of Interior on behalf of the tribe.

A
separate band of the Nipmuc Tribe, the Chaubunagungamaug Band, also submitted a petition for federal recognition. In June 2004, the BIA made a final determination denying federal recognition to the tribe. In October 2004, the IBIA agreed to accept
the Chaubunagungamaug Bands appeal on the final determination. If this tribe was to receive federal recognition, it would likely attempt to develop a casino in Massachusetts.

A number of other petitions for federal recognition are pending in Massachusetts, but we believe potential recognition of these pending petitions is
several years away, if at all.

New Jersey

In the state of New Jersey, Mohegan Sun primarily competes for overnight customers with casinos located in Atlantic City. The Atlantic City gaming market currently consists of twelve casino properties, with a total of
approximately 14,000 hotel rooms and 1.4 million square feet of gaming space, containing approximately 42,000 slot machines and 1,400 table games. These properties include the Borgata, a casino resort complex completed in the summer of 2003 and
the first new casino in Atlantic City in 13 years.

Several proposed developments and expansions of casino, hotel, retail and entertainment
space have also commenced or been completed in Atlantic City. Some of these recent projects include:



| |  |  | In 2004, Boyd Gaming and MGM Mirage announced multiple expansions of the Borgata Hotel and Casino which currently features a 40 story hotel with approximately 2,000 rooms and
suites, a 135,000 square foot casino and over 4,000 slot machines, restaurants, retail shops, a spa and pool, and entertainment venues. The expansions will add an additional 500,000 square feet to the facility, including more gaming, retail and
restaurant space, two additional nightclubs and a new hotel tower, containing approximately 200 luxury time-share condominiums and approximately 600 guest rooms, a new spa, two swimming pools and additional meeting room space. In June 2006, the
first phase of the expansion project opened to the public, featuring three new signature restaurants, an upscale food court, 500 slot machines, 45 table games, an 85-table poker room and a new nightclub. The next phase of the expansion, including
the new hotel tower described above, is scheduled to open in the fourth quarter of 2007.
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| |  |  | In mid-2004, Harrahs Entertainment Inc. began construction on The Pier at Caesars, a $145 million upscale retail, dining, and entertainment facility located on the Atlantic
City Boardwalk. The facility will be attached to the Caesars Atlantic City by skywalk. As of the date of this filing, construction on the facility appears to be substantially complete.
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| |  |  | In July 2006, Morgan Stanley Gaming Cos. Holdings, a subsidiary of Morgan Stanley, purchased a 20 acre parcel located on the Atlantic City Boardwalk for $74 million. Published
reports indicate Morgan Stanley plans to build a $1 billion casino resort on this parcel, which will be adjacent to the Showboat, owned by Harrahs Entertainment, and is expected to announce the hiring of Revel Entertainment to operate the
planned casino. Revel Entertainment is a gaming and entertainment company organized by the departing president and chief operating officer of Penn National Gaming, Inc.
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| |  |  | In September 2006, Wallace Barr, former Chief Executive Officer of Caesars, and Curtis Bashaw, former executive director of the New Jersey Casino Reinvestment Development
Authority, entered into an agreement to purchase an 11-acre site on the southern edge of the Atlantic City Boardwalk for $85 million. Reports indicate Mr. Barr and Mr. Bashaw plan to develop a new casino on this site.
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| |  |  | On November 11, 2006, Sands Atlantic City Hotel and Casino was closed, in conjunction with the purchase by Pinnacle Entertainment Inc. of the company that owns the Sands, in
anticipation that it will be replaced by a new mega-resort casino-hotel reportedly costing in excess of $1.5 billion, with construction beginning in mid-2008.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, the state legislature has considered adding slot machines or VLTs at the state racetracks.

There are no federally recognized Indian tribes in the state; however, at lease one state tribe, the Unalachtigo Band of the Nanticoke Lenni Lenape
Nation, is reportedly seeking federal recognition and possible casino gaming.

Maine

There are no full-scale casino gaming operations allowed in Maine other than one cruise boat that operates out of Maine and provides casino gaming
off-shore. There are four federally recognized tribes in Maine, one of which, the Penobscot Tribe, operates a high stakes bingo facility in Old Town, in east central Maine. The Penobscot Tribe and the Passamaquoddy Tribe are attempting to gain
approval for full-scale casino operations at various locations in Maine; however, to date these efforts have been unsuccessful. None of the other federally recognized tribes in Maine have negotiated a tribal-state compact or otherwise taken
significant steps of developing casino operations.

In November 2005, Penn National Gaming, Inc. opened a temporary slot machine facility
in Bangor, Maine, featuring 475 slot machines, with plans to construct a $71.0 million permanent facility that would have a total of approximately 1,500 slot machines. The permanent facility is scheduled to open in the fall of 2007.

In August 2006, the members of the Maine Gambling Control Board adopted a nonbinding resolution calling for a moratorium on any expansion of gambling in
the state.

New Hampshire

There are no casinos allowed in New Hampshire and no significant initiatives currently underway to legalize commercial casino gaming. Over the past several years, a number of legislative initiatives to expand
legalized gambling activities in New Hampshire have been defeated. There are no federally recognized Indian tribes in the state and no petitions for recognition pending.

Vermont

There are no casinos allowed in Vermont and no significant legislative initiatives
currently underway to allow commercial casino gaming. There are no federally recognized tribes in Vermont, but a petition for federal recognition is pending from the St. Francis/Sokoki Band of Abenakis in Swanton. In November 2005, the BIA made
proposed findings to deny federal recognition to the Abenaki Indians due to the failure to meet necessary criteria for federal recognition.

Mohegan Sun at Pocono Downs

The following is an assessment of the competitive prospects in Pennsylvania and the
northeastern United States affecting Pocono Downs:

In July 2004, Pennsylvania Governor Ed Rendell signed the Pennsylvania Race Horse and
Development and Gaming Act, or the Pennsylvania Gaming Act, permitting up to 61,000 slot machines at 14 locations throughout the state. The Pennsylvania Gaming Act authorized slot machines at seven harness and thoroughbred racetracks, and five
stand-alone slot facilities. Each of the facilities may initially install up to 3,000 slot machines and can be



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expanded to up to 5,000 slot machines after six months of operation and upon gaining the approval of the PGCB. In addition, the legislation authorized two
resort facilities with up to 500 slot machines. The Pennsylvania Gaming Act also includes prohibitions against locating facilities in close proximity to other operations, including, among other things, a prohibition against locating another harness
or thoroughbred facility with slots or a stand-alone slot facility within 20 linear miles of Pocono Downs, and a prohibition against locating a resort facility within 15 linear miles of Pocono Downs.

In addition to Pocono Downs, there are two thoroughbred racetracks, Philadelphia Park located in Bensalem (approximately 115 miles southeast of Pocono
Downs) and Penn National Race Course in Grantville (located approximately 85 miles southwest of Pocono Downs), and two harness racetracks, the Meadows, located in Meadow Lands, near Pittsburgh (approximately 300 miles from Pocono Downs), and
Harrahs Chester Casino and Racetrack, located in Chester (approximately 115 miles from Pocono Downs). The Pennsylvania State Horse Racing Commission, or the Horse Racing Commission, also has approved a racing license for MTR Gaming to build a
thoroughbred racetrack named Presque Isle Downs in Summit Township, near Erie (approximately 325 miles from Pocono Downs). The Horse Racing Commission has not yet selected the proposed or existing property for the final new racing license permitted
in Pennsylvania. However, under the Pennsylvania Gaming Act, unless the developer of a proposed horse racetrack had received approval for a racing license within the 18 months immediately preceding the passage of the act, the licensee is not
permitted to obtain a slot license.

On September 27, 2006, five of the seven conditional Category One slot machine licenses were granted
by the PGCB to the owners of the racetracks that are operating or under construction in Pennsylvania, including Mohegan Sun at Pocono Downs. Another conditional license was awarded to Presque Isle Downs on October 25, 2006. Philadelphia Park became
the second racetrack in the Commonwealth of Pennsylvania to offer slot machine gaming to the public, when it opened its 2,200 slot machine gaming facility on December 19, 2006. On December 20, 2006, the PGCB granted permanent Category One slot
machine licenses to the six racetracks that had previously received conditional licenses, including Mohegan Sun at Pocono Downs.

Also on
December 20, 2006, the PGCB awarded conditional Category Two slot machine licenses for five stand-alone slot facilities, two of which are located in Philadelphia and one of which is located in Pittsburgh. The remaining two facilities selected, which
are located closer to Pocono Downs and are more likely to have an impact on our future Pocono Downs operations, were as follows:



| |  |  | Businessman Louis DeNaples was awarded a conditional slot machine license to operate a slot machine parlor at the former Mount Airy Lodge in Mount Pocono, which is approximately 40
miles from Pocono Downs. According to news reports, Mr. DeNaples plans include a 196-room hotel that could include 2,500 slot machines with an anticipated opening date of October 2007. Reports further indicate that by the end of 2008, the
facility is anticipated to have been expanded to have 3,000 slot machines, 400 hotel rooms, four restaurants, a night club, conference rooms, a spa, indoor and outdoor pools, retail shops and parking and then be further expanded to offer a total of
5,000 slot machines.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sands Bethworks Gaming, a partnership between BethWorks and Las Vegas Sands, Inc., owner of the Venetian Resort and Casino in Las Vegas, was awarded a conditional slot machine
license to operate a gaming facility in Bethlehem, which is approximately 70 miles from Pocono Downs. The group has indicated plans for a $600.0 million Phase I project that would offer 3,000 slot machines, a new 300-room hotel, retail shops and
restaurants to the public by the summer of 2008 and a future Phase II project that would increase the total number of slot machines to 5,000.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition to the other slot facilities in Pennsylvania, Pocono Downs may face competition from a VLT gaming facility at Monticello, New York in the Catskills, which features a reported 1,500 VLTs, and any full scale
casino gaming operation that is ultimately developed by an Indian tribe in the Catskills region. The Catskills are approximately 90 miles from Pocono Downs. Pocono Downs also could face competition from



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Tioga Downs Racetrack in Nichols, New York, approximately 100 miles from Pocono Downs. On June 9, 2006, Tioga Downs opened its racetrack after
renovations, and on July 4, 2006, the track opened its new gaming floor, which includes 750 video lottery terminals.

Mohegan Tribe of Indians of
Connecticut

General

The Tribe has lived in a cohesive community for hundreds of years in what is today southeastern Connecticut, and became a federally recognized Indian tribe in 1994. The Tribe currently has approximately 1,700 members including 1,000 adult
voting members. The Tribe historically has cooperated with the United States and is proud of the fact that members of the Tribe have fought on the side of the United States in every war from the Revolutionary War to the War in Iraq. The Tribe
believes that this philosophy of cooperation exemplifies its approach to developing Mohegan Sun and pursuing diversification of its business interests.

Although the Tribe is a sovereign entity, it has sought to work with, and to gain the support of, local communities in establishing Mohegan Sun. For example, the Tribe settled its claim to extensive tracts of land
that had been guaranteed by various treaties in consideration for certain arrangements in the Mohegan Compact. As a result, local residents and businesses whose property values had been clouded by this dispute were able to gain clear title to their
property. In addition, the Tribe has been sensitive to the concerns of the local community in developing Mohegan Sun. This philosophy of cooperation has enabled the Tribe to build a solid alliance among local, state and federal officials to achieve
its goal of building Mohegan Sun.

Governance of the Tribe

The Tribes Constitution provides for the governance of the Tribe by a Tribal Council consisting of nine members, and a Council of Elders consisting
of seven members. The registered voters of the Tribe elect all members of the Tribal Council and the Council of Elders. As the result of an amendment to the Tribes Constitution in September 2003, the members of both the Council of Elders and
the Tribal Council will be elected on a staggered term basis. Effective with the election for the Council of Elders held in October 2004, three elected members of the Council of Elders serve two-year terms and four elected members of the Council of
Elders serve four-year terms. Similarly, effective with the Tribal Council election held in August 2005, four elected Tribal Council members serve two-year terms and five elected Tribal Council members serve four-year terms. Thereafter, elected
members of both the Council of Elders and the Tribal Council shall serve four-year terms. Members of the Tribal Council must be at least 21 when elected, and members of the Council of Elders must be at least 55 when elected. The members of the
Tribal Council are the same individuals who serve on our Management Board.

The Tribes Constitution vests all legislative and
executive powers of the Tribe in the Tribal Council, with the exception of the enrollment of Tribal members and cultural duties, which are vested in the Council of Elders. The powers of the Tribal Council include the power to establish an executive
branch departmental structure with agencies and subdivisions and to delegate appropriate powers to such agencies and sub-divisions.

The
Tribe may amend the provisions of its Constitution that established us and the Gaming Disputes Court, which is described below. Such an amendment requires the approval of two-thirds of the members of the Tribal Council and must be ratified by a vote
of a two-thirds majority of all votes cast, with at least 40% of the registered voters of the Tribe voting. In addition, the Tribes Constitution currently prohibits the Tribe from enacting any law that would impair the obligations of contracts
entered into in furtherance of the development, construction, operation and promotion of gaming on Tribal lands. An amendment to this provision requires the affirmative vote of 75% of all registered voters of the Tribe. Prior to the enactment of any
such amendment by the Tribal Council, any non-Tribal party will have the opportunity to seek a ruling from the Appellate Branch of the Gaming Disputes Court that the proposed amendment would constitute an impermissible impairment of contract.



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The Council of Elders acts in the capacity of an appellate court of final review and may hear appeals of
any case or controversy arising under the Tribes Constitution, except those matters related to Mohegan Sun, which are required to be submitted to the Gaming Disputes Court.

Gaming Disputes Court

The
Tribal Council has established the Gaming Disputes Court by Tribal ordinance and vested it with exclusive jurisdiction over all disputes related to gaming at Mohegan Sun and over appeals of certain final decisions issued by the Tribes
administrative agencies. The Gaming Disputes Court is composed of a Trial Division and an Appellate Branch. A single judge presides over cases at the trial level. Trial Division decisions can be appealed to the Appellate Branch where cases are
presided over by three judges, one of whom will be the Chief Judge, and none of whom will have presided at the Trial Division over the specific case being heard. Decisions of the Appellate Branch are final, and no further appeal is available.

The Gaming Disputes Court has jurisdiction over all disputes or controversies related to gaming between any person or entity and us or the
Tribe. The Gaming Disputes Court also has jurisdiction over certain appeals arising out of tribal agency regulatory powers, including licensing actions. The Tribe has adopted the substantive law of the State of Connecticut as the applicable law of
the Gaming Disputes Court to the extent that such law is not in conflict with Mohegan Tribal Law. Also, the Tribe has adopted all of Connecticuts rules of civil and appellate procedure and professional and judicial conduct to govern the Gaming
Disputes Court.

Judges of the Gaming Disputes Court are chosen by the Tribal Council from a publicly available list of eligible retired
federal judges and Connecticut Attorney Trial Referees, who are appointed by the Chief Justice of the Connecticut Supreme Court, each of whom must remain licensed to practice law in the State of Connecticut.

Judges are selected sequentially as cases are filed with the clerk of the Gaming Disputes Court. The Chief Judge of the Gaming Disputes Court, who serves
as the Gaming Disputes Courts administrative superintendent, is chosen by the Tribal Council from the list of eligible judges and serves a five-year term. The remaining judges may serve an unlimited term on the bench. Judges of the Gaming
Disputes Court are subject to discipline and removal for cause pursuant to the rules of the Gaming Disputes Court. The Chief Judge is vested with the sole authority to revise the rules of the Gaming Disputes Court. Judges are compensated by the
Tribe at an agreed rate of pay commensurate with their duties and responsibilities. Such rate cannot be diminished during a judges tenure.

Below is a description of certain information regarding judges currently serving on the Gaming Disputes Court:

Paul M.
Guernsey, Chief Judge. Age: 56. Judge Guernsey has served on the Gaming Disputes Court since 1996. He was appointed Acting Chief Judge in November 1999 and appointed as Chief Judge in January 2000. Judge Guernsey has also served as Fact Finder
for the New London Judicial District from 1990 to 1992 and as State of Connecticut Attorney Trial Referee, Judicial District of New London, since 1992.

F. Owen Eagan, Judge. Age: 75. Judge Eagan was appointed to the Gaming Disputes Court in 1996. He served as U.S. Magistrate Judge from 1975 to 1996 and was formerly Assistant U.S. Attorney for the District of
Connecticut and U.S. Attorney for the District of Connecticut. He is currently an adjunct law faculty member at Western New England School, a position he has held since 1978.

Frank A. Manfredi, Judge. Age: 54. Judge Manfredi was appointed to the Gaming Disputes Court in 2001. He has been a partner at Cotter, Greenfield,
Manfredi & Lanes, P.C. since 1983. Judge Manfredi has also served as State of Connecticut Attorney Trial Referee since 1993, State of Connecticut Attorney Fact Finder since 1992 and Town Attorney for the Town of Preston since 1988.



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Thomas B. Wilson, Judge. Age: 66. Judge Wilson was appointed to the Gaming Disputes Court in 1996.
Judge Wilson served as a partner and director at Suisman, Shapiro, Wool, Brennan & Gray, P.C. from 1967-2003. Judge Wilson has also served as State Attorney Trial Referee since 1988 and as Town Attorney for the Town of Ledyard from 1971 to
1979, 1983 to 1991 and 1995 to the present.

Workers Compensation Department

Effective September 1, 2004, the Tribal Council established a Workers Compensation Department that oversees a self-administered workers compensation
program for employees of the Tribe and us. Prior to the formation of this department, we participated in the State of Connecticut workers compensation program. Duties of the Workers Compensation Department, including judgment on claims, are
performed by two commissioners employed by the Tribe.

Below is a description of certain information regarding the commissioners serving in
the Workers Compensation Department:

Giancarlo Rossi, Chief Commissioner. Mr. Rossi was appointed Chief Commissioner of the
Tribes Workers Compensation Department in September 2004. Mr. Rossi is a practicing attorney with over 20 years of workers compensation experience in Connecticut.

Louis M. Pacelli, Commissioner. Mr. Pacelli was appointed Commissioner of the Tribes Workers Compensation Department in September 2004.
Mr. Pacelli is a partner in the law firm of Grillo and Pacelli, LLC in East Haven, Connecticut and has practiced general law, including workers compensation matters, for over 20 years in Connecticut.

Mohegan Tribal Gaming Authority

We were established
by the Tribe in July 1995 with the exclusive power to conduct and regulate gaming activities on tribal lands for the Tribe and the non-exclusive authority to conduct such activities elsewhere. We are governed by a nine-member Management Board,
consisting of the same nine members of the Tribal Council (the governing body of the Tribe). Any change in the composition of the Tribal Council results in a corresponding change in our Management Board. See Mohegan Tribe of Indians of
Connecticut and Part III. Item 10. Directors and Executive Officers of the Registrant.

We have three major
functions. The first major function is to direct the operation, management and promotion of gaming enterprises on tribal lands and all related activities. The second major function is to regulate gaming activities on tribal lands. Our Management
Board has appointed an independent Director of Regulation to be responsible for the regulation of gaming activities at Mohegan Sun. The Director of Regulation serves at the will of the Management Board and ensures the integrity of the gaming
operation through the promulgation and enforcement of appropriate regulations. The Director of Regulation and his staff also are responsible for performing background investigations and licensing of non-gaming employees as well as vendors seeking to
provide non-gaming products or services within the casino. Pursuant to the Mohegan Compact, the State of Connecticut is responsible for performing background investigations and licensing of gaming employees as well as gaming vendors seeking to
provide gaming products or services within the casino. The third major function is to identify and evaluate various diversification opportunities in conjunction with the Tribe. These opportunities primarily include the management and ownership of,
or investments in, other gaming enterprises through direct investment, acquisition, joint venture arrangements and loan transactions.



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Government Regulation

General

Our operations at Mohegan Sun are subject to certain federal, state and tribal laws
applicable to both commercial relationships with Indians generally and to Indian gaming and the management and financing of Indian casinos specifically. In addition, our operations there, as well as our slot machine operations in Pennsylvania at
Mohegan Sun at Pocono Downs, are subject to federal and state laws applicable to the gaming industry generally and to the distribution of gaming equipment. Our operations at Mohegan Sun at Pocono Downs also are subject to Pennsylvania laws and
regulations applicable to harness racing and simulcasting as well as the slot machine gaming we have recently commenced there. The following description of the regulatory environment in which gaming takes place and in which we operate is only a
summary and not a complete recitation of all applicable law. Moreover, since this regulatory environment is susceptible to changes in public policy considerations, it is impossible to predict how particular provisions will be interpreted from time
to time or whether they will remain intact. Changes in such laws could have a material adverse impact on our operations. See Risk Factors.

Tribal Law and Legal Systems

Applicability of State and Federal Law

Federally recognized Indian tribes are independent governments, subordinate to the United States, with sovereign powers, except as those powers may have
been limited by treaty or by the United States Congress. The power of Indian tribes to enact their own laws to regulate gaming derives from the exercise of this tribal sovereignty. Indian tribes maintain their own governmental systems and often
their own judicial systems. Indian tribes have the right to tax persons and enterprises conducting business on tribal lands, and also have the right to require licenses and to impose other forms of regulations and regulatory fees on persons and
businesses operating on their lands.

Absent the consent of the Tribe or action of the United States Congress, the laws of the State of
Connecticut do not apply to us or the Tribe. Under the federal law that recognizes the Tribe, the Tribe consented to, among other things, the extension of Connecticut criminal law and Connecticut state traffic controls over Mohegan Sun.

Waiver of Sovereign Immunity; Jurisdiction; Exhaustion of Tribal Remedies

Indian tribes enjoy sovereign immunity from unconsented suit similar to that of the states and the United States. In order to sue an Indian tribe (or an
agency or instrumentality of an Indian tribe, such as us), the tribe must have effectively waived its sovereign immunity with respect to the matter in dispute. Further, in most commercial disputes with Indian tribes, the jurisdiction of the federal
courts, which are courts of limited jurisdiction, may be difficult or impossible to obtain. A commercial dispute is unlikely to present a federal question, and some courts have ruled that an Indian tribe as a party is not a citizen of any state for
purposes of establishing diversity jurisdiction in the federal courts. State courts also may lack jurisdiction over suits brought by non-Indians against Indian tribes in Connecticut. The remedies available against an Indian tribe also depend, at
least in part, upon the rules of comity requiring initial exhaustion of remedies in tribal tribunals and, as to some judicial remedies, the tribes consent to jurisdictional provisions contained in the disputed agreements. The United States
Supreme Court has held that, where a tribal court exists, jurisdiction in that forum first must be exhausted before any dispute can be heard properly by federal courts which otherwise would have jurisdiction. Where a dispute as to the jurisdiction
of the tribal forum exists, the tribal court first must rule as to the limits of its own jurisdiction.

In connection with some of our
contractual arrangements, including our outstanding indebtedness, we, the Tribe, MBC, Mohegan Ventures-NW, Mohegan Golf and the Pocono Downs entities agreed to waive our and their respective sovereign immunity, to the extent applicable, from
unconsented suit to permit any court of



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competent jurisdiction to (1) enforce and interpret the terms of our applicable outstanding indebtedness, and award and enforce the award of damages
owing as a consequence of a breach thereof, whether such award is the product of litigation, administrative proceedings, or arbitration; (2) determine whether any consent or approval of the Tribe or us has been granted improperly or withheld
unreasonably; (3) enforce any judgment prohibiting the Tribe or us from taking any action, or mandating or obligating the Tribe or us to take any action, including a judgment compelling the Tribe or us to submit to binding arbitration; and
(4) adjudicate any claim under the Indian Civil Rights Act of 1968, 25 U.S.C. 1302 (or any successor statute).

The Indian
Gaming Regulatory Act of 1988

Regulatory Authority

The operation of casinos and of all gaming on Indian land is subject to IGRA, which is administered by the NIGC, an independent agency within the United
States Department of the Interior, which exercises primary federal regulatory responsibility over Indian gaming. The NIGC has exclusive authority to issue regulations governing tribal gaming activities, approve tribal ordinances for regulating Class
II and Class III Gaming (as described below), approve management agreements for gaming facilities, conduct investigations and generally monitor tribal gaming. Certain responsibilities under IGRA (such as the approval of per capita distribution plans
to tribal members and the approval of transfer of lands into trust status for gaming) are retained by the BIA. The BIA also has responsibility to review and approve land leases and other agreements relating to Indian lands. Criminal enforcement is
the exclusive responsibility of the United States Department of Justice, except to the extent such enforcement responsibility is shared with the State of Connecticut under the Mohegan Compact and under the federal law that recognizes the Tribe.

The NIGC is empowered to inspect and audit all Indian gaming facilities, to conduct background checks on all persons associated with Class
II Gaming, to hold hearings, issue subpoenas, take depositions, adopt regulations and assess fees and impose civil penalties for violations of IGRA. IGRA also prohibits illegal gaming on Indian land and theft from Indian gaming facilities. The NIGC
has adopted rules implementing specific provisions of IGRA, which govern, among other things, the submission and approval of tribal gaming ordinances or resolutions and require an Indian tribe to have the sole proprietary interest in and
responsibility for the conduct of any gaming. Tribes are required to issue gaming licenses only under articulated standards, to conduct or commission financial audits of their gaming enterprises, to perform or commission background investigations
for primary management officials and key employees and to maintain their facilities in a manner that adequately protects the environment and the public health and safety. These rules also set out review and reporting procedures for tribal licensing
of gaming operation employees.

Additionally, the NIGC established the Minimum Internal Control Standards, or MICS, that require each tribe
or its designated tribal government body or agency to establish and implement tribal MICS by February 4, 2000. We established and implemented tribal MICS on February 4, 2000. As of September 30, 2006, we believe we were in material
compliance with the tribal MICS.

Tribal Ordinances

Under IGRA, except to the extent otherwise provided in a tribal-state compact, Indian tribal governments have primary regulatory authority over Class III Gaming on land within a tribes jurisdiction. Therefore,
our gaming operations, and persons engaged in gaming activities, are guided by and subject to the provisions of the Tribes ordinances and regulations regarding gaming.

IGRA requires that the NIGC review tribal gaming ordinances and authorizes the NIGC to approve such ordinances only if they meet specific requirements
relating to (1) the ownership, security, personnel background, record keeping and auditing of a tribes gaming enterprises; (2) the use of the revenues from such gaming; and (3) the protection of the environment and the public
health and safety. The Tribe adopted its gaming ordinance in July 1994, and the NIGC approved the gaming ordinance in November 1994.



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Classes of Gaming

IGRA classifies games that may be conducted on Indian lands into three categories. Class I Gaming includes social games solely for prizes of minimal value or traditional forms of Indian gaming engaged in
by individuals as part of, or in connection with, tribal ceremonies or celebrations. Class II Gaming includes bingo, pull-tabs, lotto, punch boards, tip jars, certain non-banked card games (if such games are played legally elsewhere in
the state), instant bingo and other games similar to bingo, if those games are played at the same location where bingo is played. Class III Gaming includes all other forms of gaming, such as slot machines, video casino games (e.g., video
blackjack and video poker), so-called table games (e.g., blackjack, craps and roulette) and other commercial gaming (e.g., sports betting and pari-mutuel wagering).

Class I Gaming on Indian lands is within the exclusive jurisdiction of the Indian tribes and is not subject to IGRA. Class II Gaming is permitted on
Indian lands if (1) the state in which the Indian lands lie permits such gaming for any purpose by any person, organization or entity; (2) the gaming is not otherwise specifically prohibited on Indian lands by federal law; (3) the
gaming is conducted in accordance with a tribal ordinance or resolution which has been approved by the NIGC; (4) an Indian tribe has sole proprietary interest and responsibility for the conduct of gaming; (5) the primary management
officials and key employees are tribally licensed; and (6) several other requirements are met. Class III Gaming is permitted on Indian lands if the conditions applicable to Class II Gaming are met and, in addition, the gaming is conducted in
conformance with the terms of a tribal-state compact (a written agreement between the tribal government and the government of the state within whose boundaries the tribes lands lie).

With the growth of the Internet and other modern advances, computers and other technology aids are increasingly used to conduct specific kinds of gaming.
The United States Congress has considered legislation that limits and/or prohibits gaming conducted over the Internet. On September 30, 2006, the United States Congress passed legislation restricting Internet gambling by prohibiting the use of
credit cards, checks and electronic fund transfers for online gaming. The legislation was signed into law by the President of the United States on October 13, 2006.

Tribal-State Compacts

IGRA requires states to negotiate in good faith with Indian tribes that seek
to enter into tribal-state compacts for the conduct of Class III Gaming. Such tribal-state compacts may include provisions for the allocation of criminal and civil jurisdiction between the state and the Indian tribe necessary for the enforcement of
such laws and regulations, taxation by the Indian tribe of gaming activities in amounts comparable to those amounts assessed by the state for comparable activities, remedies for breach of compacts, standards for the operation of gaming and
maintenance of the gaming facility, including licensing and any other subjects that are directly related to the operation of gaming activities. While the terms of tribal-state compacts vary from state to state, compacts within one state tend to be
substantially similar. Tribal-state compacts usually specify the types of permitted games, establish technical standards for gaming, set maximum and minimum machine payout percentages, entitle the state to inspect casinos, require background
investigations and licensing of casino employees and may require the tribe to pay a portion of the states expenses for establishing and maintaining regulatory agencies. Some tribal-state compacts are for set terms, while others are for
indefinite duration.

IGRA provides that if an Indian tribe and state fail to successfully negotiate a tribal-state compact, the United
States Department of the Interior may approve gaming procedures pursuant to which Class III gaming may be conducted on Indian lands. The Mohegan Compact, approved by the United States Secretary of the Interior in 1994, does not have a specific term
and will remain in effect until terminated by written agreement of both parties, or the provisions are modified as a result of a change in applicable law. Our gaming operations are subject to the requirements and restrictions contained in the
Mohegan Compact which authorizes the Tribe to conduct most forms of Class III Gaming.



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Tribal-state compacts have been the subject of litigation in a number of states, including Alabama,
California, Florida, Kansas, Michigan, Mississippi, New Mexico, New York, Oklahoma, Oregon, South Dakota, Texas, Washington and Wisconsin. Tribes frequently seek to enforce the constitutionality of the provision of IGRA which entitles tribes to
bring suit in federal court against a state that fails to negotiate a tribal-state compact in good faith. The United States Supreme Court resolved this issue by holding that the Indian Commerce Clause does not grant Congress authority to abrogate
sovereign immunity granted to the states under the Eleventh Amendment. Accordingly, IGRA does not grant jurisdiction over a state that did not consent to be sued.

There has been litigation in a number of states challenging the authority of state governors, under state law, to enter into tribal-state compacts without legislative approval. Federal courts have upheld such
authority in Louisiana and Mississippi. The highest state courts of Arizona, Kansas, Michigan, New Mexico, New York and Rhode Island have held that the governors of those states did not have authority to enter into such compacts without the consent
or authorization of the legislatures of those states. In the New Mexico and Kansas cases, the courts held that the authority to enter into such compacts is a legislative function under their respective state constitutions. The court in the New
Mexico case also held that state law does not permit casino-style gaming.

In Connecticut, there has been no litigation challenging the
governors authority to enter into tribal-state compacts. If such a suit were filed, however, the Tribe does not believe that the precedent in the New Mexico or Kansas cases would apply. The Connecticut Attorney General has issued a formal
opinion, which states that existing [state] statutes provide the Governor with the authority to negotiate and execute the . . . [Mohegan] Compact. Thus, the Attorney General declined to follow the Kansas case. In addition, the United
States Court of Appeals for the Second Circuit has held, in a case brought by the Mashantucket Pequot Tribe, that Connecticut law authorizes casino gaming. After execution of the Mohegan Compact, the Connecticut Legislature passed a law requiring
that future gaming compacts be approved by the legislature, but that law does not apply to previously executed compacts such as the Mohegan Compact.

Possible Changes in Federal Law

Several bills have been introduced in the United States Congress,
which would amend IGRA. While there have been a number of technical amendments to the law, to date there have been no material changes to IGRA. Any amendment of IGRA could change the regulatory environment and requirements within which the Tribe
could conduct gaming.

Pennsylvania Racing Regulation

Our harness racing operations at Pocono Downs are subject to extensive regulation under the Pennsylvania Racing Act. Under that law, the Pennsylvania
Harness Racing Commission, or Harness Racing Commission, is responsible for, among other things:



| |  |  | granting permission annually to maintain racing licenses and schedule races;
| | - |  | ----------------------------------------------------------------------------



| |  |  | approving, after a public hearing, the opening of additional OTWs and racetracks;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | approving simulcasting activities;
| | - |  | ----------------------------------



| |  |  | licensing all officers, directors, racing officials and certain other employees of a company; and
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | approving all contracts entered into by a company affecting racing, pari-mutuel wagering, phone/internet wagering and OTW operations.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------

As in most states, the regulations and oversight applicable to our operations in Pennsylvania are intended primarily to safeguard the legitimacy of the
sport and its freedom from inappropriate or criminal influences. The Harness Racing Commission has broad authority to regulate in the best interests of racing and may, to that end, disapprove the involvement of certain personnel in our operations,
deny approval of certain acquisitions



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following their consummation or withhold permission for a proposed OTW site for a variety of reasons, including community opposition. The Pennsylvania
legislature also has reserved the right to revoke the power of the Harness Racing Commission to approve additional OTWs and could, at any time, terminate pari-mutuel wagering as a form of legalized gaming in Pennsylvania or subject such wagering to
additional restrictive regulation or taxation.

We have obtained permission from the Harness Racing Commission to conduct live racing at
Pocono Downs and to operate the five OTWs that we own. The Harness Racing Commission can refuse to grant permission to continue to operate existing facilities.

Pennsylvania Gaming Regulations

Our slot machine operations at Pocono Downs are subject to
extensive regulation under the Pennsylvania Gaming Act. Under that law, the Pennsylvania Gaming Control Board, or PGCB, is responsible for, among other things:



| |  |  | granting permission annually to maintain existing slot machine licenses;
| | - |  | ------------------------------------------------------------------------



| |  |  | approving, after a public hearing, the granting of additional slot machine licenses (to the extent allowed under the Pennsylvania Gaming Act);
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | licensing all officers, directors, gaming officials and certain other employees of a company with slot machine operations; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | approving all contracts entered into by a company affecting slot machine operations.
| | - |  | ------------------------------------------------------------------------------------

As in most states, the regulations and oversight applicable to our operations in Pennsylvania are intended primarily to safeguard the legitimacy of gaming and its freedom from inappropriate or criminal influences. The
PGCB has broad authority to regulate in the best interests of gaming and may, to that end, disapprove the involvement of certain personnel in our operations, deny approval of certain acquisitions following their consummation or withhold permission
on applicable gaming matters for a variety of reasons. In addition, many of the regulations currently issued by the PGCB are temporary in nature and there is no guarantee that permanent regulations, when issued, will follow the form or content of
the temporary regulations currently in effect.

Material Agreements

The following is a summary of the material terms of several of our and the Tribes material agreements. This summary does not restate these agreements in their entirety. We urge you to read these agreements
because they, and not these summaries, define our rights and obligations and the rights and obligations of the Tribe. Copies of these agreements are included as exhibits to this Form 10-K.

Gaming Compact with the State of Connecticut

In April 1994, the Tribe and the State of Connecticut entered into a gaming compact to authorize and regulate the Tribes conduct of gaming on the Tribes land in Connecticut. The Mohegan Compact has a
perpetual term and is substantively similar to the procedures that govern gaming operations of the Mashantucket Pequot Tribe in Connecticut and provide, among other things, as follows:

(1) The Tribe is authorized to conduct on its reservation those Class III gaming activities specifically enumerated in the Mohegan Compact
or amendments thereto. The forms of Class III gaming authorized under the Mohegan Compact include (a) specific types of games of chance, (b) video facsimiles of such authorized games of chance (i.e., slot machines), (c) off-track
pari-mutuel betting on animal races, (d) pari-



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mutuel betting, through simulcasting, on animal races and (e) certain other types of pari-mutuel betting on games and races conducted at the gaming
facility (some types of which currently are, together with off-track pari-mutuel telephone betting on animal races, under a moratorium).

(2) The Tribe must establish standards of operations and management of all gaming operations in order to protect the public interest, ensure the fair and honest operation of gaming activities and maintain the
integrity of all Class III gaming activities conducted on the Tribes lands. The first of such standards was set forth in the Mohegan Compact and approved by the State of Connecticut gaming agency. State of Connecticut gaming agency approval is
required for any revision to such standards. The Tribe must supervise the implementation of these standards by regulation through a Tribal gaming agency.

(3) Criminal law enforcement matters relating to Class III gaming activities are under the concurrent jurisdiction of the State of Connecticut and the Tribe.

(4) All gaming employees must obtain and maintain a gaming employee license issued by the State of Connecticut gaming agency.

(5) Any enterprise providing gaming services or gaming equipment to the Tribe is required to hold a valid, current gaming services
registration issued by the State of Connecticut gaming agency.

(6) The State of Connecticut annually assesses the Tribe for
the costs attributable to its regulation of the Tribes gaming operations and for the provision of law enforcement at the Tribes gaming facility.

(7) Net revenues from the Tribes gaming operations may be applied only for purposes related to Tribal government operations and
general welfare, Tribal economic development, charitable contributions and payments to local governmental agencies.

(8)
Tribal ordinances and regulations governing health and safety standards at the gaming facilities may be no less rigorous than the applicable laws and regulations of the State of Connecticut.

(9) Service of alcoholic beverages within any gaming facility is subject to regulation by the State of Connecticut.

(10) The Tribe waives any defense which it may have by virtue of sovereign immunity with respect to any action brought in United States
District Court to enforce the Mohegan Compact.

In May 1994, the Tribe and the State of Connecticut entered into a MOU which sets forth
certain matters regarding the implementation of the Mohegan Compact. The MOU stipulates that a portion of the revenues earned on slot machines must be paid to the State of Connecticut. This payment is known as the slot win contribution. For each
12-month period commencing July 1, 1995, the slot win contribution shall be the lesser of (a) 30% of gross revenues from slot machines, or (b) the greater of (i) 25% of gross revenues from slot machines or (ii) $80.0
million. The slot win contribution payments will not be required if the State of Connecticut legalizes any other gaming operations with slot machines or other commercial casino games within the State of Connecticut except those operations consented
to by the Tribe and the Mashantucket Pequot Tribe.

Agreement with the Town of Montville

On June 16, 1994, the Tribe and the Town of Montville entered into an agreement whereby the Tribe agreed to pay to the town $500,000 annually to
minimize the impact on the town resulting from the decreased tax revenues on reservation land held in trust. The Tribe assigned its rights and obligations in the agreement with the Town of Montville to us.

Land Lease from the Tribe to the Authority

Mohegan Sun is located upon land that is held in trust for the Tribe by the United States. We entered into a land lease with the Tribe under which the Tribe leases to us the property and all buildings, improvements
and



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related facilities constructed or installed on the property. The lease was approved by the Secretary of the Interior on, and became effective as of,
September 29, 1995. Summarized below are several key provisions of this lease. See also Part I. Item 2. Properties.

Term

The term of the lease is 25 years with an option, exercisable by us, to extend the term for one additional 25-year
period. Upon the termination of the lease, we will be required to surrender to the Tribe possession of the property and improvements, excluding any equipment, furniture, trade fixtures or other personal property.

Rent and Other Operating Expenses

We
are required to pay to the Tribe a nominal annual rental fee. For any period when the Tribe or another agency or instrumentality of the Tribe is not the tenant under the lease, the rent will be eight percent of the tenants gross revenues from
the premises. We are responsible for the payment of all costs of owning, operating, constructing, maintaining, repairing, replacing and insuring the leased property.

Use of Leased Property

We may use the leased property and improvements solely for the construction
and operation of Mohegan Sun, unless prior approval is obtained from the Tribe for any proposed alternative use. Similarly, no construction or alteration of any building or improvement located on the leased property by us may be made unless complete
and final plans and specifications have been approved by the Tribe. Following foreclosure of any mortgage on our interest under the lease or any transfer of such interest to the holder of such mortgage in lieu of foreclosure, the leased property and
improvements may be used for any lawful purpose, subject only to applicable codes and governmental regulations; provided, however, that a non-Indian holder of the leased property may not conduct gaming operations on the property.

Permitted Mortgages and Rights of Permitted Mortgages

We may not mortgage, pledge or otherwise encumber our leasehold estate in the leased property except to a holder of a permitted mortgage. Under the lease, a permitted mortgage includes the leasehold
mortgage securing our obligations under the new credit facility granted by us that provides, among other things, that (1) the Tribe will have the right to notice of, and to cure, any default by us, (2) the Tribe will have the right to
prior notice of an intention by the holder to foreclose on the permitted mortgage and the right to purchase the mortgage in lieu of any foreclosure and (3) the permitted mortgage is subject and subordinated to any and all access and utility
easements granted by the Tribe under the lease. As provided in the lease, each holder of a permitted mortgage has the right to notice of any default by us under the lease and the opportunity to cure such default within any applicable cure period.

Default Remedies

We
will be in default under the lease if, subject to the notice provisions, we fail to make lease payments or to comply with our covenants under the lease or if we pledge, encumber or convey our interest in the lease in violation of the terms of the
lease. Following a default, the Tribe may, with approval from the United States Secretary of the Interior, terminate the lease unless a permitted mortgage remains outstanding with respect to the leased property. In that case, the Tribe may not
(1) terminate the lease or our right to possession of the leased property, (2) exercise any right of re-entry, (3) take possession of and/or relet the leased property or any portion thereof or (4) enforce any other right or
remedy which may materially and adversely affect the rights of the holder of the permitted mortgage, unless the default triggering such rights was a monetary default which such holder failed to cure after notice.



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Priority Distribution Agreement with the Tribe

On August 1, 2001, we entered into a priority distribution agreement with the Tribe, which obligates us to make monthly payments to the Tribe to the
extent of our net cash flows, as defined in the priority distribution agreement. The priority distribution agreement, which has a perpetual term, also clarifies and records the terms pursuant to which we made such payments to the Tribe prior to the
effective date of the priority distribution agreement. The priority distribution agreement obligates us to make monthly priority distribution payments to the Tribe in a maximum aggregate amount of $14.0 million per calendar year, adjusted annually
in accordance with the formula specified in the priority distribution agreement to reflect the effects of inflation. However, payments pursuant to the priority distribution agreement do not reduce our obligation to make payments for governmental
services provided by the Tribe or any payments under any other agreements with the Tribe to the extent that such agreements are permitted under the bank credit facility. See Certain IndebtednessBank Credit Facility. The
monthly payments under the priority distribution agreement are our limited obligations payable only to the extent of our net cash flows and are not secured by a lien or encumbrance on any of our assets or property.

Relinquishment Agreement with Trading Cove Associates

General

In February 1998, we entered into the relinquishment agreement with TCA, under which we and
TCA agreed to terminate the management agreement with TCA. This termination occurred on December 31, 1999. On January 1, 2000, we assumed the day-to-day management of Mohegan Sun. To compensate TCA for terminating its management rights, we
agreed to pay to TCA five percent of revenues, as defined in the relinquishment agreement, generated by Mohegan Sun during the 15-year period commencing on January 1, 2000 and ending on December 31, 2014.

Relinquishment Payments

The payments
under the relinquishment agreement are divided into senior relinquishment payments and junior relinquishment payments, each of which are 2.5% of revenues (as defined in the relinquishment agreement). Senior relinquishment payments are payable
quarterly in arrears and commenced on April 25, 2000 and the junior relinquishment payments are payable semi-annually in arrears and commenced on July 25, 2000. Under the relinquishment agreement, revenues are defined as gross gaming
revenues (other than Class II gaming revenue) and all other facility revenues (including hotel revenues, room service, food and beverage sales, parking revenues, ticket revenues and other fees or receipts from the Mohegan Sun Arena and convention
center and all rental or other receipts from the lessees, licensees and concessionaires, but not the gross receipts of such lessees, licensees and concessionaires) and proceeds of business interruption insurance.

Subordination of Relinquishment Payments/Priority Distribution to the Tribe

The relinquishment agreement provides that each of the senior and junior relinquishment payments are subordinated in right to payment of senior secured
obligations, which includes the bank credit facility and capital lease obligations, and that the junior relinquishment payments are further subordinated to payment of all other senior obligations, including our senior notes. The relinquishment
agreement also provides that all relinquishment payments are subordinated in right of payment to the minimum priority distribution payment, as defined in the relinquishment agreement, from us to the Tribe to the extent then due.

Trademarks

In connection with the
relinquishment agreement, TCA granted to us an exclusive, irrevocable, perpetual, world-wide and royalty-free license with respect to trademarks and other similar rights including the Mohegan Sun name, used at or developed for Mohegan
Sun. We agreed, however, that we will only use the word Sun in conjunction with Mohegan Sun and Project Sunburst facilities and together with Mohegan or Mohegan



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Tribe. In January 2003, we received a waiver from TCA to also use the word Sun in connection with our WNBA franchise Connecticut Sun. We
capitalized $130.0 million of the relinquishment liability in connection with the trademark value of the Mohegan Sun brand name.

Pocono Downs Purchase Agreement

On October 14, 2004, we entered into a purchase agreement with subsidiaries of
Penn National Gaming, Inc., pursuant to which we acquired Pocono Downs, a standardbred harness racing facility located on approximately 400 acres in Plains Township, Pennsylvania as well as five Pennsylvania OTWs located in Carbondale, East
Stroudsburg, Erie, Hazleton and Lehigh Valley (Allentown) for a purchase price of approximately $280.0 million. On August 7, 2006, we entered into an amendment of the purchase agreement with the seller, pursuant to which, in exchange for our
agreement to modify certain provisions of the purchase agreement, including the elimination of our post-closing termination rights, we will receive an aggregate refund of $30.0 million of the original purchase price for the Pocono Downs entities,
payable in five annual installments of $7.0 million, $7.0 million, $6.5 million, $6.0 million and $3.5 million on November 14, 2007, 2008, 2009, 2010 and 2011, respectively.

Management and Development Agreements with Other Tribes

Cowlitz Project

In September 2004, Salishan-Mohegan entered into development and management
agreements with the Cowlitz Indian Tribe regarding the Cowlitz Project. Under the terms of the development agreement, Salishan-Mohegan administers and oversees the planning, designing, development, construction, and furnishing, as well as providing
assistance with the financing, of the Cowlitz Project. The development agreement provides for certain development fees of 3% of total Project Costs, as defined in the development agreement, which are payable to Mohegan VenturesNW and the
Mohegan Tribe through Salishan-Mohegan pursuant to the operating agreement. As of April 2006, Salishan-Mohegan purchased the land to be used as the site for the planned casino, which will be assigned to the Cowlitz Indian Tribe under certain
conditions in the development agreement. The management agreement is for a period of seven years commencing with the opening of the planned casino, during which Salishan-Mohegan will manage, operate and maintain the planned casino. The management
agreement provides for a management fee of 24% of Net Revenues, as defined in the management agreement, which approximates net income from the Cowlitz Project. Pursuant to the operating agreement, management fees will be allocated to the members of
Salishan-Mohegan based on their respective membership percentages. Development of the Cowlitz Project is subject to certain governmental and regulatory approvals, including, but not limited to, negotiating a gaming compact with the State of
Washington and the United States Department of the Interior accepting land into trust on behalf of the Cowlitz Indian Tribe. The management agreement is subject to approval by the NIGC.

Menominee Project

In October 2004,
we entered into a management agreement with the Menominee Indian Tribe of Wisconsin, or the Menominee Tribe, and the Menominee Kenosha Gaming Authority. The terms of the management agreement grant us the exclusive right and obligation to manage,
operate and maintain a planned casino and destination resort to be located in Kenosha, Wisconsin, or the Menominee Project, for a period of seven years commencing with the opening of the planned casino, in consideration of a management fee of 13.4%
of Net Revenues, as defined in the management agreement, which approximates net income from the Menominee Project. The management agreement is subject to approval by the NIGC.

Certain Indebtedness

The following is a summary of the material terms of our material debt
obligations. This summary does not restate in entirety the terms of the agreements under which we incurred the indebtedness. We urge you to read



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these agreements because they, and not these summaries, define our rights and obligations, and, in some cases, those of the Tribe. These agreements are
included as exhibits to this Form 10-K.

Bank Credit Facility

We have a loan agreement for up to $450.0 million, or bank credit facility, from a syndicate of financial institutions and commercial banks, with Bank of
America, N.A. serving as administrative agent. The bank credit facility provides for a revolving loan and letter of credit capacity of up to $450.0 million and matures on March 31, 2008. As of September 30, 2006, the amount under letters
of credit totaled $50.7 million, of which no amount was drawn (refer to Letters of Credit below). The revolving loan has no mandatory amortization provisions and is payable in full at maturity. We have $399.3 million available for
borrowing under the bank credit facility as of September 30, 2006 (without taking into account covenants under the line of credit discussed below).

In December 2005, we received the requisite consent of our lenders to Amendment No. 4 to the bank credit facility, which provided for an increase in the maximum amount available under letters of credit to $60.0
million. Amendment No. 4 permitted us to establish the $50.0 million letter of credit necessary for the Pennsylvania slot machine licensing process (refer to Letters of Credit below).

The bank credit facility is collateralized by a lien on substantially all of our assets, including the assets of the Pocono Downs entities, and a
leasehold mortgage on the land and improvements which comprise Mohegan Sun. We will also be required to pledge additional assets as we or our restricted subsidiaries acquire them. In addition, our obligations under the bank credit facility are
guaranteed by MBC, Mohegan Ventures-NW, MCV-PA and the Pocono Downs entities as of September 30, 2006. The bank credit facility subjects us to a number of restrictive covenants, including financial covenants. These financial covenants relate
to, among other things, our permitted total debt and senior debt leverage ratios, our minimum fixed charge coverage ratio and our maximum capital expenditures. The bank credit facility includes non-financial covenants by us and the Tribe of the type
customarily found in loan agreements for similar transactions including requirements that:



| |  |  | the Tribe preserve its existence as a federally recognized Indian tribe;
| | - |  | ------------------------------------------------------------------------



| |  |  | the Tribe cause us to continually operate Mohegan Sun in compliance with all applicable laws; and
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | except under specific conditions, limit us from selling or disposing of our assets, limit the transfer of our assets to non-guarantor subsidiaries, limit the incurrence by us or our
guarantor subsidiaries of other debt or contingent obligations and limit our ability to extend credit, make investments or commingle our assets with assets of the Tribe.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of September 30, 2006, we and the Tribe were in compliance with all of our and their respective covenant requirements in the bank credit
facility.

At our option, each advance of loan proceeds accrues interest on the basis of a base rate or on the basis of a one-month,
two-month, three-month, six-month or twelve-month London Inter-Bank Offered Rate (LIBOR), plus in either case, the applicable spread at the time each loan is made. We also pay commitment fees for the unused portion of the revolving loan
on a quarterly basis equal to the applicable spread for commitment fees times the average daily unused commitment for that calendar quarter. Applicable spreads are based on our Total Leverage Ratio, as defined in the bank credit facility. The
applicable spread for base rate advances is between 0.50% and 1.25%, and the applicable spread for LIBOR rate advances is between 1.75% and 2.50%. The applicable spread for commitment fees is between 0.375% and 0.50%. The base rate is the higher of
Bank of Americas announced prime rate or the federal funds rate plus 0.50%. Interest on LIBOR loans is payable at the end of each applicable interest period or quarterly in arrears, if earlier. Interest on base rate advances is payable
quarterly in arrears. As of September 30, 2006, we had no base rate loans and LIBOR rate loans outstanding. The applicable spread for commitment fees was 0.50% as of September 30, 2006.



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2005 61/8% Senior Notes

On February 8, 2005, we issued $250.0 million Senior
Notes with fixed interest payable at a rate of 6.125% per annum, or the 2005 senior notes. The 2005 senior notes mature on February 15, 2013. The first call date for the 2005 senior notes is February 15, 2009. Interest on the 2005
senior notes is payable semi-annually on February 15 and August 15. The 2005 senior notes are our uncollateralized general obligations, which are effectively subordinated to all of our existing and future senior secured indebtedness,
including the bank credit facility. The 2005 senior notes rank equally in right of payment with 50% of our payment obligations under the relinquishment agreement that are then due and owing, and rank senior to the remaining 50% of our payment
obligations under the relinquishment agreement that are then due and owing, the 2001 senior subordinated notes, the 2002 senior subordinated notes, the 2003 senior subordinated notes, the 2004 senior subordinated notes and the 2005 senior
subordinated notes. As of September 30, 2006, MBC, Mohegan Ventures-NW, MCV-PA and the Pocono Downs entities are guarantors of the 2005 senior notes.

2001 83/8% Senior Subordinated Notes

In July 2001, we issued $150.0 million senior subordinated notes with fixed interest payable at a rate of 8.375% per annum, or the 2001 senior
subordinated notes. Interest on the 2001 senior subordinated notes is payable semi-annually on January 1 and July 1. The 2001 senior subordinated notes mature on July 1, 2011. The first call date for the 2001 senior subordinated notes
is July 1, 2006. The 2001 senior subordinated notes are our uncollateralized general obligations and are subordinated to the bank credit facility, the 2005 senior notes and in a liquidation, bankruptcy or similar proceeding, 50% of our payment
obligations under the relinquishment agreement that are then due and owing. The 2001 senior subordinated notes rank equally with the 2002 senior subordinated notes, the 2003 senior subordinated notes, the 2004 senior subordinated notes, the 2005
senior subordinated notes and the remaining 50% of our payment obligations under the relinquishment agreement that are then due and owing. MBC is a guarantor of the 2001 senior subordinated notes.

In August 2004, we completed a cash tender offer and consent solicitation to repurchase any or all of our outstanding 2001 senior subordinated notes. As
part of the tender offer, we solicited and received requisite consents to certain proposed amendments to the indentures governing the 2001 senior subordinated notes, which eliminated substantially all of the restrictive covenants there under. The
aggregate principal amount of 2001 senior subordinated notes tendered was $133.7 million. An aggregate principal amount of $16.3 million of the 2001 senior subordinated notes remain outstanding as of September 30, 2006.

2002 8% Senior Subordinated Notes

In February 2002, we issued $250.0 million senior subordinated notes with fixed interest payable at a rate of 8.0% per annum, or the 2002 senior subordinated notes. Interest on the 2002 senior subordinated notes is payable
semi-annually on April 1 and October 1. The 2002 senior subordinated notes mature on April 1, 2012. The first call date for the 2002 senior subordinated notes is April 1, 2007. The 2002 senior subordinated notes are our
uncollateralized general obligations and are subordinated to the bank credit facility, the 2005 senior notes and, in a liquidation, bankruptcy or similar proceeding, 50% of our payment obligations under the relinquishment agreement that are then due
and owing. The 2002 senior subordinated notes rank equally with the 2001 senior subordinated notes, the 2003 senior subordinated notes, the 2004 senior subordinated notes, the 2005 senior subordinated notes and the remaining 50% of our payment
obligations under the relinquishment agreement that are then due and owing. As of September 30, 2006, MBC, Mohegan Ventures-NW, MCV-PA and the Pocono Downs entities are guarantors of the 2002 senior subordinated notes.

2003 63/8%
Senior Subordinated Notes

In July 2003, we issued $330.0 million senior subordinated notes with fixed interest payable at a
rate of 6.375% per annum, or the 2003 senior subordinated notes. Interest on the 2003 senior subordinated notes is payable semi-annually on January 15 and July 15. The 2003 senior subordinated notes mature on July 15, 2009.



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The 2003 senior subordinated notes are our uncollateralized general obligations and are subordinated to the bank credit facility, the 2005 senior notes and,
in a liquidation, bankruptcy or similar proceeding, 50% of our payment obligations under the relinquishment agreement that are then due and owing. The 2003 senior subordinated notes rank equally with the 2001 senior subordinated notes, the 2002
senior subordinated notes, the 2004 senior subordinated notes, the 2005 senior subordinated notes and the remaining 50% of our payment obligations under the relinquishment agreement that are then due and owing. As of September 30, 2006, MBC,
Mohegan Ventures-NW, MCV-PA and the Pocono Downs entities are guarantors of the 2003 senior subordinated notes.

2004 71/8% Senior Subordinated Notes

In August 2004, we issued $225.0 million senior subordinated notes with fixed interest payable at a rate of 7.125% per annum, or the 2004 senior
subordinated notes. The 2004 senior subordinated notes mature on August 15, 2014. The first call date for the 2004 senior subordinated notes is August 15, 2009. Interest on the 2004 senior subordinated notes is payable semi-annually on
February 15 and August 15. The 2004 senior subordinated notes are our uncollateralized general obligations and are subordinated to the bank credit facility, the 2005 senior notes and, in a liquidation, bankruptcy or similar proceeding, 50%
of our payment obligations under the relinquishment agreement that are then due and owing. The 2004 senior subordinated notes rank equally with the 2001 senior subordinated notes, the 2002 senior subordinated notes, the 2003 senior subordinated
notes, the 2005 senior subordinated notes and the remaining 50% of our payment obligations under the Relinquishment Agreement that are then due and owing. As of September 30, 2006, MBC, Mohegan Ventures-NW, MCV-PA and the Pocono Downs entities
are guarantors of the 2004 senior subordinated notes.

2005 67/8% Senior Subordinated
Notes

On February 8, 2005, we issued $150.0 million senior subordinated notes with fixed interest payable at a
rate of 6.875% per annum, or the 2005 senior subordinated notes. The 2005 senior subordinated notes mature on February 15, 2015. The first call date for the 2005 senior subordinated notes is February 15, 2010. Interest on the 2005
senior subordinated notes is payable semi-annually on February 15 and August 15. The 2005 senior subordinated notes are our uncollateralized general obligations and are subordinated to the bank credit facility, the 2005 Senior Notes and in
a liquidation, bankruptcy or similar proceeding, 50% of our payment obligations under the relinquishment agreement that are then due and owing. The 2005 senior subordinated notes rank equally with the 2001 senior subordinated notes, the 2002 senior
subordinated notes, the 2003 senior subordinated notes, the 2004 senior subordinated notes and the remaining 50% of our payment obligations under the relinquishment agreement that are then due and owing. As of September 30, 2006, MBC, Mohegan
Ventures-NW, MCV-PA and the Pocono Downs entities are guarantors of the 2005 senior subordinated notes.

The senior and senior subordinated
note indentures contain certain financial and non-financial covenants with which we and the Tribe must comply. The financial covenants include, among other things, limitations on restricted payments and the incurrence of indebtedness, while the
non-financial covenants include, among other things, reporting obligations, compliance with laws and regulations and our continued existence. As of September 30, 2006, both we and the Tribe were in compliance with all respective covenant
requirements in the senior and senior subordinated note indentures.

WNBA Promissory Note

We and MBC are parties to a membership agreement with WNBA, LLC (the Membership Agreement). The Membership Agreement sets forth the terms and
conditions pursuant to which MBC acquired a membership in the WNBA and the right to own and operate a professional basketball team in the WNBA. We guaranteed the obligations of MBC under the Membership Agreement.

In consideration for this acquisition, MBC paid $2.0 million (with funds advanced from us) and issued a promissory note to the WNBA (the WNBA
Note) for $8.0 million that accrues interest at an annual rate equal to three-month LIBOR plus 1.5%. We guaranteed the obligations of MBC under the WNBA Note. Pursuant to



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the WNBA Note, principal payments of $1.0 million, subject to adjustment for certain revenue thresholds, and interest payments are required to be paid to the
WNBA on each anniversary of the WNBA Note. The WNBA Note is scheduled to mature no later than January 2013. As of September 30, 2006, $5.0 million was outstanding on the WNBA Note.

Line of Credit

We have a
$25.0 million revolving loan agreement with Bank of America, or the line of credit. Each advance accrues interest on the basis of one-month LIBOR, plus the applicable spread, determined on the basis of our Leverage Ratio, as defined in the line of
credit. Borrowings under the line of credit are our uncollateralized obligations. The line of credit was amended in March 2006 to extend the maturity date from March 31, 2006 to March 31, 2008. The line of credit subjects us to certain
covenants, including a covenant to maintain at least $25.0 million available for borrowing under the bank credit facility. As of September 30, 2006, we were in compliance with all covenant requirements in the line of credit. As of
September 30, 2006, we had $25.0 million available for borrowing under the line of credit.

Mortgage Payable

Upon formation of Salishan-Mohegan, Salishan Company contributed, among other things, land with a mortgage payable of $2.6 million. The mortgage
payable bears interest due on a monthly basis at an annual rate of 9.5%, with the principal balance payable in full by Salishan-Mohegan on the maturity date. In March 2006, Salishan-Mohegan received an extension on the maturity date from
March 28, 2006 to March 28, 2007. Refer to Salishan-Mohegan Bank Credit Facility below for the payment of this mortgage. Any and all amounts paid by Salishan-Mohegan, including interest payments, pursuant to this agreement are
reimbursable by the Cowlitz Indian Tribe provided certain events occur, as described in the development agreement between Salishan-Mohegan and the Cowlitz Indian Tribe.

Salishan-Mohegan Bank Credit Facility

On October 17, 2006, Salishan-Mohegan entered into
a $25.0 million revolving loan agreement with Bank of America (the Salishan Credit Facility), which matures on September 30, 2009. The revolving loan has no mandatory amortization provisions and is payable in full at maturity. At
the option of Salishan-Mohegan, each advance of loan proceeds accrues interest on the basis of a base rate or on the basis of a one-month, two-month, three-month or six-month LIBOR, plus the applicable spread of 1.25% for base rate loans and 2.25%
for LIBOR loans. The Salishan Credit Facility is collateralized by a lien on substantially all of the existing and future assets of Salishan-Mohegan. The obligations of Salishan-Mohegan under the Salishan Credit Facility are also guaranteed by the
Mohegan Tribe. The Salishan Credit Facility subjects Salishan-Mohegan to a number of restrictive covenants, including financial and non-financial covenants customarily found in loan agreements for similar transactions.

Immediately following the execution of the loan agreement, $10.0 million in loan proceeds were used by Salishan-Mohegan to provide a partial repayment of
its outstanding loan balance with Mohegan Ventures-NW. Another $2.6 million in loan proceeds were used to pay off the mortgage payable discussed above under Mortgage Payable.

Letters of Credit

As of
September 30, 2006, we maintained four uncollateralized letters of credit to satisfy potential workers compensation liabilities, to satisfy overdue pari-mutuel wagering tax liabilities of the Pocono Downs entities that may arise, to
satisfy overdue amounts for purses due horsemen at Pocono Downs that may arise and to ensure payment of the $50.0 million license fee due upon issuance of a Pennsylvania Category One Slot Machine



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License for Mohegan Sun at Pocono Downs (refer to Note 18 of the consolidated financial statements included in this Form 10-K). The letters of credit expire
on August 31, 2007, January 25, 2007, November 11, 2006 and December 26, 2006, respectively, subject to renewals. As of September 30, 2006, no amounts were drawn on the letters of credit.

Environmental Matters

The site on which Mohegan Sun
is located formerly was occupied by United Nuclear Corporation, a naval products manufacturer of, among other things, nuclear reactor fuel components. United Nuclear Corporations facility was officially decommissioned on June 8, 1994 when
the Nuclear Regulatory Commission confirmed that all licensable quantities of such nuclear material had been removed from the site and that any residual contamination from such material was remediated according to the Nuclear Regulatory Commission
approved decommissioning plan.

From 1991 through 1993, United Nuclear Corporation commissioned environmental audits and soil sampling
programs which detected, among other things, volatile organic chemicals, heavy metals and fuel hydrocarbons in the soil and groundwater. The Connecticut Department of Environmental Protection, or DEP, reviewed the environmental audits and reports
and established cleanup requirements for the site. In December 1994, the DEP approved United Nuclear Corporations remedial plan, which determined that groundwater remediation was unnecessary because although the groundwater beneath the site
was contaminated, it met the applicable groundwater criteria given the classification of the groundwater under the site. In addition, extensive remediation of contaminated soils and additional investigation were completed to achieve the DEPs
cleanup criteria and demonstrate that the remaining soils complied with applicable cleanup criteria. Initial construction at the site also involved extensive soil excavation. According to the data gathered in a 1995 environmental report commissioned
by United Nuclear Corporation, remediation is complete and is consistent with the applicable Connecticut cleanup requirements. The DEP has reviewed and approved the cleanup activities at the site, and, as part of the DEPs approval, United
Nuclear Corporation was required to perform post-closure groundwater monitoring at the site to ensure the adequacy of the cleanup. In addition, under the terms of United Nuclear Corporations environmental certification and indemnity agreement
with the Department of the Interior (which took the former United Nuclear Corporation land into trust for the Tribe), United Nuclear Corporation agreed to indemnify the Department of the Interior for environmental actions and expenses based on acts
or conditions existing or occurring as a result of United Nuclear Corporations activities on the property.

We are not currently
incurring, and did not incur in the fiscal years ended September 30, 2006, 2005 and 2004, any material costs related to compliance with environmental requirements with respect to the sites former use by the United Nuclear Corporation.
Notwithstanding the foregoing, no assurance can be given that any existing environmental studies reveal all environmental liabilities, or that future laws, ordinances or regulations will not impose any material environmental liability, or that a
material environmental condition does not otherwise currently exist.

Prior to acquiring the Pocono Downs entities, we conducted an
extensive environmental investigation of the Pocono Downs facilities. In the course of that work, we identified several recognized environmental conditions at the Mohegan Sun at Pocono Downs facility for which corrective actions are necessary to
bring the property into compliance with applicable laws and regulations. We implemented a comprehensive plan to mitigate and resolve these conditions. As of September 30, 2006, we have an estimated remaining obligation of approximately
$202,000.

Employees and Labor Relations

As of September 30, 2006, Mohegan Sun employed approximately 8,500 full-time employees, and 1,900 seasonal and part-time employees. Pursuant to the Tribal Employment Rights Ordinance, when recruiting and hiring personnel, except with
respect to key personnel, Mohegan Sun is obligated to give preference first to



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qualified members of the Tribe and then to enrolled members of other Indian tribes. See Certain Relationships and Related Transactions. None of
Mohegan Suns employees are covered by collective bargaining agreements.

As of September 30, 2006, Pocono Downs employed
approximately 260 full time employees, and 190 seasonal and part-time employees. Certain of our Pocono Downs employees are represented under collective bargaining agreements between Downs Racing, the International Union of Operating Engineers Local
Union 542C (Local Union 542C) and Teamsters Local No. 401 (Local No. 401). The agreement with Local Union 542C expires on March 31, 2007 and relates to equipment and heavy equipment operators. The agreement
with Local No. 401 expires on December 31, 2006 and relates to truck drivers and maintenance employees.

Item 1A. Risk Factors

In connection with the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, set forth below are cautionary statements identifying important factors that could cause actual events or results to differ materially from any forward-looking statements made by or on behalf of us, whether oral or written. We
wish to ensure that any forward-looking statements are accompanied by meaningful cautionary statements in order to maximize to the fullest extent possible the protections of the safe harbor established in the Private Securities Litigation Reform Act
of 1995. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors that could cause actual events or results to differ materially from our forward-looking statements.
Refer also to Cautionary Note Regarding Forward-Looking Statements on page 1 of this Form 10-K.

Risks Related to Our Business

Our substantial indebtedness could affect adversely our financial condition.

We currently have and will continue to have a significant amount of indebtedness. As of September 30, 2006, we had outstanding debt totaling $1.23
billion. In addition, as of September 30, 2006, we had borrowing capacity under the bank credit facility and line of credit of up to $399.3 million in total, of which no amounts were drawn.

Our substantial indebtedness could have significant adverse effects on our business. Such adverse effects include, but are not limited to, the following:



| |  |  | make it more difficult for us to satisfy our debt service obligations;
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| |  |  | increase our vulnerability to adverse economic and industry conditions;
| | - |  | -----------------------------------------------------------------------



| |  |  | require us to dedicate a substantial portion of our cash flows from operations to payments on our indebtedness, thereby reducing the availability of our cash flows to fund working
capital, capital expenditures and other general operating requirements;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limit our flexibility in planning for, or reacting to, changes in our business and the gaming industry, which may place us at a disadvantage compared to our competitors with
stronger liquidity positions, thereby hurting our results of operations and ability to meet our debt service obligations with respect to our outstanding indebtedness; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limit, along with the financial and other restrictive covenants in our outstanding indebtedness, our ability to borrow additional funds.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------

An entitys ability to enforce their rights against us is limited by our sovereign immunity and that of the Tribe, MBC, Mohegan Ventures-NW,
Mohegan Golf and the Pocono Downs entities, to the extent applicable.

Although we, the Tribe, MBC, Mohegan Ventures-NW, Mohegan Golf
and the Pocono Downs entities, to the extent applicable, each have sovereign immunity and may not be sued without our and their respective consents, we, the Tribe, MBC, Mohegan Ventures-NW, Mohegan Golf and the Pocono Downs entities, to the extent
applicable, each have granted a limited waiver of sovereign immunity and consent to suit in connection



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with some of our outstanding indebtedness. Each such waiver includes suits against us to enforce our obligation to repay certain outstanding indebtedness.
Generally, waivers of sovereign immunity have been held to be enforceable against Indian tribes. In the event that any waiver of sovereign immunity is held to be ineffective, an entity could be precluded from judicially enforcing their rights and
remedies. With limited exceptions, we, the Tribe, MBC, Mohegan Ventures-NW, Mohegan Golf and the Pocono Downs entities have not waived sovereign immunity from private civil suits, including violations of the federal securities laws. For this reason,
an entity may not have any remedy against us, the Tribe, MBC, Mohegan Ventures-NW, Mohegan Golf or the Pocono Downs entities for violations of federal securities laws.

Disputes may be brought in a federal or state court that has jurisdiction over the matter. However, federal courts may not exercise jurisdiction over disputes not arising under federal law, and state courts may not
exercise jurisdiction over disputes arising on the Mohegan reservation. In addition, the Tribes Constitution has established a special court, the Gaming Disputes Court, to rule on disputes with respect to Mohegan Sun. The federal and state
courts, under the doctrines of comity and exhaustion of tribal remedies, may be required to (1) defer to the jurisdiction of the Gaming Disputes Court or (2) require that any plaintiff exhaust its remedies in the Gaming Disputes Court
before bringing any action in federal or state court. Thus, there may be no federal or state court forum with respect to a dispute.

The
Tribes Constitution currently has a provision that prohibits the Tribe from enacting any law that would impair the obligations of contracts entered into in furtherance of the development, construction, operation and promotion of gaming on
Tribal lands. However, this provision could be amended by the Tribes registered voters to impair the obligation of such contracts.

Any rights as a creditor are limited to our assets and those of our guarantor subsidiaries.

Any rights as a creditor in a
bankruptcy, liquidation or reorganization or similar proceeding would be limited to our assets and the assets of our guarantor subsidiaries, and would not encompass the assets of our other subsidiaries that are not guarantors, the Tribe or its other
affiliates.

We, the Tribe and our wholly owned subsidiaries may not be subject to the federal bankruptcy laws, which could impair the
ability of our creditors to be repaid from the sale of our assets if we are unwilling or unable to meet our debt service obligations.

We, the Tribe and our wholly owned subsidiaries may not be subject to the federal bankruptcy laws. No assurance can be given that, if an event of default occurs, a forum will be available to creditors other than the Gaming Disputes Court.
In such court, there are presently no guiding precedents for the interpretation of Tribal law. Any execution of a judgment of the Gaming Disputes Court or any other court on Tribal lands will require the cooperation of the Tribes officials in
the exercise of their police powers. Thus, to the extent that a judgment of the Gaming Disputes Court must be executed on Tribal lands, the practical realization of any benefit of such a judgment will be dependent upon the willingness and ability of
Tribal officials to carry out such judgment. In addition, the land on which Mohegan Sun is located is owned by the United States in trust for the Tribe, and our creditors and the creditors of the Tribe may not foreclose upon or obtain title to the
land.

Restrictions in the bank credit facility and the indentures to which we are a party may impose limits on our ability to pursue
our business strategies.

The bank credit facility and the indentures to which we are a party contain customary operating and financial
restrictions that limit our discretion on various business matters. These restrictions include covenants limiting our ability to:



| |  |  | incur additional indebtedness;
| | - |  | ------------------------------



| |  |  | pay dividends or make other distributions;
| | - |  | ------------------------------------------



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| |  |  | make certain investments;
| | - |  | -------------------------



| |  |  | use assets as security in other transactions;
| | - |  | ---------------------------------------------



| |  |  | sell certain assets or merge with or into another person;
| | - |  | ---------------------------------------------------------



| |  |  | grant liens;
| | - |  | ------------



| |  |  | make capital expenditures; and
| | - |  | ------------------------------



| |  |  | enter into transactions with affiliates.
| | - |  | ----------------------------------------

These
restrictions may, among other things, reduce our flexibility in planning for, or reacting to, changes in our business and the gaming industry in general and thereby may negatively impact our financial condition, results of operations and our ability
to meet our debt service obligations.

The bank credit facility also requires us to maintain a fixed charge coverage ratio and not to
exceed certain ratios of senior leverage and total leverage, as defined in the bank credit facility. If these ratios are not maintained or are exceeded, as applicable, it may be impossible for us to borrow additional funds to meet our obligations.

Additionally, our failure to comply with covenants in our debt instruments could result in an event of default which, if not cured or
waived, could have a material adverse effect on us and could result in the acceleration of all then-outstanding amounts of such debt and an inability to make debt service payments.

A downturn in the regional economy could impact negatively our financial performance.

Primarily all Mohegan Sun and Pocono Downs patrons arrive via automobile and are assumed to work or live in the northeastern United States and
northeastern Pennsylvania, respectively. Moderate or severe economic downturns or adverse conditions in the northeastern United States or northeastern Pennsylvania may affect negatively our financial performance. During periods of economic
contraction, our revenues may decrease while some of our costs remain fixed, resulting in decreased earnings. This is because the gaming and other leisure activities that we offer are discretionary expenditures and participation in such activities
may decline during economic downturns because consumers have less disposable income. Even an uncertain economic outlook may affect adversely consumer spending in our gaming operations and related facilities, because consumers spend less in
anticipation of a potential economic downturn. Accordingly, our business, assets, financial condition and results of operations could be affected adversely if the regional economic conditions or outlook weaken.

The loss of a key management member could have a material adverse effect on us, Mohegan Sun and the Pocono Downs entities.

Our success depends in large part on the continued service of key management personnel, particularly Mitchell Grossinger Etess, Chief Executive Officer of
the Authority and Chief Executive Officer and President of Mohegan Sun, Jeffrey E. Hartmann, Chief Operating Officer of the Authority and Executive Vice President and Chief Operating Officer of Mohegan Sun, Leo M. Chupaska, Chief Financial Officer
of the Authority and Mohegan Sun, and Robert J. Soper, President and Chief Executive Officer of the Pocono Downs entities. The loss of the services of one or more of these individuals or other key personnel could have a material adverse effect on
our business, operating results and financial condition. The key management personnel, excluding Mr. Soper, currently are retained pursuant to five-year employment agreements for Mr. Etess and Mr. Hartmann, which expire on
December 31, 2011, and a three-year employment agreement for Mr. Chupaska, which expires on December 31, 2008. Each of these agreements includes a provision for automatic renewal for an additional term of five years. Mr. Soper
and the Management Board are currently in the process of finalizing the terms of a new employment agreement.



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We may be subject to material environmental liability as a result of possibly incomplete remediation
of known environmental hazards and the existence of unknown environmental hazards.

Our properties and operations are subject to a wide
range of environmental laws and regulations governing, among other things, air emissions, wastewater discharges, the use, management and disposal of hazardous and non-hazardous materials and wastes, and the cleanup of contamination. Noncompliance
with such laws and regulations, and past or future activities resulting in environmental releases, could cause us to incur substantial costs, including cleanup costs, fines and penalties, investments to retrofit or upgrade our facilities and
programs, or could affect our operations.

The site on which Mohegan Sun is located was formerly occupied by United Nuclear Corporation, a
naval products manufacturer of, among other things, nuclear reactor fuel components. Prior to the decommissioning of United Nuclear Corporation facilities on the site, extensive remediation of contaminated soils and additional investigations were
completed. The site currently meets federal and state remediation requirements.

Prior to acquiring the Pocono Downs entities, we conducted
an extensive environmental investigation of the Pocono Downs facilities. In the course of that work, we identified several recognized environmental conditions at the Mohegan Sun at Pocono Downs facility for which corrective actions are necessary to
bring the property into compliance with applicable laws and regulations. We implemented a comprehensive plan to mitigate and resolve these conditions. As of September 30, 2006, we have an estimated remaining obligation of approximately
$202,000.

Notwithstanding the foregoing, we cannot assure you that:



| |  |  | the various environmental reports or any other existing environmental studies prepared with respect to these sites revealed all environmental liabilities;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any prior owners or tenants did not create any material environmental condition not known to us;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | future laws, ordinances or regulations will not impose any material environmental liability; or
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | a material environmental condition does not otherwise exist on any site.
| | - |  | ------------------------------------------------------------------------

Any of the above could have a material adverse effect upon our future operating results and ability to meet our debt service obligations.

Risks Related to Mohegan Sun

Mohegan Suns failure to generate sufficient cash flows
could prevent us from fulfilling our debt service obligations.

We currently rely primarily on cash flows generated by gaming operations
at Mohegan Sun to meet our debt service obligations. Our financial condition and operations are subject to many financial, economic, political, competitive and regulatory factors beyond our control. If Mohegan Sun is unable to generate sufficient
cash flows, we may be unable to meet our debt service obligations with respect to our outstanding indebtedness. We could be required to, among other things, reduce or delay planned capital expenditures, dispose of some of our assets and/or seek to
restructure some or all of our debt. We cannot assure you that any of these alternatives could be effected on satisfactory terms, if at all, and if effected, would not have a material adverse effect on our results of operations.

If we are not able to compete successfully, we may not be able to generate sufficient cash flows to fund our operations or service our debt.

The following summarizes the material risks we face as a result of existing and potential competition that may affect our results of
operations at Mohegan Sun. A more extensive discussion of the competitive landscape affecting Mohegan Sun can be found under Market and Competition from Other Gaming Operations. In



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addition, our harness racing, and potential slot machine, operations at Pocono Downs are subject to competition in Pennsylvania and southeastern New York, as
described below under Risks Related to Our Pocono Downs Operations

We face intense competition in our target market
from Foxwoods Resort Casino.

The existing gaming industry in our market areas is highly competitive. Mohegan Sun primarily competes
with Foxwoods, operated by the Mashantucket Pequot Tribe. Foxwoods is approximately ten miles from Mohegan Sun and is the largest gaming facility in the United States in terms of total gaming positions. Foxwoods has been in operation for
approximately fourteen years and may have greater financial resources and operating experience than us.

In February 2005, the Mashantucket
Pequot Tribe announced its plans to undertake a three-year, $700.0 million expansion at Foxwoods, which is expected to add over two million square feet to the facility, including an 825-room hotel tower, a 21,000 square foot spa, a 5,000-seat
theater, a 50,000 square foot ballroom, a 2,900 car parking garage, 145,000 square feet of meeting and convention space, four retail stores, two nightclubs, three lounges, four restaurants and additional business meeting and reception space. In
addition, the expansion will include 50,000 square feet of gaming space and will accommodate an additional 1,500 slot machines and 45 table games. Groundbreaking activities occurred in November 2005, and the facility is scheduled to open in the
spring of 2008. On December 8, 2006, the Mashantucket Pequot Tribe and MGM Mirage announced that it has completed agreements to develop the new hotel and casino described above, which will be adjacent to the existing Foxwoods Resort Casino. The
new hotel and casino will be known as the MGM Grand at Foxwoods and will be owned and operated by the Mashantucket Pequot Tribe. In May 2005, the Mashantucket Pequot Tribe completed the construction of two golf courses and a 50,000
square foot clubhouse and subsequently opened eight golf villas and a golf academy.

In addition to Foxwoods, we also face competition
from existing casino and other gaming operations elsewhere in our market areas.

Since the completion of Project Sunburst in 2002, we
have broadened Mohegan Suns target market beyond day-trip customers to include guests making overnight stays at the resort. Consequently, Mohegan Sun also now competes directly for customers with resort casinos in Atlantic City, New Jersey.
Many of these casinos have greater resources, operating experience and name recognition than Mohegan Sun. Moreover, public announcements, including those by Boyd Gaming, Pinnacle Entertainment and MGM, indicate that several Atlantic City properties
are undergoing renovation and expansion, which could make them more attractive destinations and divert potential customers from Mohegan Sun.

Mohegan Sun also currently faces competition from several casinos and gaming facilities located on Indian tribal lands in New York, and from racetracks and other facilities in New York and Rhode Island that operate video gaming machines.
New York has six federally recognized tribes located in the central, northern and western parts of the state. Three of these tribes, the Oneida Nation of New York, the Seneca Nation and the St. Regis Mohawk Tribe of New York, currently engage in
casino gaming. The St. Regis Mohawk Tribe has a pending land-into-trust application with the Bureau of Indian Affairs, which, if approved, would allow for the conversion of approximately 29 acres at the Monticello Raceway in Monticello, New York
into a tribal-owned casino. In addition to these three tribes, other Indian tribes have announced potential casino projects, which, if completed, will add significant casino space and hotel rooms to the northeastern United States gaming market. In
addition, eight thoroughbred and harness racetracks located in various parts of the state of New York, including Yonkers Raceway in Yonkers and Aqueduct Raceway in Queens, currently operate an aggregate of approximately 8,900 video gaming machines,
and two facilities located in Rhode Island operate an aggregate of approximately 4,700 video gaming machines.



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New market entrants in our market areas could adversely affect our operations and our ability to meet
our financial obligations.

Under current law, outside of Atlantic City, New Jersey, full-scale commercial casino gaming in the
northeastern United States may be conducted only by federally recognized Indian tribes operating under federal Indian gaming laws or on cruise ships in international waters. In recent years, there has been an increase in the number of Indian tribes
seeking to engage in commercial casino gaming, including full-scale commercial casinos, in the northeastern United States and in the number of individual groups seeking to obtain federal recognition as Indian tribes so that they may engage in
commercial casino gaming in the northeastern United States. Under federal law, after obtaining federal recognition and before full scale commercial casino gaming operations may commence, a tribe must, among other things, have land taken into
trust by the federal government, negotiate a gaming compact with the state in which they intend to engage in commercial casino gaming, adopt a tribal gaming ordinance and construct a facility. A tribe may also need to negotiate a gaming management
agreement and obtain financing to construct a facility. Many Indian tribes and individual groups seeking to gain federal recognition as Indian tribes are pursuing commercial casino gaming in the northeastern United States. These efforts are ongoing
in Connecticut, Maine, Massachusetts, New York and Rhode Island.

In addition, a number of states, including Maine, Massachusetts, Rhode
Island and New York, have considered or are considering legalization of one or more forms of commercial casino gaming by non-Indians in one or more locations. Based on internal analysis of the existing and potential gaming market in our market
areas, we believe that competition from other commercial casino gaming operations will continue to increase in the future. We are unable to predict whether any of the efforts discussed above by other federally recognized Indian tribes, individual
groups attempting to gain federal recognition as Indian tribes or legalization of commercial casino gaming by non-Indians will lead to the establishment of additional commercial casino gaming operations in the northeastern United States. If
established, we are uncertain of the impact such commercial casino gaming operations will have on our operations and our ability to meet our financial obligations.

Because the gaming industry in the State of Connecticut has experienced seasonal fluctuations in the past, we also may experience seasonal variations in our revenue and operating results that could affect adversely
our cash flows.

The gaming industry in the State of Connecticut has experienced seasonal fluctuations, with the heaviest gaming
activity occurring between May and August. Similarly, the heaviest gaming activity has occurred at Mohegan Sun between May and August. As a result of these seasonal fluctuations, we likely will continue to experience seasonal variations in our
quarterly revenue and operating results that could result in decreased cash flows during periods in which gaming activity is not at peak levels. These variations in quarterly revenue and operating results could affect adversely our overall financial
condition.

Negative conditions affecting the lodging industry may have an adverse affect on our revenue and cash flows.

We depend on the revenue generated from the hotel at Mohegan Sun, together with the revenue generated from the other portions of Mohegan Sun, to meet
our debt obligations and fund our operations. Revenue generated from the operation of the hotel is subject primarily to conditions affecting our gaming operations, but is also subject to the lodging industry in general, and, as a result, our cash
flows and financial performance may be affected not only by the conditions in the gaming industry, but also by those in the lodging industry. Some of these conditions are as follows:



| |  |  | changes in the local, regional or national economic climate;
| | - |  | ------------------------------------------------------------



| |  |  | changes in local conditions such as an oversupply of hotel properties;
| | - |  | ----------------------------------------------------------------------



| |  |  | decreases in the level of demand for hotel rooms and related services;
| | - |  | ----------------------------------------------------------------------



| |  |  | the attractiveness of our hotel to consumers and competition from comparable hotels;
| | - |  | ------------------------------------------------------------------------------------



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| |  |  | cyclical over-building in the hotel industry;
| | - |  | ---------------------------------------------



| |  |  | changes in travel patterns;
| | - |  | ---------------------------



| |  |  | changes in room rates and increases in operating costs due to inflation and other factors; and
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | the periodic need to repair and renovate the hotel.
| | - |  | ---------------------------------------------------

Adverse changes in these conditions could affect adversely our hotels financial performance and results of operations.

Our obligations under the relinquishment agreement could affect adversely our financial condition and prevent us from fulfilling our debt service obligations.

Pursuant to the terms of the relinquishment agreement, we are required, among other things, to pay TCA five percent of the revenues (as defined in the
relinquishment agreement) generated by Mohegan Sun during the 15-year period which commenced on January 1, 2000. During the fiscal year ended September 30, 2006, we paid $74.6 million in relinquishment payments.

This obligation consumes a significant portion of our operating cash flows that might otherwise be available to, among other things, reduce indebtedness
and fund working capital, capital expenditures and other general operating requirements and thereby affect our ability to meet our debt service obligations. As a result, our flexibility in planning for, or reacting to, changes in our business and
the gaming industry in general is reduced. This may place us at a disadvantage compared to our competitors that do not have such an obligation.

Failure to complete Project Horizon's planned construction within its budget and on time with minimal disruption to existing operations could adversely affect the financial condition of the Authority.

The anticipated construction costs and completion dates for Project Horizon are based on budgets, design documents and schedule estimates prepared by the
Authority with the assistance of architects and contractors. Construction projects such as Project Horizon are inherently subject to significant development and construction risks, which could cause unanticipated cost increases. These include the
following:



| |  |  | escalation of construction costs above anticipated amounts;
| | - |  | -----------------------------------------------------------



| |  |  | shortage of material and skilled labor;
| | - |  | ---------------------------------------



| |  |  | weather interference;
| | - |  | ---------------------



| |  |  | engineering problems;
| | - |  | ---------------------



| |  |  | environmental problems;
| | - |  | -----------------------



| |  |  | fire, flood and other natural disasters;
| | - |  | ----------------------------------------



| |  |  | labor disputes; and
| | - |  | -------------------



| |  |  | geological, construction, demolition, excavation and/or equipment problems.
| | - |  | ---------------------------------------------------------------------------

Furthermore, although construction activities related to Project Horizon have been planned to minimize disruption, construction noise and debris and the temporary closing of some of the facility, such activities may
disrupt Mohegan Sun's current operations. Unexpected construction delays could exacerbate or magnify these disruptions. We cannot assure you that construction of Project Horizon will not have a material adverse effect on the Authority's results of
operations.



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The risks associated with operating an expanded facility and managing its growth could have a material
adverse effect on Mohegan Sun's future performance.

Mohegan Sun, when Project Horizon is completed, will have a larger amount of gaming
space, more entertainment venues and retail space, as well as a new hotel. There can be no assurance that the Authority will be successful in integrating the new amenities into Mohegan Sun's current operations or in managing the expanded resort. The
failure to integrate and manage the new services and amenities successfully could have a material adverse effect on the Authority's results of operations and its ability to meet its debt service obligations with respect to its outstanding
indebtedness.

Risks Related to the Indian Gaming Industry

Gaming is a highly regulated industry and changes in the law could have a material adverse effect on the Tribes and our ability to conduct gaming, and thus on our ability to meet our debt service obligations.

Gaming on the Tribes reservation is regulated extensively by federal, state and tribal regulatory bodies, including the NIGC and
agencies of the State of Connecticut, such as the Department of Revenue Services Division of Special Revenue, the State Police and the Department of Consumer Protections Division of Liquor Control. As is the case with any casino, changes
in applicable laws and regulations could limit or materially affect the types of gaming that may be conducted, or services provided, by us and the revenues realized therefrom.

Currently, the operation of all gaming on Indian lands is subject to IGRA. Over the past several years, legislation has been introduced in the United
States Congress with the intent of modifying a variety of perceived problems with IGRA. Virtually all of the proposals that have been considered seriously would be prospective in effect and contain clauses that would grandfather existing Indian
gaming operations such as Mohegan Sun. Legislation also has been proposed, however, which would have the effect of repealing many of the key provisions of IGRA and prohibiting the continued operation of particular classes of gaming on Indian
reservations in states where such gaming is not otherwise allowed on a commercial basis. While none of the substantive proposed amendments to IGRA have been enacted, we cannot predict the effects of future legislative acts. In the event that
Congress passes prohibitory legislation that does not include any grandfathering exemption for existing tribal gaming operations, and if such legislation is sustained in the courts against tribal challenge, our ability to meet our debt service
obligations would be materially and adversely affected.

In addition, under federal law, gaming on Indian land is dependent on the
permissibility under state law of specific forms of gaming or similar activities. If the State of Connecticut were to make various forms of gaming illegal or against public policy, such action may have an adverse effect on our ability to conduct our
gaming operations. In fact, in January 2003, the State of Connecticut repealed its Las Vegas nights statute, but the state Attorney General opined that the repeal did not affect the two existing Indian gaming compacts. Connecticut currently permits,
among other things, a state lottery, jai alai fronton betting, greyhound racing and off-track betting parlors.

A change in our current
tax-exempt status, and that of our subsidiaries, could have a material adverse effect on our ability to meet our debt service obligations.

Based on current interpretation of the Internal Revenue Code of 1986, as amended, or the Code, we, the Tribe, MBC, Mohegan Ventures-NW and the Pocono Downs entities are not subject to federal income taxes. However, we cannot assure you that
the United States Congress will not reverse or modify the exemption for Indian tribes from federal income taxation.

Efforts have been made
in the United States Congress over the past several years to amend the Code to provide for taxation of the net income of tribal business entities. These efforts have included a House of Representatives bill that would have taxed gaming income earned
by Indian tribes as unrelated business income



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subject to corporate tax rates. Although no such legislation has been enacted, such legislation could be passed in the future. A change in the tax law could
have a material adverse effect on our financial performance.

Risks Related to Our Pocono Downs Operations

If we are not able to develop a Phase II slot machine facility at Pocono Downs on time or on budget, we may not be able to achieve necessary returns
from the Pocono Downs acquisition.

We anticipate total costs to develop a Phase II slot machine facility at Pocono Downs of
approximately $140.0 million to $150.0 million, in addition to total estimated costs incurred for the development of the Phase I facility of approximately $72.6 million and the slot machine license fee of $50.0 million paid in October 2006. Our
estimates assume that we will begin construction of a Phase II facility in the spring of 2007 and complete it in the summer of 2008. Failure to complete the Phase II slot machine facility within budget or on schedule could prevent us from achieving
necessary returns from the Pocono Downs acquisition and, accordingly, may have a material adverse effect on our financial condition, results of operations or liquidity.

The adoption of modifications relating to the Pennsylvania Gaming Act could result in changes to the rules and regulations under which gaming is conducted in the Commonwealth, which in turn could negatively impact
our operations and expected profitability.

It has been reported that there may be attempts to amend the Pennsylvania Gaming Act in
future legislative sessions. As with any gaming operation, changes in applicable laws or regulations could limit or materially affect the types of gaming we may conduct or the services we may provide, at Pocono Downs. In addition, several legal
challenges have been filed in both state and federal court challenging various provisions of the Pennsylvania Gaming Act. If any legislation or legal challenges were to succeed, our ability to develop a Phase II slot machine facility and continue to
operate a gaming site at Pocono Downs could be adversely affected.

Construction difficulties may delay our projected opening of the
Phase II facility and could prevent us from achieving our operating projections.

Construction projects like this one are inherently
subject to significant development and construction risks, all of which could cause unanticipated delays or cost increases. These include the following:



| |  |  | regulatory approvals;
| | - |  | ---------------------



| |  |  | escalation of construction costs above anticipated amounts;
| | - |  | -----------------------------------------------------------



| |  |  | shortage of material and skilled labor;
| | - |  | ---------------------------------------



| |  |  | weather interference;
| | - |  | ---------------------



| |  |  | engineering problems;
| | - |  | ---------------------



| |  |  | environmental problems;
| | - |  | -----------------------



| |  |  | fire, flood and other natural disasters;
| | - |  | ----------------------------------------



| |  |  | labor disputes; and
| | - |  | -------------------



| |  |  | geological, construction, demolition, excavation and/or equipment problems.
| | - |  | ---------------------------------------------------------------------------

If Pocono Downs is not able to compete successfully with existing and potential competitors, we may not be able to generate sufficient cash flows to fulfill our debt service obligations relating to the acquisition
and our development activities.

The Pennsylvania Gaming Act authorizes slot machines at seven harness and thoroughbred racetracks, and
five stand-alone slot facilities. Each of the facilities may initially install up to 3,000 slot machines and can be



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expanded to up to 5,000 slot machines after six months of operation and upon gaining the approval of the PGCB.

In addition, the Pennsylvania Gaming Act authorizes two resort facilities with up to 500 slot machines. The

Pennsylvania Gaming Act also includes prohibitions against locating facilities in close proximity to other operations, including, among other things, a prohibition against locating another harness or thoroughbred
facility with slots or a standalone slot facility within 20 linear miles of Pocono Downs, and a prohibition against locating a resort facility within 15 linear miles of Pocono Downs.

In addition to Pocono Downs, there are two thoroughbred racetracks, Philadelphia Park located in Bensalem (approximately 115 miles southeast of Pocono
Downs) and Penn National Race Course in Grantville (located approximately 85 miles southwest of Pocono Downs), and two harness racetracks, the Meadows, located in Meadow Lands, near Pittsburgh (approximately 300 miles from Pocono Downs), and
Harrahs Chester Casino and Racetrack, located in Chester (approximately 115 miles from Pocono Downs). The Horse Racing Commission also has approved a racing license for MTR Gaming to build a thoroughbred racetrack named Presque Isle Downs in
Summit Township, near Erie (approximately 325 miles from Pocono Downs). The Horse Racing Commission has not yet selected the proposed or existing property for the final new racing license permitted in Pennsylvania. However, under the Pennsylvania
Gaming Act, unless the developer of a proposed horse racetrack had received approval for a racing license within the 18 months immediately preceding the passage of the act, the licensee is not permitted to obtain a slot license.

On September 27, 2006, five of the seven conditional Category One slot machine licenses were granted by the PGCB to the owners of the racetracks that are
operating or under construction in Pennsylvania, including Mohegan Sun at Pocono Downs. Another conditional license was awarded to Presque Isle Downs on October 25, 2006. Philadelphia Park became the second racetrack in the Commonwealth of
Pennsylvania to offer slot machine gaming to the public, when it opened its 2,200 slot machine gaming facility on December 19, 2006. On December 20, 2006, the PGCB granted permanent Category One slot machine licenses to the six racetracks that had
previously received conditional licenses, including Mohegan Sun at Pocono Downs.

Also on December 20, 2006, the PGCB awarded conditional
Category Two slot machine licenses for five stand-alone slot facilities two of which are located in Philadelphia and one of which is located in Pittsburgh. The remaining two facilities selected, which are located closer to Pocono Downs and are more
likely to have an impact on our future Pocono Downs operations, were as follows:



| |  |  | Businessman Louis DeNaples was awarded a conditional slot machine license to operate a slot machine parlor at the former Mount Airy Lodge in Mount Pocono, which is approximately 40
miles from Pocono Downs. According to news reports, Mr. DeNaples plans include a 196-room hotel that could include 2,500 slot machines with an anticipated opening date of October 2007. Reports further indicate that by the end of 2008, the
facility is anticipated to have been expanded to have 3,000 slot machines, 400 hotel rooms, four restaurants, a night club, conference rooms, a spa, indoor and outdoor pools, retail shops and parking and then be further expanded to offer a total of
5,000 slot machines.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sands Bethworks Gaming, a partnership between BethWorks and Las Vegas Sands, Inc., owner of the Venetian Resort and Casino in Las Vegas, was awarded a conditional slot machine
license to operate a gaming facility in Bethlehem, which is approximately 70 miles from Pocono Downs. The group has indicated plans for a $600.0 million Phase I project that would offer 3,000 slot machines, a new 300-room hotel, retail shops and
restaurants to the public by the summer of 2008 and a future Phase II project that would increase the total number of slot machines to 5,000.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition to the other slot facilities in Pennsylvania, Pocono Downs may face competition from a VLT gaming facility at Monticello, New York in the Catskills, which features a reported 1,500 VLTs, and any full scale
casino gaming operation that is ultimately developed by an Indian tribe in the Catskills region. The Catskills are approximately 90 miles from Pocono Downs. Pocono Downs also could face competition from



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Tioga Downs Racetrack in Nichols, New York, approximately 100 miles from Pocono Downs. On June 9, 2006, Tioga Downs opened its racetrack after
renovations, and on July 4, 2006, the track opened its new gaming floor, which includes 750 video lottery terminals.

We are uncertain
of the impact these racetracks and planned commercial casino gaming operations will have on our operations and our ability to meet our financial obligations.

We may experience difficulties in completing the integration of the Pocono Downs operations.

The
complete integration of a new business involves risks which may be costly and may adversely affect us. These risks include, among others:



| |  |  | the need to divert more management resources to integration than we planned, which may adversely affect, among other things, our ability to manage our existing business;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the failure to retain key employees of the Pocono Downs business may result in an inability to replace them on favorable terms with employees of equal skill;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | difficulties in coordinating geographically separated organizations, integrating personnel with disparate business backgrounds and combining different corporate cultures; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | acquiring liabilities or adverse operating issues that we failed to discover through our diligence prior to the acquisition that, if in excess of the indemnification obligations of
the sellers, could result in unforeseen costs.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our operations of the Pocono Downs business subject us to regulation by
the Pennsylvania Gaming Control Board and Pennsylvanias State Harness Racing Commission.

As owners and operators of the Mohegan
Sun at Pocono Downs gaming and entertainment facility offering slot machine gaming, live harness racing and off-track wagering in the Commonwealth of Pennsylvania, we are subject to extensive state regulation by the PGCB, the Harness Racing
Commission and other state regulatory bodies such as the liquor control board. Applicable rules and regulations may require that we obtain a variety of registrations, permits and approvals to conduct our operations. Regulatory bodies may, for any
reason set forth in the applicable legislation, rules and regulations, limit, condition, suspend, deny or revoke a license to conduct our operations as we intend to conduct them. We cannot assure you that we will be able to continually renew all
registrations, permits, approvals or licenses necessary to conduct our business in Pennsylvania as we intend to conduct it. Any of these events, or any changes in applicable laws or regulations, could have a material adverse effect on our business,
financial condition and results of operations.

Changes in or the issuance of additional regulations by the PGCB may adversely affect
our operations at Pocono Downs.

Under the Pennsylvania Gaming Act, the PGCB has broad authority to regulate gaming activities. Slot
machine gaming is a new industry in Pennsylvania and many of the regulations issued by the PGCB to date are temporary in nature. Additional regulations and permanent regulations are expected to be issued by the PGCB. Such additional or permanent
regulations could adversely affect our gaming operations at Pocono Downs.

Assessments for regulatory costs may negatively impact our
operating results.

Under the Pennsylvania Gaming Act, the Pennsylvania Department of Revenue and the PGCB have the right to assess
certain regulatory costs against slot machine operators. At this time, the amount of such costs and the allocation methodology for assessing licensed facilities has not been determined. Once determined, these assessments could adversely affect our
operating results at Pocono Downs.



43



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##### Table of Contents

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Mohegan Sun is located on 240 acres of the Tribes approximately 507-acre
reservation just outside of Uncasville, Connecticut, approximately one mile from the interchange of Interstate 395 and Connecticut Route 2A. The land located in southeastern Connecticut upon which Mohegan Sun is situated is held in trust for the
Tribe by the United States. Mohegan Sun has its own exit from Route 2A, giving patrons direct access to Interstate 395 and Interstate 95, the main highways connecting Boston, Providence and New York City. By highway, Mohegan Sun is approximately 125
miles from New York City, New York, 100 miles from Boston, Massachusetts, 45 miles from Hartford, Connecticut and 50 miles from Providence, Rhode Island.

We have a lease with the Tribe for land on which Mohegan Sun is located. The initial term of the lease is 25 years, with an option to renew for one additional 25-year term provided that we are not in default under the
lease. The lease also provides that all improvements constructed on the site will become the property of the Tribe. The lease is a net lease requiring that we assume all costs of operating, constructing, maintaining, repairing, replacing and
insuring the leased property, in addition to the payment of a nominal annual rental fee.

We have entered into various lease agreements for
properties adjacent to Mohegan Sun. The properties are owned by MTIC Acquisitions, L.L.C., a Connecticut limited liability company controlled by the Tribe. The properties are used for providing access and/or parking for Mohegan Sun.

In connection with the purchase of the Pocono Downs entities, we acquired Pocono Downs, a harness racing facility located on approximately 400 acres of
land in Plains Township, Pennsylvania. The harness racing facility is currently one of only two harness racetracks in Pennsylvania and one of only four thoroughbred and harness racing facilities in the state. It has a 5/8 mile all-weather, lighted
track with seating for approximately 3,500 and parking capacity for approximately 6,500. Mohegan Sun at Pocono Downs, the first slot machine facility in the Commonwealth of Pennsylvania, was opened at the Pocono Downs racetrack in November 2006. In
addition, we also acquired the OTW facilities located in Carbondale, Erie and Lehigh Valley (Allentown), and we lease the East Stroudsburg and Hazleton facilities. The Lehigh Valley (Allentown) OTW is a 28,000 square-foot facility and is the largest
OTW in the Commonwealth of Pennsylvania.

Prior to our acquisition of the Pocono Downs entities, Penn National Gaming Inc., the former
owner of the Pocono Downs entities, entered into an agreement to sell all of the assets associated with the OTW facility located in Erie, Pennsylvania to MTR Gaming Group, Inc., or MTR, and Presque Isle Downs Inc., or PID, and collectively with MTR,
Presque Isle, for $7.0 million. Penn National Gaming Inc. assigned its rights under this agreement to our subsidiary, Downs Racing, L.P., upon our acquisition of the Pocono Downs entities. Accordingly, Presque Isle will be required to make the $7.0
million payment to Downs Racing, L.P. upon the occurrence of either of the following two conditions: (1) the commencement by any of the Presque Isle entities of pari-mutuel wagering in Erie, Pennsylvania or (2) the receipt by any Presque
Isle entity of revenue from slot machine operations in Erie, Pennsylvania. If the receipt of slot machine revenues triggers the $7.0 million payment, then MTR has the right to delay such $7.0 million payment until the earlier to occur of
(i) the first anniversary of the first receipt of revenue from slot machine operations or (ii) the commencement by any of the Presque Isle entities of pari-mutuel wagering in Erie, Pennsylvania. After receipt of the $7.0 million payment,
Downs Racing, L.P. will be required to discontinue its OTW operations in Erie, Pennsylvania and convey the Erie OTW facility to Presque Isle as soon as commercially reasonable. The PGCB granted a conditional license to PID in October 2006 to operate
slot machines at Presque Isle Downs in Erie County, Pennsylvania, which is scheduled to open in February 2007.

Salishan-Mohegan owns land
in Clark County, Washington for the purposes of developing a casino to be owned by the Cowlitz Indian Tribe. Mohegan Ventures-NW is a wholly-owned subsidiary of the Authority. The



44



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##### Table of Contents

rights to the land shall be assigned to the Cowlitz Indian Tribe upon: (1) receipt of necessary financing for the development of the proposed casino;
and (2) the underlying property being taken into trust by the United States Department of the Interior.

In November 2006, we formed
Mohegan Golf to purchase, own and operate a golf course in southeast Connecticut. On November 21, 2006, Mohegan Golf entered into an agreement to purchase assets owned by Pautipaug Country Club, Incorporated, including a golf course and related
facilities on land located in Sprague and Franklin, Connecticut, for $4.4 million. Closing of the acquisition is pending the sellers satisfaction of certain conditions.

Item 3. Legal Proceedings.

We are a defendant in litigation incurred in our normal course of business. We
believe that, based on the advice of counsel, the aggregate liability, if any, arising from such litigation will not have a material adverse effect on our financial position, results of operations or cash flows.

As the successor owner of Downs Racing, we are involved in a dispute with the Wilkes-Barre Area School District, which had filed an appeal in November
2001 against Downs Racings predecessor company, Pocono Downs, Inc., and the Luzerne County Board of Assessment Appeals relating to certain property tax assessments. The school district has challenged the certified assessment for the tax year
2002, and is seeking an unspecified increase to the assessed value of that property for 2002 and subsequent tax years, and now including additional assessments for tax year 2007. The captions for these appeal cases are: Wilkes-Barre Area School
District v. Pocono Downs, Inc. (n/k/a Downs Racing, L.P.), Luzerne County Docket #7793-C of 2001; Wilkes-Barre Area School District v. Millcreek Land, Inc. (n/k/a Mill Creek Land, L.P.), Luzerne County Docket #7767 of 2006; and
Wilkes-Barre Area School District v. Pocono Downs, Inc. (n/k/a Downs Racing, L.P.), Luzerne County Docket #7668 of 2006. All three cases were consolidated and a trial was held in September 2006 and a mediation conference took place in
November 2006, with no judgment or settlement on the matter. Written proposed findings of fact and conclusions of law are required to be submitted to the Luzerne County Court by January 16, 2007, after which the Court will issue a ruling. At
this stage of the litigation, no single amount within the range of any possible loss can be reasonably determined. We cannot provide any assurance as to the ultimate success of our defense of the school boards complaint. If the school
boards complaint was resolved unfavorably to us, our financial position, results of operations and cash flows could be adversely affected.

Item 4. Submission of Matters to a Vote of Security Holders.

None.



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##### Table of Contents

PART II

Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

We have not issued or sold any equity securities.

Item 6. Selected Financial Data

The selected financial data shown below for the fiscal years ended
September 30, 2006, 2005 and 2004 and as of September 30, 2006 and 2005, have been derived from our audited consolidated financial statements included in this Form 10-K. The selected financial data set forth below for the fiscal years
ended September 30, 2003 and 2002 and as of September 30, 2004, 2003 and 2002 have been derived from our audited financial statements for those years, which are not included in this Form 10-K. The financial information shown below should
be read in conjunction with our consolidated financial statements and related notes beginning on page F-1 of this Form 10-K, the section entitled Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations and the other financial and statistical data included in this Form 10-K. Amounts shown in the following table are in thousands.



|                                                           |  |                                                   |           |      |      |   |           |      |  |   |           |      |  |      |           |      |  |   |           |  
|---------------------------------------------------------- |  | ------------------------------------------------- | --------- | ---- | ---- | - | --------- | ---- |  | - | --------- | ---- |  | ---- | --------- | ---- |  | - | --------- | -
|                                                           |  | As of or for the Fiscal Years Ended September 30, |          
|                                                           |  | 2006                                              |           |      | 2005 |   |           | 2004 |  |   | 2003      |      |  | 2002 |          
|Operating Results:                                         |  |                                                   |           |      |      |   |           |      |  |   |           |      |  |      |           |      |  |   |           |  
|Gross revenues                                             |  | $                                                 | 1,551,331 |      |      | $ | 1,456,753 |      |  | $ | 1,367,933 |      |  | $    | 1,280,440 |      |  | $ | 1,121,060 |  
|Promotional allowances                                     |  |                                                   | (124,917  | )    |      |   | (125,148  | )    |  |   | (111,007  | )    |  |      | (102,952  | )    |  |   | (88,167   | )
|                                                           |  |                                                   |           |      |      |   |           |      |  |   |           |      |  |      |           |      |  |   |           |  
|Net revenues                                               |  | $                                                 | 1,426,414 |      |      | $ | 1,331,605 |      |  | $ | 1,256,926 |      |  | $    | 1,177,488 |      |  | $ | 1,032,893 |  
|                                                           |  |                                                   |           |      |      |   |           |      |  |   |           |      |  |      |           |      |  |   |           |  
|Income from operations (1)                                 |  | $                                                 | 249,379   |      |      | $ | 139,364   |      |  | $ | 246,617   |      |  | $    | 241,333   |      |  | $ | 213,680   |  
|Total other expense (2)                                    |  |                                                   | (94,882   | )(3) |      |   | (116,211  | )    |  |   | (143,748  | )(4) |  |      | (145,648  | )(5) |  |   | (113,648  | )
|                                                           |  |                                                   |           |      |      |   |           |      |  |   |           |      |  |      |           |      |  |   |           |  
|Income from continuing operations before minority interest |  |                                                   | 154,497   |      |      |   | 23,153    |      |  |   | 102,869   |      |  |      | 95,685    |      |  |   | 100,032   |  
|Minority interest                                          |  |                                                   | 420       |      |      |   | 514       |      |  |   | 18        |      |  |      |          |      |  |   |          |  
|                                                           |  |                                                   |           |      |      |   |           |      |  |   |           |      |  |      |           |      |  |   |           |  
|Income from continuing operations                          |  |                                                   | 154,917   |      |      |   | 23,667    |      |  |   | 102,887   |      |  |      | 95,685    |      |  |   | 100,032   |  
|Loss from discontinued operations                          |  |                                                   |          |      |      |   |          |      |  |   |          |      |  |      |          |      |  |   |          |  
|                                                           |  |                                                   |           |      |      |   |           |      |  |   |           |      |  |      |           |      |  |   |           |  
|Net income                                                 |  | $                                                 | 154,917   |      |      | $ | 23,667    |      |  | $ | 102,887   |      |  | $    | 95,685    |      |  | $ | 100,032   |  
|                                                           |  |                                                   |           |      |      |   |           |      |  |   |           |      |  |      |           |      |  |   |           |  
|Other Data:                                                |  |                                                   |           |      |      |   |           |      |  |   |           |      |  |      |           |      |  |   |           |  
|Interest expense, net of capitalized interest              |  | $                                                 | 90,928    |      |      | $ | 88,011    |      |  | $ | 78,970    |      |  | $    | 83,492    |      |  | $ | 76,635    |  
|Capital expenditures                                       |  | $                                                 | 101,920   |      |      | $ | 50,991    |      |  | $ | 30,680    |      |  | $    | 30,277    |      |  | $ | 224,743   |  
|Net cash flows provided by operating activities            |  | $                                                 | 250,877   |      |      | $ | 248,304   |      |  | $ | 214,776   |      |  | $    | 195,484   |      |  | $ | 183,699   |  
|                                                           |  |                                                   |           |      |     
|Balance Sheet Data:                                        |  |                                                   |           |      |      |   |           |      |  |   |           |      |  |      |           |      |  |   |           |  
|Total assets                                               |  | $                                                 | 1,914,357 |      |      | $ | 1,856,868 |      |  | $ | 1,579,705 |      |  | $    | 1,658,511 |      |  | $ | 1,714,055 |  
|Long-term debt and capital lease obligations               |  | $                                                 | 1,225,804 |      |      | $ | 1,226,348 |      |  | $ | 1,003,051 |      |  | $    | 1,101,649 |      |  | $ | 1,052,173 |  

---

|(1) | Total operating costs and expenses included in income from operations includes non-cash relinquishment liability reassessment charges of $39.4 million, $123.6 million and $3.9
million for the 2006, 2005 and 2004 fiscal years and non-cash relinquishment liability reassessment credits of $22.7 million and $19.6 million for the 2003 and 2002 fiscal years. A discussion of this charge and our accounting for the relinquishment
liability may be found under Notes 2 and 13 to our audited consolidated financial statements beginning on page F-1 of this Form 10-K.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | For the fiscal years ended September 30, 2006, 2005, 2004, 2003, and 2002, total other expense includes $30.7 million, $27.5 million, $29.9 million, $33.6 million and $36.3
million, respectively, for the accretion of discount to the relinquishment liability to reflect the impact of the time value of money. A discussion of our accounting for the relinquishment liability may be found under Notes 2 and 13 to our audited
consolidated financial statements beginning on page F-1 of this Form 10-K.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes a non-cash gain of $24.5 million from a settlement on the Pocono Downs purchase agreement in August 2006. A discussion of this transaction may be found under Note 3 to our
audited consolidated financial statements beginning on page F-1 of this Form 10-K.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes a loss on extinguishment of debt of $34.1 million. The loss is comprised of a tender premium of $31.0 million, a write-off of unamortized debt issuance costs of $3.5
million and other transaction costs of approximately $1.1 million, offset by a net gain of $1.5 million from the recognition of the remaining net deferred gain on the sale of related derivative instruments.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes a loss on extinguishment of debt of $27.4 million. The loss is comprised of a tender premium of $22.8 million, a write-off of unamortized debt issuance costs of $4.4
million and other transaction costs of approximately $200,000.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes beginning on page F-1 of this Annual Report on Form 10-K and Item 6. Selected Financial Data
and Part I. Item 1. Business.

Overview

The Mohegan Tribe of Indians of Connecticut, or the Mohegan Tribe or the Tribe, is a federally recognized Indian tribe with an approximately 507-acre reservation situated in southeastern Connecticut, located in
Uncasville, Connecticut. Under the Indian Gaming Regulatory Act of 1988, or IGRA, federally recognized Indian tribes are permitted to conduct full-scale casino gaming operations on tribal lands, subject to, among other things, the negotiation of a
gaming compact with the state in which they operate. The Tribe and the State of Connecticut have entered into such a compact, the Mohegan Compact, which has been approved by the United States Secretary of the Interior. We were established as an
instrumentality of the Tribe, with the exclusive power to conduct and regulate gaming activities on tribal lands and the non-exclusive authority to conduct such activities elsewhere. Our gaming operation at Mohegan Sun is one of only two legally
authorized gaming operations in New England offering traditional slot machines and table games. Through our subsidiary, Downs Racing, L.P., we also own Mohegan Sun at Pocono Downs, or Pocono Downs, a gaming and entertainment facility offering slot
machines and harness racing in Plains Township, Pennsylvania, as well as five off-track wagering, or OTW, facilities located elsewhere in Pennsylvania. We are governed by a nine-member Management Board, whose members also comprise the Mohegan Tribal
Council (the governing body of the Tribe). Any change in the composition of the Mohegan Tribal Council results in a corresponding change in our Management Board.

Mohegan Sun

In October 1996, we opened a gaming and entertainment complex known as Mohegan
Sun. Mohegan Sun is located on a 240-acre site on the Tribes reservation overlooking the Thames River with direct access from Interstate 395 and Connecticut Route 2A via a four-lane access road. Mohegan Sun is approximately 125 miles from New
York City and approximately 100 miles from Boston, Massachusetts. In fiscal year 2002, we completed a major expansion of Mohegan Sun known as Project Sunburst. The first phase of Project Sunburst, the Casino of the Sky, which included increased
gaming, restaurant and retail space and an entertainment arena, opened in September 2001. The remaining components, including an approximately 1,200-room luxury hotel and approximately 100,000 square feet of convention space, were fully opened in
June 2002.

Mohegan Sun operates in an approximately 3.0 million square foot facility, which includes the following two casinos:

Casino of the Earth

The Casino of the Earth has approximately 179,500 square feet of gaming space and offers:



| |  |  | approximately 3,800 slot machines and 195 table games (including blackjack, roulette, craps and baccarat);
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | food and beverage amenities, including the Uncas American Indian Grill, a 285-seat full-service restaurant and bar that opened in July 2005, three full-service themed fine dining
restaurants, with a fourth area featuring cuisine from all three adjacent restaurant themes, a 610-seat buffet, a ten-station food court featuring international and domestic cuisine and multiple service bars, all operated by us, for a current total
of approximately 1,700 restaurant seats;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an approximately 10,000 square foot, 410-seat lounge featuring live entertainment seven days a week;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | an approximately 11,000 square foot simulcasting race book facility; and
| | - |  | ------------------------------------------------------------------------



| |  |  | four retail shops providing shopping opportunities ranging from Mohegan Sun logo souvenirs to cigars.
| | - |  | -----------------------------------------------------------------------------------------------------



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##### Table of Contents

Casino of the Sky

The Casino of the Sky has approximately 119,000 square feet of gaming space and offers:



| |  |  | approximately 2,400 slot machines and 120 table games (including blackjack, roulette, craps and baccarat);
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | food and beverage amenities, including two full-service restaurants, two quick-service restaurants, a 24-hour coffee shop, a 320-seat buffet and five lounges and bars operated by
us, as well as four full-service restaurants, three quick-service restaurants and a multi-station food court operated by third parties, for a total of approximately 2,600 restaurant seats;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Mohegan After Dark, consisting of a nightclub, a lounge and a pub, all operated by a third party;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | the Mohegan Sun Arena with seating for up to 10,000;
| | - |  | ----------------------------------------------------



| |  |  | a 350-seat Cabaret;
| | - |  | -------------------



| |  |  | the Shops at Mohegan Sun containing 29 different retail shops, seven of which we own;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | an approximately 1,200-room luxury hotel with a private high limit table games suite on the 36thfloor;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | an approximately 20,000 square foot spa operated by a third party;
| | - |  | ------------------------------------------------------------------



| |  |  | approximately 100,000 square feet of convention space; and
| | - |  | ----------------------------------------------------------



| |  |  | a child care facility and an arcade style entertainment area operated by a third party.
| | - |  | ---------------------------------------------------------------------------------------

Mohegan Sun has parking spaces for approximately 13,000 guests and 3,100 employees. In addition, we operate a gasoline and convenience center, an approximately 4,000 square foot, 20-pump facility located adjacent to
Mohegan Sun.

Project Horizon

On November 16, 2006, we announced our plans for an estimated $740.0 million expansion at Mohegan Sun named Project Horizon. This expansion is expected to include a new 1,000-room hotel, including 300 House of
Blues-themed hotel rooms and a 7,500-square-foot House of Blues Foundation Room, which will be owned and operated by Mohegan Sun. The hotel is expected to open in two phasesthe 700 Mohegan Sun rooms are expected to open in the spring of 2010
and the 300 House of Blues rooms are expected to open in the summer of 2010.

We plan to connect the new hotel tower to the Sky hotel at
Mohegan Sun as well as the winter section of the Casino of the Earth with approximately 115,000 square feet of new retail and restaurant space, including a new Japanese restaurant, an American contemporary restaurant and a new family-style Italian
restaurant. The new restaurant area is expected to be complemented by approximately 40,000 square feet of new retail space and a 30,000 square-foot recreation lounge featuring bowling and billiards. This expansion also is expected to include a new
1,500 person capacity House of Blues Music Hall and a new 300 seat casual dining House of Blues restaurant. All of these components are scheduled to open in the fall of 2009.

Project Horizon also is expected to expand the amenities offered to the Asian clientele at Mohegan Sun, including a new 5,000-square-foot bus lobby, a
4,000-square-foot Hong Kong Street food outlet and 12,000-square-feet of gaming space offering 46 table games such as Baccarat, Sic Bo and Pai Gow Poker. These new Asian gaming amenities in the Casino of the Earth are scheduled to open
in the summer of 2007.

A new gaming area that we plan to refer to as the Casino of the Wind also is expected to be developed and located
adjacent to the Casino of the Sky. This new area is expected to include approximately 42,000 square feet of gaming space with over 900 slot machines, 10 table games and a specially-themed House of Blues poker room with 45 tables (operated by Mohegan
Sun), as well as approximately 20,000-square-feet of new dining and retail amenities. The Casino of the Wind is scheduled to open in the spring of 2008.



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##### Table of Contents

With significant construction set to begin in the summer of 2007, Project Horizon is expected to add more
than 1.2 million square feet of hotel rooms, gaming space and other new amenities to Mohegan Sun. The total number of slot machines at Mohegan Sun is projected to increase to approximately 7,600 units, complemented by approximately 385 table
games in total after the expansion. Project costs are estimated to be incurred as follows: fiscal year 2007 $134.0 million, fiscal year 2008 $269.0 million, fiscal year 2009 $242.0 million and fiscal year 2010 $95.0 million.

Connecticut Sun

In January
2003, we formed a wholly owned subsidiary, the Mohegan Basketball Club LLC, or MBC, for the purpose of owning and operating a professional basketball team in the Womens National Basketball Association, or WNBA. MBC entered into a membership
agreement with the WNBA permitting it to operate the Connecticut Sun basketball team. The team plays its home games in the Mohegan Sun Arena.

Mohegan Golf

In November 2006, we formed a wholly owned subsidiary, Mohegan Golf, LLC, or Mohegan Golf, to purchase,
own and operate a golf course in southeast Connecticut, for $4.4 million. On November 21, 2006, Mohegan Golf entered into an agreement to purchase assets owned by Pautipaug Country Club, Incorporated, including a golf course and related
facilities on land located in Sprague and Franklin, Connecticut. Closing of the acquisition is pending the sellers satisfaction of certain conditions.

Mohegan Sun at Pocono Downs

On January 25, 2005, we and our wholly owned subsidiary,
Mohegan Commercial Ventures PA, LLC, or MCV-PA, acquired all of the partnership interests in Downs Racing, L.P., or Downs Racing, Mill Creek Land, L.P., Backside, L.P. and Northeast Concessions, L.P., or the Pocono Downs entities, from subsidiaries
of Penn National Gaming, Inc. Downs Racing owns the slot machine and harness racing facility known as Mohegan Sun at Pocono Downs located on approximately 400 acres in Plains Township, Pennsylvania as well as five Pennsylvania OTWs located in
Carbondale, East Stroudsburg, Erie, Hazleton and Lehigh Valley (Allentown). Harness racing has been conducted at Pocono Downs since 1965. The Lehigh Valley (Allentown) OTW is a 28,000 square-foot facility and is the largest OTW in the Commonwealth
of Pennsylvania.

Downs Racing completed the 2006 harness racing season at Pocono Downs in November 2006 and will continue the harness
racing activities when the 2007 racing season begins in April 2007. Year round simulcast pari-mutuel wagering activities also are conducted at Mohegan Sun at Pocono Downs and the OTW facilities. A new state of the art, pari-mutuel simulcast facility
at Mohegan Sun at Pocono Downs was opened to the public in March 2006.

On August 7, 2006, we entered into an amendment of the Pocono
Downs purchase agreement with the seller, a subsidiary of Penn National Gaming, Inc. Pursuant to the amendment, in exchange for our agreement to modify certain provisions of the purchase agreement, including the elimination of our post-closing
termination rights, we will receive an aggregate refund of $30.0 million of the original purchase price for the Pocono Downs entities, payable in five annual installments of $7.0 million, $7.0 million, $6.5 million, $6.0 million and $3.5 million on
November 14, 2007, 2008, 2009, 2010 and 2011, respectively.

In September 2006, a Conditional Category One Slot Machine License was
granted to Downs Racing by the Pennsylvania Gaming Control Board, or the PGCB, for the operation of slot machines at Mohegan Sun at Pocono Downs. The PGCB awarded a permanent Category One slot machine license to Downs Racing on December 20,
2006. This license initially permits Downs Racing to install and operate up to 3,000 slot machines at Mohegan Sun at Pocono Downs. A minimum of 1,500 slot machines are required to be in operation within 12 months of the issuance of the conditional
slot machine license, unless otherwise extended by the PGCB for an additional



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period not to exceed 24 months. Downs Racing plans to request such an extension from the PGCB as a result of the Phase II development plans described below.
Under certain circumstances, Downs Racing may be permitted to install up to a total of 5,000 slot machines at Pocono Downs.

After the
satisfaction of certain regulatory conditions and the payment of a one-time slot machine license fee of $50.0 million to the PGCB in October 2006, Downs Racing was the first to offer slot machine gaming in the Commonwealth of Pennsylvania when a
Phase I gaming and entertainment facility opened to the public on November 14, 2006. The total cost for development of the Phase I facility is expected to be approximately $72.6 million, exclusive of the $50.0 million one-time slot machine
license fee. The two-level casino includes 90,000 square feet of gaming space, operates 24 hours a day, seven days a week and houses approximately 1,100 new slot machines with denominations ranging from one cent to $25. The facility also offers two
casino bars, a food court and a retail shop.

A Phase II gaming and entertainment facility at Mohegan Sun at Pocono Downs is planned for
development on land adjacent to the existing gaming location. When completed, the combined facility is anticipated to include approximately 2,500 slot machines, a variety of restaurants, a 300 seat buffet, an expanded food court, retail shopping,
nightlife venues, additional parking and bus amenities. Construction is expected to commence in the spring of 2007 with a grand opening planned in the summer of 2008. Development of the Phase II facility is anticipated to cost between $140.0 million
and $150.0 million.

Other Diversification Projects

The Tribe has determined that it is in its long-term best interest to pursue diversification of its business interests, both directly and through us. As a
result, from time to time, we and the Tribe receive and evaluate various business opportunities. These opportunities primarily include the management or ownership of, or investment in, other gaming enterprises through direct investments,
acquisitions, joint venture arrangements and loan transactions. In addition to the developments described below, we and the Tribe are currently exploring other opportunities, although there is no assurance that we or the Tribe will continue to
pursue any of these other opportunities or that any of them will be consummated.

Cowlitz Project

In July 2004, we formed Mohegan Ventures-Northwest, LLC, or Mohegan Ventures-NW, one of three members in Salishan-Mohegan LLC, or Salishan-Mohegan.
Salishan-Mohegan was formed to participate in the development and management of a casino to be located in Clark County, Washington, or the Cowlitz Project. The proposed casino would be owned by the Cowlitz Indian Tribe. The Mohegan Tribe is also a
member of Salishan-Mohegan. Currently, Mohegan Ventures-NW holds a 49.15% membership interest, the Mohegan Tribe holds a 7.85% membership interest and Salishan Company, LLC, or Salishan Company, holds a 43.0% membership interest in Salishan-Mohegan.
Mohegan Ventures-NW and the Mohegan Tribe each hold one of four seats on the Board of Managers of Salishan-Mohegan.

In September 2004,
Salishan-Mohegan entered into development and management agreements with the Cowlitz Indian Tribe regarding the Cowlitz Project. Under the terms of the development agreement, Salishan-Mohegan administers and oversees the planning, designing,
development, construction, and furnishing, as well as providing assistance with the financing, of the Cowlitz Project. The development agreement provides for certain development fees of 3% of total Project Costs, as defined in the development
agreement, which are payable to Mohegan VenturesNW and the Mohegan Tribe through Salishan-Mohegan pursuant to the operating agreement. As of April 2006, Salishan-Mohegan purchased the land to be used as the site for the planned casino, which
will be assigned to the Cowlitz Indian Tribe under certain conditions in the development agreement. The management agreement is for a period of seven years commencing with the opening of the planned casino, during which Salishan-Mohegan will manage,
operate and maintain the planned casino. The management agreement provides for a management fee of 24% of Net Revenues, as defined in the management agreement, which approximates



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net income from the Cowlitz Project. Pursuant to the operating agreement, management fees will be allocated to the members of Salishan-Mohegan based on their
respective membership percentages. Development of the Cowlitz Project is subject to certain governmental and regulatory approvals, including, but not limited to, negotiating a gaming compact with the State of Washington and the United States
Department of the Interior accepting land into trust on behalf of the Cowlitz Indian Tribe. The management agreement is subject to approval by the National Indian Gaming Commission, or the NIGC.

On August 4, 2006, we purchased a 5.0% membership interest in Salishan-Mohegan from Mohegan Ventures-NW and sold such 5.0% interest to the Mohegan
Tribe for approximately $351,000. Mohegan Ventures-NW now holds a 49.15% interest in Salishan-Mohegan. We designated Mohegan Ventures-NW as a restricted subsidiary under our bank credit facility and certain of the indentures relating to our senior
and senior subordinated notes. On August 4, 2006, Mohegan Ventures-NW became a guarantor of our debt obligations under the bank credit facility and certain of our senior and senior subordinated notes.

On October 17, 2006, Salishan-Mohegan entered into a $25.0 million revolving loan agreement with Bank of America (the Salishan Credit
Facility). The obligations of Salishan-Mohegan under the Salishan Credit Facility are also guaranteed by the Mohegan Tribe. In exchange for the Mohegan Tribes guarantee of the Salishan Credit Facility, a 2.85% membership interest in
Salishan-Mohegan was transferred from Salishan Company to the Mohegan Tribe on October 17, 2006. Immediately following the execution of the loan agreement, $10.0 million in loan proceeds were used by Salishan-Mohegan to provide a partial
repayment of its outstanding loan balance with Mohegan Ventures-NW.

Menominee Project

In October 2004, we entered into a management agreement with the Menominee Indian Tribe of Wisconsin, or the Menominee Tribe, and the Menominee Kenosha
Gaming Authority. The terms of the management agreement grant us the exclusive right and obligation to manage, operate and maintain a planned casino and destination resort to be located in Kenosha, Wisconsin, or the Menominee Project, for a period
of seven years commencing with the opening of the planned casino, in consideration of a management fee of 13.4% of Net Revenues, as defined in the management agreement, which approximates net income earned from the Menominee Project. The management
agreement is subject to approval by the NIGC.

Explanation of Key Financial Statement Captions

Gross revenues

Our gross
revenues are derived primarily from the following four sources:



| |  |  | gaming revenues, which include revenues from slot machines, table games, keno, live harness racing at Pocono Downs and racebook (including pari-mutuel wagering revenues from our
racebook at Mohegan Sun and our Pennsylvania OTW facilities);
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | food and beverage revenues;
| | - |  | ---------------------------



| |  |  | hotel revenues; and
| | - |  | -------------------



| |  |  | retail, entertainment and other revenues, which include revenues from the Mohegan Sun managed retail shops and the Mohegan Sun Arena.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------

Our largest component of revenues is gaming revenues, which is recognized as gaming wins less gaming losses, and is comprised primarily of revenues from
our slot machines and table games at Mohegan Sun. Revenues from slot machines are the largest component of our gaming revenues. Gross slot revenues, also referred to as gross slot win, represent all amounts played in the slot machines reduced by
both (1) the winnings paid out and (2) all amounts we deposit into the slot machines to ensure sufficient coins in each machine to pay



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out the winnings. Pursuant to the Mohegan Compact, we report gross slot revenues and other statistical information related to slot machine operations to the
State of Connecticut. On a monthly basis, we also post this information on our website at www.mtga.com.

Other commonly used terms
in the discussion of revenues from slot machines include progressive slot machines, progressive jackpots, net slot revenues, slot handle, gross slot hold percentage and net slot hold percentage. Progressive slot machines retain a portion of each
amount wagered and aggregate these amounts with similar amounts from other slot machines in order to create one-time winnings that are substantially larger than those paid in the ordinary course of play. We refer to such aggregated amounts as
progressive jackpots. Wide-area progressive jackpot amounts are paid by a third party vendor and we remit a weekly payment to the vendor based on a percentage of the slot handle for each wide-area progressive slot machine. We accrue in-house
progressive jackpot amounts until paid, and such accrued amounts are deducted from gross slot revenues, along with wide-area progressive jackpot amounts, to arrive at net slot revenues, also referred to as net slot win. Net slot revenues are
included in gaming revenues in the accompanying consolidated statements of income. Slot handle is the total amount wagered by patrons on slot machines during the period. Gross slot hold percentage is the gross slot win as a percentage of slot
handle. Net slot hold percentage is the net slot win as a percentage of slot handle.

Commonly used terms in the discussion of revenues
from table games include table games revenues, table games drop and table games hold percentage. Table games revenues represents the closing table games inventory plus table games drop and credit slips for coins, chips or tokens returned to the
casino cage, less opening table games inventory, discounts provided on patron losses, free bet coupons and chip fills to the tables. Table games drop is the total amount of cash, free bet coupons, cash advance drafts, customer deposit withdrawals,
safekeeping withdrawals and credit issued at the table contained in the locked container at each gaming table. Table games hold percentage is the table games revenues as a percentage of table games drop.

Revenues from food and beverages, hotel, retail, entertainment events and other services are recognized at the time the service is performed. Minimum
rental revenues that we receive pursuant to our rental lease agreements for the Shops at Mohegan Sun are recognized on a straight-line basis over the terms of the leases. Percentage rents are recognized in the period in which the tenants exceed
their respective percentage rent thresholds.

Promotional allowances

We operate a voluntary program for our guests at Mohegan Sun, without membership fees, called the Mohegan Sun Players Club. This program provides
complimentary food, beverages, hotel, retail, entertainment and other services to guests based on points that are awarded for guests gaming activities. These points may be used to purchase, among other things, items at the retail stores and
restaurants located within Mohegan Sun, including the Shops at Mohegan Sun and the Mohegan Sun gasoline and convenience center. Points also may be used to purchase hotel services and tickets to entertainment events held at Mohegan Sun facilities.
The retail value of points are included in gross revenues when redeemed at Mohegan Sun operated facilities and then deducted as promotional allowances to arrive at net revenues.

We also have ongoing promotional programs which offer coupons to our guests for the purchase of food, beverage, hotel and retail amenities offered within
Mohegan Sun. The retail value of items or services purchased with coupons at Mohegan Sun operated facilities is included in gross revenues and the respective coupon value is deducted as promotional allowances to arrive at net revenues.

Gaming expenses

The
largest component of gaming expenses is the portion of gross slot revenues which must be paid to the State of Connecticut. We refer to this payment as the slot win contribution. For each 12-month period



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commencing July 1, 1995, the slot win contribution is the lesser of (a) 30% of gross slot revenues, or (b) the greater of (i) 25% of
gross slot revenues or (ii) $80.0 million. Gaming expenses also include, among other things, expenses associated with operation of slot machines, table games, keno, live harness racing at Pocono Downs and racebook, certain marketing expenses,
and promotional expenses for the Mohegan Sun Players Club points and coupons redeemed at the hotel, restaurants and retail outlets owned by Mohegan Sun, as well as third party tenant restaurants and the Shops at Mohegan Sun.

Income from operations

We
calculate income from operations as net revenues less total operating costs and expenses. Income from operations represents only those amounts that relate to our consolidated operations and excludes minority interest, accretion of discount to the
relinquishment liability, interest income, interest expense, loss on early extinguishment of debt and other non-operating income and expenses.

Accretion of discount to the relinquishment liability and reassessment of relinquishment liability

In February 1998,
we entered into a relinquishment agreement with Trading Cove Associates, or TCA. The relinquishment agreement provides that we will make certain payments to TCA out of, and determined as a percentage of, revenues (as defined in the relinquishment
agreement) generated by Mohegan Sun over a 15-year period. In accordance with Statement of Financial Accounting Standards, or SFAS, No. 5, Accounting for Contingencies, or SFAS 5, we have recorded a relinquishment liability of the
estimated present value of our obligations under the relinquishment agreement. We reassess projected revenues (and consequently the relinquishment liability) (i) annually in conjunction with our budgeting process and (ii) when necessary to
account for material increases or decreases in projected revenues over the relinquishment period. Further, we record a quarterly accretion to the relinquishment liability to reflect the impact of the time value of money. Since there is a high level
of estimates and judgments used with respect to calculating the relinquishment liability, future events that affect such estimates and judgments may cause the actual relinquishment liability to differ significantly from the estimate. In addition, we
have capitalized $130.0 million of this relinquishment liability in connection with the trademark value of the Mohegan Sun brand name. Under SFAS No. 142, Goodwill and Other Intangible Assets, or SFAS 142, the Mohegan Sun trademark
is no longer subject to amortization because it has been deemed to have an indefinite useful life. SFAS 142, however, requires the trademark to be evaluated at least annually for impairment by applying a fair-value test and, if impairment occurs,
the amount of impaired trademark must be written off immediately. Refer to Notes 2 and 13 to our consolidated financial statements for a further discussion of how we account for the relinquishment liability.

Results of Operations

Summary Operating
Results

As of September 30, 2006, we own and operate the Mohegan Sun property in Connecticut and, through the Pocono Downs
entities, operate a harness racetrack at Pocono Downs and five OTW facilities in Pennsylvania. All of our revenues are derived from these operations. Our executive officers review and assess the performance of the operating results and determine the
proper allocation of resources to Mohegan Sun and the Pocono Downs entities on a separate basis. We therefore believe that we have two operating segments, one comprised solely of Mohegan Sun and another, referred to as Pocono Downs,
comprised of the operations of the Pocono Downs entities. The two operating segments are also separate reportable segments due to the differing nature of their operations. See Note 16 to the consolidated financial statements for financial
information about the segments.



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The following tables summarize our results from operations on a property basis (in thousands):



|                               |  |                                          |           |   |           |   |           |           |  |   |                 |   |  |                     |         |   |  |   |          |   |  |          |   |  |       |  
|------------------------------ |  | ---------------------------------------- | --------- | - | --------- | - | --------- | --------- |  | - | --------------- | - |  | ------------------- | ------- | - |  | - | -------- | - |  | -------- | - |  | ----- | -
|                               |  | For the Fiscal Years Ended September 30, |          
|                               |  | 2006                                     |           |   | 2005      |   |           | 2004      |  |   | Dollar Variance |   |  | Percentage Variance |        
|                               |  |                                          |           |   | 06 vs. 05 |   |           | 05 vs. 04 |  |   | 06 vs. 05       |   |  | 05 vs. 04           |        
|Net revenues:                  |  |                                          |           |   |           |   |           |           |  |   |                 |   |  |                     |         |   |  |   |          |   |  |          |   |  |       |  
|Mohegan Sun                    |  | $                                        | 1,392,958 |   |           | $ | 1,305,686 |           |  | $ | 1,256,926       |   |  | $                   | 87,272  |   |  | $ | 48,760   |   |  | 6.7      | % |  | 3.9   | %
|Pocono Downs (1)               |  |                                          | 33,456    |   |           |   | 25,919    |           |  |   |                |   |  |                     | 7,537   |   |  |   | 25,919   |   |  | 29.1     | % |  |      |  
|                               |  |                                          |           |   |           |   |           |           |  |   |                 |   |  |                     |         |   |  |   |          |   |  |          |   |  |       |  
|Total                          |  | $                                        | 1,426,414 |   |           | $ | 1,331,605 |           |  | $ | 1,256,926       |   |  | $                   | 94,809  |   |  | $ | 74,679   |   |  | 7.1      | % |  | 5.9   | %
|                               |  |                                          |           |   |           |   |          
|Income (loss) from operations: |  |                                          |           |   |           |   |           |           |  |   |                 |   |  |                     |         |   |  |   |          |   |  |          |   |  |       |  
|Mohegan Sun                    |  | $                                        | 267,415   |   |           | $ | 150,914   |           |  | $ | 251,455         |   |  | $                   | 116,501 |   |  | $ | (100,541 | ) |  | 77.2     | % |  | -40.0 | %
|Pocono Downs (1)               |  |                                          | (7,400    | ) |           |   | (67       | )         |  |   |                |   |  |                     | (7,333  | ) |  |   | (67      | ) |  | 10,944.8 | % |  |      |  
|Corporate expenses             |  |                                          | (10,636   | ) |           |   | (11,483   | )         |  |   | (4,838          | ) |  | $                   | 847     |   |  | $ | (6,645   | ) |  | -7.4     | % |  | 137.4 | %
|                               |  |                                          |           |   |           |   |           |           |  |   |                 |   |  |                     |         |   |  |   |          |   |  |          |   |  |       |  
|Total                          |  | $                                        | 249,379   |   |           | $ | 139,364   |           |  | $ | 246,617         |   |  | $                   | 110,015 |   |  | $ | (107,253 | ) |  | 78.9     | % |  | -43.5 | %
|                               |  |                                          |           |   |           |   |          
|Net income                     |  | $                                        | 154,917   |   |           | $ | 23,667    |           |  | $ | 102,887         |   |  | $                   | 131,250 |   |  | $ | (79,220  | ) |  | 554.6    | % |  | -77.0 | %

---

|(1) | Acquired January 25, 2005
|--- | -------------------------

The important factors and
trends that most contributed to our financial performance for the fiscal years ended September 30, 2006, 2005 and 2004, are as follows:



| |  |  | the strengthening of the Mohegan Sun brand awareness in the Northeast gaming market, which is reflected in our table games and slot revenue growth rates for the fiscal years ended
September 30, 2006, 2005 and 2004;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the strong utilization of the private high limit table games suite that was opened in the Sky hotel at Mohegan Sun in June 2006, which contributed $11.7 million to table games
revenues in fiscal 2006;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | successful marketing programs and promotional events at Mohegan Sun designed to increase targeted repeat patron visitation;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | the optimization of hotel occupancy rates through extending offers to Players Club members which led to higher gaming and non-gaming revenues;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the utilization of technologies to improve the productivity and efficiencies of our Mohegan Sun labor force;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | the continuation of a cost reduction program at Mohegan Sun which targets expenditures that grow at substantially faster rates than net revenues, such as certain promotional costs;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the non-cash relinquishment liability reassessment charges of $39.4 million and $123.6 million for the fiscal years 2006 and 2005, respectively, which significantly increased our
operating costs and expenses from fiscal year 2004;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | execution of planned developments at Mohegan Sun at Pocono Downs, which negatively impacts income from operations due to pre-opening and other costs and expenses necessary to market
and facilitate future operations; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the non-cash non-operating gain of $24.5 million from a settlement on the Pocono Downs purchase agreement discussed above under Mohegan Sun at Pocono Downs, which
resulted in a significant non-recurring increase in net income for the 2006 fiscal year.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Net revenues for the fiscal year
ended September 30, 2006 increased primarily as a result of a 6.2% growth in gaming and a 5.3% growth in non-gaming revenues at Mohegan Sun, and an increase in net revenues associated with a full year of operations at Pocono Downs and the OTWs
acquired in January 2005. The increase



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in net revenues for the fiscal year ended September 30, 2006 was also due to a decrease in promotional allowances discussed below under
Promotional Allowances compared to the prior fiscal year.

Net revenues for the fiscal year ended September 30, 2005
increased primarily as a result of the growth of 6.8% in gaming revenues and 4.8% in non-gaming revenues at Mohegan Sun and the addition of $22.9 million in harness racing and off-track wagering revenues from Pocono Downs and the OTWs acquired in
January 2005. The increase in net revenues was partially offset by an increase in promotional allowances discussed below under Promotional Allowances for the fiscal year ended September 30, 2005 compared to the prior fiscal year.

Income from operations for the fiscal year ended September 30, 2006 compared to the prior fiscal year increased as a result of the
growth in net revenues and a significant decrease in the non-cash relinquishment liability reassessment charge, as more fully described below under Operating Costs and Expenses. Our operating margin or income from operations as a
percentage of net revenues, for the fiscal year ended September 30, 2006 increased to 17.5% from 10.5% for the fiscal year ended September 30, 2005. This increase was primarily due to the decrease in the non-cash relinquishment liability
reassessment charge, greater employee productivity and the cost reduction programs at Mohegan Sun mentioned above, which enabled Mohegan Sun to have a 19.2% operating margin for the fiscal year ended September 30, 2006 compared to 11.6% for the
fiscal year ended September 30, 2005.

Income from operations for the fiscal year ended September 30, 2005 decreased
significantly as compared to the prior fiscal year as a result of a $123.6 million non-cash relinquishment liability reassessment charge, as more fully described below under Operating Costs and Expenses. The reassessment charge had the
effect of substantially increasing operating costs and expenses, which was partially offset by the increase in net revenues.

Net income
for the fiscal year ended September 30, 2006 compared to the prior fiscal year increased primarily due to the increase in income from operations at Mohegan Sun and a $24.5 million gain recorded in connection with the amendment of the agreement
by which we acquired Pocono Downs, as more fully described above under Mohegan Sun at Pocono Downs.

Net income for the fiscal
year ended September 30, 2005 compared to the prior fiscal year decreased primarily due to the decrease in income from operations resulting from the reassessment of the relinquishment liability discussed above, and an increase in interest
expense of $9.0 million offset by a decrease of $33.9 million in the loss on early extinguishment of debt due to refinancings discussed below under Other Income (Expense).

Gross Revenues

Gross revenues
consisted of the following (in thousands):



|                                |  |                                          |           |           |   |           |  |                 |           |  |                     |           |  |   |        |   |  |     |   |  |      |  
|------------------------------- |  | ---------------------------------------- | --------- | --------- | - | --------- |  | --------------- | --------- |  | ------------------- | --------- |  | - | ------ | - |  | --- | - |  | ---- | -
|                                |  | For the Fiscal Years Ended September 30, |          
|                                |  | 2006                                     |           | 2005      |   | 2004      |  | Dollar Variance |           |  | Percentage Variance |          
|                                |  |                                          |           | 06 vs. 05 |   | 05 vs. 04 |  |                 | 06 vs. 05 |  |                     | 05 vs. 04 | 
|Gaming                          |  | $                                        | 1,282,768 |           | $ | 1,202,196 |  | $               | 1,125,145 |  | $                   | 80,572    |  | $ | 77,051 |   |  | 6.7 | % |  | 6.8  | %
|Food and beverage               |  |                                          | 96,046    |           |   | 92,180    |  |                 | 89,850    |  |                     | 3,866     |  |   | 2,330  |   |  | 4.2 | % |  | 2.6  | %
|Hotel                           |  |                                          | 50,818    |           |   | 50,058    |  |                 | 52,035    |  |                     | 760       |  |   | (1,977 | ) |  | 1.5 | % |  | -3.8 | %
|Retail, entertainment and other |  |                                          | 121,699   |           |   | 112,319   |  |                 | 100,903   |  |                     | 9,380     |  |   | 11,416 |   |  | 8.4 | % |  | 11.3 | %
|                                |  |                                          |           |           |   |           |  |                 |           |  |                     |           |  |   |        |   |  |     |   |  |      |  
|Total                           |  | $                                        | 1,551,331 |           | $ | 1,456,753 |  | $               | 1,367,933 |  | $                   | 94,578    |  | $ | 88,820 |   |  | 6.5 | % |  | 6.5  | %
|                                |  |                                          |           |           |   |           |  |                 |           |  |                     |           |  |   |        |   |  |     |   |  |      |  



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The table below summarizes the percentage of gross revenues from each of our four revenue sources:



|                                |  |                                          |   |  |       |   |  |       |  
|------------------------------- |  | ---------------------------------------- | - |  | ----- | - |  | ----- | -
|                                |  | For the Fiscal Years Ended September 30, |  
|                                |  | 2006                                     |   |  | 2005  |   |  | 2004  |  
|Gaming                          |  | 82.7                                     | % |  | 82.5  | % |  | 82.2  | %
|Food and beverage               |  | 6.2                                      | % |  | 6.3   | % |  | 6.6   | %
|Hotel                           |  | 3.3                                      | % |  | 3.5   | % |  | 3.8   | %
|Retail, entertainment and other |  | 7.8                                      | % |  | 7.7   | % |  | 7.4   | %
|                                |  |                                          |   |  |       |   |  |       |  
|Total                           |  | 100.0                                    | % |  | 100.0 | % |  | 100.0 | %
|                                |  |                                          |   |  |       |   |  |       |  

The following table presents data related to our gaming revenues (in millions, except where
noted):



|                                                    |  |                                          |        |           |      |   |           |      |  |           |          |   |           |                     |      |   |  |   |      |   |  |      |   |  |      |  
|--------------------------------------------------- |  | ---------------------------------------- | ------ | --------- | ---- | - | --------- | ---- |  | --------- | -------- | - | --------- | ------------------- | ---- | - |  | - | ---- | - |  | ---- | - |  | ---- | -
|                                                    |  | For the Fiscal Years Ended September 30, |       
|                                                    |  | 2006                                     |        |           | 2005 |   |           | 2004 |  |           | Variance |   |           | Percentage Variance |     
|                                                    |  |                                          |        | 06 vs. 05 |      |   | 05 vs. 04 |      |  | 06 vs. 05 |          |   | 05 vs. 04 |                    
|Slot handle                                         |  | $                                        | 10,540 |           |      | $ | 10,182    |      |  | $         | 10,294   |   |           | $                   | 358  |   |  | $ | (112 | ) |  | 3.5  | % |  | -1.1 | %
|Gross slot revenues                                 |  | $                                        | 905    |           |      | $ | 861       |      |  | $         | 833      |   |           | $                   | 44   |   |  | $ | 28   |   |  | 5.1  | % |  | 3.4  | %
|Net slot revenues                                   |  | $                                        | 876    |           |      | $ | 834       |      |  | $         | 809      |   |           | $                   | 42   |   |  | $ | 25   |   |  | 5.0  | % |  | 3.1  | %
|Weighted average number of slot machines (in units) |  |                                          | 6,201  |           |      |   | 6,233     |      |  |           | 6,224    |   |           |                     | (32  | ) |  |   | 9    |   |  | -0.5 | % |  | 0.1  | %
|Gross slot hold percentage                          |  |                                          | 8.6    | %         |      |   | 8.5       | %    |  |           | 8.1      | % |           |                     | 0.1  | % |  |   | 0.4  | % |  | 1.2  | % |  | 4.9  | %
|Gross slot win per unit per day (in dollars)        |  | $                                        | 400    |           |      | $ | 379       |      |  | $         | 366      |   |           | $                   | 21   |   |  | $ | 13   |   |  | 5.5  | % |  | 3.6  | %
|Table games drop                                    |  | $                                        | 2,305  |           |      | $ | 2,086     |      |  | $         | 1,952    |   |           | $                   | 219  |   |  | $ | 134  |   |  | 10.5 | % |  | 6.9  | %
|Table games revenues                                |  | $                                        | 366    |           |      | $ | 334       |      |  | $         | 306      |   |           | $                   | 32   |   |  | $ | 28   |   |  | 9.6  | % |  | 9.2  | %
|Weighted average number of table games (in units)   |  |                                          | 300    |           |      |   | 294       |      |  |           | 285      |   |           |                     | 6    |   |  |   | 9    |   |  | 2.0  | % |  | 3.2  | %
|Table games hold percentage (1)                     |  |                                          | 15.9   | %         |      |   | 16.0      | %    |  |           | 15.7     | % |           |                     | -0.1 | % |  |   | 0.3  | % |  | -0.6 | % |  | 1.9  | %
|Table games revenue per unit per day (in dollars)   |  | $                                        | 3,341  |           |      | $ | 3,114     |      |  | $         | 2,938    |   |           | $                   | 227  |   |  | $ | 176  |   |  | 7.3  | % |  | 6.0  | %

---

|(1) | Table games hold percentage is relatively predictable over long periods of time, but can fluctuate significantly over shorter periods.
|--- | --------------------------------------------------------------------------------------------------------------------------------------

Gaming revenues for the fiscal year ended September 30, 2006 compared to the prior fiscal year increased due to continued growth in net slot
revenues and table games revenues at Mohegan Sun. The increase in net slot revenues and table games revenues, and higher win or revenue per unit for both slot machines and table games, resulted primarily from the strengthened awareness of the
Mohegan Sun brand in the northeastern United States gaming market due to enhancements in our targeted direct marketing programs. The increase in gaming revenues was also due to the contribution of $11.7 million in table games revenues from the new
private high limit table games suite discussed above under Summary Operating Results and an increase in harness racing and off-track wagering revenues of $6.9 million, or 30.1%, as a result of a full year of operations at Pocono Downs
and the OTW facilities acquired on January 25, 2005. We exceeded the Connecticut slot revenue market growth rate for the fiscal year ended September 30, 2006 of 2.3%, with Mohegan Sun increasing its market share to 52.7% for the fiscal
year ended September 30, 2006 from 51.3% for the prior fiscal year. The State of Connecticut reported slot revenues of $1.72 billion and $1.68 billion for the fiscal years ended September 30, 2006 and 2005, respectively.

Gaming revenues for the fiscal year ended September 30, 2005 compared to the prior fiscal year increased due to continued growth in net slot
revenues and table games revenues and the addition of $22.9 million in harness racing and off-track wagering revenues as a result of the operations of Pocono Downs and the OTWs acquired in January 2005. The increase in net slot revenues and table
games revenues resulted primarily from the



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strengthened awareness of the Mohegan Sun brand in the northeastern United States gaming market. We exceeded the Connecticut slot revenue market growth rate
for the fiscal year ended September 30, 2005 of 2.9%. The State of Connecticut reported slot revenues of $1.68 billion and $1.63 billion for the fiscal years ended September 30, 2005 and 2004, respectively.

Food and beverage revenues for the fiscal year ended September 30, 2006 compared to the prior fiscal year increased as a result of a $3.1 million
increase in gross beverage revenues and an $818,000 increase in gross food revenues. The increase in beverage revenues was due primarily to an increase in the number of events and ticket sales at the Mohegan Sun Arena in fiscal 2006, as discussed
below. The increase in food revenues was due to a slight increase in the number of meals served, or food covers, and the average price per meal at Mohegan Sun. The average price per meal was $13.13 and $13.09 for the fiscal years ended
September 30, 2006 and 2005, respectively. The increase in food and beverage revenues was also a result of a full year of operations of the food and beverage outlets at the Pocono Downs properties acquired in January 2005.

Food and beverage revenues for the fiscal year ended September 30, 2005 compared to the prior fiscal year increased primarily as a result of the
addition of $1.9 million in food and beverage revenues associated with the operation of the food and beverage outlets at the Pocono Downs properties. Mohegan Sun experienced a slight increase in food and beverage revenues due to a 5.8% increase in
beverage revenues attributed to increased visitation at the casino, offset by a 0.4% decrease in food revenues due to the closure of the Mohegan Territory and Chiefs Deli restaurants in the Casino of the Earth for part of the fiscal year. The
new Uncas American Indian Grill opened to the public in July 2005 in the space formerly occupied by these restaurants. The average price per meal at Mohegan Sun was $13.09 and $13.05 for the fiscal years ended September 30, 2005 and 2004,
respectively.

The following table presents data related to our hotel revenues:



|                                    |  |                                          |         |           |      |   |           |      |  |           |          |   |           |                     |       |   |  |   |        |   |  |     |   |  |       |  
|----------------------------------- |  | ---------------------------------------- | ------- | --------- | ---- | - | --------- | ---- |  | --------- | -------- | - | --------- | ------------------- | ----- | - |  | - | ------ | - |  | --- | - |  | ----- | -
|                                    |  | For the Fiscal Years Ended September 30, |        
|                                    |  | 2006                                     |         |           | 2005 |   |           | 2004 |  |           | Variance |   |           | Percentage Variance |      
|                                    |  |                                          |         | 06 vs. 05 |      |   | 05 vs. 04 |      |  | 06 vs. 05 |          |   | 05 vs. 04 |                    
|Rooms occupied                      |  |                                          | 400,200 |           |      |   | 398,600   |      |  |           | 375,100  |   |           |                     | 1,600 |   |  |   | 23,500 |   |  | 0.4 | % |  | 6.3   | %
|Average daily room rate (ADR)       |  | $                                        | 120     |           |      | $ | 118       |      |  | $         | 132      |   |           | $                   | 2     |   |  | $ | (14    | ) |  | 1.7 | % |  | -10.6 | %
|Occupancy rate                      |  |                                          | 93.3    | %         |      |   | 92.9      | %    |  |           | 87.1     | % |           |                     | 0.4   | % |  |   | 5.8    | % |  | 0.4 | % |  | 6.7   | %
|Revenue per available room (REVPAR) |  | $                                        | 112     |           |      | $ | 110       |      |  | $         | 115      |   |           | $                   | 2     |   |  | $ | (5     | ) |  | 1.8 | % |  | -4.3  | %

Hotel revenues for the fiscal year ended September 30, 2006 compared to the prior fiscal year
increased slightly due to our yield management strategy evidenced by the increase in hotel occupancy, which we believe contributes to growth in gaming, food and beverage and retail, entertainment and other revenues at Mohegan Sun.

Hotel revenues decreased for the fiscal year ended September 30, 2005 compared to the prior fiscal year as a result of a decrease in ADR partially
offset by an increase in occupancy rate. In 2005, Mohegan Sun continued to optimize hotel room availability to Players Club members, which led to the decreases in REVPAR and ADR. The optimization of hotel inventory to rated casino patrons is
believed to have contributed to growth in gaming and non-gaming revenues that exceeds the decline in hotel revenues.

Retail, entertainment
and other revenues increased for the fiscal year ended September 30, 2006 compared to the prior fiscal year as a result of the increase in entertainment revenues at Mohegan Sun of $16.1 million, or 52.8%, offset by a decrease in retail revenues
at Mohegan Sun of $6.4 million, or 10.7%, due to changes in promotions offered to Mohegan Sun Players Club members. The increase in entertainment revenues was primarily due to a 30.6% increase in Mohegan Sun Arena ticket sales and a 21.6%
increase in average price for Arena tickets due to an increased number of headliner shows.



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Retail, entertainment and other revenues increased for the fiscal year ended September 30, 2005
compared to the prior fiscal year, principally as the result of an $8.8 million, or 17.3%, increase in retail revenues primarily driven by a $6.0 million increase in fuel revenues due to the substantial increase in the price per gallon of fuel at
the Mohegan Sun gasoline and convenience center. The increase in retail revenues and an increase in miscellaneous other revenues of $6.7 million, which include increases in rental revenues associated with the third party tenant restaurants and
retail outlets at Mohegan Sun and the addition of certain other revenues as a result of the operation of the Pocono Downs properties, is partially offset by a decrease in entertainment revenues of 12.0%, or $4.1 million, due to a decrease of 11.3%
in the average price per ticket resulting from a change in the mix of Mohegan Sun Arena events in fiscal year 2005.

Promotional
Allowances

The retail value of providing promotional allowances at Mohegan Sun is included in revenues as follows (in thousands):



|                                |  |                                          |         |      |           |         |  |                 |         |                     |   |        |           |  |   |        |  |      |   |  |      |  
|------------------------------- |  | ---------------------------------------- | ------- | ---- | --------- | ------- |  | --------------- | ------- | ------------------- | - | ------ | --------- |  | - | ------ |  | ---- | - |  | ---- | -
|                                |  | For the Fiscal Years Ended September 30, |        
|                                |  | 2006                                     |         | 2005 |           | 2004    |  | Dollar Variance |         | Percentage Variance |  
|                                |  |                                          |         |      | 06 vs. 05 |         |  | 05 vs. 04       |         | 06 vs. 05           |   |        | 05 vs. 04 | 
|Food and beverage               |  | $                                        | 46,894  |      | $         | 44,757  |  | $               | 43,393  |                     | $ | 2,137  |           |  | $ | 1,364  |  | 4.8  | % |  | 3.1  | %
|Hotel                           |  |                                          | 17,356  |      |           | 16,292  |  |                 | 14,166  |                     |   | 1,064  |           |  |   | 2,126  |  | 6.5  | % |  | 15.0 | %
|Retail, entertainment and other |  |                                          | 60,667  |      |           | 64,099  |  |                 | 53,448  |                     |   | (3,432 | )         |  |   | 10,651 |  | -5.4 | % |  | 19.9 | %
|                                |  |                                          |         |      |           |         |  |                 |         |                     |   |        |           |  |   |        |  |      |   |  |      |  
|Total                           |  | $                                        | 124,917 |      | $         | 125,148 |  | $               | 111,007 |                     | $ | (231   | )         |  | $ | 14,141 |  | -0.2 | % |  | 12.7 | %
|                                |  |                                          |         |      |           |         |  |                 |         |                     |   |        |           |  |   |        |  |      |   |  |      |  

The estimated cost of providing promotional allowances at Mohegan Sun is included in operating
costs and expenses, primarily gaming, as follows (in thousands):



|                                |  |                                          |         |      |           |         |  |                 |        |                     |   |        |           |  |   |        |  |      |   |  |      |  
|------------------------------- |  | ---------------------------------------- | ------- | ---- | --------- | ------- |  | --------------- | ------ | ------------------- | - | ------ | --------- |  | - | ------ |  | ---- | - |  | ---- | -
|                                |  | For the Fiscal Years Ended September 30, |        
|                                |  | 2006                                     |         | 2005 |           | 2004    |  | Dollar Variance |        | Percentage Variance |  
|                                |  |                                          |         |      | 06 vs. 05 |         |  | 05 vs. 04       |        | 06 vs. 05           |   |        | 05 vs. 04 | 
|Food and beverage               |  | $                                        | 48,352  |      | $         | 44,877  |  | $               | 42,837 |                     | $ | 3,475  |           |  | $ | 2,040  |  | 7.7  | % |  | 4.8  | %
|Hotel                           |  |                                          | 8,734   |      |           | 7,731   |  |                 | 5,916  |                     |   | 1,003  |           |  |   | 1,815  |  | 13.0 | % |  | 30.7 | %
|Retail, entertainment and other |  |                                          | 46,874  |      |           | 49,372  |  |                 | 42,496 |                     |   | (2,498 | )         |  |   | 6,876  |  | -5.1 | % |  | 16.2 | %
|                                |  |                                          |         |      |           |         |  |                 |        |                     |   |        |           |  |   |        |  |      |   |  |      |  
|Total                           |  | $                                        | 103,960 |      | $         | 101,980 |  | $               | 91,249 |                     | $ | 1,980  |           |  | $ | 10,731 |  | 1.9  | % |  | 11.8 | %
|                                |  |                                          |         |      |           |         |  |                 |        |                     |   |        |           |  |   |        |  |      |   |  |      |  

Promotional allowances decreased for the fiscal year ended September 30, 2006 compared to the
prior fiscal year as a result of a significant decrease in retail complimentaries due to a reduction in gas and other retail coupons offered to casino patrons, offset by: 1) increased redemption of entertainment complimentaries at Mohegan Sun
resulting from higher attendance and retail prices of tickets due to the increased number of headliner shows at the Mohegan Sun Arena as discussed above; 2) an increase in food and beverage complimentaries at Mohegan Sun due to the increase in
attendance at the Arena and a change in promotional programs to offer more food and beverage complimentaries and offer less retail complimentaries as discussed above; and 3) an increase in hotel complimentaries due to the yield management strategy
described above.

Promotional allowances for the fiscal year ended September 30, 2005 compared to the prior fiscal year increased due
primarily to the increase in redemption of retail, entertainment and other complimentaries at Mohegan Sun. The increase in retail, entertainment and other promotional allowances was due primarily to increases in Players Club points and coupons
redeemed at retail outlets owned and operated by Mohegan Sun, including the Mohegan Sun gasoline and convenience center.



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Operating Costs and Expenses

Operating costs and expenses consisted of the following (in thousands):



|                                        |  |                                          |           |      |           |           |  |                 |           |  |                     |         |   |           |   |         |   |  |       |   |  |         |  
|--------------------------------------- |  | ---------------------------------------- | --------- | ---- | --------- | --------- |  | --------------- | --------- |  | ------------------- | ------- | - | --------- | - | ------- | - |  | ----- | - |  | ------- | -
|                                        |  | For the Fiscal Years Ended September 30, |          
|                                        |  | 2006                                     |           | 2005 |           | 2004      |  | Dollar Variance |           |  | Percentage Variance |        
|                                        |  |                                          |           |      | 06 vs. 05 |           |  | 05 vs. 04       |           |  | 06 vs. 05           |         |   | 05 vs. 04 |  
|Gaming                                  |  | $                                        | 722,206   |      | $         | 684,640   |  | $               | 631,498   |  | $                   | 37,566  |   |           | $ | 53,142  |   |  | 5.5   | % |  | 8.4     | %
|Food and beverage                       |  |                                          | 49,710    |      |           | 45,216    |  |                 | 43,264    |  |                     | 4,494   |   |           |   | 1,952   |   |  | 9.9   | % |  | 4.5     | %
|Hotel                                   |  |                                          | 16,883    |      |           | 16,114    |  |                 | 15,440    |  |                     | 769     |   |           |   | 674     |   |  | 4.8   | % |  | 4.4     | %
|Retail, entertainment and other         |  |                                          | 43,370    |      |           | 35,442    |  |                 | 41,870    |  |                     | 7,928   |   |           |   | (6,428  | ) |  | 22.4  | % |  | -15.4   | %
|Advertising, general and administrative |  |                                          | 201,589   |      |           | 186,805   |  |                 | 175,907   |  |                     | 14,784  |   |           |   | 10,898  |   |  | 7.9   | % |  | 6.2     | %
|Corporate expenses                      |  |                                          | 10,558    |      |           | 11,465    |  |                 | 4,838     |  |                     | (907    | ) |           |   | 6,627   |   |  | -7.9  | % |  | 137.0   | %
|Pre-opening costs and expenses          |  |                                          | 5,130     |      |           | 1,257     |  |                 |          |  |                     | 3,873   |   |           |   | 1,257   |   |  | 308.1 | % |  |        |  
|Depreciation and amortization           |  |                                          | 88,182    |      |           | 87,678    |  |                 | 93,595    |  |                     | 504     |   |           |   | (5,917  | ) |  | 0.6   | % |  | -6.3    | %
|Relinquishment liability reassessment   |  |                                          | 39,407    |      |           | 123,624   |  |                 | 3,897     |  |                     | (84,217 | ) |           |   | 119,727 |   |  | -68.1 | % |  | 3,072.3 | %
|                                        |  |                                          |           |      |           |           |  |                 |           |  |                     |         |   |           |   |         |   |  |       |   |  |         |  
|Total                                   |  | $                                        | 1,177,035 |      | $         | 1,192,241 |  | $               | 1,010,309 |  | $                   | (15,206 | ) |           | $ | 181,932 |   |  | -1.3  | % |  | 18.0    | %
|                                        |  |                                          |           |      |           |           |  |                 |           |  |                     |         |   |           |   |         |   |  |       |   |  |         |  

Gaming costs and expenses increased for the fiscal year ended September 30, 2006 compared to
the prior fiscal year primarily as a result of higher labor costs, slot win contribution to the State of Connecticut and other operating costs commensurate with higher gaming revenues, increased costs related to a higher amount of certain
complimentaries and special promotions offered to casino patrons and enhancements in our targeted direct marketing programs and an increase in gaming expenses associated with a full year of harness racing and OTW operations at the Pocono Downs
properties acquired in January 2005; partially offset by a decrease in outside retail redemption costs due to changes in promotional programs offered to casino patrons. The increase in labor costs included an increase in bonus expenses as a result
of our successful fiscal 2006 operating results and in commemoration of the casinos ten-year anniversary. Slot win contribution payments to the State of Connecticut totaled $226.3 million and $215.2 million for the fiscal years ended
September 30, 2006 and 2005, respectively. Despite the increases mentioned above, efficiencies achieved in Mohegan Sun gaming operations caused gaming costs and expenses as a percentage of gaming revenues to decrease from 56.9 % for the
fiscal year ended September 30, 2005 to 56.3% for the fiscal year ended September 30, 2006.

Gaming costs and expenses increased
for the fiscal year ended September 30, 2005 compared to the prior fiscal year primarily as a result of increased costs related to a higher amount of complimentaries provided to casino patrons, the reimbursement of gift cards and
complimentaries redeemed at tenant retail outlets and the addition of $15.8 million in gaming expenses associated with harness racing and OTW operations at the Pocono Downs properties. Slot win contribution payments to the State of Connecticut
totaled $215.2 million and $208.2 million for the fiscal years ended September 30, 2005 and 2004, respectively.

Food and beverage
costs and expenses increased for fiscal year ended September 30, 2006 compared to the prior fiscal year due to higher direct labor and other operating costs to support the increase in food and beverage revenues and the continuous improvements
of our food and beverage services at Mohegan Sun, and an increase in food and beverage expenses associated with a full year of operations of the food and beverage outlets at the Pocono Downs properties acquired on January 25, 2005. The increase
in food and beverage revenues was partially offset by a higher amount of food and beverage costs being allocated to gaming costs and expenses for food and beverage complimentaries provided to casino patrons.



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Food and beverage costs and expenses increased for the fiscal year ended September 30, 2005 compared
to the prior fiscal year due to the addition of $1.9 million in expenses related to the operation of the food and beverage outlets at the Pocono Downs properties. Food and beverage expenses at Mohegan Sun increased slightly as a result of higher
direct labor and other operating costs commensurate with the growth in food and beverage revenues, offset by a higher amount of food and beverage costs allocated to gaming costs and expenses for food and beverage complimentaries provided to casino
patrons.

Hotel costs and expenses increased for the fiscal year ended September 30, 2006 compared to the prior fiscal year as a
result of increased labor and other operating costs, including significant costs for the replacement of hotel room supplies, partially offset by increased hotel complimentaries, resulting in a higher amount of hotel costs and expenses being
allocated to gaming costs and expenses.

Hotel costs and expenses increased for the fiscal year ended September 30, 2005 compared to
the prior fiscal year primarily as a result of higher labor and other operating costs related to the increase in occupied rooms, partially offset by increased hotel complimentaries for the fiscal year ended September 30, 2005, resulting in
higher hotel costs and expenses recorded in gaming costs and expenses as compared to the prior fiscal year ended September 30, 2004.

Retail, entertainment and other costs and expenses increased for the fiscal year ended September 30, 2006 compared to the prior fiscal year primarily due to a substantial increase in entertainment expenses due to the increased number
of headliner shows at the Mohegan Sun Arena, partially offset by a decrease in retail expenses due to the change in promotional programs offered to casino patrons and an increase in entertainment complimentaries, resulting in a higher amount of
entertainment costs and expenses being allocated to gaming costs and expenses.

Retail, entertainment and other costs and expenses
decreased for the fiscal year ended September 30, 2005 compared to the prior fiscal year primarily due to a decrease in entertainment expenses associated with a change in the mix of Arena events and an increase in retail and entertainment
complimentaries provided to patrons at Mohegan Sun for the fiscal year ended September 30, 2005, resulting in a higher amount of retail, entertainment and other costs and expenses being recorded in gaming costs and expenses than in fiscal year
ended September 30, 2004, offset by an increase in the cost of fuel and number of gallons of fuel sold at the Mohegan Sun gasoline and convenience center. Lower costs for live entertainment contributed to retail, entertainment and other costs
and expenses as a percentage of retail, entertainment and other revenues decreasing from 41.5% for the fiscal year ended September 30, 2004 to 31.6% for the fiscal year ended September 30, 2005.

Advertising, general and administrative costs and expenses increased for the fiscal year ended September 30, 2006 compared to the prior fiscal year
primarily as a result of increased labor, utility costs, property maintenance and other costs necessary to support Mohegan Sun operations. The increase in advertising, general and administrative costs and expenses was also due to an increase in
advertising, general and administrative costs and expenses associated with a full year of operations of our Pocono Downs properties acquired on January 25, 2005.

Advertising, general and administrative costs and expenses increased for the fiscal year ended September 30, 2005 compared to the prior fiscal year primarily as a result of increased labor, maintenance and other
costs necessary to support Mohegan Sun operations, approximately $2.0 million in expenses relating to the release of a new series of television commercials for Mohegan Sun that began airing in the northeastern market during the second quarter of
fiscal 2005 and the addition of $4.7 million in advertising, general and administrative costs and expenses associated with the operation of our Pocono Downs properties.

Corporate costs and expenses decreased for the fiscal year ended September 30, 2006 compared to the prior fiscal year primarily as a result of reduced headcount, professional costs related to compliance with the
Sarbanes-Oxley Act of 2002 and other corporate expenditures.



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Corporate costs and expenses increased for the fiscal year ended September 30, 2005 compared to the
prior fiscal year primarily as a result of increased labor and professional costs associated with the continued formation of our corporate structure and expenses incurred in complying with the Sarbanes-Oxley Act of 2002.

Pre-opening costs and expenses for the fiscal years ended September 30, 2006 and 2005 were comprised of personnel, consulting and other costs
associated with the development plans for Mohegan Sun at Pocono Downs, as described above under Mohegan Sun at Pocono Downs.

Depreciation and amortization for the fiscal year ended September 30, 2006 compared to the prior fiscal year increased primarily due to a full year of depreciation related to our Pocono Downs property and equipment acquired on
January 25, 2005 and the placement of new capital assets into service at Mohegan Sun at Pocono Downs, including a new simulcast facility, during fiscal year 2006.

Depreciation and amortization for the fiscal year ended September 30, 2005 decreased primarily due to an increase in fully depreciated assets and the timing of placement of new capital assets into service.

Relinquishment liability reassessment for the fiscal year ended September 30, 2006 decreased significantly compared to the
reassessment in the prior fiscal year, which had the effect of substantially decreasing our operating expenses. The relinquishment liability reassessment charge in fiscal year 2006 was the result of our review of current revenue forecasts, including
the estimated timing and extent of future competition, which led to increased revenue projections for the period in which the relinquishment agreement applies, as more fully described below.

Our accounting policy is to reassess the relinquishment liability at least annually in conjunction with our budgeting process or upon an event which, in
our estimation, would materially increase or decrease projected revenues over the relinquishment period. In October 2006, our Management Board approved an expansion of Mohegan Sun referred to as Project Horizon. As a result of this
decision and a review of potential competition in the Northeast gaming market impacting future Mohegan Sun revenues, we concluded that projected revenues from Mohegan Sun subject to the relinquishment agreement over the remaining period of the
agreement, which expires on December 31, 2014, would increase by approximately $878.2 million, thereby increasing the related relinquishment liability, resulting in a non-cash relinquishment liability charge of $39.4 million for the fiscal year
ended September 30, 2006.

Relinquishment liability reassessment for the fiscal year ended September 30, 2005 increased
significantly compared to the reassessment in the prior fiscal year, with a corresponding impact on our operating expenses. The relinquishment liability reassessment charge in fiscal year 2005 was the result of our review of current revenue
forecasts, including the estimated timing and extent of future competition, which led to increased revenue projections for the period in which the relinquishment agreement applies. On May 13, 2005, the IBIA overturned the federal recognition of
the Historic Eastern Pequot Tribe and the Schaghticoke Tribe of Kent, Connecticut. These decisions were remanded to the United States Secretary of the Interior for reconsideration. We concluded this ruling was not substantive enough to warrant a
reassessment of the relinquishment liability at that time. However, on October 12, 2005, the BIA upon reconsideration denied the federal recognition of these two Indian tribes which had expressed interest in building casinos in the close
proximity of Mohegan Sun in Connecticut. As a result of this decision and other developments involving the revaluation of the impact of potential competition in the northeastern United States gaming market, we concluded that it was appropriate to
increase our projected revenues at Mohegan Sun over the remaining period to which the relinquishment agreement applies by approximately $3.2 billion. This increase in projected revenues substantially increased the related relinquishment liability,
resulting in a non-cash relinquishment liability charge of $123.6 million for the fiscal year ended September 30, 2005.



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Other Income (Expense)

Other income (expense) consisted of the following (in thousands):



|                                                          |  |                                          |         |   |      |   |          |      |  |   |                 |   |  |                     |        |   |           |   |        |           |  |          |   |  |       |  
|--------------------------------------------------------- |  | ---------------------------------------- | ------- | - | ---- | - | -------- | ---- |  | - | --------------- | - |  | ------------------- | ------ | - | --------- | - | ------ | --------- |  | -------- | - |  | ----- | -
|                                                          |  | For the Fiscal Years Ended September 30, |        
|                                                          |  |                                          |         |   |      |   |          |      |  |   | Dollar Variance |   |  | Percentage Variance |       
|                                                          |  | 2006                                     |         |   | 2005 |   |          | 2004 |  |   | 06 vs. 05       |   |  | 05 vs. 04           |        |   | 06 vs. 05 |   |        | 05 vs. 04 | 
|Accretion of discount to the relinquishment liability (1) |  | $                                        | (30,707 | ) |      | $ | (27,466  | )    |  | $ | (29,939         | ) |  | $                   | (3,241 | ) |           | $ | 2,473  |           |  | 11.8     | % |  | -8.3  | %
|Interest income (2)                                       |  |                                          | 2,245   |   |      |   | 673      |      |  |   | 232             |   |  |                     | 1,572  |   |           |   | 441    |           |  | 233.6    | % |  | 190.1 | %
|Interest expense, net of capitalized interest             |  |                                          | (90,928 | ) |      |   | (88,011  | )    |  |   | (78,970         | ) |  |                     | (2,917 | ) |           |   | (9,041 | )         |  | 3.3      | % |  | 11.4  | %
|Loss on early extinguishment of debt                      |  |                                          |        |   |      |   | (280     | )    |  |   | (34,138         | ) |  |                     | 280    |   |           |   | 33,858 |           |  | -100.0   | % |  | -99.2 | %
|Other income (expense), net                               |  |                                          | 24,508  |   |      |   | (1,127   | )    |  |   | (933            | ) |  |                     | 25,635 |   |           |   | (194   | )         |  | -2,274.6 | % |  | 20.8  | %
|                                                          |  |                                          |         |   |      |   |          |      |  |   |                 |   |  |                     |        |   |           |   |        |           |  |          |   |  |       |  
|Total                                                     |  | $                                        | (94,882 | ) |      | $ | (116,211 | )    |  | $ | (143,748        | ) |  | $                   | 21,329 |   |           | $ | 27,537 |           |  | -18.4    | % |  | -19.2 | %
|                                                          |  |                                          |         |   |      |   |          |      |  |   |                 |   |  |                     |        |   |           |   |        |           |  |          |   |  |       |  

---

|(1) | Our accretion of the discount to the relinquishment liability reflects the accretion of the discount to the present value of the relinquishment liability for the impact of the time
value of money.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Comprised primarily of interest earned on long-term receivables from the Cowlitz Indian Tribe related to the Cowlitz Project, as more fully described in Note 15 to the consolidated
financial statements in this Form 10-K.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Interest expense, net of capitalized interest, increased for the fiscal year ended
September 30, 2006 compared to the prior fiscal year primarily due to increases in weighted average outstanding debt and weighted average interest rate, partially offset by the capitalization of $1.2 million in interest costs during the
construction phase at Pocono Downs. The weighted average outstanding debt was $1.25 billion for the fiscal year ended September 30, 2006 versus $1.21 billion for the fiscal year ended September 30, 2005. The increase in weighted average
outstanding debt was due to a full year of outstanding debt in fiscal 2006 related to the acquisition of Pocono Downs and the five OTW facilities in January 2005. The weighted average interest rate was 7.4% for the fiscal year ended
September 30, 2006 compared to 7.3% for the fiscal year ended September 30, 2005.

Interest expense, net of capitalized interest,
increased for the fiscal year ended September 30, 2005 compared to the prior fiscal year primarily as the result of an increase in weighted average outstanding debt. Weighted average outstanding debt increased to $1.21 billion for the fiscal
year ended September 30, 2005 from $1.09 billion for the fiscal year ended September 30, 2004 due to the acquisition of Pocono Downs for approximately $280.0 million in January 2005. The weighted average interest rate was approximately
7.3% for the fiscal years ended September 30, 2005 and 2004.

Loss on early extinguishment of debt associated with the repayment of
our term loan under the bank credit facility was $280,000 for the fiscal year ended September 30, 2005. Loss on early extinguishment of debt in fiscal year 2004 was related to the refinancing of $186.0 million of our outstanding 81/8% senior notes due 2006 and $133.7 million of our outstanding 83/8% senior subordinated notes due 2011. The loss also includes the redemption of our remaining $5.2 million 83/4% senior subordinated notes due 2009.

Other income for the fiscal year ended September 30, 2006 related primarily to a $24.5 million gain recorded in connection with the August 2006 amendment of the agreement by which we acquired Pocono Downs.
Pursuant to the amendment, in exchange for our agreement to modify certain provisions of the purchase agreement, including the elimination of our post-closing termination rights, we will receive an aggregate refund of $30.0 million of the original
purchase price for the Pocono Downs entities, payable in five annual installments of $7.0 million, $7.0 million, $6.5 million, $6.0 million and $3.5 million on November 14, 2007, 2008, 2009, 2010 and 2011, respectively. The gain recorded in
fiscal year 2006 represents the present value of the payment stream for these installments.



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Other expense for the fiscal years ended September 30, 2005 and 2004 related primarily to the loss
on disposal of property and equipment.

Seasonality

The gaming industry in Connecticut is seasonal in nature, with the heaviest gaming activity often occurring at Mohegan Sun between May and August. Additionally, live harness racing activity at Pocono Downs is
seasonal, with the racing season commencing in April and ending in November. Accordingly, the results of operations for the fiscal year ended September 30, 2006 are not necessarily indicative of the operating results for interim periods.

Liquidity, Capital Resources and Capital Spending

Our cash flows consisted of the following (in thousands):





|                                                     |  |                                  |          |   |      |   |          |      |  |   |                 |   |  |                     |          |   |           |   |          |           |  |        |   |  |        |  
|---------------------------------------------------- |  | -------------------------------- | -------- | - | ---- | - | -------- | ---- |  | - | --------------- | - |  | ------------------- | -------- | - | --------- | - | -------- | --------- |  | ------ | - |  | ------ | -
|                                                     |  | Fiscal Years Ended September 30, |         
|                                                     |  |                                  |          |   |      |   |          |      |  |   | Dollar Variance |   |  | Percentage Variance |         
|                                                     |  | 2006                             |          |   | 2005 |   |          | 2004 |  |   | 06 vs. 05       |   |  | 05 vs. 04           |          |   | 06 vs. 05 |   |          | 05 vs. 04 | 
|Net cash provided by operating activities            |  | $                                | 250,877  |   |      | $ | 247,075  |      |  | $ | 214,805         |   |  | $                   | 3,802    |   |           | $ | 32,270   |           |  | 1.5    | % |  | 15.0   | %
|Net cash used in investing activities                |  |                                  | (100,781 | ) |      |   | (335,178 | )    |  |   | (32,188         | ) |  |                     | 234,397  |   |           |   | (302,990 | )         |  | -69.9  | % |  | 941.3  | %
|Net cash provided by (used in) financing activities  |  |                                  | (147,275 | ) |      |   | 99,734   |      |  |   | (195,087        | ) |  |                     | (247,009 | ) |           |   | 294,821  |           |  | -247.7 | % |  | -151.1 | %
|                                                     |  |                                  |          |   |      |   |          |      |  |   |                 |   |  |                     |          |   |           |   |          |           |  |        |   |  |        |  
|Net increase (decrease) in cash and cash equivalents |  | $                                | 2,821    |   |      | $ | 11,631   |      |  | $ | (12,470         | ) |  | $                   | (8,810   | ) |           | $ | 24,101   |           |  | -75.7  | % |  | -193.3 | %
|                                                     |  |                                  |          |   |      |   |          |      |  |   |                 |   |  |                     |          |   |           |   |          |           |  |        |   |  |        |  

As of September 30, 2006 and September 30, 2005, we held cash and cash equivalents of
$75.2 million and $72.4 million, respectively. As a result of the cash-based nature of our business, operating cash flow levels tend to follow trends in our operating income, excluding the effects of non-cash charges, such as depreciation and
amortization and relinquishment liability reassessments. The increase in cash provided by operating activities for the fiscal year ended September 30, 2006 is attributable primarily to the increase in operating income after adjustments for
non-cash items, partially offset by lower working capital requirements.

Operating activities are a significant source of our cash flows.
We use our cash flows provided by operating activities primarily to meet our working capital requirements, provide funding for our maintenance capital expenditures, reduce our debt, provide distributions to the Tribe, provide payments under the
relinquishment agreement and, from time to time, make investments. While we do not believe that there is any trend or a likely event that would adversely impact the level of our cash flows provided by operating activities, there are numerous
potential factors which may cause a substantial reduction in the amount of such cash flows, including, but not limited to, the following:



| |  |  | increased competition in the gaming industry, including the legalization or expansion of gaming in New England, New York, New Jersey and Pennsylvania, which may result in a
substantial decrease in revenue;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | downturn in the economy and lack of consumer confidence, which would result in reduced spending on discretionary items such as gaming activities;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an infrastructure or transportation disruption, such as the closure of Interstate 95 through Connecticut, for an extended period of time;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | a change in Connecticut or Pennsylvania state laws regarding smoking in gaming facilities; and
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | an act of terrorism in the United States of America.
| | - |  | ----------------------------------------------------

In
addition to cash generated by operating activities, we have relied on external sources of liquidity to meet our investing requirements. The increase in cash used in financing activities for the fiscal year ended September 30, 2006 is
attributable primarily to a change in debt activity from total net borrowings of $213.2 million for the fiscal year ended September 30, 2005 to total debt payments of $15.0 million for the fiscal year ended September 30, 2006. The change
in debt activity and decrease in cash used in investing activities for the fiscal year ended September 30, 2006 is attributable primarily to the acquisition of Pocono Downs in fiscal 2005 for approximately $280.0 million.

External Sources of Liquidity

Notes. We financed the purchase of the Pocono Downs entities and previously financed much of the costs of construction of Mohegan Sun with the net proceeds raised from the issuance of notes and borrowings under our bank credit
facilities. As of September 30, 2006, we had $16.3 million outstanding in 83/8% senior subordinated notes
due July 1, 2011 and first callable July 1, 2006, or the 2001 senior subordinated notes; $250.0 million outstanding in 8% senior subordinated notes due April 1, 2012 and first callable April 1, 2007, or the 2002 senior
subordinated notes; $330.0 million outstanding in 63/8% senior subordinated notes due July 15, 2009, or the
2003 senior subordinated notes; $225.0 million outstanding in 71/8% senior subordinated notes due
August 15, 2014 and first callable on August 15, 2009, or the 2004 senior subordinated notes; $250.0 million outstanding in 61/8% senior notes due February 15, 2013 and first callable February 15, 2009, or the 2005 senior notes; and $150.0 million outstanding in 67/8% senior subordinated notes due February 15, 2015 and first callable February 15, 2010, or the 2005 senior subordinated notes. As of September 30, 2006, MBC,
Mohegan Ventures-NW, MCV-PA and the Pocono Downs entities are guarantors of each of these notes, except for the 2001 senior subordinated notes guaranteed exclusively by MBC. Refer to Note 8 to our consolidated financial statements in this Form 10-K
for a further discussion of these notes.

In November 2006, Standard and Poors Ratings Services
downgraded the credit rating on our 2005 senior notes from BB- to B+ and the credit rating on our senior subordinated notes from B+ to B, primarily to reflect an increase in our projected ratio of debt to earnings related to the additional
financings needed to fund the Project Horizon expansion at Mohegan Sun and the development plans at Pocono Downs. Moodys Investors Services maintained its rating of Baa2 on our 2005 senior notes and its rating of Ba2 on our senior subordinated
notes following our announcement of the Project Horizon expansion, but has issued a credit watch on our notes based on the explanation provided above.

Bank Credit Facility. We have a loan agreement for up to $450.0 million, or bank credit facility, from a syndicate of financial institutions and commercial banks, with Bank of America, N.A. serving as
administrative agent. The bank credit facility provides for a revolving loan and letter of credit capacity of up to $450.0 million and matures on March 31, 2008. As of September 30, 2006, the amount under letters of credit totaled $50.7
million, of which no amount was drawn (refer to Letters of Credit below). The revolving loan has no mandatory amortization provisions and is payable in full at maturity. We have $399.3 million available for borrowing under the bank
credit facility as of September 30, 2006 (without taking into account covenants under the line of credit discussed below). We expect to close on a new $1.0 billion revolving bank credit facility in January 2007, which will replace our current
bank credit facility.

In December 2005, we received the requisite consent of our lenders to Amendment No. 4 to the bank credit
facility, which provided for an increase in the maximum amount available under letters of credit to $60.0 million. Amendment No. 4 permitted us to establish the $50.0 million letter of credit necessary for the Pennsylvania slot machine
licensing process (refer to Letters of Credit below).

The bank credit facility is collateralized by a lien on substantially
all of our assets, including the assets of the Pocono Downs entities, and a leasehold mortgage on the land and improvements which comprise Mohegan Sun.



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We will also be required to pledge additional assets as we or our restricted subsidiaries acquire them. In addition, our obligations under the bank credit
facility are guaranteed by MBC, Mohegan Ventures-NW, MCV-PA and the Pocono Downs entities as of September 30, 2006. The bank credit facility subjects us to a number of restrictive covenants, including financial covenants. These financial
covenants relate to, among other things, our permitted total debt and senior debt leverage ratios, our minimum fixed charge coverage ratio and our maximum capital expenditures. The bank credit facility includes non-financial covenants by us and the
Tribe of the type customarily found in loan agreements for similar transactions including requirements that:



| |  |  | the Tribe preserve its existence as a federally recognized Indian tribe;
| | - |  | ------------------------------------------------------------------------



| |  |  | the Tribe cause us to continually operate Mohegan Sun in compliance with all applicable laws; and
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | except under specific conditions, limit us from selling or disposing of our assets, limit the transfer of our assets to non-guarantor subsidiaries, limit the incurrence by us and
our guarantor subsidiaries of other debt or contingent obligations and limit our ability to extend credit, make investments or commingle our assets with assets of the Tribe.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of September 30, 2006, we and the Tribe were in compliance with all of our and their respective covenant requirements in the bank credit
facility.

At our option, each advance of loan proceeds accrues interest on the basis of a base rate or on the basis of a one-month,
two-month, three-month, six-month or twelve-month London Inter-Bank Offered Rate (LIBOR), plus in either case, the applicable spread at the time each loan is made. We also pay commitment fees for the unused portion of the revolving loan
on a quarterly basis equal to the applicable spread for commitment fees times the average daily unused commitment for that calendar quarter. Applicable spreads are based on our Total Leverage Ratio, as defined in the bank credit facility. The
applicable spread for base rate advances is between 0.50% and 1.25%, and the applicable spread for LIBOR rate advances is between 1.75% and 2.50%. The applicable spread for commitment fees is between 0.375% and 0.50%. The base rate is the higher of
Bank of Americas announced prime rate or the federal funds rate plus 0.50%. Interest on LIBOR loans is payable at the end of each applicable interest period or quarterly in arrears, if earlier. Interest on base rate advances is payable
quarterly in arrears. As of September 30, 2006, we had no base rate loans and LIBOR rate loans outstanding. The applicable spread for commitment fees was 0.50% as of September 30, 2006.

Line of Credit. We have a $25.0 million revolving loan agreement with Bank of America, or the line of credit. Each advance accrues interest on the
basis of one-month LIBOR, plus the applicable spread, determined on the basis of our Leverage Ratio, as defined in the line of credit. Borrowings under the line of credit are our uncollateralized obligations. The line of credit was amended in March
2006 to extend the maturity date from March 31, 2006 to March 31, 2008. The line of credit subjects us to certain covenants, including a covenant to maintain at least $25.0 million available for borrowing under the bank credit facility. As
of September 30, 2006, we were in compliance with all covenant requirements in the line of credit. As of September 30, 2006 we had $25.0 million available for borrowing under the line of credit.

Letters of Credit. As of September 30, 2006, we maintain four uncollateralized letters of credit to satisfy potential workers
compensation liabilities, to satisfy overdue pari-mutuel wagering tax liabilities of the Pocono Downs entities that may arise, to satisfy overdue amounts for purses due horsemen at Pocono Downs and to ensure payment of the $50.0 million license fee
upon issuance of a Pennsylvania Category One Slot Machine License for Mohegan Sun at Pocono Downs (refer to Note 18 to our consolidated financial statements in this Form 10-K). The letters of credit expire on August 31,
2007, January 25, 2007, November 11, 2006 and December 26, 2006, respectively, subject to renewals. As of September 30, 2006, no amounts were drawn on the letters of credit.

Salishan Credit Facility. On October 17, 2006, Salishan-Mohegan entered into a $25.0 million revolving loan agreement with Bank of America
(the Salishan Credit Facility), which matures on September 30, 2009.



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The revolving loan has no mandatory amortization provisions and is payable in full at maturity. At the option of Salishan-Mohegan, each advance of loan
proceeds accrues interest on the basis of a base rate or on the basis of a one-month, two-month, three-month or six-month LIBOR, plus the applicable spread of 1.25% for base rate loans and 2.25% for LIBOR loans. The Salishan Credit Facility is
collateralized by a lien on substantially all of the existing and future assets of Salishan-Mohegan. The obligations of Salishan-Mohegan under the Salishan Credit Facility are also guaranteed by the Mohegan Tribe. The Salishan Credit Facility
subjects Salishan-Mohegan to a number of restrictive covenants, including financial and non-financial covenants customarily found in loan agreements for similar transactions.

Capital Expenditures

Capital Expenditures Incurred

Capital expenditures totaled $101.9 million for the fiscal year ended September 30, 2006, compared to $51.0 million for the fiscal year ended
September 30, 2005. These capital expenditures were an aggregate of the following:



| |  |  | Maintenance capital expenditures at Mohegan Sun totaled $44.4 million and $45.4 million for the fiscal years ended September 30, 2006 and 2005, respectively. For the fiscal
year ended September 30, 2006, these expenditures were principally related to the purchase of new carpeting in the Casino of the Earth and Sky, customer relationship management software and related hardware, slot machine replacements,
information systems enhancements and upgrades and for other general maintenance of the Mohegan Sun facility. For the fiscal year ended September 30, 2005, these expenditures were for the general maintenance of the Mohegan Sun facility and
construction of the Uncas American Indian Grill.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Capital expenditures at Pocono Downs totaled $44.4 million and $5.1 million for the fiscal years ended September 30, 2006 and 2005, respectively, which were comprised primarily
of construction costs for the renovation and expansion of the existing grandstand and infrastructure related improvements at Mohegan Sun at Pocono Downs, including capitalized interest. Capitalized interest totaled approximately $1.2 million and
$21,000 for the fiscal years ended September 30, 2006 and 2005, respectively.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Capital expenditures for the Corporate segment were $13.1 million for the fiscal year ended September 30, 2006 which primarily includes the purchase of land intended to be used
as the site for a casino to be owned by the Cowlitz Indian Tribe, as described above under Other Diversification Projects. Capital expenditures were $476,000 for the fiscal year ended September 30, 2005 which were primarily for the
establishment of temporary offices for corporate employees.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Expected Future Capital Expenditures

Capital expenditures for fiscal year 2007 at Mohegan Sun, exclusive of the Project Horizon expansion described above under Mohegan Sun-Project
Horizon, are budgeted to be $75.1 million, which are expected to be comprised of the following:



| |  |  | Maintenance capital expenditures at Mohegan Sun are anticipated to be approximately $45.1 million for the purchase of information system security technology, server replacements,
surveillance technology improvements, slot machines and back up power improvements.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Property renovation expenditures are expected to be approximately $30.0 million for the addition of new slot machines in the Casinos of the Earth and Sky replacing certain cage and
cashiering stations that are no longer needed due to changes in redemption technology, for conversion of the Cabaret lounge into a semi-private gaming area scheduled to be completed in February 2007 and for a complete renovation of all guest rooms
in the Sky hotel scheduled to be completed by June 2007.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We anticipate that we will spend approximately $134.0 million in
fiscal year 2007 ($740.0 million in total) on the Project Horizon expansion, as discussed above under Mohegan SunProject Horizon.



66



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Capital expenditures for the Pocono Downs racetrack site are anticipated to be approximately $68.0
million for the 2007 fiscal year, comprised primarily of approximately $28.0 million and $38.0 million in development costs to complete the Phase I slot machine facility and to begin construction on the Phase II facility discussed above under
Mohegan Sun at Pocono Downs, respectively. In October 2006, a one-time slot machine license fee of $50.0 million was paid to the PGCB.

We anticipate the development of the Phase I facility will cost approximately $72.6 million in total, which does not include the $50.0 million one-time slot machine license fee, and we plan to spend approximately $140.0 million to $150.0
million on the development of the Phase II facility as discussed above under Mohegan Sun at Pocono Downs.

Sources of
Funding for Capital Expenditures

We will rely primarily on cash generated from operations to finance maintenance capital expenditures
at Mohegan Sun and Pocono Downs. We plan to finance capital expenditures for Project Horizon and Phase II at Pocono Downs through a new $1.0 billion revolving bank credit facility from a syndicate of financial institutions and commercial banks. The
new facility will replace our current $450.0 million bank credit facility and is expected to close in January 2007.

Interest Expense

For the fiscal years ended September 30, 2006, 2005 and 2004, we incurred the following in interest expense, net of
capitalized interest (in thousands):



|                                                                          |  |                                          |        |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------------------- |  | ---------------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                          |  | For the Fiscal Years Ended September 30, |       
|                                                                          |  | 2006                                     |        |   | 2005 |   |        | 2004 | 
|Bank credit facility                                                      |  | $                                        | 3,463  |   |      | $ | 7,337  |      |  | $ | 6,850  |  
|1999 81/8% senior notes                                                   |  |                                          | 284    |   |      |   | 1,219  |      |  |   | 13,730 |  
|2005 61/8% senior notes                                                   |  |                                          | 15,355 |   |      |   | 9,826  |      |  |   |       |  
|1999 83/4% senior subordinated notes                                      |  |                                          |       |   |      |   |       |      |  |   | 134    |  
|2001 83/8% senior subordinated notes                                      |  |                                          | 1,369  |   |      |   | 1,431  |      |  |   | 10,697 |  
|2002 8% senior subordinated notes                                         |  |                                          | 20,000 |   |      |   | 20,000 |      |  |   | 20,000 |  
|2003 63/8% senior subordinated notes                                      |  |                                          | 21,038 |   |      |   | 20,979 |      |  |   | 21,037 |  
|2004 71/8% senior subordinate notes                                       |  |                                          | 15,987 |   |      |   | 16,031 |      |  |   | 2,583  |  
|2005 67/8% senior subordinate notes                                       |  |                                          | 10,341 |   |      |   | 6,617  |      |  |   |       |  
|WNBA note                                                                 |  |                                          | 336    |   |      |   | 271    |      |  |   | 205    |  
|Line of credit                                                            |  |                                          | 515    |   |      |   | 504    |      |  |   | 179    |  
|Interest settlementderivative instruments                                |  |                                          |       |   |      |   |       |      |  |   | (2,552 | )
|Reclassification of derivative instrument losses to earnings              |  |                                          |       |   |      |   |       |      |  |   | 303    |  
|Amortization of net deferred gain on settlement of derivative instruments |  |                                          | 444    |   |      |   | 711    |      |  |   | (117   | )
|Amortization of debt issuance costs                                       |  |                                          | 2,976  |   |      |   | 3,106  |      |  |   | 5,921  |  
|Capitalized interest                                                      |  |                                          | (1,180 | ) |      |   | (21    | )    |  |   |       |  
|                                                                          |  |                                          |        |   |      |   |        |      |  |   |        |  
|Total interest expense, net of capitalized interest                       |  | $                                        | 90,928 |   |      | $ | 88,011 |      |  | $ | 78,970 |  
|                                                                          |  |                                          |        |   |      |   |        |      |  |   |        |  

Sufficiency of Resources

We believe that existing cash balances, financing arrangements and operating cash flows will provide us with sufficient resources to meet our existing
debt obligations, relinquishment payments, foreseeable capital expenditure requirements with respect to current operations and distributions to the Tribe for at least the next twelve months. Distributions to the Tribe are anticipated to total
approximately $75.0 million for fiscal year



67



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2007. Any future investments in Mohegan Sun related to the Project Horizon expansion and in Pocono Downs related to the further development of a Phase II
facility are anticipated to be funded through the new bank credit facility and additional borrowings, as necessary (refer to Sources of Funding for Capital Expenditures above). As of September 30, 2006, we had $399.3 million
available for borrowing under our current bank credit facility (without taking into account covenants under the line of credit).

Contractual
Obligations and Commitments

Our future payment obligations related to our debt and certain other material contractual obligations and
the timing of those payments are set forth below.



|                                        |  |       |                     |                        |           |        |           |   |                  |  |   |         |  |   |          
|--------------------------------------- |  | ----- | ------------------- | ---------------------- | --------- | ------ | --------- | - | ---------------- |  | - | ------- |  | - | ---------
|                                        |  | Total |                     | Payments due by period
|Contractual Obligations(in thousands)   |  |       | Less than1 year (1) |                        | 1-3 years |        | 3-5 years |   | More than5 years
|Long-term debt (2)                      |  | $     | 1,228,895           |                        | $         | 3,550  |           | $ | 332,000          |  | $ | 18,345  |  | $ | 875,000  
|Interest payments on long-term debt (3) |  |       | 506,481             |                        |           | 84,517 |           |   | 168,571          |  |   | 126,237 |  |   | 127,156  
|                                        |  |       |                     |                        |           |        |           |   |                  |  |   |         |  |   |          
|Total                                   |  | $     | 1,735,376           |                        | $         | 88,067 |           | $ | 500,571          |  | $ | 144,582 |  | $ | 1,002,156
|                                        |  |       |                     |                        |           |        |           |   |                  |  |   |         |  |   |          

---

|(1) | Amounts represent payment obligations from October 1, 2006 to September 30, 2007.
|--- | ---------------------------------------------------------------------------------

|(2) | Long-term debt includes maturities scheduled as of September 30, 2006 for our senior notes and senior subordinated notes, amounts required to be paid pursuant to the bank
credit facility and our other debt agreements, but excludes interest payments. Refer to Note 8 to our consolidated financial statements in this Annual Report on Form 10-K.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes interest payments expected to be paid on long-term debt as of September 30, 2006, pursuant to respective debt agreements. Refer to Note 8 to our consolidated financial
statements in this Annual Report on Form 10-K.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition to the contractual obligations described above, we have certain
other contractual commitments as of September 30, 2006 that require payments during the periods described below. The calculation of the estimated payments in the table below are based, in large part, on projections of future revenues over an
extended period of time, as well as other factors that are indicated more fully in the footnotes to the following table. Since there are estimates and judgments used with respect to calculating these liabilities, future events that affect such
estimates and judgments may cause the actual payments to differ from the estimates set forth below. The amounts included in the table are estimates and, while some agreements are perpetual in term, for the purposes of calculating these amounts, we
have assumed that the table contains information for only ten years.



|                                      |  |                        |         |           |   |           |  |            |         |  |   |          
|------------------------------------- |  | ---------------------- | ------- | --------- | - | --------- |  | ---------- | ------- |  | - | ---------
|                                      |  | Payments due by period
|Contractual Commitments(in thousands) |  | Less than1 year (1)    |         | 1-3 years |   | 3-5 years |  | 5-10 years
|Slot Win Contributions (2)            |  | $                      | 234,427 |           | $ | 470,126   |  | $          | 483,018 |  | $ | 1,340,185
|Relinquishment commitments (3)        |  |                        | 78,901  |           |   | 158,977   |  |            | 159,859 |  |   | 273,175  
|Priority distributions (4)            |  |                        | 16,829  |           |   | 35,387    |  |            | 37,826  |  |   | 106,364  
|Town of Montville commitment (5)      |  |                        | 500     |           |   | 1,000     |  |            | 1,000   |  |   | 2,500    
|                                      |  |                        |         |           |   |           |  |            |         |  |   |          
|Total                                 |  | $                      | 330,657 |           | $ | 665,490   |  | $          | 681,703 |  | $ | 1,722,224
|                                      |  |                        |         |           |   |           |  |            |         |  |   |          

---

|(1) | Amounts represent payment commitments from October 1, 2006 to September 30, 2007.
|--- | ---------------------------------------------------------------------------------

|(2) | Slot win contributions are a portion of the gross slot revenues that must be paid by us to the State of Connecticut pursuant to the Mohegan Compact. The slot win contribution is the
lesser of (a) 30% of gross slot revenues, or (b) the greater of (i) 25% of gross slot revenues or (ii) $80.0 million.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Relinquishment payments are made by us to TCA under a relinquishment agreement. Relinquishment payments are five percent of revenues, as defined in the relinquishment agreement.
Refer to Note 13 to our consolidated financial statements in this Annual Report on Form 10-K.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(4) | Priority distributions are monthly payments required to be made by us to the Tribe pursuant to the priority distribution agreement. Refer to Note 12 to our consolidated financial
statements in this Annual Report on Form 10-K. The payments are calculated based on net cash flows and are limited to a maximum amount of $14.0 million pursuant to the priority distribution agreement, as adjusted annually based on the Consumer Price
Index, or CPI. For the purposes of calculating these amounts, we have assumed that we will pay the maximum amount in each of the years covered by the table, as adjusted by an annual CPI adjustment of 3.39%.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | We have an agreement with the Town of Montville to pay the town an annual payment of $500,000 to minimize the impact on the town resulting from the decreased tax revenues on
reservation land held in trust.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Critical Accounting Policies and Estimates

Management has identified the following critical accounting policies that affect our more significant judgments and estimates used in the preparation of
our consolidated financial statements. The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that
affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, management evaluates those estimates, including those related to asset impairment,
relinquishment liability, accruals for unredeemed Players Club points, self-insurance, revenue recognition, allowance for doubtful accounts, contingencies and litigation. These estimates are based on the information that is currently available
to us and on various other assumptions that management believes to be reasonable under the circumstances. Actual results could vary from those estimates.

We believe that the following critical accounting policies affect significant judgments and estimates used in the preparation of our consolidated financial statements:

Revenue Recognition

We
recognize gaming revenues as gaming wins less gaming losses. Revenues from food and beverage, hotel, retail, entertainment and other services are recognized at the time the service is performed. Minimum rental revenues are recognized on a
straight-line basis over the terms of the related leases. Percentage rents are recognized in the period in which the tenants exceed their respective percentage rent thresholds.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our patrons to make required payments, which results in bad debt expense. Management determines the adequacy of this allowance by
continually evaluating individual patron receivables, considering the patrons financial condition, credit history and current economic conditions. If the financial condition of patrons were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required.

We also maintain allowances for doubtful accounts for reimbursable costs
and expenses incurred by Salishan-Mohegan for the development of a casino in Clark County, Washington to be owned by the Cowlitz Indian Tribe. Due to the inherent uncertainty in the development of this casino project, the reserve for these
receivables is based on our estimate of the probability that the receivables will be collected. Future complications in the receipt of financing, the relevant land being taken into trust or other matters affecting the development of the casino could
affect the collectibility of the receivables.

Unredeemed Players Club Points

We maintain an accrual for unredeemed Players Club points, as more fully described above under Explanation of Key Financial Statement
CaptionsPromotional Allowances. The accrual is based on the



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estimated cost of the points expected to be redeemed as of the respective balance sheet date. Management determines the adequacy of this accrual by
periodically evaluating the historical redemption experience and projected trends related to this accrual.

Self-insurance Accruals

We are self-insured up to certain limits for costs associated with workers compensation and employee medical coverage.
Insurance claims and reserves include accruals of estimated settlements for known claims, as well as accruals of estimates of incurred but not reported claims. In estimating these costs, we consider historical loss experience and make judgments
about the expected levels of costs per claim. We also use information provided by independent consultants to assist in the determination of estimated accruals. These claims are accounted for based on estimates of the undiscounted claims, including
those claims incurred but not reported. We believe the use of these estimates to account for these liabilities provides a consistent and effective way to measure these accruals; however, changes in health care costs, accident frequency and severity
and other factors can materially affect the estimate for these liabilities. We continually monitor the potential changes in future estimates, evaluate insurance accruals and make adjustments when necessary.

Derivative Instruments

At
times, we use derivative instruments, including interest rate caps, collars and swaps in our strategy to manage interest rate risk associated with the variable interest rate on our bank credit facility and the fixed interest rates on our senior
notes and senior subordinated notes. Our objective in managing interest rate risk is to achieve the lowest possible cost of debt and manage volatility in the effective cost of debt. We continually monitor risk exposures from derivative instruments
held and make the appropriate adjustments to manage these risks within managements established limits. We account for our derivative instruments in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, or SFAS 133, which requires that all derivative instruments be recorded on the consolidated balance sheet at fair value. In order to qualify for hedge accounting in accordance with SFAS 133, the underlying hedged item must expose
us to risks associated with market fluctuations and the financial instrument used must be designated as a hedge and must reduce our exposure to market fluctuation throughout the hedge period. If these criteria are not met, a change in the market
value of the financial instrument is recognized as a gain or loss and is recorded as a component to interest expense in the period of change. We exclude the change in the time value of money when assessing the effectiveness of the hedging
relationship. All derivatives are evaluated quarterly. We did not have any derivative instruments as of September 30, 2006.

Relinquishment Liability

In accordance with SFAS 5, we have recorded a relinquishment liability of the estimated
present value of our obligations under the relinquishment agreement. We reassess the relinquishment liability (i) annually in conjunction with our budgeting process or (ii) when necessary to account for material increases or decreases in
projected revenues over the relinquishment period. If the reassessment causes an overall increase to the projected revenues over the relinquishment period, the relinquishment liability will be increased by five percent of such increase in revenues,
discounted at our risk-free rate of investment (an incremental layer). If the reassessment causes an overall decrease to the projected revenues over the relinquishment period, the relinquishment liability will be decreased by five percent of such
decrease in revenues, discounted based upon a weighted-average discount rate (a decremental layer). The weighted-average discount rate is defined as the average discount rate used to discount all the previous incremental layers weighted by the
amount of each such incremental layer. Further, we record a quarterly accretion to the relinquishment liability to reflect the impact of the time value of money. Since there is a high level of estimates and judgments used with respect to calculating
this liability, future events that affect such estimates and judgments may cause the actual liability to differ significantly from the estimate.



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Property and Equipment

Property and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the assets (other than land) using the
straight-line basis. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the improvements. Useful life estimates of asset categories are as follows:



|                                |  |          
|------------------------------- |  | ---------
|Buildings and land improvements |  | 40 years 
|                                | 
|Furniture and equipment         |  | 3-7 years

The costs of significant improvements are capitalized. Costs of normal repairs and maintenance are
charged to expense as incurred. Gains or losses on disposition of property and equipment are included in the determination of net income.

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the carrying value of our assets is reviewed when events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If it is determined that an impairment loss has occurred based on current and future levels of income and expected future cash flows as well as other factors, then an impairment loss is recognized in the consolidated
statement of income.

Capitalized Interest

The interest cost associated with major development and construction projects is capitalized and included in the cost of the project. When no debt is
incurred specifically for a project, interest is capitalized on amounts expended on the project using the weighted-average cost of our outstanding borrowings. Capitalization of interest ceases when the project is substantially complete or
development activity is suspended for more than a brief period.

Goodwill

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the goodwill associated with the acquisition of the Pocono Downs
entities is not subject to amortization but is tested at least annually for impairment by comparing the fair value of the recorded assets to their carrying amount. If the carrying amount of the goodwill exceeds its fair value, an impairment loss
will be recognized immediately.

Intangible Assets

Our trademark for Mohegan Sun is no longer subject to amortization as it has been deemed to have an indefinite useful life. The trademark is evaluated
periodically for impairment by applying a fair-value based test and, if impairment occurs, the amount of impaired trademark will be written off immediately. The intangible assets associated with the acquisitions of the Pocono Downs entities and the
WNBA franchise are also assessed periodically for impairment pursuant to appropriate accounting standards.

Litigation

We are subject to various claims and legal actions in the ordinary course of business. Some of these matters relate to personal
injuries to customers and damage to customers personal assets. Management estimates guest claims expense and accrues for such liabilities based upon historical experience in other current liabilities in our accompanying consolidated balance
sheets.

As the successor owner of Downs Racing, we are involved in a dispute with the Wilkes-Barre Area School District, which had filed
an appeal in November 2001 against Downs Racings predecessor company, Pocono Downs, Inc., and the Luzerne County Board of Assessment Appeals relating to certain property tax assessments.



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The school district has challenged the certified assessment for the tax year 2002, and is seeking an unspecified increase to the assessed value of that
property for 2002 and subsequent tax years, and now including additional assessments for tax year 2007. The captions for these appeal cases are: Wilkes-Barre Area School District v. Pocono Downs, Inc. (n/k/a Downs Racing, L.P.), Luzerne
County Docket #7793-C of 2001; Wilkes-Barre Area School District v. Millcreek Land, Inc. (n/k/a Mill Creek Land, L.P.), Luzerne County Docket #7767 of 2006; and Wilkes-Barre Area School District v. Pocono Downs, Inc. (n/k/a Downs
Racing, L.P.), Luzerne County Docket #7668 of 2006. All three cases were consolidated and a trial was held in September 2006 and a mediation conference took place in November 2006, with no judgment or settlement on the matter. Written proposed
findings of fact and conclusions of law are required to be submitted to the Luzerne County Court by January 16, 2007, after which the Court will issue a ruling. At this stage of the litigation, no single amount within the range of any possible
loss can be reasonably determined. We cannot provide any assurance as to the ultimate success of our defense of the school boards complaint. If the school boards complaint was resolved unfavorably to us, our financial position, results
of operations and cash flows could be adversely affected.

Impact of Inflation

Absent changes in competitive and economic conditions or in specific prices affecting the hospitality and gaming industry, we do not expect that inflation
will have a significant impact on our operations. Changes in specific prices, such as fuel and transportation prices, relative to the general rate of inflation may have a material adverse effect on the hospitality and gaming industry in general.

New Accounting Pronouncements

In May
2005, the FASB issued SFAS No. 154, Accounting Changes and Error Correctionsa replacement of APB Opinion No. 20 and FASB Statement No. 3, or FAS 154. FAS 154 requires retrospective application to prior periods
financial statements of changes in accounting principles, subject to certain practicability provisions, but does not change the guidance in APB Opinion No. 20 for reporting the correction of an error in previously issued financial statements
and a change in accounting estimate. FAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We do not believe the adoption of this standard will have a material impact on
our financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS 157, Fair Value
Measurements (FAS 157). FAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This standard does not require
any new fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We do not believe the adoption of this standard will have a
material impact on our financial position, results of operations or cash flows.

In September 2006, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 108 (SAB 108), which provides guidance on the consideration of the effects of prior year financial statement misstatements in quantifying current year financial statement misstatements for the
purpose of a materiality assessment. SAB 108 is effective for annual financial statements issued for fiscal years ending after November 15, 2006. We do not believe the application of this guidance will have a material impact on our financial
position, results of operations or cash flows.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of loss
arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our bank credit facility in which
interest will accrue on the basis of a base rate formula or a LIBOR-based formula, plus applicable spreads. As of September 30, 2006, we had no amounts drawn under the bank credit facility. See Item 7. Managements Discussion and
Analysis of Financial Condition and Results of



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OperationsExternal Sources of Liquidity for further information relating to the terms and conditions of the bank credit facility.

We attempt to manage our interest rate risk through a controlled mix of our long-term fixed rate borrowings and variable rate borrowings and the use of
derivative instruments, including interest rate swaps, in accordance with established policies and procedures. We do not hold or issue financial instruments, including derivative instruments, for speculative or trading purposes. No derivative
instruments were held as of September 30, 2006.

The following table provides information as of September 30, 2006 about our
current financial instruments (debt obligations) that are sensitive to changes in interest rates. The table presents principal payments and related weighted-average interest rates by expected maturity dates. Weighted-average variable rates are based
on implied forward rates in respective yield curves, which should not be considered to be precise indicators of actual future interest rates. Fair values for variable-rate debt instruments are considered to approximate their carrying amounts and
fair values for fixed-rate debt instruments, which are publicly traded, are based on quoted market prices as of September 30, 2006.



|                                           |  |                        |       |   |       |   |       |            |  |   |         |   |  |      |       |   |            |   |        |   |  |   |         |   |  |   |           |   |  |   |          
|------------------------------------------ |  | ---------------------- | ----- | - | ----- | - | ----- | ---------- |  | - | ------- | - |  | ---- | ----- | - | ---------- | - | ------ | - |  | - | ------- | - |  | - | --------- | - |  | - | ---------
|                                           |  | Expected Maturity Date |       |   | Total |   |       | Fair Value
|                                           |  | 2007                   |       |   | 2008  |   |       | 2009       |  |   | 2010    |   |  | 2011 |       |   | Thereafter |   |        |  
|Liabilities                                |  |                        |       |   |       |   |       |            |  |   |         |   |  |      |       |   |            |   |        |   |  |   |        
|Long-Term Debt(including current portion): |  |                        |       |   |       |   |       |            |  |   |         |   |  |      |       |   |            |   |        |   |  |   |         |   |  |   |           |   |  |   |          
|Fixed Rate                                 |  | $                      | 2,550 |   |       | $ |      |            |  | $ | 330,000 |   |  | $    |      |   |            | $ | 16,345 |   |  | $ | 875,000 |   |  | $ | 1,223,895 |   |  | $ | 1,220,326
|Average interest rate                      |  |                        | 9.5   | % |       |   |      |            |  |   | 6.4     | % |  |      |      |   |            |   | 8.4    | % |  |   | 7.0     | % |  |   | 6.9       | % |  |   |          
|                                           |  |                        |       |   |       |   |       |           
|Variable Rate                              |  | $                      | 1,000 |   |       | $ | 1,000 |            |  | $ | 1,000   |   |  | $    | 1,000 |   |            | $ | 1,000  |   |  | $ |        |   |  | $ | 5,000     |   |  | $ | 5,000    
|Average interest rate                      |  |                        | 6.7   | % |       |   | 6.6   | %          |  |   | 6.0     | % |  |      | 6.2   | % |            |   | 6.3    | % |  |   |        |   |  |   | 6.3       | % |  |   |          

Item 8. Financial Statements and Supplementary Data

Our consolidated financial statements and notes
thereto, referred to in Item 15(A)(1) of this Form 10-K, are filed as part of this report and appear in this Form 10-K beginning on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed with, or
furnished to the SEC, pursuant to the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based on the definition of disclosure controls and
procedures in Rule 13a-15(e) and 15d-15(e) of the Exchange Act.

As of September 30, 2006, we carried out an evaluation, under
the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of disclosure controls and procedures. Based on the foregoing
evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.



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Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during our fourth fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.



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PART III

Item 10. Directors and Executive Officers of the Registrant

We are governed by a nine-member
Management Board, consisting of the nine members of the Tribal Council. Any change in the composition of the Tribal Council results in a corresponding change in our Management Board. The members as of September 30, 2006 and their terms were as
follows: Bruce S. Bozsum, Ralph James Gessner, Jr., Mark W. Hamilton, Marilynn R. Malerba and William Quidgeon, Jr. each will serve four-year terms expiring in October 2009, while Mark F. Brown, Roland J. Harris, Roberta J. Harris-Payne and Allison
D. Johnson each would serve two-year terms expiring in October 2007. Upon expiration of their respective terms, the eligible voters of the Tribe may reelect current Tribal Council members who choose to run for reelection or elect new Tribal Council
members. See Part I. Item 1. BusinessMohegan Tribe of Indians of Connecticut and Part I. Item 1. BusinessMohegan Tribal Gaming Authority.

Effective December 11, 2006, Roland J. Harris resigned from his position in the Tribal Council, and therefore the Management Board to accept a
position as Senior Vice President of Project Management at the Authority. The Tribe will hold a special election to fill the Tribal Council vacancy created by Mr. Harris' resignation within sixty days following the effective date of his
resignation.

Management Board and Executive Officers

The following table provides information with respect to (i) the members of the Management Board and (ii) each of the executive officers of
Mohegan Tribal Gaming Authority, Mohegan Sun and the Pocono Downs entities.



|                                    |  |      |  |                                                                                                                  
|----------------------------------- |  | ---- |  | -----------------------------------------------------------------------------------------------------------------
|Name                                |  | Age  |  | Position                                                                                                         
|Bruce S. Bozsum                     |  | 46   |  | Chairman and Member, Management Board                                                                            
|Marilynn R. Malerba                 |  | 53   |  | Vice Chairwoman and Member, Management Board                                                                     
|Roberta J. Harris-Payne             |  | 56   |  | Corresponding Secretary and Member, Management Board (1)                                                         
|Allison D. Johnson.                 |  | 36   |  | Recording Secretary and Member, Management Board (1)                                                             
|William Quidgeon, Jr                |  | 44   |  | Treasurer and Member, Management Board (1)                                                                       
|Mark F. Brown                       |  | 49   |  | Member, Management Board (1)                                                                                     
|Mark W. Hamilton                    |  | 53   |  | Member, Management Board (1)                                                                                     
|Ralph James Gessner, Jr             |  | 37   |  | Member, Management Board                                                                                         
|Mitchell Grossinger Etess           |  | 48   |  | Chief Executive Officer, Mohegan Tribal Gaming Authority                                                         
|Jeffrey E. Hartmann Leo M. Chupaska |  | 4458 |  | Chief Operating Officer, Mohegan Tribal Gaming Authority Chief Financial Officer, Mohegan Tribal Gaming Authority
|Robert J. Soper                     |  | 34   |  | President and Chief Executive Officer of the Pocono Downs entities                                               

---

|(1) | Designates a member of the Audit Committee.
|--- | -------------------------------------------

Bruce S.
BozsumMr. Bozsum was first seated on the Tribal Council and the Management Board effective October 4, 2004. He was re-elected in October 2005, at which time he was elected Chairman of the Management Board. Mr. Bozsum previously
served as the Manager of Cultural and Community Programs for the Tribe from 2000 to 2004, and was responsible for educational outreach programs, the annual Wigwam Festival and Cultural Week. Previously, he worked as a Floor Supervisor for the
Tribe's High Stakes Bingo operation.

Marilynn R. MalerbaMs. Malerba was first seated on the Tribal Council and the Management
Board and was elected Vice-Chairwoman of the Management Board in October 2005. Ms. Malerba served as the Director and later Executive Director of the Tribe's Health and Human Services Department from 1997 until 2005. Ms. Malerba was
responsible for the development of the programs that directly benefit the Tribes membership. Prior to her employment with the Tribe, Ms. Malerba held director and manager positions with Lawrence & Memorial Hospital in New London,
Connecticut, and currently serves on its Board of Directors.



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Roberta J. Harris-PayneMs. Harris-Payne was first seated on the Tribal Council and the
Management Board in October 2005. Ms. Harris-Payne served as a Career Development Coordinator within the Tribal government and as a Tribal Employments Rights Ordinance commissioner from August 2004 to October 2005. Ms. Harris-Payne worked
in the Human Resources Department at Mohegan Sun, from 2000 to 2004, serving as a Preference/Employment Specialist. Ms. Harris is a graduate of Eastern Connecticut State University with a degree in Education and English. Ms. Harris-Payne
is the sister of Roland J. Harris.

Allison D. JohnsonMs. Johnson was seated on the Tribal Council and the Management Board in
October 2005. Ms. Johnson served as a Human Resources Manager and Human Resource Generalist for the Tribal government from June 2003 to October 2005. Ms. Johnson worked in the Human Resource department at Mohegan Sun from 2000 to 2003,
serving as Benefits Manager prior to her employment with the Tribe. Ms. Johnson has held management positions in commercial leasing and retail sales and support. Ms. Johnson served as an Alternate Commissioner for the Tribal Employment
Rights Commission. She is a graduate of San Diego Miramar College in California with a degree in liberal arts.

William Quidgeon,
Jr.Mr. Quidgeon was first seated on the Tribal Council and the Management Board in October 2005, after serving in several capacities for the Tribal government and the Mohegan Sun. Mr. Quidgeon served as Senior Project Manager for the
Mohegan Tribal Development Department from 1999 to 2005 where he was responsible for renovations and construction within the casino and Tribal government. Prior to his work for the Tribe, Mr. Quidgeon worked as Facilities Manager at Mohegan
Sun. He also served as Board Chairman of Mohegan Information Technology Group, a limited liability company majority-owned by the Tribe.

Mark F. BrownMr. Brown has been a member of the Tribal Council and the Management Board since October 1995. He served as Chairman of the Management Board and the Tribal Council from October 2000 until October 2005.
Mr. Brown worked with the Tribes historian during the period in which the Tribe was working to obtain federal recognition and also served on the Tribal Constitutional Review Board from 1993 to 1995. Mr. Brown served as a law
enforcement officer for over twelve years. Prior to his work in law enforcement, Mr. Brown was involved in retail sales and management.

Mark W. HamiltonMr. Hamilton served as Mohegan Sun's General Counsel/Vice President for nine years prior to being seated on the Tribal Council and the Management Board in October 2005. As General Counsel, he was responsible for
reviewing and approving contractual agreements, establishing guidelines and procedures for legal issues related to operations, patrons, vendors and regulating agencies, overseeing the legal staff and budget preparation. Prior to his employment with
Mohegan Sun, Mr. Hamilton worked as an attorney in a private practice.

Ralph James Gessner, Jr.Mr. Gessner brings nine
years of casino experience to his first term on the Management Board. Prior to being seated on the Tribal Council and the Management Board in October 2005, Mr. Gessner served as Executive Host at Mohegan Sun beginning in 1997, was promoted to
Manager and then Director of Executive Hosts and finally to Vice President of Casino Marketing. Prior to his work at Mohegan Sun, Mr. Gessner worked as a marketing associate for a food service company after graduating from the University of
Southwestern Louisiana with a bachelor's degree in hotel and restaurant management.

Mitchell Grossinger EtessMr. Etess
assumed the role of Chief Executive Officer of the Authority in May 2006, while continuing in his current role as President and Chief Executive Officer of Mohegan Sun. Mr. Etess has served as the President and Chief Executive Officer of Mohegan
Sun since August 2004. Prior to that, Mr. Etess served as Executive Vice President of Marketing of the Authority. Mr. Etess served as the Authoritys Executive Vice President of Marketing from October 1999 to August 2004 and served as
its Senior Vice President of Marketing from November 1995 to October 1999. Prior to his employment with Mohegan Sun, Mr. Etess was Vice President of Marketing at Players Island and, from 1989 to 1994, was Senior Vice President of Marketing and
Hotel Operations at Trump Plaza Hotel and Casino. Prior thereto, Mr. Etess held various management positions in the hospitality and advertising industries.



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Jeffrey E. HartmannMr. Hartmann assumed the role of Chief Operating Officer of the Authority
in May 2006, while continuing in his current role as Executive Vice President and Chief Operating Officer of Mohegan Sun. Mr. Hartmann has served as the Executive Vice President and Chief Operating Officer of Mohegan Sun since August 2004.
Prior to that, Mr. Hartmann served as Executive Vice President, Finance and the Chief Financial Officer of the Authority. Mr. Hartmann has 15 years of experience in the casino and hotel industry. Mr. Hartmann served as the
Authoritys Executive Vice President of Finance and Chief Financial Officer from October 1999 through August 2004 and served as its Senior Vice President of Finance and Chief Financial Officer from December 1996 to October 1999. Prior to
joining the Authority, Mr. Hartmann worked for Foxwoods from August 1991 to December 1996, including as Vice President of Finance for Foxwoods Management Company. Mr. Hartmann was employed by Coopers & Lybrand, LLP, an independent
public accounting firm, as an Audit Manager from 1984 to 1991. Mr. Hartmann is a certified public accountant.

Leo M.
ChupaskaMr. Chupaska assumed the role of Chief Financial Officer of Mohegan Sun in May 2006, while continuing in his current role as Chief Financial Officer of the Authority. Mr. Chupaska has served as the Chief Financial Officer of
the Authority since August 2004. Prior to this position, Mr. Chupaska served as Chief Financial Officer of the Tribe from September 1996 through August 2004, and was a member of the Financial Advisory Committee of the Authoritys Audit
Committee. Prior to joining the Tribe, Mr. Chupaska served as Director of Financial Services for Lawrence and Memorial Hospital in New London, Connecticut. Mr. Chupaska is a certified public accountant.

Robert J. SoperMr. Soper has served as the President and Chief Executive Officer of the Pocono Downs entities since January 2005. Prior to
assuming this position, Mr. Soper served as Senior Vice President of Administration at Mohegan Sun from 2001 to 2005 and Senior Attorney for the Tribe from 1997 to 2001.

Audit Committee

We have a
separately-designated standing Audit Committee established in accordance applicable provisions of the Exchange Act. The Audit Committee is comprised of members from the Management Board. All members of our Audit Committee are able to read and
understand fundamental financial statements, including a balance sheet, income statement and cash flow statement. The Management Board has determined that none of its members, and accordingly no member of the Audit Committee, is a financial expert,
meaning that no person has past employment experience in finance or accounting, requisite professional certification in accounting or any other comparable experience or background, which results in the individuals financial sophistication,
including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. However, the Audit Committee is advised on financial matters through a Financial Advisory Committee,
comprised of one or more financial experts independent from the Authority.

Code of Ethics

We have adopted a code of ethics that applies to all of our executive officers, including our principal executive officer and principal financial and
accounting officer. Our code of ethics is available on our website at www.mtga.comunder Corporate Governance.

If we
make any substantive amendments to the code of ethics or grant any waiver, including any implicit waiver, from a provision of the code of ethics to our principal executive or principal financial and accounting officer, we will disclose the nature of
such amendment or waiver on our website and in a report on Form 8-K.

Item 11. Executive Compensation

Compensation of the Management Board

We do not directly compensate the individual members of the Management Board. The Tribe compensates members of the Management Board for the services they
render as members of the Tribal Council and as



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##### Table of Contents

members of the Management Board. The members of the Management Board received the following amounts for their services as members of the Management Board for
fiscal year 2006: Bruce S. Bozsum, $143,000; Marilynn R. Malerba, $129,000; Roberta J. Harris-Payne, $103,000; Allison D. Johnson, $103,000; William Quidgeon, Jr., $103,000; Mark F. Brown, $142,000; Roland J. Harris, $142,000; Mark W. Hamilton,
$103,000; and Ralph James Gessner, Jr., $103,000. In addition, the Tribe paid life insurance premiums on behalf of Mark F. Brown and Roland J. Harris in fiscal year 2006, to maintain life insurance on each of these members in the amount of $500,000.

Compensation of Executive Officers

Effective May 4, 2006, William J. Velardo, former Chief Executive Officer of the Authority, resigned in order to accept an offer of employment in his original home of Las Vegas, Nevada. As a result of his
resignation, Mitchell Grossinger Etess assumed the role of Chief Executive Officer of the Authority, while continuing in his current role as President and Chief Executive Officer of Mohegan Sun. In addition, Jeffrey E. Hartmann assumed the role of
Chief Operating Officer of the Authority, while continuing in his current role as Executive Vice President and Chief Operating Officer of Mohegan Sun, while Leo M. Chupaska assumed the role of Chief Financial Officer of Mohegan Sun, while continuing
in his current role as Chief Financial Officer of the Authority. These transitions became effective May 4, 2006.

The compensation of
Mr. Etess, Mr. Hartmann and Mr. Chupaska has been determined in accordance with their employment agreements, which were approved by the Management Board in July 2006. A description of the existing agreements is provided below.
Mr. Soper is not currently compensated under an employment agreement, however, the Management Board and Mr. Soper are currently in the process of finalizing the terms of a new employment agreement. Anthony Patrone, Senior Vice President of
Marketing of Mohegan Sun, is being compensated under an employment agreement approved by the Chief Executive Officer of the Authority.



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The following table sets forth the compensation paid to the Chief Executive Officer of the Authority and
each of the other four most highly compensated officers for fiscal year 2006, referred to collectively as the named executive officers:

SUMMARY COMPENSATION TABLE



|                                                                                   |  |              |        |  |                     |                           |                              |                            |                       |               |     |                                  |     |  |                             |                    |  |     |                 |        |  |     |          
|---------------------------------------------------------------------------------- |  | ------------ | ------ |  | ------------------- | ------------------------- | ---------------------------- | -------------------------- | --------------------- | ------------- | --- | -------------------------------- | --- |  | --------------------------- | ------------------ |  | --- | --------------- | ------ |  | --- | ---------
|                                                                                   |  | FiscalYear   |        |  | Annual Compensation |                           |                              | All Other Compensation (1)
|                                                                                   |  |              | Salary |  | Bonus               |                           | Other AnnualCompensation (2) |                            |                       | LifeInsurance |     | 401(k) PlanMatchingContributions |     |  | RetirementPlanContributions
|Mitchell Grossinger Etess Chief Executive Officer, Mohegan Tribal Gaming Authority |  | 200620052004 |        |  | $$$                 | 895,000771,000666,000     |                              | $$$                        | 408,000273,000214,000 |               | $$$ | 14,00013,00013,000               |     |  | $$$                         | 30,00030,00030,000 |  | $$$ | 6,3006,3006,200 |        |  | $$$ | 600600600
|                                                                                   |  |              |        |  |                     |                           |                             
|William J. Velardo Former Chief Executive Officer, Mohegan Tribal Gaming Authority |  | 200620052004 | (3)    |  | $$$                 | 798,0001,142,0001,115,000 |                              | $$$                        | 125,000373,000325,000 |               | $$$ | 30,00029,00028,000               |     |  | $$$                         | 64,00063,00064,000 |  | $$$ | 7,3009,3006,200 | (4)(4) |  | $$$ | 400600600
|                                                                                   |  |              |        |  |                     |                           |                             
|Jeffrey E. Hartmann Chief Operating Officer, Mohegan Tribal Gaming Authority       |  | 200620052004 |        |  | $$$                 | 818,000712,000648,000     |                              | $$$                        | 390,000255,000207,000 |               | $$$ | 11,00011,00011,000               |     |  | $$$                         | 24,00024,00024,000 |  | $$$ | 6,3006,3006,200 |        |  | $$$ | 600600600
|                                                                                   |  |              |        |  |                     |                           |                             
|Leo M. Chupaska Chief Financial Officer, Mohegan Tribal Gaming Authority           |  | 200620052004 | (5)    |  | $$$                 | 570,000372,00014,000      |                              | $$$                        | 285,000369,000       |               | $$$ | 1,000                          |     |  | $$$                         | 2,0001,000        |  | $$$ | 6,3006,200400   |        |  | $$$ | 600600600
|                                                                                   |  |              |        |  |                     |                           |                             
|Robert J. Soper President and Chief Executive Officer, Mohegan Sun at Pocono Downs |  | 200620052004 |        |  | $$$                 | 323,000307,000204,000     |                              | $$$                        | 106,00050,00045,000   |               | $$$ |                               |     |  | $$$                         |                 |  | $$$ | 6,3006,3006,100 |        |  | $$$ | 600600600
|                                                                                   |  |              |        |  |                     |                           |                             
|Anthony Patrone Senior Vice President of Marketing, Mohegan Sun                    |  | 200620052004 | (6)    |  | $$$                 | 281,00048,000            |                              | $$$                        | 120,000             |               | $$$ | 77,000                         | (7) |  | $$$                         |                 |  | $$$ | 2,100         |        |  | $$$ | 600    

---

|(1) | Represents our payment of premiums on life insurance policies for which the employee is the owner and beneficiary, employer matching contributions and our other contributions on the
employees behalf to the Mohegan Retirement and 401(k) Plan.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represents our reimbursement for the payment of income taxes pertaining to certain life insurance benefits for our chief executive officers, chief operating officer and chief
financial officer.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Represents compensation paid from October 1, 2005 through May 3, 2006 (date of resignation).
|--- | --------------------------------------------------------------------------------------------

|(4) | Includes 401(k) catch-up contributions of $1,000 and $3,000 for the 2006 and 2005 fiscal years, respectively.
|--- | -------------------------------------------------------------------------------------------------------------

|(5) | Represents compensation paid from date of hire through September 30, 2004.
|--- | --------------------------------------------------------------------------

|(6) | Represents compensation paid from date of hire through September 30, 2005.
|--- | --------------------------------------------------------------------------

|(7) | Represents our reimbursement for certain relocation expenses and the income taxes pertaining to these expenses.
|--- | ---------------------------------------------------------------------------------------------------------------

Employment Agreements

On
July 28, 2006, we entered into new employment agreements with each of Mitchell Grossinger Etess, Chief Executive Officer of the Authority, Jeffrey E. Hartmann, Chief Operating Officer of the Authority, and Leo M. Chupaska, Chief Financial
Officer of the Authority. These agreements replaced existing employment agreements with each executive. The terms of the agreements for Messrs. Etess and Hartmann commenced as of May 8, 2006 and expire December 31, 2011, with an annual
base salary of $1,010,326 and $955,206, respectively, subject to annual increases effective each January 1st of no less than 5% of base salary. The term of Mr. Chupaskas agreement commenced as of October 1, 2005 and expires
December 31, 2008, with an annual salary of $547,000, subject to annual increases effective each January 1st of no less than 5% of base salary. Each agreement contains an automatic renewal for an additional term of five years unless either
party provides notice to the other on or before the 120th day prior to the end of the agreements stated term of an intention to terminate at the stated termination date. Each employee also is entitled to receive an annual bonus no later than
October 31st of not less than 331/3% of his then current annual base salary in effect for the period for
which the annual bonus is to be paid.



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Each employment agreement provides that, if the employee is terminated for cause (as defined in each
agreement) or if the employee terminates his employment voluntarily, then the employee will not be entitled to any further compensation. If the employee is terminated other than for cause, then the employee will be entitled to receive his annual
salary plus an annual bonus equal to 331/3% of his annual salary from the date of termination to the expiration
date of the agreement. In addition, if either were terminated other than for cause on or before December 31, 2010, we would pay to Mr. Etess or Mr. Hartmann all or a portion of the penalty incurred by the executive for early
withdrawal of his deferred compensation, together with amounts, if any, equal to the amount of income taxes payable by the executive in connection with his receipt of such payments from us.

These employment agreements further provide that the applicable employee may not, without prior written consent, compete with us in specified states in
the northeastern United States during the term of his employment and for a one-year period following termination of employment. Also, during this period, the applicable employee may not hire or solicit our employees or encourage any such employees
to leave employment with us.

On December 20, 2006, we entered into an employment agreement with Anthony Patrone. Under the employment
agreement, Mr. Patrone is entitled to receive an annual base salary of $330,750. The employment agreement provides that if Mr. Patrone is terminated for cause, then he will not be entitled to any further compensation. If Mr. Patrone
voluntarily terminates his employment and provides the required 60-day written notice, then we will pay his base salary for 60 days following his resignation, so long as he remains in compliance with all of the other covenants under the agreement.
If Mr. Patrone is terminated other than for cause, then he will receive his base salary for a one year period and a lump sum payment of $25,000 for relocation expenses.

The employment agreements further provide that Mr. Patrone may not, without our prior written consent, compete with us in specified states in the
northeastern United States during the term of his employment and for a one-year period following termination of his employment. Also, during this period, Mr. Patrone may not hire or solicit our other employees or encourage any such employees to
leave employment with us. Under this employment agreement, Mr. Patrone may not disclose any of our confidential information while employed by us or thereafter.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

We have no outstanding equity securities.

Item 13. Certain Relationships and Related Transactions

Transactions between the Tribe, the
Authority and the Authoritys Subsidiaries

On August 4, 2006, we purchased a 5.0% membership interest in Salishan-Mohegan
from Mohegan Ventures-NW and sold such 5.0% interest to the Mohegan Tribe for approximately $351,000. Refer to Item 7. Managements Discussion and Analysis of Financial Condition and Results of OperationOverviewOther
Diversification ProjectsCowlitz Project for a further description of this transaction and other transactions with Salishan-Mohegan.

Transactions with Management and Others

Two Management Board members, Mark Hamilton and James Gessner, Jr. were
employees of the Authority prior to their seating as Management Board members on October 3, 2005. Both members resigned from their positions at the Authority prior to being seated. The total compensation provided by the Authority to Mark
Hamilton and James Gessner Jr. for fiscal year 2005 was approximately $190,000 and $110,000, respectively.

As referred to above in
Item 10. Directors and Executive Officers of the Registrant, Roland J. Harris, a Management Board member, resigned from his position in the Tribal Council, and therefore the Management Board, on December 11, 2006 to accept a
position as Senior Vice President of Project Management at the Authority.



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Services Provided by the Tribe to the Authority

The Tribe provides governmental and administrative services to us in conjunction with the operation of Mohegan Sun. During the fiscal years ended
September 30, 2006, 2005 and 2004, we incurred $18.9 million, $17.0 million and $15.4 million, respectively, of expenses for such services.

We purchase the majority of our utilities, including electricity, gas, water and sewer, from an instrumentality of the Tribe, the Mohegan Tribal Utility Authority. During the fiscal years ended September 30, 2006, 2005 and 2004, we
incurred costs of $19.7 million, $16.5 million and $16.7 million, respectively, for such utilities.

The Tribe provides services through
its Development Department for projects related to Mohegan Sun. We recorded $2.8 million, $10.6 million and $3.6 million of capital expenditures managed by the Tribes Development Department for the fiscal years ended September 30, 2006,
2005 and 2004, respectively.

Leases by the Authority to the Tribe

We had a lease agreement with Little People, LLC (an entity owned by the Tribe), whereby Little People, LLC leased retail space located in the Shops at
Mohegan Sun from us. In June 2006, the lease agreement was terminated, and we purchased the furniture and fixtures, inventory and various outstanding accounts receivable pertaining to these retail operations from Little People, LLC for approximately
$687,000. This retail outlet is now owned and operated by Mohegan Sun.

Leases by the Tribe to the Authority

We lease the land on which Mohegan Sun is located from the Tribe pursuant to a long-term lease. We are required to pay to the Tribe a nominal annual
rental fee under the lease. The lease has an initial term of 25 years and is renewable for an additional 25-year term upon expiration.

The
Tribe, through one of its limited liability companies, has entered into various land lease agreements with us for access, parking and related purposes for Mohegan Sun. For each of the fiscal years ended September 30, 2006, 2005 and 2004, we
expensed $262,000 relating to these land lease agreements.

Distributions by the Authority to the Tribe

On August 1, 2001, we entered into an agreement with the Tribe, or the priority distribution agreement, which obligates us to make monthly payments
to the Tribe to the extent of our net cash flow, as defined in the priority distribution agreement. The priority distribution agreement, which has a perpetual term, limits the maximum aggregate payments by us to the Tribe in each calendar year to
$14.0 million, as adjusted annually in accordance with the formula specified in the priority distribution agreement to reflect the effects of inflation. However, payments pursuant to the priority distribution agreement do not reduce our obligations
to make payments to reimburse the Tribe for governmental services provided by the Tribe or any payments under any other agreements with the Tribe. The monthly payments under the priority distribution agreement are limited obligations payable only to
the extent of our net cash flow and are not secured by a lien or encumbrance on any of our assets or property. Our consolidated financial statements reflect payments associated with the priority distribution agreement of $16.3 million, $15.8 million
and $15.4 million for the fiscal years ended September 30, 2006, 2005 and 2004, respectively.

In compliance with the restrictive
covenants of our bank credit facility and indentures, we distributed to the Tribe $72.6 million, $51.7 million and $49.6 million, net of $16.3 million, $15.8 million and $15.4 million, respectively, relating to priority distribution payments for the
fiscal years ended September 30, 2006, 2005 and 2004, respectively.



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Mohegan Tribal Employment Rights Ordinance

On September 25, 1995, the Tribe adopted the Mohegan Tribal Employment Rights Ordinance, or the TERO, which sets forth hiring and contracting
preference requirements for employers and entities conducting business on Tribal land or working on behalf of the Tribe. Pursuant to the TERO, an employer is required to give hiring, promotion, training, retention and other employment-related
preferences to Native Americans who meet the minimum qualifications for the applicable employment position. However, this preference requirement does not apply to key employees, as such persons are defined in the TERO.

Similarly, any entity awarding a contract to be performed on Tribal land or on behalf of the Tribe must give preference, first to certified Mohegan
entities and second to other certified Indian entities. This contracting preference is conditioned upon the bid by the preferred certified entity being within 5% of the lowest bid by a non-certified entity (unless the preferred certified
entitys bid exceeds $100,000 of the lowest bid by a non-certified entity). The TERO establishes procedures and requirements for certifying Mohegan entities and other Indian entities. Certification is based largely on the level of ownership and
control exercised by the members of the Tribe or other Indian tribes, as the case may be, over the entity bidding on a contract.

As of
September 30, 2006, approximately 125 of our employees were members of the Tribe.

Item 14. Principal Accounting Fees and Services

The following table sets forth the aggregate fees
paid or accrued for professional services rendered by PricewaterhouseCoopers LLP for the audit of our annual financial statements for fiscal year 2006 and fiscal year 2005 and the aggregate fees paid or accrued for audit-related services and all
other services rendered by PricewaterhouseCoopers LLP for fiscal year 2006 and fiscal year 2005.



|                   |  |                 |         |                 |   |          
|------------------ |  | --------------- | ------- | --------------- | - | ---------
|                   |  | Fiscal Year2006 |         | Fiscal Year2005
|Audit fees         |  | $               | 601,332 |                 | $ | 926,493  
|Audit-related fees |  |                 | 144,699 |                 |   | 248,823  
|Tax fees           |  |                 | 13,825  |                 |   | 13,050   
|All other fees     |  |                 | 4,515   |                 |   | 4,515    
|                   |  |                 |         |                 |   |          
|Total              |  | $               | 764,371 |                 | $ | 1,192,881
|                   |  |                 |         |                 |   |          

The category of Audit fees includes fees for our annual audit, quarterly reviews and
services rendered in connection with regulatory filings with the SEC, such as the issuance of comfort letters and consents.

The category
of Audit-related fees includes employee benefit plan audits, internal control reviews and accounting consultation.

The
category of Tax fees includes consultation related to corporate development activities and the preparation of tax returns for certain subsidiaries.

The category of All other fees includes the licensure of accounting and finance research technology owned by PricewaterhouseCoopers LLP.

All above audit services, audit-related services and tax services were pre-approved by the Audit Committee, which concluded that the provision of such
services by PricewaterhouseCoopers LLP was compatible with the maintenance of that firms independence in the conduct of its auditing functions. The Audit Committees outside auditor independence policy provides for pre-approval of all
services performed by the outside auditors.



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PART IV

Item 15. Exhibits, Financial Statement Schedules

A(1). Financial Statements

The following financial statements and reports appear in this Form 10-K beginning on page F-2 and are incorporated by reference in Part II, Item 8:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets of the Mohegan Tribal Gaming Authority as of September 30, 2006 and 2005

Consolidated Statements of Income of the Mohegan Tribal Gaming Authority for the Fiscal Years Ended September 30, 2006, 2005 and
2004

Consolidated Statements of Changes in Capital of the Mohegan Tribal Gaming Authority for the Fiscal Years Ended
September 30, 2006, 2005 and 2004

Consolidated Statements of Cash Flows of the Mohegan Tribal Gaming Authority for
the Fiscal Years Ended September 30, 2006, 2005 and 2004

Notes to Consolidated Financial Statements of the Mohegan
Tribal Gaming Authority

A(2). Financial Statement Schedules

The following schedule appears on page S-1 of this Form 10-K and is incorporated by reference herein:

Schedule IIValuation and Qualifying Accounts and Reserves for the Fiscal Years Ended September 30, 2006, 2005 and 2004

Schedules other than that listed above are omitted because they are not required or are not applicable, or the required information is
shown in the consolidated financial statements or notes to the consolidated financial statements.

A (3). Exhibits

The exhibits to this Form 10-K are listed on the exhibit index, which appears elsewhere herein and is incorporated herein by reference.



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Mohegan Tribal Gaming Authority has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on December 21, 2006.



MOHEGAN TRIBAL GAMING AUTHORITYBy:

/s/    BRUCE S.
BOZSUMBruce S. Bozsum Chairman, Management Board


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the Mohegan Tribal Gaming Authority and in the capacities indicated on December 21, 2006.



|                                                           |  |                                                                                                      
|---------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------
|Signature                                                  |  | Title                                                                                                
|                                                           | 
|/s/    BRUCE S.
BOZSUM Bruce S. Bozsum                     |  | Chairman and Member, Management Board                                                                
|                                                           | 
|/s/    MARILYNN R.
MALERBA Marilynn R. Malerba             |  | Vice Chairman and Member, Management Board                                                           
|                                                           | 
|/s/    MITCHELL GROSSINGER
ETESS Mitchell Grossinger Etess |  | Chief Executive Officer, Mohegan Tribal Gaming
Authority (Principal Executive Officer)               
|                                                           | 
|/s/    LEO M.
CHUPASKA Leo M. Chupaska                     |  | Chief Financial Officer, Mohegan Tribal Gaming
Authority (Principal Financial and Accounting Officer)
|                                                           | 
|/s/    ALLISON D.
JOHNSON Allison D. Johnson               |  | Recording Secretary and Member, Management
Board                                                     
|                                                           | 
|/s/    ROBERTA J.
HARRIS-PAYNE Roberta J. Harris-Payne     |  | Corresponding Secretary and Member, Management
Board                                                 
|                                                           | 
|/s/    MARK F.
BROWN Mark F. Brown                         |  | Member, Management Board                                                                             
|                                                           | 
|/s/    RALPH JAMES GESSNER
JR. Ralph James Gessner Jr.     |  | Member, Management Board                                                                             
|                                                           | 
|/s/    WILLIAM QUIDGEON JR. William Quidgeon Jr.           |  | Treasurer and Member, Management Board                                                               
|                                                           | 
|/s/    MARK W.
HAMILTON Mark W. Hamilton                   |  | Member, Management Board                                                                             



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SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.

The registrant has not sent an annual report or proxy statement to security holders. The registrant will not be sending an annual report or proxy
statement to its security holders subsequent to the filing of this Form 10-K.



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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                                              |  |    
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ---
|                                                                                                                                              | 
|Report of Independent Registered Public Accounting Firm.                                                                                      |  | F-2
|                                                                                                                                              | 
|Consolidated Balance Sheets of Mohegan Tribal Gaming Authority as of September 30, 2006 and 2005                                              |  | F-3
|                                                                                                                                              | 
|Consolidated Statements of Income of Mohegan Tribal Gaming Authority for the Fiscal Years Ended September 30, 2006, 2005 and 2004             |  | F-4
|                                                                                                                                              | 
|Consolidated Statements of Changes in Capital of Mohegan Tribal Gaming Authority for the Fiscal Years Ended September 30, 2006, 2005 and 2004 |  | F-5
|                                                                                                                                              | 
|Consolidated Statements of Cash Flows of Mohegan Tribal Gaming Authority for the Fiscal Years Ended September 30, 2006, 2005 and 2004         |  | F-6
|                                                                                                                                              | 
|Notes to Consolidated Financial Statements of Mohegan Tribal Gaming Authority                                                                 |  | F-7



F-1



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

To the Management Board

of the Mohegan Tribal Gaming Authority

In our opinion, the
consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Mohegan Tribal Gaming Authority and its subsidiaries (the Authority) at
September 30, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2006 in conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Authoritys management. Our responsibility is to express an opinion on these financial statements and financial
statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards 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, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/    PricewaterhouseCoopers LLP

Hartford,
Connecticut

December 19, 2006



F-2



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##### Table of Contents

MOHEGAN TRIBAL GAMING AUTHORITY

CONSOLIDATED BALANCE SHEETS

(in thousands)



|                                                 |  |                   |           |   |                   |   |           |  
|------------------------------------------------ |  | ----------------- | --------- | - | ----------------- | - | --------- | -
|                                                 |  | September 30,2006 |           |   | September 30,2005 |  
|ASSETS                                           |  |                   |           |   |                   |   |           |  
|Current assets:                                  |  |                   |           |   |                   |   |           |  
|Cash and cash equivalents                        |  | $                 | 75,246    |   |                   | $ | 72,425    |  
|Receivables, net                                 |  |                   | 27,142    |   |                   |   | 15,528    |  
|Inventories                                      |  |                   | 15,353    |   |                   |   | 15,926    |  
|Other current assets                             |  |                   | 19,967    |   |                   |   | 12,193    |  
|                                                 |  |                   |           |   |                   |   |           |  
|Total current assets                             |  |                   | 137,708   |   |                   |   | 116,072   |  
|Non-current assets:                              |  |                   |           |   |                   |   |           |  
|Property and equipment, net                      |  |                   | 1,339,823 |   |                   |   | 1,322,691 |  
|Goodwill                                         |  |                   | 39,459    |   |                   |   | 39,459    |  
|Other intangible assets, net                     |  |                   | 339,649   |   |                   |   | 340,567   |  
|Other assets, net                                |  |                   | 57,718    |   |                   |   | 38,079    |  
|                                                 |  |                   |           |   |                   |   |           |  
|Total assets                                     |  | $                 | 1,914,357 |   |                   | $ | 1,856,868 |  
|                                                 |  |                   |           |   |                   |   |           |  
|LIABILITIES AND CAPITAL                          |  |                   |           |   |                   |   |           |  
|Current liabilities:                             |  |                   |           |   |                   |   |           |  
|Current portion of long-term debt                |  | $                 | 3,550     |   |                   | $ | 17,532    |  
|Current portion of relinquishment liability      |  |                   | 96,936    |   |                   |   | 90,410    |  
|Trade payables                                   |  |                   | 21,812    |   |                   |   | 22,840    |  
|Accrued interest payable                         |  |                   | 21,011    |   |                   |   | 23,067    |  
|Other current liabilities                        |  |                   | 129,039   |   |                   |   | 116,569   |  
|                                                 |  |                   |           |   |                   |   |           |  
|Total current liabilities                        |  |                   | 272,348   |   |                   |   | 270,418   |  
|Non-current liabilities:                         |  |                   |           |   |                   |   |           |  
|Long-term debt, net of current portion           |  |                   | 1,225,804 |   |                   |   | 1,226,348 |  
|Relinquishment liability, net of current portion |  |                   | 451,038   |   |                   |   | 462,078   |  
|Other long-term liabilities                      |  |                   | 542       |   |                   |   | 336       |  
|                                                 |  |                   |           |   |                   |   |           |  
|Total liabilities                                |  |                   | 1,949,732 |   |                   |   | 1,959,180 |  
|Minority interest                                |  |                   | 3,480     |   |                   |   | 2,560     |  
|Commitments and contingencies (Notes 12 and 15)  |  |                   |           |   |                   |   |           |  
|Capital:                                         |  |                   |           |   |                   |   |           |  
|Retained deficit                                 |  |                   | (38,855   | ) |                   |   | (104,872  | )
|                                                 |  |                   |           |   |                   |   |           |  
|Total capital                                    |  |                   | (38,855   | ) |                   |   | (104,872  | )
|                                                 |  |                   |           |   |                   |   |           |  
|Total liabilities and capital                    |  | $                 | 1,914,357 |   |                   | $ | 1,856,868 |  
|                                                 |  |                   |           |   |                   |   |           |  

The accompanying notes are an integral part of these consolidated financial
statements.



F-3



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##### Table of Contents

MOHEGAN TRIBAL GAMING AUTHORITY

CONSOLIDATED STATEMENTS OF INCOME

(in thousands)



|                                                      |  |                                           |           |   |                                           |   |           |                                           |  |   |           |  
|----------------------------------------------------- |  | ----------------------------------------- | --------- | - | ----------------------------------------- | - | --------- | ----------------------------------------- |  | - | --------- | -
|                                                      |  | For the FiscalYear EndedSeptember 30,2006 |           |   | For the FiscalYear EndedSeptember 30,2005 |   |           | For the FiscalYear EndedSeptember 30,2004 | 
|Revenues:                                             |  |                                           |           |   |                                           |   |           |                                           |  |   |           |  
|Gaming                                                |  | $                                         | 1,282,768 |   |                                           | $ | 1,202,196 |                                           |  | $ | 1,125,145 |  
|Food and beverage                                     |  |                                           | 96,046    |   |                                           |   | 92,180    |                                           |  |   | 89,850    |  
|Hotel                                                 |  |                                           | 50,818    |   |                                           |   | 50,058    |                                           |  |   | 52,035    |  
|Retail, entertainment and other                       |  |                                           | 121,699   |   |                                           |   | 112,319   |                                           |  |   | 100,903   |  
|                                                      |  |                                           |           |   |                                           |   |           |                                           |  |   |           |  
|Gross revenues                                        |  |                                           | 1,551,331 |   |                                           |   | 1,456,753 |                                           |  |   | 1,367,933 |  
|LessPromotional allowances                           |  |                                           | (124,917  | ) |                                           |   | (125,148  | )                                         |  |   | (111,007  | )
|                                                      |  |                                           |           |   |                                           |   |           |                                           |  |   |           |  
|Net revenues                                          |  |                                           | 1,426,414 |   |                                           |   | 1,331,605 |                                           |  |   | 1,256,926 |  
|                                                      |  |                                           |           |   |                                           |   |           |                                           |  |   |           |  
|Operating costs and expenses:                         |  |                                           |           |   |                                           |   |           |                                           |  |   |           |  
|Gaming                                                |  |                                           | 722,206   |   |                                           |   | 684,640   |                                           |  |   | 631,498   |  
|Food and beverage                                     |  |                                           | 49,710    |   |                                           |   | 45,216    |                                           |  |   | 43,264    |  
|Hotel                                                 |  |                                           | 16,883    |   |                                           |   | 16,114    |                                           |  |   | 15,440    |  
|Retail, entertainment and other                       |  |                                           | 43,370    |   |                                           |   | 35,442    |                                           |  |   | 41,870    |  
|Advertising, general and administrative               |  |                                           | 201,589   |   |                                           |   | 186,805   |                                           |  |   | 175,907   |  
|Corporate expenses                                    |  |                                           | 10,558    |   |                                           |   | 11,465    |                                           |  |   | 4,838     |  
|Pre-opening costs and expenses                        |  |                                           | 5,130     |   |                                           |   | 1,257     |                                           |  |   |          |  
|Depreciation and amortization                         |  |                                           | 88,182    |   |                                           |   | 87,678    |                                           |  |   | 93,595    |  
|Relinquishment liability reassessment                 |  |                                           | 39,407    |   |                                           |   | 123,624   |                                           |  |   | 3,897     |  
|                                                      |  |                                           |           |   |                                           |   |           |                                           |  |   |           |  
|Total operating costs and expenses                    |  |                                           | 1,177,035 |   |                                           |   | 1,192,241 |                                           |  |   | 1,010,309 |  
|                                                      |  |                                           |           |   |                                           |   |           |                                           |  |   |           |  
|Income from operations                                |  |                                           | 249,379   |   |                                           |   | 139,364   |                                           |  |   | 246,617   |  
|                                                      |  |                                           |           |   |                                           |   |           |                                           |  |   |           |  
|Other income (expense):                               |  |                                           |           |   |                                           |   |           |                                           |  |   |           |  
|Accretion of discount to the relinquishment liability |  |                                           | (30,707   | ) |                                           |   | (27,466   | )                                         |  |   | (29,939   | )
|Interest income                                       |  |                                           | 2,245     |   |                                           |   | 673       |                                           |  |   | 232       |  
|Interest expense, net of capitalized interest         |  |                                           | (90,928   | ) |                                           |   | (88,011   | )                                         |  |   | (78,970   | )
|Loss on early extinguishment of debt                  |  |                                           |          |   |                                           |   | (280      | )                                         |  |   | (34,138   | )
|Other income (expense), net                           |  |                                           | 24,508    |   |                                           |   | (1,127    | )                                         |  |   | (933      | )
|                                                      |  |                                           |           |   |                                           |   |           |                                           |  |   |           |  
|Total other expense                                   |  |                                           | (94,882   | ) |                                           |   | (116,211  | )                                         |  |   | (143,748  | )
|                                                      |  |                                           |           |   |                                           |   |           |                                           |  |   |           |  
|Income before minority interest                       |  |                                           | 154,497   |   |                                           |   | 23,153    |                                           |  |   | 102,869   |  
|Minority interest                                     |  |                                           | 420       |   |                                           |   | 514       |                                           |  |   | 18        |  
|                                                      |  |                                           |           |   |                                           |   |           |                                           |  |   |           |  
|Net income                                            |  | $                                         | 154,917   |   |                                           | $ | 23,667    |                                           |  | $ | 102,887   |  
|                                                      |  |                                           |           |   |                                           |   |           |                                           |  |   |           |  

The accompanying notes are an integral part of these consolidated financial
statements.



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##### Table of Contents

MOHEGAN TRIBAL GAMING AUTHORITY

CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL

(in thousands)



|                                                              |  |                  |          |   |                                      |   |      |               |  |   |          |  
|------------------------------------------------------------- |  | ---------------- | -------- | - | ------------------------------------ | - | ---- | ------------- |  | - | -------- | -
|                                                              |  | Retained Deficit |          |   | Accumulated Other Comprehensive Loss |   |      | Total Capital | 
|Balances, September 30, 2003                                  |  | $                | (98,592  | ) |                                      | $ | (303 | )             |  | $ | (98,895  | )
|Net income                                                    |  |                  | 102,887  |   |                                      |   |      |               |  |   | 102,887  |  
|Reclassification of derivative instrument losses to earnings  |  |                  |          |   |                                      |   | 303  |               |  |   | 303      |  
|                                                              |  |                  |          |   |                                      |   |      |               |  |   |          |  
|Total comprehensive income                                    |  |                  |          |   |                                      |   |      |               |  |   | 103,190  |  
|Distributions to Tribe                                        |  |                  | (65,017  | ) |                                      |   |      |               |  |   | (65,017  | )
|Capital adjustment from majority-owned subsidiary transaction |  |                  | (317     | ) |                                      |   |      |               |  |   | (317     | )
|                                                              |  |                  |          |   |                                      |   |      |               |  |   |          |  
|Balances, September 30, 2004                                  |  | $                | (61,039  | ) |                                      | $ |     |               |  | $ | (61,039  | )
|                                                              |  |                  |          |   |                                      |   |      |               |  |   |          |  
|Net income                                                    |  |                  | 23,667   |   |                                      |   |      |               |  |   | 23,667   |  
|Distributions to Tribe                                        |  |                  | (67,500  | ) |                                      |   |      |               |  |   | (67,500  | )
|                                                              |  |                  |          |   |                                      |   |      |               |  |   |          |  
|Balances, September 30, 2005                                  |  | $                | (104,872 | ) |                                      | $ |     |               |  | $ | (104,872 | )
|                                                              |  |                  |          |   |                                      |   |      |               |  |   |          |  
|Net income                                                    |  |                  | 154,917  |   |                                      |   |      |               |  |   | 154,917  |  
|Distributions to Tribe                                        |  |                  | (88,900  | ) |                                      |   |      |               |  |   | (88,900  | )
|                                                              |  |                  |          |   |                                      |   |      |               |  |   |          |  
|Balances, September 30, 2006                                  |  | $                | (38,855  | ) |                                      | $ |     |               |  | $ | (38,855  | )
|                                                              |  |                  |          |   |                                      |   |      |               |  |   |          |  







The accompanying notes are an integral part of these consolidated financial
statements.



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##### Table of Contents

MOHEGAN TRIBAL GAMING AUTHORITY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                                                                      |  |                            |          |   |                   |   |          |                   |  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | -------- | - | ----------------- | - | -------- | ----------------- |  | - | -------- | -
|                                                                                                                                      |  | For the Fiscal Years Ended |         
|                                                                                                                                      |  | September 30,2006          |          |   | September 30,2005 |   |          | September 30,2004 | 
|Cash flows provided by (used in) operating activities:                                                                                |  |                            |          |   |                   |   |          |                   |  |   |          |  
|Net income                                                                                                                            |  | $                          | 154,917  |   |                   | $ | 23,667   |                   |  | $ | 102,887  |  
|Adjustments to reconcile net income to net cash flows provided by operating activities:                                               |  |                            |          |   |                   |   |          |                   |  |   |          |  
|Depreciation and amortization                                                                                                         |  |                            | 88,182   |   |                   |   | 87,678   |                   |  |   | 93,595   |  
|Accretion of discount to the relinquishment liability                                                                                 |  |                            | 30,707   |   |                   |   | 27,466   |                   |  |   | 29,939   |  
|Relinquishment liability reassessment                                                                                                 |  |                            | 39,407   |   |                   |   | 123,624  |                   |  |   | 3,897    |  
|Cash paid for accretion of discount to the relinquishment liability                                                                   |  |                            | (29,897  | ) |                   |   | (28,085  | )                 |  |   | (30,852  | )
|Gain on Pocono Downs purchase settlement                                                                                              |  |                            | (25,444  | ) |                   |   |         |                   |  |   |         |  
|Loss on early extinguishment of debt                                                                                                  |  |                            |         |   |                   |   | 280      |                   |  |   | 34,138   |  
|Payment of tender offer costs                                                                                                         |  |                            |         |   |                   |   |         |                   |  |   | (32,192  | )
|Net loss on disposition of assets                                                                                                     |  |                            | 172      |   |                   |   | 1,131    |                   |  |   | 933      |  
|Provision for losses on receivables                                                                                                   |  |                            | 3,557    |   |                   |   | 2,286    |                   |  |   | 710      |  
|Amortization of debt issuance costs                                                                                                   |  |                            | 2,976    |   |                   |   | 3,106    |                   |  |   | 5,921    |  
|Amortization of net deferred gain on settlement of derivative instruments                                                             |  |                            | 444      |   |                   |   | 711      |                   |  |   | (117     | )
|Reclassification of derivative instrument losses to earnings                                                                          |  |                            |         |   |                   |   |         |                   |  |   | 303      |  
|Minority interest                                                                                                                     |  |                            | (420     | ) |                   |   | (514     | )                 |  |   | (18      | )
|Changes in operating assets and liabilities, net of effect of Pocono Downs acquisition:                                               |  |                            |          |   |                   |   |          |                   |  |   |          |  
|Decrease (increase) in receivables                                                                                                    |  |                            | (12,886  | ) |                   |   | (2,948   | )                 |  |   | 1,551    |  
|Decrease (increase) in inventories                                                                                                    |  |                            | 573      |   |                   |   | (680     | )                 |  |   | (1,359   | )
|Increase in other assets                                                                                                              |  |                            | (9,740   | ) |                   |   | (3,989   | )                 |  |   | (1,174   | )
|Increase (decrease) in trade payables                                                                                                 |  |                            | (1,038   | ) |                   |   | (4,003   | )                 |  |   | 40       |  
|Increase in other liabilities                                                                                                         |  |                            | 9,367    |   |                   |   | 17,345   |                   |  |   | 6,603    |  
|                                                                                                                                      |  |                            |          |   |                   |   |          |                   |  |   |          |  
|Net cash flows provided by operating activities                                                                                       |  |                            | 250,877  |   |                   |   | 247,075  |                   |  |   | 214,805  |  
|                                                                                                                                      |  |                            |          |   |                   |   |          |                   |  |   |          |  
|Cash flows provided by (used in) investing activities:                                                                                |  |                            |          |   |                   |   |          |                   |  |   |          |  
|Purchases of property and equipment, net of increase (decrease) in construction payables of $3,417, $1,772 and $(1,232),
respectively |  |                            | (98,503  | ) |                   |   | (49,219  | )                 |  |   | (31,912  | )
|Acquisition of Pocono Downs, net of cash acquired of $875                                                                             |  |                            |         |   |                   |   | (280,114 | )                 |  |   |         |  
|Proceeds from asset sales                                                                                                             |  |                            | 449      |   |                   |   | 186      |                   |  |   | 108      |  
|Issuance of third party loans and advances                                                                                            |  |                            | (3,405   | ) |                   |   | (6,494   | )                 |  |   | (605     | )
|Payments received on third-party loans                                                                                                |  |                            | 678      |   |                   |   | 463      |                   |  |   | 221      |  
|                                                                                                                                      |  |                            |          |   |                   |   |          |                   |  |   |          |  
|Net cash flows used in investing activities                                                                                           |  |                            | (100,781 | ) |                   |   | (335,178 | )                 |  |   | (32,188  | )
|                                                                                                                                      |  |                            |          |   |                   |   |          |                   |  |   |          |  
|Cash flows provided by (used in) financing activities:                                                                                |  |                            |          |   |                   |   |          |                   |  |   |          |  
|Bank Credit Facility borrowingsrevolving loan                                                                                        |  |                            | 233,000  |   |                   |   | 750,000  |                   |  |   | 290,000  |  
|Bank Credit Facility repaymentsrevolving loan                                                                                        |  |                            | (233,000 | ) |                   |   | (838,000 | )                 |  |   | (268,000 | )
|Bank Credit Facility borrowingsterm loan                                                                                             |  |                            |         |   |                   |   | 58,333   |                   |  |   |         |  
|Bank Credit Facility repaymentsterm loan                                                                                             |  |                            |         |   |                   |   | (150,000 | )                 |  |   | (8,334   | )
|Line of credit borrowings                                                                                                             |  |                            | 444,226  |   |                   |   | 474,900  |                   |  |   | 208,923  |  
|Line of credit repayments                                                                                                             |  |                            | (444,226 | ) |                   |   | (479,985 | )                 |  |   | (203,837 | )
|Proceeds from the issuance of long-term debt                                                                                          |  |                            |         |   |                   |   | 400,000  |                   |  |   | 225,000  |  
|Payments on long-term debt                                                                                                            |  |                            | (14,970  | ) |                   |   | (2,000   | )                 |  |   | (325,925 | )
|Minority interest contributions (distributions) and advances, net                                                                     |  |                            | 1,340    |   |                   |   | 729      |                   |  |   | (2,517   | )
|Principal portion of relinquishment liability payments                                                                                |  |                            | (44,731  | ) |                   |   | (42,540  | )                 |  |   | (36,525  | )
|Distributions to Tribe                                                                                                                |  |                            | (88,900  | ) |                   |   | (67,500  | )                 |  |   | (65,017  | )
|Capitalized debt issuance costs                                                                                                       |  |                            | (14      | ) |                   |   | (7,801   | )                 |  |   | (3,709   | )
|Net proceeds (payments) from the settlement of derivative instruments                                                                 |  |                            |         |   |                   |   | 3,598    |                   |  |   | (5,146   | )
|                                                                                                                                      |  |                            |          |   |                   |   |          |                   |  |   |          |  
|Net cash flows provided by (used in) financing activities                                                                             |  |                            | (147,275 | ) |                   |   | 99,734   |                   |  |   | (195,087 | )
|                                                                                                                                      |  |                            |          |   |                   |   |          |                   |  |   |          |  
|Net increase (decrease) in cash and cash equivalents                                                                                  |  |                            | 2,821    |   |                   |   | 11,631   |                   |  |   | (12,470  | )
|Cash and cash equivalents at beginning of year                                                                                        |  |                            | 72,425   |   |                   |   | 60,794   |                   |  |   | 73,264   |  
|                                                                                                                                      |  |                            |          |   |                   |   |          |                   |  |   |          |  
|Cash and cash equivalents at end of year                                                                                              |  | $                          | 75,246   |   |                   | $ | 72,425   |                   |  | $ | 60,794   |  
|                                                                                                                                      |  |                            |          |   |                   |   |          |                   |  |   |          |  
|Supplemental disclosures:                                                                                                             |  |                            |          |   |                   |   |          |                   |  |   |          |  
|Cash paid during the year for interest                                                                                                |  | $                          | 91,305   |   |                   | $ | 80,882   |                   |  | $ | 75,282   |  
|                                                                                                                                      |  |                            |         
|Acquisition: Pocono Downs                                                                                                             |  |                            |          |   |                   |   |          |                   |  |   |          |  
|Fair value of assets acquired, including cash of $875                                                                                 |  | $                          |         |   |                   | $ | 285,915  |                   |  | $ |         |  
|Cash paid                                                                                                                             |  |                            |         |   |                   |   | 280,989  |                   |  |   |         |  
|                                                                                                                                      |  |                            |          |   |                   |   |          |                   |  |   |          |  
|Fair value of liabilities assumed                                                                                                     |  | $                          |         |   |                   | $ | 4,926    |                   |  | $ |         |  
|                                                                                                                                      |  |                            |          |   |                   |   |          |                   |  |   |          |  

The accompanying notes are an integral part of these consolidated financial statements.



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##### Table of Contents

MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1ORGANIZATION AND BASIS OF PRESENTATION:

The Mohegan Tribe of Indians of Connecticut (the Mohegan Tribe or the Tribe) established the Mohegan Tribal Gaming Authority (the Authority) in July 1995 with the exclusive power to conduct and regulate
gaming activities for the Tribe on Tribal lands and the non-exclusive authority to conduct such activities elsewhere. The Tribe is a federally recognized Indian tribe with an approximately 507-acre reservation located in southeastern Connecticut.
Under the Indian Gaming Regulatory Act of 1988, federally recognized Indian tribes are permitted to conduct full-scale casino gaming operations on tribal land, subject to, among other things, the negotiation of a compact with the affected state. The
Tribe and the State of Connecticut have entered into such a compact (the Mohegan Compact), which has been approved by the United States Secretary of the Interior. The Authority is primarily engaged in the ownership, operation and
development of gaming facilities. On October 12, 1996, the Authority opened a casino known as Mohegan Sun. On January 25, 2005, the Authority purchased Pocono Downs, a harness racing facility now known as Mohegan Sun at Pocono Downs, and
five off-track wagering (OTW) facilities located in Pennsylvania. The Authority is governed by a nine-member Management Board, consisting of the same nine members as those of the Mohegan Tribal Council (the governing body of the Tribe).
Any change in the composition of the Tribal Council results in a corresponding change in the Authoritys Management Board.

As of
September 30, 2006, the Authority has the following wholly owned subsidiaries: Mohegan Basketball Club LLC (MBC), Mohegan Ventures-Northwest, LLC (Mohegan Ventures-NW), and Mohegan Commercial Ventures PA, LLC
(MCV-PA). Refer to Note 18 for the creation of another subsidiary by the Authority. MBC owns and operates a professional basketball team in the Womens National Basketball Association (WNBA), the Connecticut Sun, and
owns approximately 3.6% of the membership interests in WNBA, LLC. As of September 30, 2006, Mohegan Ventures-NW and the Tribe hold a 49.15% and 5.00% membership interest in Salishan-Mohegan LLC (Salishan-Mohegan), respectively,
formed with an unrelated third party to participate in the development and management of a casino to be owned by the federally recognized Cowlitz Indian Tribe and located in Clark County, Washington (the Cowlitz Project). Refer to Note
18 for changes to membership interest in Salishan-Mohegan subsequent to September 30, 2006. MCV-PA holds a 0.01% general partnership interest in Downs Racing, L.P., Backside, L.P., Mill Creek Land, L.P., and Northeast Concessions, L.P.
(collectively, the Pocono Downs entities), while the Authority holds a 99.99% limited partnership interest in each such entity. The Pocono Downs entities own and operate Mohegan Sun at Pocono Downs and the OTW facilities in Pennsylvania.
The Authority views Mohegan Sun and the properties owned by the Pocono Downs entities as separate operating segments.

NOTE 2SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The consolidated financial statements include the accounts of the Authority and its wholly owned subsidiaries. In accordance with the Financial Accounting
Standard Board (FASB) Interpretation No. 46(R), Consolidation of Variable Interest Entities (revised December 2003)an interpretation of ARB No. 51 (FIN 46), the accounts of Salishan-Mohegan
are consolidated into the accounts of Mohegan Ventures-NW as it is deemed to be the primary beneficiary. In consolidation, all intercompany balances and transactions have been eliminated.

Cash and Cash Equivalents

The
Authority classifies as cash and cash equivalents deposits that can be redeemed on demand and investments with a maturity of three months or less when purchased. Cash equivalents are carried at cost, which approximates market value.



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##### Table of Contents

MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Receivables

Accounts receivable consists primarily of casino receivables, which represent credit extended to approved casino customers, and hotel and other non-gaming receivables. The Authority maintains an allowance for doubtful
accounts which is based on managements estimate of the amount expected to be uncollectible considering historical experience and the information management obtains regarding the creditworthiness of the customer. Future business or economic
trends could affect the collectibility of these receivables.

Receivables from affiliates, which are recorded in other assets in the
accompanying consolidated balance sheet, consist primarily of reimbursable costs and expenses incurred by Salishan-Mohegan for the development of a casino in La Center, Washington to be owned by the Cowlitz Indian Tribe (see Note 15). The
receivables are payable upon (1) the receipt of necessary financing for the development of the proposed casino and (2) the related property being taken into trust by the United States Department of the Interior. Due to the inherent
uncertainty in the development of this casino project, the Authority maintains a reserve for doubtful collection of these receivables, which is based on managements estimate of the probability that the receivables will be collected. Future
complications in the receipt of financing, the relevant land being taken into trust or other matters affecting the development of the casino could affect the collectibility of the receivables.

Inventories

Inventories are stated
at the lower of cost or market and consist principally of food and beverage, retail, hotel and operating supplies. Cost is determined using an average cost method. The Authority reduces the carrying value of slow moving inventory to net realizable
value, which is based on managements estimate of the amount of inventory that may not be used in future casino operations considering the length of time items are held in inventory and information management obtains regarding the plans to
utilize this inventory. Future business trends could affect the timely use of inventories.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the assets (other than land) using the
straight-line basis. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the improvements. Useful life estimates of asset categories are as follows:



|                                |  |          
|------------------------------- |  | ---------
|Buildings and land improvements |  | 40 years 
|                                | 
|Furniture and equipment         |  | 3-7 years

The costs of significant improvements are capitalized. Costs of normal repairs and maintenance are
charged to expense as incurred. Gains or losses on disposition of property and equipment are included in the determination of net income.

In accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS
144), the carrying value of the Authoritys assets is reviewed when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined that an impairment loss has occurred based on
current and future levels of income and expected future cash flows as well as other factors, then an impairment loss is recognized in the consolidated statement of income. The Authority believes no such impairment exists at September 30, 2006.



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##### Table of Contents

MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Capitalized Interest

The interest cost associated with major development and construction projects is capitalized and included in the cost of the project. When no debt is
incurred specifically for a project, interest is capitalized on amounts expended on the project using the weighted-average cost of the Authoritys outstanding borrowings. Capitalization of interest ceases when the project is substantially
complete or development activity is suspended for more than a brief period.

Goodwill

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142), the goodwill associated with the
acquisition of the Pocono Downs entities (see Note 3) is not subject to amortization but is tested at least annually for impairment by comparing the fair value of the recorded assets to their carrying amount. If the carrying amount of the goodwill
exceeds its fair value, an impairment loss will be recognized immediately. The Authority assessed the goodwill for impairment and determined there was no impairment of goodwill at September 30, 2006.

Other Intangible Assets

In
connection with the Relinquishment Agreement (see Note 13), Trading Cove Associates (TCA) granted the Authority an exclusive, irrevocable, perpetual, world-wide and royalty-free license with respect to trademarks and other similar
rights, including the Mohegan Sun name used at or developed for Mohegan Sun. The trademarks were appraised by an independent valuation firm to have a value of $130.0 million. The independent valuation firm used the Income
ApproachRelief from Royalty Method. The balance of the trademark is as follows (in thousands):



|                         |  |                     |         |   |      |   |         |  
|------------------------ |  | ------------------- | ------- | - | ---- | - | ------- | -
|                         |  | As of September 30, |        
|                         |  | 2006                |         |   | 2005 |  
|Trademark                |  | $                   | 130,000 |   |      | $ | 130,000 |  
|Accumulated amortization |  |                     | (10,308 | ) |      |   | (10,308 | )
|                         |  |                     |         |   |      |   |         |  
|Trademark, net           |  | $                   | 119,692 |   |      | $ | 119,692 |  
|                         |  |                     |         |   |      |   |         |  

In accordance with SFAS 142, the Mohegan Sun trademark is no longer subject to amortization over
its estimated useful life as it has been deemed to have an indefinite useful life. However, SFAS 142 requires the trademark to be evaluated at least annually for impairment by applying a fair-value based test and, if impairment occurs, the amount of
the impaired trademark must be written off immediately. The Authority applied the fair value test as of September 30, 2006 and determined that no impairment existed.

In January 2005, the Authority and its wholly owned subsidiary, MCV-PA, acquired all the partnership interests in the Pocono Downs entities. As part of the acquisition, the Authority gained the right to apply for a
Category One Slot Machine License determined by management, with the assistance from a third party valuation firm, to be an intangible asset with an indefinite useful life and a fair value of $214.0 million (see Notes 3 and 18). The third party
valuation firm used the Income ApproachExcess Earnings Method. This intangible asset is assessed at least annually for impairment pursuant to SFAS 142. The Authority applied the fair value test as of September 30, 2006 and determined that
no impairment existed.

In January 2003, MBC acquired a membership in the WNBA and the right to own and operate a professional basketball
team in the WNBA. As part of the acquisition, management, with the assistance of an independent valuation firm, estimated a fair value for the player roster value, which is recorded as an intangible asset on the accompanying consolidated balance
sheet, and the remainder of the acquisition cost has been



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MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



recorded as franchise value, which is also included on the accompanying consolidated balance sheet. These assets are being amortized on a straight-line basis
over their estimated useful lives. The Authority writes off a portion of the player roster value intangible asset and the related accumulated amortization when a Connecticut Sun player contract that was part of the original player roster is
terminated. The loss associated with the write-off is included in depreciation and amortization expense in the accompanying consolidated statements of income. Refer to Note 14 for further discussion regarding the Authoritys accounting for
these assets.

Deferred Financing Costs

Debt issuance costs incurred in connection with the issuance of long-term debt are capitalized and amortized to interest expense based on the related debt agreements using the effective interest method or the
straight-line method, which approximates the effective interest method. The unamortized amounts are included in other assets in the accompanying consolidated balance sheets.

Unredeemed Players Club Points

The Authority maintains an accrual for unredeemed Players Club points. The accrual is based on the estimated cost of the points expected to be redeemed as of the respective balance sheet date. Management determines the adequacy of
this accrual by periodically evaluating the historical redemption experience and projected trends related to this accrual. Actual results could differ from those estimates.

Self-insurance Accruals

The
Authority is self-insured up to certain limits for costs associated with workers compensation and employee medical coverage. Liabilities for insurance claims and reserves include accruals of estimated settlements for known claims, as well as
accruals of estimates of incurred but not reported claims. These accruals are included in other current liabilities in the accompanying consolidated balance sheet. In estimating these costs, the Authority considers historical loss experience and
makes judgments about the expected levels of costs per claim. The Authority also uses information provided by independent consultants to assist in the determination of estimated accruals. These claims are accounted for based on estimates of the
undiscounted claims, including those claims incurred but not reported. The Authority believes the use of these estimates to account for these liabilities provides a consistent and effective way to measure these accruals; however, changes in health
care costs, accident frequency and severity and other factors can materially affect the estimate for these liabilities. The Authority continually monitors the potential changes in future estimates, evaluates insurance accruals and makes adjustments
when necessary.

Relinquishment Liability

The Authority, in accordance with SFAS No. 5, Accounting for Contingencies (SFAS 5), has recorded a relinquishment liability of the estimated present value of its obligations under the
Relinquishment Agreement (see Note 13). The Authority reassesses projected revenues (and consequently the relinquishment liability) (i) annually in conjunction with the Authoritys budgeting process or (ii) when necessary to account
for material increases or decreases in projected revenues over the relinquishment period. If the reassessment causes an overall increase to the projected revenues subject to the Relinquishment Agreement over the relinquishment period, the
relinquishment liability will be increased by five percent of such increases in revenues, discounted at the Authoritys risk-free rate of investment (an incremental layer). If the reassessment causes an overall decrease to the projected
revenues subject to the Relinquishment Agreement over the relinquishment period, the relinquishment liability will be decreased by five percent of such decrease in revenues, discounted based upon a weighted-average discount rate (a decremental
layer). The weighted-average discount rate is defined as the



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##### Table of Contents

MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



average discount rate used to discount all previous incremental layers weighted by the amount of each such incremental layer. Further, the Authority records
accretion to the relinquishment liability to reflect the impact of the time value of money. Since there is a high level of estimates and judgments used with respect to calculating the relinquishment liability, future events that affect such
estimates and judgments may cause the actual liability to differ significantly from the estimate.

Fair Value of Financial Instruments

The fair value amounts presented below are reported to satisfy the disclosure requirements of SFAS No. 107, Disclosures
about Fair Values of Financial Instruments (SFAS 107), and are not necessarily indicative of the amounts that the Authority could realize in a current market exchange.

The carrying amount of cash and cash equivalents, promissory notes, mortgages and bank financing facilities approximate fair value. The fair value of the
Authoritys other financing facilities is as follows (in millions):



|                                     |  |                     |       |      |   |      
|------------------------------------ |  | ------------------- | ----- | ---- | - | -----
|                                     |  | As of September 30,
|                                     |  | 2006                |       | 2005
|1999 81/8% Senior Notes              |  | $                   |      |      | $ | 14.1 
|2005 61/8% Senior Notes              |  | $                   | 244.4 |      | $ | 248.8
|2001 83/8% Senior Subordinated Notes |  | $                   | 17.0  |      | $ | 17.4 
|2002 8% Senior Subordinated Notes    |  | $                   | 258.8 |      | $ | 263.8
|2003 63/8% Senior Subordinated Notes |  | $                   | 327.5 |      | $ | 330.0
|2004 71/8% Senior Subordinated Notes |  | $                   | 223.9 |      | $ | 232.9
|2005 67/8% Senior Subordinated Notes |  | $                   | 146.3 |      | $ | 153.0

The estimated fair value of the Authoritys other financing facilities was based on quoted
market prices on or about September 30, 2006.

Revenue Recognition

The Authority recognizes gaming revenue as gaming wins less gaming losses. Revenues from food and beverage, hotel, retail, entertainment and other
services are recognized at the time the service is performed. Minimum rental revenues are recognized on a straight-line basis over the terms of the related leases. Percentage rents are recognized in the period in which the tenants exceed their
respective percentage rent thresholds.

Promotional Allowances

The Authority operates the Mohegan Sun complimentary program in which food and beverage, hotel, retail, entertainment and other services are provided to
guests based on points that are earned through the Mohegan Sun Players Club. The retail value of these complimentary items is included in gross revenues and then deducted as promotional allowances, except for the redemption at third party
tenant restaurants and the Shops at Mohegan Sun, which are charged directly to gaming expenses.

The Authority also has ongoing promotional
programs which offer coupons to its guests for the purchase of food, beverages, hotel and retail amenities offered at Mohegan Sun. The retail value of items or services purchased with coupons at Mohegan Sun operated facilities is included in gross
revenues and the respective coupon value is deducted as promotional allowances to arrive at net revenues.



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##### Table of Contents

MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The retail value of providing such promotional allowances was included in revenues as follows (in
thousands):



|                                |  |                                          |         |      |   |         |  |   |        
|------------------------------- |  | ---------------------------------------- | ------- | ---- | - | ------- |  | - | -------
|                                |  | For the Fiscal Years Ended September 30,
|                                |  | 2006                                     |         | 2005 |   | 2004   
|Food and beverage               |  | $                                        | 46,894  |      | $ | 44,757  |  | $ | 43,393 
|Hotel                           |  |                                          | 17,356  |      |   | 16,292  |  |   | 14,166 
|Retail, entertainment and other |  |                                          | 60,667  |      |   | 64,099  |  |   | 53,448 
|                                |  |                                          |         |      |   |         |  |   |        
|Total                           |  | $                                        | 124,917 |      | $ | 125,148 |  | $ | 111,007
|                                |  |                                          |         |      |   |         |  |   |        

The estimated cost of providing such promotional allowances was included in operating costs and
expenses, primarily gaming, as follows (in thousands):



|                                |  |                                          |         |      |   |         |  |   |       
|------------------------------- |  | ---------------------------------------- | ------- | ---- | - | ------- |  | - | ------
|                                |  | For the Fiscal Years Ended September 30,
|                                |  | 2006                                     |         | 2005 |   | 2004   
|Food and beverage               |  | $                                        | 48,352  |      | $ | 44,877  |  | $ | 42,837
|Hotel                           |  |                                          | 8,734   |      |   | 7,731   |  |   | 5,916 
|Retail, entertainment and other |  |                                          | 46,874  |      |   | 49,372  |  |   | 42,496
|                                |  |                                          |         |      |   |         |  |   |       
|Total                           |  | $                                        | 103,960 |      | $ | 101,980 |  | $ | 91,249
|                                |  |                                          |         |      |   |         |  |   |       

The Authority records free or discounted food and beverage and other services in accordance with
Emerging Issues Task Force Issue No. 01-9 Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor's Products. The Authority offers cash inducements and discounts on patron losses in certain
circumstances that result in a reduction to gaming revenues. The offsets to gaming revenues were $11.2 million, $4.4 million, and $1.0 million relating to discounts provided on patron losses for fiscal years ending September 30, 2006, 2005 and
2004, respectively, and $577,000, $266,000 and $281,000 relating to Players Club points redeemed for cash for the fiscal years ended September 30, 2006, 2005 and 2004, respectively.

Gaming Expenses

Gaming expenses
primarily include the slot win contribution, which the Authority is required to pay to the State of Connecticut (see Note 12), expenses associated with operation of slot machines, table games, keno, live harness racing at Pocono Downs and racebook,
certain marketing expenses, and promotional expenses for the Mohegan Sun Players Club points and coupons redeemed at the hotel, restaurants and retail outlets owned by Mohegan Sun, as well as third party tenant restaurants and the Shops at
Mohegan Sun.

Advertising

The Authority expenses the production costs of advertising the first time the advertising takes place. Prepaid rental fees associated with billboard advertising are capitalized and amortized over the term of the related rental agreement.
Total advertising costs for the fiscal years ended September 30, 2006, 2005 and 2004 were $39.3 million, $39.8 million and $37.3 million, respectively. Prepaid advertising on the Authoritys balance sheet at September 30, 2006 and
2005 was $573,000 and $43,000, respectively.



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##### Table of Contents

MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Corporate Expenses

Corporate expenses represent unallocated payroll costs, professional fees and various other expenses not directly related to the Authoritys
operations at Mohegan Sun or Pocono Downs. In addition, corporate expenses include the costs associated with the Authoritys evaluation and pursuit of new business opportunities, which are expensed as incurred until development of a specific
project has become probable.

Pre-Opening Costs and Expenses

For the fiscal years ended September 30, 2006 and 2005, pre-opening costs and expenses consisted primarily of direct incremental personnel,
consulting and other costs associated with the development of a Phase I slot machine facility at Mohegan Sun at Pocono Downs. Construction of the Phase I facility began in September 2005. In accordance with the American Institute of Certified Public
Accountants Statement of Position 98-5, Reporting on the Costs of Start-Up Activities, pre-opening costs and expenses were expensed as incurred.

Derivative Instruments

The Authority uses derivative instruments, including interest rate caps,
collars and swaps in its strategy to manage interest rate risk associated with the variable interest rate on its bank credit facility and the fixed interest rates on the Authoritys senior notes and senior subordinated notes. The
Authoritys objective in managing interest rate risk is to achieve the lowest possible cost of debt for the Authority, and to manage volatility in the effective cost of debt. The Authority continually monitors risk exposures from derivative
instruments held and makes the appropriate adjustments to manage these risks within managements established limits. The Authority accounts for its derivative instruments in accordance with SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133), which requires that all derivative instruments be recorded on the consolidated balance sheet at fair value.

In order for derivative instruments to qualify for hedge accounting in accordance with SFAS 133, the underlying hedged item must expose the Authority to
risks associated with market fluctuations and the financial instrument used must be designated as a hedge and must reduce the Authoritys exposure to market fluctuation throughout the hedge period. If these criteria are not met, a change in the
market value of the financial instrument is recognized as a gain or loss and is recorded as a component of interest expense in the period of change. The Authority excludes the change in the time value of money when assessing the effectiveness of the
hedging relationship. All derivatives are evaluated quarterly.

Derivative instruments entered into by the Authority which qualify for
hedge accounting are designated as either a fair value hedge or a cash flow hedge:



| |  |  | A fair value hedge is a hedge of the fair value of a recognized asset or liability. For fair value hedge transactions, changes in fair value of the derivative instrument are
generally offset in the consolidated income statement by changes in the fair value of the item being hedged. Gains and losses on these hedges are capitalized as part of the original debt instrument and, upon termination, are amortized and recorded
as a component of interest expense over the remaining term of the item being hedged.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A cash flow hedge is a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability. For cash flow hedge
transactions, changes in the fair value of the derivative instrument are reported in other comprehensive income. The gains and losses on cash flow hedge transactions reported in other comprehensive income are reclassified to earnings in the periods
in which earnings are affected by the variability of the cash flows of the hedged item.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Net interest paid or received pursuant to derivative instruments is included as a component of
interest expense in the period. Pending interest settlements earned on derivative instruments held at the end of a period are also included as a component of interest expense and in the accompanying consolidated balance sheet. In addition, current
and long-term portions of the fair value of derivative instruments held are separately recorded in the accompanying consolidated balance sheet. The current portion is based on estimated interest settlements for the subsequent one-year period for
derivative instruments held and the long-term portion is based on estimated interest settlements through the remaining maturity of the instruments. These estimates are based on forward-looking LIBOR curves at the consolidated balance sheet date. The
Authority did not have any derivative instruments as of September 30, 2006 or 2005.

Income Taxes

The Tribe is a sovereign Indian nation with independent legal jurisdiction over its people and its lands. Like other sovereign governments, the Tribe and
its entities, including the Authority, are not subject to federal, state or local income taxes.

Managements Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. The most significant estimates included in
the accompanying consolidated financial statements relate to the relinquishment liability, the liability associated with unredeemed Players Club points and employee medical coverage and workers compensation self-insurance reserves.
Actual results could differ from those estimates.

Reclassifications

Certain amounts in the fiscal year 2005 and 2004 consolidated financial statements have been reclassified to conform to the fiscal year 2006 presentation.

New Accounting Pronouncements

In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Correctionsa replacement of APB Opinion No. 20 and FASB Statement No. 3 (FAS 154). FAS 154 requires retrospective application to
prior periods financial statements of changes in accounting principle, subject to certain practicability provisions, but does not change the guidance in APB Opinion No. 20 for reporting the correction of an error in previously issued
financial statements and a change in accounting estimate. FAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Authority does not believe the adoption of this standard
will have a material impact on its financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS 157,
Fair Value Measurements (FAS 157). FAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This standard
does not require any new fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Authority does not believe the
adoption of this standard will have a material impact on its financial position, results of operations or cash flows.

In September 2006,
the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 (SAB 108), which provides guidance on the consideration of the effects of prior year financial statement



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MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



misstatements in quantifying current year financial statement misstatements for the purpose of a materiality assessment. SAB 108 is effective for annual
financial statements issued for fiscal years ending after November 15, 2006. The Authority does not believe the application of this guidance will have a material impact on its financial position, results of operations or cash flows.

NOTE 3ACQUISITION OF POCONO DOWNS ENTITIES:

On January 25, 2005, the Authority and its wholly owned subsidiary, MCV-PA, completed their acquisition of all the partnership interests in the Pocono Downs entities for approximately $281.0 million in cash. The results of operations
for the Pocono Downs entities are included in the accompanying consolidated financial statements from the date of acquisition through September 30, 2006.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition, which were estimated by management with assistance from a third party valuation firm. The right
to apply for a Category One slot machine license was determined to be an intangible asset with an indefinite life apart from goodwill. Certain other intangible assets were identified in the valuation process, but were not separated from goodwill due
to immateriality of the amounts.



|                                                       |  |                     |         |  
|------------------------------------------------------ |  | ------------------- | ------- | -
|                                                       |  | At January 25, 2005 |        
|                                                       |  | (in thousands)      |        
|Current assets                                         |  | $                   | 1,086   |  
|Property and equipment                                 |  |                     | 31,370  |  
|Right to apply for a Category One slot machine license |  |                     | 214,000 |  
|Goodwill                                               |  |                     | 39,459  |  
|                                                       |  |                     |         |  
|Total assets acquired                                  |  |                     | 285,915 |  
|Current liabilities                                    |  |                     | (4,926  | )
|                                                       |  |                     |         |  
|Total liabilities assumed                              |  |                     | (4,926  | )
|                                                       |  |                     |         |  
|Net assets acquired                                    |  | $                   | 280,989 |  
|                                                       |  |                     |         |  

On August 7, 2006, the Authority and the seller, a subsidiary of Penn National, entered into
an amendment of the Pocono Downs Purchase Agreement. Penn National joined in this amendment to confirm its continuing guaranty of the performance of its subsidiaries under the Pocono Downs Purchase Agreement, as amended. Pursuant to the amendment,
the Authority will receive an aggregate refund of $30.0 million of the original purchase price for the Pocono Downs entities, payable in five annual installments of $7.0 million, $7.0 million, $6.5 million, $6.0 million and $3.5 million on
November 14, 2007, 2008, 2009, 2010 and 2011, respectively. Pursuant to the amendment, the seller and the Authority agreed to modify certain provisions of the Pocono Downs Purchase Agreement, including: 1) the elimination of the
Authoritys post-closing termination rights; 2) the elimination of the sellers indemnification obligations for costs in excess of $2.0 million incurred with respect to remedial actions in connection with certain environmental
conditions at the Pocono Downs facility; and 3) the elimination of certain other post-closing indemnification obligations of the seller, including those relating to claims asserted in connection with a specific property tax matter (see Note
12). Pursuant to SFAS 141, Business Combinations, and other relevant accounting guidance, the $24.5 million present value of the payments for the $30.0 million refund, calculated utilizing the Authoritys risk-free rate of
investment, was recorded as a non-current receivable in other assets in the consolidated balance sheet as of September 30, 2006 and as a non-operating gain in other income in the consolidated statement of income for the fiscal year ended
September 30, 2006. The difference between the present value and the contract value of $30.0 million will be recorded as other non-operating income over the duration of the payment schedule.



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MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 4CASH AND CASH EQUIVALENTS:

At September 30, 2006 and 2005, the Authority had cash and cash equivalents of $75.2 million and $72.4 million, respectively, of which $980,000 and
$3.2 million, as of September 30, 2006 and 2005, were invested in deposits that could be redeemed on demand and investments with original maturities of less than three months when purchased. For reporting purposes, cash and cash equivalents
include all operating cash and in-house funds.

NOTE 5RECEIVABLES, NET:

Components of receivables, net are as follows (in thousands):



|                                |  |                     |        |   |      |   |        |  
|------------------------------- |  | ------------------- | ------ | - | ---- | - | ------ | -
|                                |  | As of September 30, |       
|                                |  | 2006                |        |   | 2005 |  
|Gaming                          |  | $                   | 23,972 |   |      | $ | 9,896  |  
|Hotel                           |  |                     | 1,318  |   |      |   | 2,471  |  
|Other                           |  |                     | 5,296  |   |      |   | 5,595  |  
|                                |  |                     |        |   |      |   |        |  
|Subtotal                        |  |                     | 30,586 |   |      |   | 17,962 |  
|Allowance for doubtful accounts |  |                     | (3,444 | ) |      |   | (2,434 | )
|                                |  |                     |        |   |      |   |        |  
|Total receivables, net          |  | $                   | 27,142 |   |      | $ | 15,528 |  
|                                |  |                     |        |   |      |   |        |  

NOTE 6PROPERTY AND EQUIPMENT, NET:

Components of property and equipment, net are as follows (in thousands):



|                                        |  |                     |           |   |      |   |           |  
|--------------------------------------- |  | ------------------- | --------- | - | ---- | - | --------- | -
|                                        |  | As of September 30, |          
|                                        |  | 2006                |           |   | 2005 |  
|Land                                    |  | $                   | 60,007    |   |      | $ | 43,906    |  
|Land improvements                       |  |                     | 48,317    |   |      |   | 48,317    |  
|Buildings and improvements              |  |                     | 1,268,544 |   |      |   | 1,257,948 |  
|Furniture and equipment                 |  |                     | 382,382   |   |      |   | 354,920   |  
|Construction in process                 |  |                     | 48,873    |   |      |   | 13,616    |  
|                                        |  |                     |           |   |      |   |           |  
|Subtotal                                |  |                     | 1,808,123 |   |      |   | 1,718,707 |  
|Less: accumulated depreciation          |  |                     | (468,300  | ) |      |   | (396,016  | )
|                                        |  |                     |           |   |      |   |           |  
|Total property plant and equipment, net |  | $                   | 1,339,823 |   |      | $ | 1,322,691 |  
|                                        |  |                     |           |   |      |   |           |  

For the fiscal years ended September 30, 2006, 2005 and 2004 depreciation expense totaled
$87.2 million, $86.5 million and $91.7 million, respectively. Capitalized interest totaled $1.2 million and $21,000 for the fiscal years ended September 30, 2006 and 2005. There was no capitalized interest for the fiscal year ended
September 30, 2004.

NOTE 7OTHER CURRENT ASSETS AND OTHER CURRENT LIABILITIES:

Components of other current assets are as follows (in thousands):



|                                    |  |                     |        |      |   |       
|----------------------------------- |  | ------------------- | ------ | ---- | - | ------
|                                    |  | As of September 30,
|                                    |  | 2006                |        | 2005
|Prepaid expenses                    |  | $                   | 11,098 |      | $ | 5,185 
|Non-qualified deferred compensation |  |                     | 8,869  |      |   | 7,008 
|                                    |  |                     |        |      |   |       
|Total other current assets          |  | $                   | 19,967 |      | $ | 12,193
|                                    |  |                     |        |      |   |       



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##### Table of Contents

MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Components of other current liabilities are as follows (in thousands):



|                                               |  |                     |         |      |   |        
|---------------------------------------------- |  | ------------------- | ------- | ---- | - | -------
|                                               |  | As of September 30,
|                                               |  | 2006                |         | 2005
|Accrued payroll and related taxes and benefits |  | $                   | 53,876  |      | $ | 47,193 
|Slot win contribution payable (Note 12)        |  |                     | 19,547  |      |   | 18,738 
|Miscellaneous other current liabilities        |  |                     | 55,616  |      |   | 50,638 
|                                               |  |                     |         |      |   |        
|Total other current liabilities                |  | $                   | 129,039 |      | $ | 116,569
|                                               |  |                     |         |      |   |        

NOTE 8FINANCING FACILITIES:

Financing facilities, as described below, consisted of the following (in thousands):



|                                                 |  |                     |           |      |   |          
|------------------------------------------------ |  | ------------------- | --------- | ---- | - | ---------
|                                                 |  | As of September 30,
|                                                 |  | 2006                |           | 2005
|Bank Credit Facility                             |  | $                   |          |      | $ |         
|1999 81/8% Senior Notes                          |  |                     |          |      |   | 13,970   
|2005 61/8% Senior Notes                          |  |                     | 250,000   |      |   | 250,000  
|2001 83/8% Senior Subordinated Notes             |  |                     | 16,345    |      |   | 16,345   
|2002 8% Senior Subordinated Notes                |  |                     | 250,000   |      |   | 250,000  
|2003 63/8% Senior Subordinated Notes             |  |                     | 330,000   |      |   | 330,000  
|2004 71/8% Senior Subordinated Notes             |  |                     | 225,000   |      |   | 225,000  
|2005 67/8% Senior Subordinated Notes             |  |                     | 150,000   |      |   | 150,000  
|WNBA Promissory Note                             |  |                     | 5,000     |      |   | 6,000    
|Line of Credit                                   |  |                     |          |      |   |         
|MortgageSalishan-Mohegan                        |  |                     | 2,550     |      |   | 2,550    
|                                                 |  |                     |           |      |   |          
|Subtotal                                         |  |                     | 1,228,895 |      |   | 1,243,865
|Net deferred gain on derivative instruments sold |  |                     | 459       |      |   | 15       
|                                                 |  |                     |           |      |   |          
|Total debt                                       |  | $                   | 1,229,354 |      | $ | 1,243,880
|                                                 |  |                     |           |      |   |          

Maturities of the Authoritys debt as of September 30, 2006 are as follows (in
thousands):



|            |  |                           |          
|----------- |  | ------------------------- | ---------
|Fiscal Year |  | Long-Term Debt Maturities
|2007        |  | $                         | 3,550    
|2008        |  |                           | 1,000    
|2009        |  |                           | 331,000  
|2010        |  |                           | 1,000    
|2011        |  |                           | 17,345   
|Thereafter  |  |                           | 875,000  
|            |  |                           |          
|Subtotal    |  | $                         | 1,228,895
|            |  |                           |          

Bank Credit Facility

As of September 30, 2006, the Authority has a loan agreement for up to $450.0 million from a syndicate of financial institutions and commercial banks, with Bank of America, N.A. serving as administrative agent
(the Bank Credit Facility). The Bank Credit Facility is comprised of a revolving loan of up to $450.0 million, which



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MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



matures on March 31, 2008. In December 2005, the Authority received the requisite consent from its lenders to amend the bank credit facility to permit
the Authority to increase the maximum amount available under letters of credit to $60.0 million, enabling the Authority to establish the $50.0 million letter of credit as required by the Pennsylvania Gaming Control Board (the PGCB)
(refer to Note 18). Taking into effect this and other letters of credit, which reduced borrowing availability under the bank credit facility, the Authority had approximately $399.3 million of available borrowing under the Bank Credit Facility as of
September 30, 2006 (without taking into account covenants under the Line of Credit described below). The revolving loan has no mandatory amortization provisions and is payable in full at maturity.

The Bank Credit Facility is collateralized by a lien on substantially all of the Authoritys assets, including the assets of the Pocono Downs
entities, and a leasehold mortgage on the land and improvements which comprise Mohegan Sun. The Authority will also be required to pledge additional assets as collateral for the Bank Credit Facility as it or its guarantor subsidiaries acquire them.
Effective August 4, 2006 and as of September 30, 2006, the Authoritys obligations under the Bank Credit Facility are guaranteed by MBC, Mohegan Ventures-NW, MCV-PA and the Pocono Downs entities (refer to Notes 15 and 18). The Bank
Credit Facility subjects the Authority to a number of restrictive covenants, including financial covenants. These financial covenants relate to, among other things, its permitted total debt and senior debt leverage ratios, its minimum fixed charge
coverage ratio and the Authoritys maximum capital expenditures. The Bank Credit Facility includes non-financial covenants by the Authority and the Tribe of the type customarily found in loan agreements for similar transactions including
requirements that:



| |  |  | the Tribe preserve its existence as a federally recognized Indian tribe;
| | - |  | ------------------------------------------------------------------------



| |  |  | the Tribe cause the Authority to continually operate Mohegan Sun in compliance with all applicable laws; and
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | except under specific conditions, limit the Authority from selling or disposing of its assets, limit the transfer of the Authoritys and its guarantor subsidiaries assets
to non-guarantor subsidiaries, limit the incurrence by the Authority and its guarantor subsidiaries of other debt or contingent obligations and limit the Authoritys and its guarantor subsidiaries ability to extend credit, make
investments or commingle their assets with assets of the Tribe.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of September 30, 2006, the Authority and the Tribe
were in compliance with all of their respective covenant requirements in the Bank Credit Facility.

At the Authoritys option, each
advance of loan proceeds accrues interest on the basis of a base rate or on the basis of a one-month, two-month, three-month, six-month or twelve-month London Inter-Bank Offered Rate (LIBOR), plus in either case, the applicable spread
discussed below. The Authority also pays commitment fees for the unused portion of the revolving loan on a quarterly basis equal to the applicable spread for commitment fees times the average daily unused commitment for that calendar quarter.
Applicable spreads are based on the Authoritys Total Leverage Ratio, as defined in the Bank Credit Facility. The applicable spread for base rate advances is between 0.50% and 1.25%, and the applicable spread for LIBOR rate advances is between
1.75% and 2.50%. The applicable spread for commitment fees is between 0.375% and 0.50%. The base rate is the higher of Bank of Americas announced prime rate or the federal funds rate plus 0.50%. Interest on LIBOR loans is payable at the end of
each applicable interest period or quarterly in arrears, if earlier. Interest on base rate advances is payable quarterly in arrears. As of September 30, 2006, the Authority had no base rate loans and no LIBOR rate loans outstanding. The
applicable spread for commitment fees was 0.50% as of September 30, 2006. Accrued interest, including commitment fees, on the Bank Credit Facility was $825,000 and $595,000 as of September 30, 2006 and 2005, respectively.



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MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



1999 81/8% Senior Notes

In March 1999, the Authority issued $200.0 million Senior Notes
with fixed interest payable at a rate of 8.125% per annum (the 1999 Senior Notes). The proceeds from this financing were used to extinguish or defease existing debt, pay transaction costs and fund initial costs related to the major
expansion of Mohegan Sun known as Project Sunburst. In August 2004, the Authority completed a cash tender offer and consent solicitation to repurchase any or all of its outstanding 1999 Senior Notes. As part of the tender offer, the Authority
solicited and received requisite consents to certain proposed amendments to the indentures governing the 1999 Senior Notes which eliminated substantially all of the restrictive covenants there under. The aggregate principal amount of 1999 Senior
Notes tendered was $186.0 million. The remaining 1999 Senior Notes matured on January 1, 2006. On January 3, 2006, the outstanding principal amount of $14.0 million of the 1999 Senior Notes and accrued interest of $568,000 were paid. As of
September 30, 2005, accrued interest on the 1999 Senior Notes was $284,000.

2005 61/8% Senior Notes

On February 8,
2005, the Authority issued $250.0 million Senior Notes with fixed interest payable at a rate of 6.125% per annum (the 2005 Senior Notes). The net proceeds from this financing were used to repay amounts outstanding under the Bank
Credit Facility and to pay fees and expenses associated with the issuance. The 2005 Senior Notes mature on February 15, 2013. The first call date for the 2005 Senior Notes is February 15, 2009. Interest on the 2005 Senior Notes is payable
semi-annually on February 15 and August 15. The 2005 Senior Notes are uncollateralized general obligations of the Authority, which are effectively subordinated to all of the existing and future senior secured indebtedness of the Authority,
including the Bank Credit Facility. The 2005 Senior Notes rank equally in right of payment with the 1999 Senior Notes and 50% of the Authoritys payment obligations under the Relinquishment Agreement that are then due and owing, and rank senior
to the remaining 50% of the Authoritys payment obligations under the Relinquishment Agreement that are then due and owing, the 2001 Senior Subordinated Notes, the 2002 Senior Subordinated Notes, the 2003 Senior Subordinated Notes, the 2004
Senior Subordinated Notes and the 2005 Senior Subordinated Notes. Effective August 4, 2006 and as of September 30, 2006, MBC, Mohegan Ventures-NW, MCV-PA and the Pocono Downs entities are guarantors of the 2005 Senior Notes (refer to Notes
15 and 18). Refer to Note 17 for condensed consolidating financial information of the Authority, its guarantor subsidiaries and its non-guarantor subsidiaries. As of September 30, 2006 and 2005, accrued interest on the 2005 Senior Notes was
$1.9 million.

2001 83/8% Senior Subordinated Notes

In July 2001, the Authority issued $150.0 million Senior Subordinated Notes with
fixed interest payable at a rate of 8.375% per annum (the 2001 Senior Subordinated Notes). The proceeds from this financing were used to pay transaction costs, pay down $90.0 million on the prior bank credit facility and fund costs
related to Project Sunburst. Interest on the 2001 Senior Subordinated Notes is payable semi-annually on January 1 and July 1. The 2001 Senior Subordinated Notes mature on July 1, 2011. The first call date for the 2001 Senior
Subordinated Notes is July 1, 2006. The 2001 Senior Subordinated Notes are uncollateralized general obligations of the Authority and are subordinated to the Bank Credit Facility, the 1999 Senior Notes, the 2005 Senior Notes and in a
liquidation, bankruptcy or similar proceeding 50% of the Authoritys payment obligations under the Relinquishment Agreement that are then due and owing. The 2001 Senior Subordinated Notes rank equally with the 2002 Senior Subordinated Notes,
the 2003 Senior Subordinated Notes, the 2004 Senior Subordinated Notes, the 2005 Senior Subordinated Notes and the remaining 50% of the Authoritys payment obligations under the Relinquishment Agreement that are then due and owing. MBC is a
guarantor of the 2001 Senior Subordinated Notes. Refer to Note 17 for condensed consolidating financial information of the Authority, its guarantor subsidiaries and its non-guarantor subsidiaries.



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MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



In August 2004, the Authority completed a cash tender offer and consent solicitation to repurchase
any or all of its outstanding 2001 Senior Subordinated Notes. As part of the tender offer, the Authority solicited and received requisite consents to certain proposed amendments to the indentures governing the 2001 Senior Subordinated Notes, which
eliminated substantially all of the restrictive covenants there under. The aggregate principal amount of 2001 Senior Subordinated Notes tendered was $133.7 million. An aggregate principal amount of $16.3 million of the 2001 Senior Subordinated Notes
remain outstanding as of September 30, 2006. Accrued interest on the 2001 Senior Subordinated Notes was $342,000 as of September 30, 2006 and September 30, 2005.

2002 8% Senior Subordinated Notes

In February 2002, the Authority issued $250.0 million Senior
Subordinated Notes with fixed interest payable at a rate of 8.0% per annum (the 2002 Senior Subordinated Notes). The proceeds from this financing were used to pay transaction costs and pay down $243.0 million on the prior bank
credit facility. Interest on the 2002 Senior Subordinated Notes is payable semi-annually on April 1 and October 1. The 2002 Senior Subordinated Notes mature on April 1, 2012. The first call date for the 2002 Senior Subordinated Notes
is April 1, 2007. The 2002 Senior Subordinated Notes are uncollateralized general obligations of the Authority and are subordinated to the Bank Credit Facility, the 1999 Senior Notes, the 2005 Senior Notes and, in a liquidation, bankruptcy or
similar proceeding, 50% of the Authoritys payment obligations under the Relinquishment Agreement that are then due and owing. The 2002 Senior Subordinated Notes rank equally with the 2001 Senior Subordinated Notes, the 2003 Senior Subordinated
Notes, the 2004 Senior Subordinated Notes, the 2005 Senior Subordinated Notes and the remaining 50% of the Authoritys payment obligations under the Relinquishment Agreement that are then due and owing. Effective August 4, 2006 and as of
September 30, 2006, MBC, Mohegan Ventures-NW, MCV-PA and the Pocono Downs entities are guarantors of the 2002 Senior Subordinated Notes (refer to Notes 15 and 18). Refer to Note 17 for condensed consolidating financial information of the
Authority, its guarantor subsidiaries and its non-guarantor subsidiaries. As of September 30, 2006 and September 30, 2005, accrued interest on the 2002 Senior Subordinated Notes was $10.0 million.

2003 63/8% Senior
Subordinated Notes

In July 2003, the Authority issued $330.0 million Senior Subordinated Notes with fixed interest payable at a
rate of 6.375% per annum (the 2003 Senior Subordinated Notes). The proceeds from this financing were used to repurchase substantially all of the outstanding $300.0 million 8.75% Senior Subordinated Notes issued in March 1999 and to
pay fees and expenses associated with the issuance. Interest on the 2003 Senior Subordinated Notes is payable semi-annually on January 15 and July 15. The 2003 Senior Subordinated Notes mature on July 15, 2009. The 2003 Senior
Subordinated Notes are uncollateralized general obligations of the Authority and are subordinated to the Bank Credit Facility, the 1999 Senior Notes, the 2005 Senior Notes and, in a liquidation, bankruptcy or similar proceeding, 50% of the
Authoritys payment obligations under the Relinquishment Agreement that are then due and owing. The 2003 Senior Subordinated Notes rank equally with the 2001 Senior Subordinated Notes, the 2002 Senior Subordinated Notes, the 2004 Senior
Subordinated Notes, the 2005 Senior Subordinated Notes and the remaining 50% of the Authoritys payment obligations under the Relinquishment Agreement that are then due and owing. Effective August 4, 2006 and as of September 30, 2006,
MBC, Mohegan Ventures-NW, MCV-PA and the Pocono Downs entities are guarantors of the 2003 Senior Subordinated Notes (refer to Notes 15 and 18). Refer to Note 17 for condensed consolidating financial information of the Authority, its guarantor
subsidiaries and its non-guarantor subsidiaries. As of September 30, 2006 and 2005, accrued interest on the 2003 Senior Subordinated Notes was $4.4 million.



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##### Table of Contents

MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



2004 71/8% Senior Subordinated Notes

In August 2004, the Authority issued $225.0 million
Senior Subordinated Notes with fixed interest payable at a rate of 7.125% per annum (the 2004 Senior Subordinated Notes). The net proceeds from this financing, together with $130.0 million of availability under the Bank Credit
Facility, were used to repurchase the outstanding 2001 Senior Subordinated Notes and the outstanding 1999 Senior Notes tendered in the tender offers described above and to pay fees and expenses associated with the issuance. The 2004 Senior
Subordinated Notes mature on August 15, 2014. The first call date for the 2004 Senior Subordinated Notes is August 15, 2009. Interest on the 2004 Senior Subordinated Notes is payable semi-annually on February 15 and August

15. The 2004 Senior Subordinated Notes are uncollateralized general obligations of the Authority and are subordinated to the Bank Credit Facility, the 1999 Senior
Notes, the 2005 Senior Notes and, in a liquidation, bankruptcy or similar proceeding, 50% of the Authoritys payment obligations under the Relinquishment Agreement that are then due and owing. The 2004 Senior Subordinated Notes rank equally
with the 2001 Senior Subordinated Notes, the 2002 Senior Subordinated Notes, the 2003 Senior Subordinated Notes, the 2005 Senior Subordinated Notes and the remaining 50% of the Authoritys payment obligations under the Relinquishment Agreement
that are then due and owing. Effective August 4, 2006 and as of September 30, 2006, MBC, Mohegan Ventures-NW, MCV-PA and the Pocono Downs entities are guarantors of the 2004 Senior Subordinated Notes (refer to Notes 15 and 18). Refer to
Note 17 for condensed consolidating financial information of the Authority, its guarantor subsidiaries and its non-guarantor subsidiaries. As of September 30, 2006 and 2005, accrued interest on the 2004 Senior Subordinated Notes was $2.0
million.

2005 67/8% Senior Subordinated Notes

On February 8, 2005, the Authority issued $150.0 million Senior Subordinated
Notes with fixed interest payable at a rate of 6.875% per annum (the 2005 Senior Subordinated Notes). The net proceeds from this financing were used to repay amounts outstanding under the Bank Credit Facility and to pay fees and
expenses associated with the issuance. The 2005 Senior Subordinated Notes mature on February 15, 2015. The first call date for the 2005 Senior Subordinated Notes is February 15, 2010. Interest on the 2005 Senior Subordinated Notes is
payable semi-annually on February 15 and August 15. The 2005 Senior Subordinated Notes are uncollateralized general obligations of the Authority and are subordinated to the Bank Credit Facility, the 1999 Senior Notes, the 2005 Senior Notes
and in a liquidation, bankruptcy or similar proceeding, 50% of the Authoritys payment obligations under the Relinquishment Agreement that are then due and owing. The 2005 Senior Subordinated Notes rank equally with the 2001 Senior Subordinated
Notes, the 2002 Senior Subordinated Notes, the 2003 Senior Subordinated Notes, the 2004 Senior Subordinated Notes and the remaining 50% of the Authoritys payment obligations under the Relinquishment Agreement that are then due and owing.
Effective August 4, 2006 and as of September 30, 2006, MBC, Mohegan Ventures-NW, MCV-PA and the Pocono Downs entities are guarantors of the 2005 Senior Subordinated Notes (refer to Notes 15 and 18). Refer to Note 17 for condensed
consolidating financial information of the Authority, its guarantor subsidiaries and its non-guarantor subsidiaries. As of September 30, 2006 and September 30, 2005, accrued interest on the 2005 Senior Subordinated Notes was $1.3 million.

The senior and senior subordinated note indentures contain certain financial and non-financial covenants with which the Authority and the
Tribe must comply. The financial covenants include, among other things, limitations on restricted payments and the incurrence of indebtedness, while the non-financial covenants include, among other things, reporting obligations, compliance with laws
and regulations and the Authoritys continued existence. As of September 30, 2006, both the Authority and the Tribe were in compliance with all of their respective covenant requirements in the senior and senior subordinated note
indentures.



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MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



WNBA Promissory Note

The Authority and MBC are parties to a membership agreement with WNBA, LLC (the Membership Agreement). The Membership Agreement sets forth the terms and conditions pursuant to which MBC acquired a
membership in the WNBA and the right to own and operate a professional basketball team in the WNBA. The Authority guaranteed the obligations of MBC under the Membership Agreement.

In consideration for this acquisition, MBC paid $2.0 million (with funds advanced from the Authority) and issued a promissory note to the WNBA (the
WNBA Note) for $8.0 million that accrues interest at an annual rate equal to three-month LIBOR plus 1.5%. The Authority guaranteed the obligations of MBC under the WNBA Note. Pursuant to the WNBA Note, principal payments of $1.0 million,
subject to adjustment for certain revenue thresholds, and interest payments are required to be paid to the WNBA on each anniversary of the WNBA Note. The WNBA Note is scheduled to mature in January 2011, but will mature no later than January 2013.
As of September 30, 2006 and 2005, accrued interest on the WNBA Note was $224,000 and $191,000, respectively. Refer to Note 14 for a further discussion of the Authoritys investment in a WNBA franchise.

Line of Credit

The Authority has a $25.0 million
revolving loan agreement with Bank of America (the Line of Credit). Each advance accrues interest on the basis of one-month LIBOR, plus the applicable spread, determined on the basis of the Authoritys Leverage Ratio as defined in
the Line of Credit. Borrowings under the Line of Credit are uncollateralized obligations of the Authority. The Line of Credit was amended in March 2006 to extend the maturity date from March 31, 2006 to March 31, 2008. The Line of Credit
subjects the Authority to certain covenants, including a covenant to maintain at least $25.0 million available for borrowing under the Bank Credit Facility. As of September 30, 2006, the Authority was in compliance with all covenant
requirements in the Line of Credit. As of September 30, 2006, the Authority had $25.0 million available for borrowing under the Line of Credit. Accrued interest on the Line of Credit was $9,000 and $10,000 as of September 30, 2006 and
2005, respectively.

Mortgage Payable

In July 2004, the Authoritys wholly owned subsidiary, Mohegan Ventures-NW, formed a limited liability company, Salishan-Mohegan, with Salishan Company, LLC (Salishan Company), an unrelated third party. Upon formation of
Salishan-Mohegan, Salishan Company contributed, among other things, land with a mortgage payable of $2.6 million (refer to Note 18). The mortgage payable bears interest due on a monthly basis at an annual rate of 9.5%, with the principal balance
payable in full by Salishan-Mohegan on the maturity date. In March 2006, Salishan-Mohegan received an extension on the maturity date from March 28, 2006 to March 28, 2007. Accrued interest on the mortgage payable was $20,000 as of
September 30, 2006 and 2005. Any and all amounts paid by Salishan-Mohegan, including interest payments, pursuant to this agreement are reimbursable by the Cowlitz Indian Tribe provided certain events occur, as described in the development
agreement between Salishan-Mohegan and the Cowlitz Indian Tribe.

Derivative Instruments

The Authority is considered an end user of derivative instruments and engages in derivative transactions from time to time for risk management
purposes only. There were no derivative instruments held by the Authority as of September 30, 2006.

Interest rate swap agreements
hedging currently outstanding debt instruments of the Authority which qualified for hedge accounting in accordance with SFAS No. 133, Accounting for Derivative Instruments and



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MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Hedging Activities, and were designated as fair value hedges were sold in prior fiscal years for a net aggregate gain of $1.7 million. The $1.7 million
net aggregate gain was deferred and added to the carrying value of the respective notes being hedged and is being amortized and recorded to interest expense over the remaining term of the respective notes. For the fiscal years ended
September 30, 2006, 2005 and 2004, the Authority recorded amortization of $444,000, $711,000 and $(117,000) to reduce (increase) interest expense related to the sale of these derivative instruments. The Authority expects to record $456,000 to
offset interest expense over the next twelve months. The Authority also recorded a reduction to interest expense of $2.6 million for the fiscal year ended September 30, 2004 related to interest settlements on the Authoritys derivative
instruments.

Letters of Credit

As of
September 30, 2006, the Authority maintained four uncollateralized letters of credit to satisfy potential workers compensation liabilities, to satisfy overdue pari-mutuel wagering tax liabilities of the Pocono Downs entities that may
arise, to satisfy overdue amounts for purses due horsemen at Pocono Downs that may arise and to ensure payment of the $50.0 million license fee due upon issuance of a Pennsylvania Category One Slot Machine License for Mohegan Sun at Pocono Downs
(refer to Note 18). The letters of credit expire on August 31, 2007, January 25, 2007, November 11, 2006 and December 26, 2006, respectively, subject to renewals. As of September 30, 2006, no amounts were drawn on
the letters of credit.

NOTE 9LEASES:

The Authority leases space to certain tenants in the Shops at Mohegan Sun and certain other Mohegan Sun outlets. The Authority also leases, to third parties, the rights to utilize the Authoritys antenna on the Arena. Minimum future
rental income and expenses on non-cancelable leases expected to be incurred by the Authority is as follows (in thousands):



|                             |  |                                  |       |      |   |       |  |      |       |      |   |            |  |       |       |  |   |       |  |   |       
|---------------------------- |  | -------------------------------- | ----- | ---- | - | ----- |  | ---- | ----- | ---- | - | ---------- |  | ----- | ----- |  | - | ----- |  | - | ------
|                             |  | Fiscal Year Ending September 30,
|                             |  | 2007                             |       | 2008 |   | 2009  |  | 2010 |       | 2011 |   | Thereafter |  | Total
|Minimum Future Rental Income |  | $                                | 3,847 |      | $ | 3,629 |  | $    | 3,775 |      | $ | 3,747      |  | $     | 3,733 |  | $ | 3,460 |  | $ | 22,191

The Authority is liable under various operating leases for equipment and buildings for the Pocono
Downs properties, which expire in various years through 2020. Total rental expense for the Pocono Downs properties $424,000 and $235,000 for the fiscal year ended September 30, 2006 and the period from the date of acquisition to
September 30, 2005, respectively. Minimum future rental expense on non-cancelable leases expected to be incurred by the Authority is as follows (in thousands):



|                              |  |                                  |     |      |   |      |  |      |     |      |   |            |  |       |     |  |   |       |  |   |      
|----------------------------- |  | -------------------------------- | --- | ---- | - | ---- |  | ---- | --- | ---- | - | ---------- |  | ----- | --- |  | - | ----- |  | - | -----
|                              |  | Fiscal Year Ending September 30,
|                              |  | 2007                             |     | 2008 |   | 2009 |  | 2010 |     | 2011 |   | Thereafter |  | Total
|Minimum Future Rental Expense |  | $                                | 348 |      | $ | 349  |  | $    | 327 |      | $ | 328        |  | $     | 339 |  | $ | 2,714 |  | $ | 4,405

The Authority also has loaned funds to tenants related to the Shops at Mohegan Sun and certain
other Mohegan Sun outlets. As of September 30, 2006 and 2005, outstanding tenant loans were $2.6 million and $3.4 million, respectively. These loans mature in periods between three and ten years. These amounts, net of allowance for doubtful
accounts, have been included in other assets in the accompanying consolidated balance sheets.



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MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 10RELATED PARTY TRANSACTIONS:

On August 4, 2006, the Authority purchased a 5.0% membership interest in Salishan-Mohegan from Mohegan Ventures-NW and sold such 5.0% interest to the
Mohegan Tribe for approximately $351,000, reflecting the carrying value of such interest. Refer to Notes 15 and 18 for a further description of this transaction and another transaction completed after September 30, 2006.

The Tribe provides governmental and administrative services to the Authority in conjunction with the operation of Mohegan Sun. During the fiscal years
ended September 30, 2006, 2005 and 2004, the Authority incurred $18.9 million, $17.0 million and $15.4 million, respectively, of expenses for such services.

The Authority leases the land on which Mohegan Sun is located from the Tribe pursuant to a long-term lease. The Authority is required to pay to the Tribe a nominal annual rental fee under the lease (see Note 12). The
lease has an initial term of 25 years and is renewable for an additional 25-year term upon expiration.

The Tribe, through one of its
limited liability companies, has entered into various land lease agreements with the Authority for access, parking and related purposes for Mohegan Sun. The Authority expensed $262,000 relating to these land lease agreements for each of the fiscal
years ended September 30, 2006, 2005 and 2004.

The Authority purchases the majority of its utilities, including electricity, gas,
water and sewer, from an instrumentality of the Tribe, the Mohegan Tribal Utility Authority. During the fiscal years ended September 30, 2006, 2005 and 2004, the Authority incurred costs of $19.7 million, $16.5 million and $16.7 million,
respectively, for such utilities.

The Tribe provides services through its Development Department for projects related to Mohegan Sun. The
Authority recorded $2.8 million, $10.6 million and $3.6 million of capital expenditures associated with the Tribes Development Department for the fiscal years ended September 30, 2006, 2005 and 2004, respectively.

The Authority and Little People, LLC (an entity owned by the Tribe) had a lease agreement, whereby Little People, LLC leased retail space located in the
Shops at Mohegan Sun from the Authority. In June 2006, the lease agreement was terminated, and the Authority purchased the furniture and fixtures, inventory and various outstanding accounts receivable pertaining to these retail operations from
Little People, LLC for approximately $687,000. This retail outlet is now owned and operated by the Authority.

On September 25, 1995,
the Tribe adopted the Mohegan Tribal Employment Rights Ordinance (the TERO), which sets forth hiring and contracting preference requirements for employers and entities conducting business on Tribal land or working on behalf of the Tribe.
Pursuant to the TERO, an employer is required to give hiring, promotion, training, retention and other employment-related preferences to Native Americans who meet the minimum qualifications for the applicable employment position. However, this
preference requirement does not apply to key employees, as such persons are defined in the TERO.

Similarly, any entity awarding a contract
to be performed on Tribal land or on behalf of the Tribe must give preference, first to certified Mohegan entities and second to other certified Indian entities. This contracting preference is conditioned upon the bid by the preferred certified
entity being within 5% of the lowest bid by a non-certified entity (unless the preferred certified entitys bid exceeds $100,000 of the lowest bid by a non-certified entity). The TERO establishes procedures and requirements for certifying
Mohegan entities and other Indian entities. Certification is based largely on the level of ownership and control exercised by the members of the Tribe or other Indian tribes, as the case may be, over the entity bidding on a contract.

As of September 30, 2006, approximately 125 employees of the Authority were members of the Tribe.



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MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 11EMPLOYEE BENEFIT PLANS:

The Authority maintains a retirement savings plan for its employees under Section 401(k) and section 401(a) of the Internal Revenue Code
(the Mohegan Retirement and 401(k) Plan). The 401(k) portion of the plan allows employees of the Authority to defer up to the lesser of the maximum amount prescribed by the Internal Revenue Code or 25% of their income on a pre-tax basis,
through contributions to the 401(k) Plan. The Authority matches 100% of the eligible employees contributions up to a maximum of 3% of their individual earnings. Contributions to the retirement portion of the plan by the Authority are
discretionary and are allocated to eligible employee accounts based on a rate of $0.30 per qualified hour worked. Employees become eligible for the Mohegan Retirement and 401(k) plan after 90 days of employment and become fully vested after seven
years of credited service. For the fiscal years ended September 30, 2006, 2005 and 2004, the Authority has contributed $9.5 million, $9.1 million and $8.5 million, net of forfeitures, to the Mohegan Retirement and 401(k) Plan, respectively.

The Authority, together with the Tribe, maintains a Non-Qualified Deferred Compensation Plan (the Deferred Compensation Plan)
for certain key employees. This plan allows participants to defer up to 100% of their pre-tax income to the plan. For the fiscal years ended September 30, 2006, 2005 and 2004, employee contributions, net of withdrawals and changes in fair value
of investments, totaled $1.9 million, $2.7 million and $1.3 million, respectively.

NOTE 12COMMITMENTS AND CONTINGENCIES:

The Mohegan Compact

In May 1994, the
Tribe and the State of Connecticut entered into a Memorandum of Understanding (MOU) which sets forth certain matters regarding implementation of the Mohegan Compact. The MOU stipulates that a portion of the revenues earned on slot
machines must be paid to the State of Connecticut (Slot Win Contribution). The Slot Win Contribution payments will not be required if the State of Connecticut legalizes any other gaming operations with slot machines or other commercial
casino table games within Connecticut, except those consented to by the Tribe and the Mashantucket Pequot Tribe. For each 12-month period commencing July 1, 1995, the Slot Win Contribution shall be the lesser of (a) 30% of gross revenues
from slot machines, or (b) the greater of (i) 25% of gross revenues from slot machines or (ii) $80.0 million.

The Authority
reflected expenses associated with the Slot Win Contribution totaling $226.3 million, $215.2 million and $208.2 million for the fiscal years ended September 30, 2006, 2005 and 2004, respectively. As of September 30, 2006 and 2005,
outstanding Slot Win Contribution payments to the State of Connecticut totaled $19.5 million and $18.7 million, respectively.

Priority
Distribution Agreement

On August 1, 2001, the Authority and the Tribe entered into an agreement (the Priority Distribution
Agreement), which obligates the Authority to make monthly payments to the Tribe to the extent of the Authoritys net cash flow, as defined in the Priority Distribution Agreement. The Priority Distribution Agreement, which has a perpetual
term, limits the maximum aggregate payments by the Authority to the Tribe in each calendar year to $14.0 million, as adjusted annually in accordance with the formula specified in the Priority Distribution Agreement to reflect the effects of
inflation. However, payments pursuant to the Priority Distribution Agreement do not reduce the Authoritys obligations to make payments to reimburse the Tribe for governmental services provided by the Tribe or any payments under any other
agreements with the Tribe. The monthly payments under the Priority Distribution Agreement are limited obligations of the Authority payable only to the extent of its net cash flow and are not secured by a lien or encumbrance on any assets or property
of



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MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



the Authority. The Authoritys consolidated financial statements reflect payments associated with the Priority Distribution Agreement of $16.3 million,
$15.8 million and $15.4 million for the fiscal years ended September 30, 2006, 2005 and 2004, respectively.

Agreement with the
Town of Montville

On June 16, 1994, the Tribe and the Town of Montville (the Town) entered into an agreement whereby
the Tribe agreed to pay to the Town an annual payment of $500,000 to minimize the impact on the Town resulting from the decreased tax revenues on reservation land held in trust. The Tribe assigned its right and obligations in the agreement with the
Town to the Authority.

Land Lease from the Tribe to the Authority

The land upon which Mohegan Sun is situated is held in trust for the Tribe by the United States. The Tribe and the Authority have entered into a land
lease under which the Tribe leases to the Authority the property and all buildings, improvements and related facilities constructed or installed on the property. The lease was approved by the Secretary of the Interior on September 29, 1995.
Summarized below are several key provisions of this lease.

Term

The term of the lease is 25 years with an option, exercisable by the Authority, to extend the term for one additional 25-year period. Upon the termination
of the lease, the Authority will be required to surrender to the Tribe possession of the property and improvements, excluding any equipment, furniture, trade fixtures or other personal property.

Rent and Other Operating Expenses

The Authority is required to pay to the Tribe a nominal annual rental fee. For any period when the Tribe or another agency or instrumentality of the Tribe is not the tenant under the lease, the rent will be 8% of the tenants gross
revenues from the premises. The Authority is responsible for the payment of all costs of owning, operating, constructing, maintaining, repairing, replacing and insuring the leased property.

Use of Leased Property

The Authority
may use the leased property and improvements solely for the construction and operation of Mohegan Sun, unless prior approval is obtained from the Tribe for any proposed alternative use. Similarly, no construction or alteration of any building or
improvement located on the leased property by the Authority may be made unless complete and final plans and specifications have been approved by the Tribe. Following foreclosure of any mortgage on the Authoritys interest under the lease or any
transfer of such interest to the holder of such mortgage in lieu of foreclosure, the leased property and improvements may be used for any lawful purpose, subject only to applicable codes and governmental regulations; provided, however, that a
non-Indian holder of the leased property may in no event conduct gaming operations on the property.

Permitted Mortgages and Rights of
Permitted Mortgages

The Authority may not mortgage, pledge or otherwise encumber its leasehold estate in the leased property except to
a holder of a permitted mortgage. Under the lease, a permitted mortgage includes the leasehold mortgage securing the Authoritys obligations under the Bank Credit Facility granted by the Authority that provides, among other things,
that (1) the Tribe will have the right to notice of, and to cure, any default of the Authority, (2) the Tribe will have the right to prior notice of an intention by the holder to foreclose on the



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permitted mortgage and the right to purchase the mortgage in lieu of any foreclosure, and (3) the permitted mortgage is subject and subordinated to any
and all access and utility easements granted by the Tribe under the lease.

As provided in the lease, each holder of a permitted mortgage
has the right to notice of any default of the Authority under the lease and the opportunity to cure such default within any applicable cure period.

Default Remedies

The Authority will be in default under the lease if, subject to the notice provisions, it fails to make
lease payments or to comply with its covenants under the lease or if it pledges, encumbers or conveys its interest in the lease in violation of the terms of the lease. Following a default, the Tribe may, with approval from the Secretary of the
Interior, terminate the lease unless a permitted mortgage remains outstanding with respect to the leased property. In that case, the Tribe may not (1) terminate the lease or the Authoritys right to possession of the leased property,
(2) exercise any right of re-entry, (3) take possession of and/or relet the leased property or any portion thereof, or (4) enforce any other right or remedy which may materially and adversely affect the rights of the holder of the
permitted mortgage, unless the default triggering such rights was a monetary default which such holder failed to cure after notice.

ACLS of New England, Inc.

The Authority has a 10-year laundry services agreement with ACLS of New England, Inc.
(ACLS). The Authority has an option to renew the agreement for one additional 10-year term after its expiration in October 2012. Under the laundry services agreement, the Authority will pay an agreed upon rate for laundry services,
adjusted annually for the Consumer Price Index and unusual increases in energy costs. Additionally, the Authority has made a $500,000 loan to ACLS to develop the laundry service facility. Pursuant to the terms of the loan, interest may accrue based
on the exercise of the renewal options or other certain circumstances. In the event that circumstances occur where interest will be accrued, interest shall accrue commencing from the date of the advance at an annual rate of five percent.

The Authority also entered into a co-investment and escrow agreement with the Mashantucket Pequot Tribal Nation (MPTN) and ACLS. Under the
terms of those agreements, the Authority and MPTN may, under certain circumstances, become the joint owners of the laundry facility and be jointly and severally obligated to repay a term loan which is secured by a mortgage on the laundry facility.
The term of the agreements is for ten years and, if the Authority and MPTN become obligated to repay the term loan, the maximum potential future principal payments (undiscounted) the Authority and MPTN could be required to make are approximately
$4.3 million.

Menominee Project

In October 2004, the Authority entered into a management agreement with the Menominee Indian Tribe of Wisconsin (the Menominee Tribe) and the Menominee Kenosha Gaming Authority. According to the management
agreement, the Authority was granted the exclusive right and obligation to manage, operate and maintain a planned casino and destination resort to be located in Kenosha, Wisconsin (the Menominee Project) for a period of seven years in
consideration of a management fee of 13.4% of Net Revenues, as defined in the management agreement, which approximates net income from the Menominee Project. The management agreement is subject to approval by the National Indian Gaming Commission
(the NIGC).

Environmental Contingencies

Prior to acquiring the Pocono Downs entities, the Authority conducted an extensive environmental investigation of the Pocono Downs facilities. In the course of that work, the Authority identified several



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recognized environmental conditions at the Mohegan Sun at Pocono Downs facility for which corrective actions are necessary to bring the property into
compliance with applicable laws and regulations. The Authority has implemented a comprehensive plan to mitigate and resolve these conditions. As of September 30, 2006, the Authority has an estimated remaining obligation of $202,000.

Horsemens Agreement

On
January 25, 2005, Downs Racing, L.P. entered into an agreement with the Pennsylvania Harness Horsemens Association Inc. (the PHHA), which represents owners, trainers and drivers at the Mohegan Sun at Pocono Downs harness
racing facility. The agreement governs all live harness racing events and simulcasting and account wagering conducted at Mohegan Sun at Pocono Downs and the five OTW facilities through December 31, 2010.

Among other things, the agreement provides for the payment of 4.3% of all pari-mutuel wagering held at Mohegan Sun at Pocono Downs facilities to the
PHHA. This amount comprises the payment of $420,000 in certain operating costs and expenses for the PHHA, with the remainder allocated to purses owed to the horsemen for each live racing event. Downs Racing, L.P. is also required to distribute to
the PHHA 2.5% and 1.1% in fees earned on live races conducted at Mohegan Sun at Pocono Downs and simulcast to wagering locations inside and outside Pennsylvania, respectively.

Also, the Race Horse Development and Gaming Act of 2004 requires the holders of Category One Slot Machine Licenses to make payments to the PHHA of up to
12% of slot machine revenues after receipt of a slot machine license.

Erie OTW Settlement Agreement

Prior to the Authoritys acquisition of the Pocono Downs entities, Penn National Gaming Inc., the former owner of the Pocono Downs entities, entered
into an agreement to sell all of the assets associated with the OTW facility located in Erie, Pennsylvania to MTR Gaming Group, Inc. (MTR) and Presque Isle Downs Inc. (PID and collectively with MTR, Presque Isle)
for $7.0 million. Penn National Gaming Inc. assigned its rights under this agreement to the Authoritys subsidiary, Downs Racing, L.P., upon the Authoritys acquisition of the Pocono Downs entities. Accordingly, Presque Isle will be
required to make the $7.0 million payment to Downs Racing, L.P. upon the occurrence of either of the following two conditions: (1) the commencement by any of the Presque Isle entities of pari-mutuel wagering in Erie, Pennsylvania or
(2) the receipt by any Presque Isle entity of revenue from slot machine operations in Erie, Pennsylvania. If the receipt of slot machine revenues triggers the $7.0 million payment, then MTR has the right to delay such $7.0 million payment until
the earlier to occur of (i) the first anniversary of the first receipt of revenue from slot machine operations or (ii) the commencement by any of the Presque Isle entities of pari-mutuel wagering in Erie, Pennsylvania. After receipt of the
$7.0 million payment, Downs Racing, L.P. will be required to discontinue its OTW operations in Erie, Pennsylvania and convey the Erie OTW facility to Presque Isle as soon as commercially reasonable. The PGCB granted a conditional license to PID in
October 2006 to operate slot machines at Presque Isle Downs in Erie County, Pennsylvania, which is scheduled to open in February 2007.

Pennsylvania Property Tax Litigation

As the successor owner of Downs Racing, L.P., the Authority is involved in a dispute
with the Wilkes-Barre Area School District, which had filed an appeal in November 2001 against Downs Racing, L.P.s predecessor company, Pocono Downs, Inc., and the Luzerne County Board of Assessment Appeals relating to certain property tax
assessments. The school district has challenged the certified assessment for the tax year 2002, and is seeking an unspecified increase to the assessed value of that property for 2002 and subsequent tax years, and now



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including additional assessments for tax year 2007. A trial was held on the case in September 2006 and a

mediation conference took place in November 2006, with no judgment or settlement on the matter. Written proposed findings of fact and conclusions of law are required to
be submitted to the Luzerne County Court by January 16, 2007, after which the Court will issue a ruling. At this stage of the litigation, no single amount within the range of any possible loss can be reasonably determined. The Authority cannot
provide any assurance as to the ultimate success of its defense of the school boards complaint. If the school boards complaint was resolved unfavorably to the Authority, the Authoritys financial position, results of operations and
cash flows could be adversely affected.

Other Litigation

The Authority is a defendant in certain litigation incurred in the normal course of business. In the opinion of management, based on the advice of
counsel, the aggregate liability, if any, arising from such litigation will not have a material adverse effect on the Authoritys financial position, results of operations or cash flows.

NOTE 13RELINQUISHMENT AGREEMENT:

In February
1998, the Authority and TCA entered into an agreement (the Relinquishment Agreement). Effective January 1, 2000 (the Relinquishment Date), the Relinquishment Agreement superseded a then existing management agreement with
TCA. The Relinquishment Agreement provides, among other things, that the Authority will make certain payments to TCA out of, and determined as a percentage of, Revenues (as defined in the Relinquishment Agreement) generated by Mohegan Sun over a
15-year period commencing on the Relinquishment Date. The payments (Senior Relinquishment Payments and Junior Relinquishment Payments) have separate schedules and priority. Senior Relinquishment Payments commenced on
April 25, 2000, twenty-five days following the end of the first three-month period after the Relinquishment Date and continue at the end of each three-month period thereafter until January 25, 2015. Junior Relinquishment Payments commenced
on July 25, 2000, twenty-five days following the end of the first six-month period after the Relinquishment Date and continue at the end of each six-month period thereafter until January 25, 2015. Each Senior Relinquishment Payment and
Junior Relinquishment Payment is an amount equal to 2.5% of the Revenues generated by Mohegan Sun over the immediately preceding three-month or six-month payment period, as the case may be. Revenues are defined in the Relinquishment
Agreement as gross gaming revenues (other than Class II gaming revenue) and all other facility revenues (including, without limitation, hotel revenues, room service, food and beverage sales, ticket revenues, fees or receipts from convention/events
center and all rental or other receipts from lessees and concessionaires but not the gross receipts of such lessees, licenses and concessionaires).

In the event of any bankruptcy, liquidation or reorganization or similar proceeding relating to the Authority, the Relinquishment Agreement provides that each of the Senior and Junior Relinquishment Payments then due and owing are
subordinated in right to payment of senior secured obligations, which include the Bank Credit Facility and capital lease obligations, and that the Junior Relinquishment Payments then due and owing are further subordinated to payment of all other
senior obligations, including the Authoritys 2005 Senior Notes. The Relinquishment Agreement also provides that all relinquishment payments are subordinated in right of payment to the minimum priority distribution payments, which are monthly
payments required to be made by the Authority to the Tribe, to the extent then due. The Authority, in accordance with SFAS 5, has recorded a relinquishment liability of the estimated present value of its obligations under the Relinquishment
Agreement (see Note 2).

A relinquishment liability of $549.1 million was established at September 30, 1998 based on the present value
of the estimated future Mohegan Sun revenues utilizing the Authoritys risk-free investment rate. At September 30, 2006, the carrying amount of the relinquishment liability was $548.0 million as compared to



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$552.5 million at September 30, 2005. The increase during the fiscal year ended September 30, 2006 is due to a $39.4 million reassessment
adjustment of the relinquishment liability and $30.7 million for the accretion of discount to the relinquishment liability, offset by $74.6 million in relinquishment payments. Of the $74.6 million in relinquishment payments, $44.7 million represents
payment of principal and $29.9 million represents payment of the accretion of discount to the relinquishment liability. During the fiscal year ended September 30, 2005, the Authority paid $70.6 million in relinquishment payments, consisting of
$42.5 million in principal amounts and $28.1 million for the payment of the accretion of discount to the relinquishment liability. During the fiscal year ended September 30, 2004, the Authority paid $67.4 million in relinquishment payments,
consisting of $36.5 million in principal amounts and $30.9 million for the payment of the accretion of discount to the relinquishment liability. The accretion of discount to the relinquishment liability reflects the accretion of the discount to the
present value of the relinquishment liability for the impact of the time value of money. At September 30, 2006 and September 30, 2005, relinquishment payments earned but unpaid were $20.4 million and $19.2 million, respectively.

The relinquishment liability reassessment adjustment of $39.4 million, $123.6 million and $3.9 million for the fiscal years ended
September 30, 2006, 2005 and 2004, respectively, resulted from revised revenue projections as of the end of the current year compared to estimates of revenue projections as of the end of the prior year on the determination of the relinquishment
liability.

In fiscal year 2006, the Authority reviewed current revenue forecasts, including estimated timing and extent of future
competition, and significantly increased revenue projections for the period in which the Relinquishment Agreement applies, primarily due to the approval by the Management Board of the Authority in October 2006 of an expansion of Mohegan Sun referred
to as Project Horizon, and managements estimates of the impact this expansion will have on future competition assumptions. The Authority concluded that projected revenues from Mohegan Sun subject to the relinquishment agreement
over the remaining period of the agreement, which expires on December 31, 2014, would increase by approximately $878.2 million, thereby increasing the related relinquishment liability, causing the Authority to record a non-cash relinquishment
liability charge of $39.4 million for the quarter ended September 30, 2006.

In fiscal year 2005, the Authority reviewed current
revenue forecasts, including estimated timing and extent of future competition, and significantly increased revenue projections for the period in which the Relinquishment Agreement applies, primarily due to material changes in the Connecticut gaming
market subsequent to September 30, 2005. On May 13, 2005, the United States Interior Board of Indian Appeals overturned the federal recognition of the Historic Eastern Pequot Tribe and the Schaghticoke Tribe of Kent, Connecticut. These
decisions were remanded to the United States Secretary of the Interior for reconsideration. The Authority concluded this ruling was not substantive enough to warrant a reassessment of the relinquishment liability at that time. However, on
October 12, 2005, the Bureau of Indian Affairs upon reconsideration denied the federal recognition of these two Indian tribes which had expressed interest in building casinos in the close proximity of Mohegan Sun in Connecticut. As a result of
this decision and other developments involving the revaluation of the impact to future Mohegan Sun revenues from potential competition in the Northeast gaming market, the Authority concluded events had occurred which are projected to increase
revenues at Mohegan Sun over the remaining relinquishment period by approximately $3.2 billion and, therefore, substantially increase the related relinquishment liability, causing the Authority to account for a non-cash relinquishment liability
charge of $123.6 million for the quarter ended September 30, 2005.

In fiscal year 2004, the Authority reviewed current revenue
forecasts, including the estimated timing and extent of future competition, and increased revenue projections for the near future but reduced overall revenue projections for the period in which the Relinquishment Agreement applies.



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NOTE 14INVESTMENT IN WNBA FRANCHISE:

On January 27, 2003, the Authority created a wholly owned subsidiary, MBC, for the purpose of owning and operating a professional basketball team in
the WNBA. On January 28, 2003, the Authority and MBC entered into the Membership Agreement with WNBA, LLC. The Membership Agreement set forth the terms and conditions pursuant to which MBC acquired a membership in the WNBA and the right to own
and operate a professional basketball team in the WNBA. The Authority guaranteed the obligations of MBC under the Membership Agreement. MBC is a full and unconditional guarantor of the Authoritys outstanding indebtedness under the Bank Credit
Facility and senior and senior subordinated notes. Refer to Note 17 for condensed consolidating financial information of the Authority, its guarantor subsidiaries and its non-guarantor subsidiaries.

As part of the acquisition, management, with the assistance of an independent valuation firm, estimated the fair value of the player roster at
approximately $4.8 million, and the remaining $5.5 million was recorded as franchise value. The player roster value is being amortized over seven years, and the franchise value is being amortized over thirty years. Since the date of acquisition to
September 30, 2006, write-offs of player contracts included on the original player roster totaled $2.7 million. As of September 30, 2006 and 2005, accumulated amortization on the player roster value was $1.1 million. As of
September 30, 2006 and 2005, accumulated amortization on the franchise value was $671,000 and $488,000, respectively. For the fiscal years ended September 30, 2006, 2005 and 2004, amortization expense associated with these intangible
assets totaled $918,000, $1.1 million and $1.8 million, respectively, including charges totaling $405,000, $458,000 and $1.0 million related to net write-offs of certain player contracts included on the original player roster, in the fiscal years
ended September 30, 2006, 2005 and 2004, respectively. The Authority expects to incur $484,000 in amortization expense for each of the next three years and $282,000 and $183,000 in the fourth and fifth years, respectively, related to these
assets.

In connection with MBCs purchase of a membership in the WNBA, MBC has an approximately 3.6% ownership position in WNBA, LLC,
which is being accounted for under the cost method. Under the Limited Liability Company Agreement of WNBA, LLC, if at any time WNBA, LLCs board of governors determines that additional funds are necessary or desirable for the WNBA, LLCs
or any league entitys general business, the board of governors may require additional cash capital contributions. In that circumstance, each member of the league shall be obligated to contribute to WNBA, LLC an amount of cash equal to that
members proportionate share of ownership. Pursuant to the WNBA Note, the principal payment due on the WNBA Note after any such contribution made by MBC will be reduced by the contribution amount. Through September 30, 2006, there were no
cash capital contributions required by WNBA, LLC.

NOTE 15MOHEGAN VENTURES-NORTHWEST, LLC:

On July 23, 2004, the Authority formed Mohegan Ventures-NW as a wholly owned subsidiary of the Authority and one of three members in
Salishan-Mohegan, formed with Salishan Company, an unrelated third party, to participate in the development and management of a casino to be located in Clark County, Washington. The proposed casino (the Cowlitz Project) will be owned by
the Cowlitz Indian Tribe. The Mohegan Tribe is also a member of Salishan-Mohegan. As of September 30, 2006, Mohegan Ventures-NW holds a 49.15% membership interest, the Mohegan Tribe holds a 5.00% membership interest and Salishan Company holds a
45.85% membership interest in Salishan-Mohegan (refer to Note 18). Mohegan Ventures-NW and the Mohegan Tribe each hold one of four seats on the Board of Managers of Salishan-Mohegan. Salishan-Mohegan was designated as an unrestricted subsidiary
of the Authority and therefore is not required to be a guarantor of the Authoritys debt obligations.

Upon formation of
Salishan-Mohegan, Salishan Company contributed land purchase options related to property in Clark County, Washington to be assigned to the Cowlitz Indian Tribe for purposes of the Cowlitz



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Project, upon (1) receipt of necessary financing for the development of the proposed casino and (2) the underlying property being taken into trust
by the United States Department of the Interior. On January 3, 2006, in accordance with the option agreements, the Authority exercised certain of these options and purchased two respective parcels for $7.5 million, including closing costs. On
April 28, 2006, the Authority closed on the remaining option and purchased the respective parcel for $3.2 million, including closing costs and net of total purchase option payments made in prior periods of $1.6 million. The option agreements
also required a cumulative payment of $2.4 million for fees related to extending the options to purchase all three parcels, which were due at the closing of the last parcel.

Pursuant to the development agreement described below, the notes receivable contributed to Salishan-Mohegan and amounts paid by Salishan-Mohegan
subsequent to formation related to the development of the Cowlitz Project are reimbursable to Salishan-Mohegan by the Cowlitz Indian Tribe, subject to appropriate approvals defined in the development agreement. Reimbursements are contingent and
payable upon: (1) the receipt of necessary financing for the development of the proposed casino; and (2) the assignable property being taken into trust by the United States Department of the Interior. Notes receivable bear interest at the
Wall Street Journal Prime Rate plus 2%, compounded annually. As of September 30, 2006 and 2005, receivables from the Cowlitz Indian Tribe totaled $13.4 million and $11.2 million, respectively, including accrued interest, offset by a $4.0
million and $2.2 million reserve in the consolidated balance sheet, respectively.

On September 21, 2004, Salishan-Mohegan entered
into development and management agreements with the Cowlitz Indian Tribe regarding the Cowlitz Project. Under the terms of the development agreement, Salishan-Mohegan will carry out all activities that are necessary to develop the Cowlitz Project,
including advising the Cowlitz Indian Tribe with its plan to place land into trust by the United States Department of the Interior, assisting the Cowlitz Indian Tribe in the negotiation of a compact with the State of Washington, assisting in the
arrangement of financing for the Cowlitz Project and administering and overseeing the planning, design, development, and construction of the Cowlitz Project. The development agreement provides for development fees of 3% of total Project Costs, as
defined in the development agreement, which are payable to Mohegan Ventures-NW and the Mohegan Tribe through Salishan-Mohegan pursuant to the Operating Agreement. The management agreement is for a period of seven years, during which Salishan-Mohegan
will manage, operate, and maintain the planned casino. The management agreement provides for a management fee of 24% of Net Revenues, as defined in the management agreement, which approximates net income from the Cowlitz Project. Pursuant to the
Operating Agreement, management fees will be allocated to the members of Salishan-Mohegan based on their respective membership percentages. Development of the Cowlitz Project is subject to certain governmental and regulatory approvals, including,
but not limited to, negotiating a gaming compact with the State of Washington and the accepting of land into trust on behalf of the Cowlitz Indian Tribe. The management agreement is subject to approval by the NIGC.

On August 4, 2006, the Authority purchased a 5.0% membership interest in Salishan-Mohegan from Mohegan Ventures-NW and sold such 5.0% interest to
the Mohegan Tribe for approximately $351,000, reflecting the carrying value of such interest. Mohegan Ventures-NW now holds a 49.15% interest in Salishan-Mohegan. The Authority designated Mohegan Ventures-NW as a restricted subsidiary under the Bank
Credit Facility and certain of the indentures relating to its senior and senior subordinated notes. On August 4, 2006, Mohegan Ventures-NW executed appropriate agreements to guarantee the Authoritys debt obligations under the Bank Credit
Facility, the 2005 Senior Notes, the 2002 Senior Subordinated Notes, the 2003 Senior Subordinated Notes, the 2004 Senior Subordinated Notes and the 2005 Senior Subordinated Notes. While Salishan-Mohegan continues to be included in the consolidated
financial statements of the Authority under generally accepted accounting principles, Salishan-Mohegan is no longer considered to be a subsidiary of the Authority under appropriate provisions of the Bank Credit Facility and the indentures to the
Authoritys senior and senior subordinated notes.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 16SEGMENT REPORTING:

As of September 30, 2006, the Authority owns and operates the Mohegan Sun property in Connecticut and, through the Pocono Downs entities, operates a harness racetrack at Pocono Downs and five OTW facilities in
Pennsylvania. All of the Authoritys revenues are derived from these operations. The Authoritys executive officers review and assess the performance of the operating results and determine the proper allocation of resources to Mohegan Sun
and the Pocono Downs entities on a separate basis. The Authority, therefore, believes that it has two operating segments, one comprised solely of Mohegan Sun and another, referred to as Pocono Downs herein, comprised of the operations of
the Pocono Downs entities. The two operating segments are also separate reportable segments due to the differing nature of their operations. The following tables provide financial information on each segment (in thousands):



|                                                      |  |                                         |           |   |                    |   |           |      |  |   |           |  
|----------------------------------------------------- |  | --------------------------------------- | --------- | - | ------------------ | - | --------- | ---- |  | - | --------- | -
|                                                      |  | For the Fiscal Year Ended September 30, |          
|                                                      |  | 2006                                    |           |   | 2005 (1)           |   |           | 2004 | 
|Net revenues:                                         |  |                                         |           |   |                    |   |           |      |  |   |           |  
|Mohegan Sun                                           |  | $                                       | 1,392,958 |   |                    | $ | 1,305,686 |      |  | $ | 1,256,926 |  
|Pocono Downs                                          |  |                                         | 33,456    |   |                    |   | 25,919    |      |  |   |          |  
|                                                      |  |                                         |           |   |                    |   |           |      |  |   |           |  
|Total                                                 |  |                                         | 1,426,414 |   |                    |   | 1,331,605 |      |  |   | 1,256,926 |  
|                                                      |  |                                         |          
|Income (loss) from operations:                        |  |                                         |           |   |                    |   |           |      |  |   |           |  
|Mohegan Sun                                           |  |                                         | 267,415   |   |                    |   | 150,914   |      |  |   | 251,455   |  
|Pocono Downs                                          |  |                                         | (7,400    | ) |                    |   | (67       | )    |  |   |          |  
|Corporate                                             |  |                                         | (10,636   | ) |                    |   | (11,483   | )    |  |   | (4,838    | )
|                                                      |  |                                         |           |   |                    |   |           |      |  |   |           |  
|Total                                                 |  |                                         | 249,379   |   |                    |   | 139,364   |      |  |   | 246,617   |  
|                                                      |  |                                         |          
|Accretion of discount to the relinquishment liability |  |                                         | (30,707   | ) |                    |   | (27,466   | )    |  |   | (29,939   | )
|Interest income                                       |  |                                         | 2,245     |   |                    |   | 673       |      |  |   | 232       |  
|Interest expense, net of capitalized interest         |  |                                         | (90,928   | ) |                    |   | (88,011   | )    |  |   | (78,970   | )
|Loss on early extinguishment of debt                  |  |                                         |          |   |                    |   | (280      | )    |  |   | (34,138   | )
|Other income (expense), net                           |  |                                         | 24,508    |   |                    |   | (1,127    | )    |  |   | (933      | )
|                                                      |  |                                         |           |   |                    |   |           |      |  |   |           |  
|Income before minority interest                       |  |                                         | 154,497   |   |                    |   | 23,153    |      |  |   | 102,869   |  
|Minority interest                                     |  |                                         | 420       |   |                    |   | 514       |      |  |   | 18        |  
|                                                      |  |                                         |           |   |                    |   |           |      |  |   |           |  
|Net income                                            |  | $                                       | 154,917   |   |                    | $ | 23,667    |      |  | $ | 102,887   |  
|                                                      |  |                                         |           |   |                    |   |           |      |  |   |           |  
|                                                      | 
|                                                      |  | For the Fiscal Year Ended September 30, |          
|                                                      |  | 2006                                    |           |   | 2005 (1)           |   |           | 2004 | 
|Capital expenditures:                                 |  |                                         |           |   |                    |   |           |      |  |   |           |  
|Mohegan Sun                                           |  | $                                       | 44,375    |   |                    | $ | 45,367    |      |  | $ | 30,680    |  
|Pocono Downs                                          |  |                                         | 44,448    |   |                    |   | 5,148     |      |  |   |          |  
|Corporate                                             |  |                                         | 13,097    |   |                    |   | 476       |      |  |   |          |  
|                                                      |  |                                         |           |   |                    |   |           |      |  |   |           |  
|Total                                                 |  | $                                       | 101,920   |   |                    | $ | 50,991    |      |  | $ | 30,680    |  
|                                                      |  |                                         |           |   |                    |   |           |      |  |   |           |  
|                                                      |  |                                         |          
|                                                      |  | September 30, 2006                      |           |   | September 30, 2005 |   |           |      | 
|Total assets:                                         |  |                                         |           |   |                    |   |           |      |  |   |           |  
|Mohegan Sun                                           |  | $                                       | 1,505,258 |   |                    | $ | 1,525,300 |      |  |   |           |  
|Pocono Downs (including goodwill of $39,459)          |  |                                         | 333,820   |   |                    |   | 289,713   |      |  |   |           |  
|Corporate                                             |  |                                         | 75,279    |   |                    |   | 41,855    |      |  |   |           |  
|                                                      |  |                                         |           |   |                    |   |           |      |  |   |           |  
|Total                                                 |  | $                                       | 1,914,357 |   |                    | $ | 1,856,868 |      |  |   |           |  
|                                                      |  |                                         |           |   |                    |   |           |      |  |   |           |  

---

|(1) | Period from date of inception (January 25, 2005) to September 30, 2005 for Pocono Downs entities.
|--- | -------------------------------------------------------------------------------------------------



F-33



---

##### Table of Contents

MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 17CONDENSED CONSOLIDATING FINANCIAL STATEMENT INFORMATION:

As of September 30, 2006, the Authoritys outstanding public debt, comprised of substantially all of its senior and senior subordinated notes,
is fully and unconditionally guaranteed by at least one or all of the following subsidiaries of the Authority: MBC, Mohegan Ventures-NW, MCV-PA and the Pocono Downs entities (refer to Notes 8, 15 and 18). Separate financial statements and other
disclosures concerning MBC, Mohegan Ventures-NW, MCV-PA and the Pocono Downs entities are not presented below because the Authority believes that they are not material to investors. Condensed consolidating financial statement information for the
Authority, MBC, Mohegan Ventures-NW, MCV-PA, the Pocono Downs entities and the non-guarantor subsidiary, Salishan-Mohegan, as of September 30, 2006 and 2005 and for the fiscal years ended September 30, 2006, 2005 and 2004 is as follows (in
thousands):

CONDENSED CONSOLIDATING BALANCE SHEETS



|                                                 |  |                          |           |   |                       |   |                         |  |                                      |        |  |                   |          |   |  |   |           |  
|------------------------------------------------ |  | ------------------------ | --------- | - | --------------------- | - | ----------------------- |  | ------------------------------------ | ------ |  | ----------------- | -------- | - |  | - | --------- | -
|                                                 |  | As of September 30, 2006 |          
|                                                 |  | Authority                |           |   | GuarantorSubsidiaries |   | Non-GuarantorSubsidiary |  | Consolidating/EliminatingAdjustments |        |  | ConsolidatedTotal |         
|ASSETS                                           |  |                          |           |   |                       |   |                         |  |                                      |        |  |                   |          |   |  |   |           |  
|Property and equipment, net                      |  | $                        | 1,243,150 |   |                       | $ | 76,722                  |  | $                                    | 19,951 |  | $                 |         |   |  | $ | 1,339,823 |  
|Intercompany receivables                         |  |                          | 118,415   |   |                       |   | 19,148                  |  |                                      |       |  |                   | (137,563 | ) |  |   |          |  
|Investment in subsidiaries                       |  |                          | 233,174   |   |                       |   | 3,358                   |  |                                      |       |  |                   | (236,532 | ) |  |   |          |  
|Other intangible assets, net                     |  |                          | 119,826   |   |                       |   | 219,823                 |  |                                      |       |  |                   |         |   |  |   | 339,649   |  
|Other assets, net                                |  |                          | 181,415   |   |                       |   | 44,079                  |  |                                      | 9,391  |  |                   |         |   |  |   | 234,885   |  
|                                                 |  |                          |           |   |                       |   |                         |  |                                      |        |  |                   |          |   |  |   |           |  
|Total assets                                     |  | $                        | 1,895,980 |   |                       | $ | 363,130                 |  | $                                    | 29,342 |  | $                 | (374,095 | ) |  | $ | 1,914,357 |  
|                                                 |  |                          |           |   |                       |   |                         |  |                                      |        |  |                   |          |   |  |   |           |  
|LIABILITIES AND CAPITAL                          |  |                          |           |   |                       |   |                         |  |                                      |        |  |                   |          |   |  |   |           |  
|Total current liabilities                        |  | $                        | 261,135   |   |                       | $ | 7,858                   |  | $                                    | 3,355  |  | $                 |         |   |  | $ | 272,348   |  
|Long-term debt, net of current portion           |  |                          | 1,221,804 |   |                       |   | 4,000                   |  |                                      |       |  |                   |         |   |  |   | 1,225,804 |  
|Relinquishment liability, net of current portion |  |                          | 451,038   |   |                       |   |                        |  |                                      |       |  |                   |         |   |  |   | 451,038   |  
|Intercompany payables                            |  |                          |          |   |                       |   | 118,415                 |  |                                      | 19,148 |  |                   | (137,563 | ) |  |   |          |  
|Other long-term liabilities                      |  |                          | 542       |   |                       |   |                        |  |                                      |       |  |                   |         |   |  |   | 542       |  
|                                                 |  |                          |           |   |                       |   |                         |  |                                      |        |  |                   |          |   |  |   |           |  
|Total liabilities                                |  |                          | 1,934,519 |   |                       |   | 130,273                 |  |                                      | 22,503 |  |                   | (137,563 | ) |  |   | 1,949,732 |  
|Minority interest in subsidiary                  |  |                          |          |   |                       |   |                        |  |                                      |       |  |                   | 3,480    |   |  |   | 3,480     |  
|Total capital                                    |  |                          | (38,539   | ) |                       |   | 232,857                 |  |                                      | 6,839  |  |                   | (240,012 | ) |  |   | (38,855   | )
|                                                 |  |                          |           |   |                       |   |                         |  |                                      |        |  |                   |          |   |  |   |           |  
|Total liabilities and capital                    |  | $                        | 1,895,980 |   |                       | $ | 363,130                 |  | $                                    | 29,342 |  | $                 | (374,095 | ) |  | $ | 1,914,357 |  
|                                                 |  |                          |           |   |                       |   |                         |  |                                      |        |  |                   |          |   |  |   |           |  
|                                                 | 
|                                                 |  | As of September 30, 2005 |          
|                                                 |  | Authority                |           |   | GuarantorSubsidiaries |   | Non-GuarantorSubsidiary |  | Consolidating/EliminatingAdjustments |        |  | ConsolidatedTotal |         
|ASSETS                                           |  |                          |           |   |                       |   |                         |  |                                      |        |  |                   |          |   |  |   |           |  
|Property and equipment, net                      |  | $                        | 1,283,885 |   |                       | $ | 34,956                  |  | $                                    | 3,850  |  | $                 |         |   |  | $ | 1,322,691 |  
|Intercompany receivables                         |  |                          | 26,032    |   |                       |   | 3,607                   |  |                                      |       |  |                   | (29,639  | ) |  |   |          |  
|Investment in subsidiaries                       |  |                          | 266,033   |   |                       |   | 3,023                   |  |                                      |       |  |                   | (269,056 | ) |  |   |          |  
|Other intangible assets, net                     |  |                          | 119,826   |   |                       |   | 220,741                 |  |                                      |       |  |                   |         |   |  |   | 340,567   |  
|Other assets, net                                |  |                          | 140,629   |   |                       |   | 42,131                  |  |                                      | 10,850 |  |                   |         |   |  |   | 193,610   |  
|                                                 |  |                          |           |   |                       |   |                         |  |                                      |        |  |                   |          |   |  |   |           |  
|Total assets                                     |  | $                        | 1,836,405 |   |                       | $ | 304,458                 |  | $                                    | 14,700 |  | $                 | (298,695 | ) |  | $ | 1,856,868 |  
|                                                 |  |                          |           |   |                       |   |                         |  |                                      |        |  |                   |          |   |  |   |           |  
|LIABILITIES AND CAPITAL                          |  |                          |           |   |                       |   |                         |  |                                      |        |  |                   |          |   |  |   |           |  
|Total current liabilities                        |  | $                        | 257,199   |   |                       | $ | 7,710                   |  | $                                    | 5,509  |  | $                 |         |   |  | $ | 270,418   |  
|Long-term debt, net of current portion           |  |                          | 1,221,348 |   |                       |   | 5,000                   |  |                                      |       |  |                   |         |   |  |   | 1,226,348 |  
|Relinquishment liability, net of current portion |  |                          | 462,078   |   |                       |   |                        |  |                                      |       |  |                   |         |   |  |   | 462,078   |  
|Intercompany payables                            |  |                          |          |   |                       |   | 26,032                  |  |                                      | 3,607  |  |                   | (29,639  | ) |  |   |          |  
|Other long-term liabilities                      |  |                          | 336       |   |                       |   |                        |  |                                      |       |  |                   |         |   |  |   | 336       |  
|                                                 |  |                          |           |   |                       |   |                         |  |                                      |        |  |                   |          |   |  |   |           |  
|Total liabilities                                |  |                          | 1,940,961 |   |                       |   | 38,742                  |  |                                      | 9,116  |  |                   | (29,639  | ) |  |   | 1,959,180 |  
|Minority interest in subsidiary                  |  |                          |          |   |                       |   |                        |  |                                      |       |  |                   | 2,560    |   |  |   | 2,560     |  
|Total capital                                    |  |                          | (104,556  | ) |                       |   | 265,716                 |  |                                      | 5,584  |  |                   | (271,616 | ) |  |   | (104,872  | )
|                                                 |  |                          |           |   |                       |   |                         |  |                                      |        |  |                   |          |   |  |   |           |  
|Total liabilities and capital                    |  | $                        | 1,836,405 |   |                       | $ | 304,458                 |  | $                                    | 14,700 |  | $                 | (298,695 | ) |  | $ | 1,856,868 |  
|                                                 |  |                          |           |   |                       |   |                         |  |                                      |        |  |                   |          |   |  |   |           |  



F-34



---

##### Table of Contents

MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



CONDENSED CONSOLIDATING STATEMENTS OF INCOME



|                                                      |  |                                              |           |   |                          |   |         |                         |  |   |                                      |   |  |                   |        |   |  |   |           |  
|----------------------------------------------------- |  | -------------------------------------------- | --------- | - | ------------------------ | - | ------- | ----------------------- |  | - | ------------------------------------ | - |  | ----------------- | ------ | - |  | - | --------- | -
|                                                      |  | For the Fiscal Year Ended September 30, 2006 |          
|                                                      |  | Authority                                    |           |   | GuarantorSubsidiaries    |   |         | Non-GuarantorSubsidiary |  |   | Consolidating/EliminatingAdjustments |   |  | ConsolidatedTotal |       
|Net revenues                                          |  | $                                            | 1,389,629 |   |                          | $ | 37,987  |                         |  | $ |                                     |   |  | $                 | (1,202 | ) |  | $ | 1,426,414 |  
|Operating costs and expenses:                         |  |                                              |           |   |                          |   |         |                         |  |   |                                      |   |  |                   |        |   |  |   |           |  
|Gaming & other operations                             |  |                                              | 804,522   |   |                          |   | 28,849  |                         |  |   |                                     |   |  |                   | (1,202 | ) |  |   | 832,169   |  
|Advertising, general and administrative               |  |                                              | 199,779   |   |                          |   | 10,597  |                         |  |   | 1,771                                |   |  |                   |       |   |  |   | 212,147   |  
|Pre-opening costs and expenses                        |  |                                              |          |   |                          |   | 5,130   |                         |  |   |                                     |   |  |                   |       |   |  |   | 5,130     |  
|Depreciation and amortization                         |  |                                              | 84,473    |   |                          |   | 3,709   |                         |  |   |                                     |   |  |                   |       |   |  |   | 88,182    |  
|Relinquishment liability reassessment                 |  |                                              | 39,407    |   |                          |   |        |                         |  |   |                                     |   |  |                   |       |   |  |   | 39,407    |  
|                                                      |  |                                              |           |   |                          |   |         |                         |  |   |                                      |   |  |                   |        |   |  |   |           |  
|Total operating costs and expenses                    |  |                                              | 1,128,181 |   |                          |   | 48,285  |                         |  |   | 1,771                                |   |  |                   | (1,202 | ) |  |   | 1,177,035 |  
|                                                      |  |                                              |           |   |                          |   |         |                         |  |   |                                      |   |  |                   |        |   |  |   |           |  
|Income (loss) from operations                         |  |                                              | 261,448   |   |                          |   | (10,298 | )                       |  |   | (1,771                               | ) |  |                   |       |   |  |   | 249,379   |  
|Accretion of discount to the relinquishment liability |  |                                              | (30,707   | ) |                          |   |        |                         |  |   |                                     |   |  |                   |       |   |  |   | (30,707   | )
|Interest expense, net of capitalized interest         |  |                                              | (64,981   | ) |                          |   | (25,947 | )                       |  |   | (1,203                               | ) |  |                   | 1,203  |   |  |   | (90,928   | )
|Loss on interests in subsidiaries                     |  |                                              | (35,892   | ) |                          |   | (484    | )                       |  |   |                                     |   |  |                   | 36,376 |   |  |   |          |  
|Other income, net                                     |  |                                              | 24,629    |   |                          |   | 1,257   |                         |  |   | 2,070                                |   |  |                   | (1,203 | ) |  |   | 26,753    |  
|                                                      |  |                                              |           |   |                          |   |         |                         |  |   |                                      |   |  |                   |        |   |  |   |           |  
|Income (loss) before minority interest                |  |                                              | 154,497   |   |                          |   | (35,472 | )                       |  |   | (904                                 | ) |  |                   | 36,376 |   |  |   | 154,497   |  
|Minority interest                                     |  |                                              |          |   |                          |   |        |                         |  |   |                                     |   |  |                   | 420    |   |  |   | 420       |  
|                                                      |  |                                              |           |   |                          |   |         |                         |  |   |                                      |   |  |                   |        |   |  |   |           |  
|Net income (loss)                                     |  | $                                            | 154,497   |   |                          | $ | (35,472 | )                       |  | $ | (904                                 | ) |  | $                 | 36,796 |   |  | $ | 154,917   |  
|                                                      |  |                                              |           |   |                          |   |         |                         |  |   |                                      |   |  |                   |        |   |  |   |           |  
|                                                      | 
|                                                      |  | For the Fiscal Year Ended September 30, 2005 |          
|                                                      |  | Authority                                    |           |   | GuarantorSubsidiaries(1) |   |         | Non-GuarantorSubsidiary |  |   | Consolidating/EliminatingAdjustments |   |  | ConsolidatedTotal |       
|Net revenues                                          |  | $                                            | 1,302,039 |   |                          | $ | 30,816  |                         |  | $ |                                     |   |  | $                 | (1,250 | ) |  | $ | 1,331,605 |  
|Operating costs and expenses:                         |  |                                              |           |   |                          |   |        |                         |  |   |                                      |   |  |                   |        |   |  |   |           |  
|Gaming & other operations                             |  |                                              | 760,504   |   |                          |   | 22,158  |                         |  |   |                                     |   |  |                   | (1,250 | ) |  |   | 781,412   |  
|Advertising, general and administrative               |  |                                              | 189,416   |   |                          |   | 7,301   |                         |  |   | 1,553                                |   |  |                   |       |   |  |   | 198,270   |  
|Pre-opening costs and expenses                        |  |                                              |          |   |                          |   | 1,257   |                         |  |   |                                     |   |  |                   |       |   |  |   | 1,257     |  
|Depreciation and amortization                         |  |                                              | 84,731    |   |                          |   | 2,947   |                         |  |   |                                     |   |  |                   |       |   |  |   | 87,678    |  
|Relinquishment liability reassessment                 |  |                                              | 123,624   |   |                          |   |        |                         |  |   |                                     |   |  |                   |       |   |  |   | 123,624   |  
|                                                      |  |                                              |           |   |                          |   |         |                         |  |   |                                      |   |  |                   |        |   |  |   |           |  
|Total operating costs and expenses                    |  |                                              | 1,158,275 |   |                          |   | 33,663  |                         |  |   | 1,553                                |   |  |                   | (1,250 | ) |  |   | 1,192,241 |  
|                                                      |  |                                              |           |   |                          |   |         |                         |  |   |                                      |   |  |                   |        |   |  |   |           |  
|Income (loss) from operations                         |  |                                              | 143,764   |   |                          |   | (2,847  | )                       |  |   | (1,553                               | ) |  |                   |       |   |  |   | 139,364   |  
|Accretion of discount to the relinquishment liability |  |                                              | (27,466   | ) |                          |   |        |                         |  |   |                                     |   |  |                   |       |   |  |   | (27,466   | )
|Interest expense, net of capitalized interest         |  |                                              | (73,202   | ) |                          |   | (14,809 | )                       |  |   | (218                                 | ) |  |                   | 218    |   |  |   | (88,011   | )
|Loss on interests in subsidiaries                     |  |                                              | (18,024   | ) |                          |   | (607    | )                       |  |   |                                     |   |  |                   | 18,631 |   |  |   |          |  
|Other income (expense), net                           |  |                                              | (1,405    | ) |                          |   | 239     |                         |  |   | 650                                  |   |  |                   | (218   | ) |  |   | (734      | )
|                                                      |  |                                              |           |   |                          |   |         |                         |  |   |                                      |   |  |                   |        |   |  |   |           |  
|Income (loss) before minority interest                |  |                                              | 23,667    |   |                          |   | (18,024 | )                       |  |   | (1,121                               | ) |  |                   | 18,631 |   |  |   | 23,153    |  
|Minority interest                                     |  |                                              |          |   |                          |   |        |                         |  |   |                                     |   |  |                   | 514    |   |  |   | 514       |  
|                                                      |  |                                              |           |   |                          |   |         |                         |  |   |                                      |   |  |                   |        |   |  |   |           |  
|Net income (loss)                                     |  | $                                            | 23,667    |   |                          | $ | (18,024 | )                       |  | $ | (1,121                               | ) |  | $                 | 19,145 |   |  | $ | 23,667    |  
|                                                      |  |                                              |           |   |                          |   |         |                         |  |   |                                      |   |  |                   |        |   |  |   |           |  

---

|(1) | Period from date of inception (July 25, 2005) to September 2005 for Pocono Downs entities and MCV-PA.
|--- | -----------------------------------------------------------------------------------------------------



F-35



---

##### Table of Contents

MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                                      |  |                                              |           |   |                           |   |        |                             |  |   |                                      |   |  |                   |       |   |  |   |           |  
|----------------------------------------------------- |  | -------------------------------------------- | --------- | - | ------------------------- | - | ------ | --------------------------- |  | - | ------------------------------------ | - |  | ----------------- | ----- | - |  | - | --------- | -
|                                                      |  | For the Fiscal Year Ended September 30, 2004 |          
|                                                      |  | Authority                                    |           |   | GuarantorSubsidiaries (1) |   |        | Non-GuarantorSubsidiary (1) |  |   | Consolidating/EliminatingAdjustments |   |  | ConsolidatedTotal |      
|Net revenues                                          |  | $                                            | 1,254,018 |   |                           | $ | 3,479  |                             |  | $ |                                     |   |  | $                 | (571  | ) |  | $ | 1,256,926 |  
|Operating costs and expenses:                         |  |                                              |           |   |                           |   |       |                             |  |   |                                      |   |  |                   |      |   |  |   |           |  
|Gaming & other operations                             |  |                                              | 729,495   |   |                           |   | 3,148  |                             |  |   |                                     |   |  |                   | (571  | ) |  |   | 732,072   |  
|Advertising, general and administrative               |  |                                              | 178,699   |   |                           |   | 1,950  |                             |  |   | 96                                   |   |  |                   |      |   |  |   | 180,745   |  
|Depreciation and amortization                         |  |                                              | 91,701    |   |                           |   | 1,894  |                             |  |   |                                     |   |  |                   |      |   |  |   | 93,595    |  
|Relinquishment liability reassessment                 |  |                                              | 3,897     |   |                           |   |       |                             |  |   |                                     |   |  |                   |      |   |  |   | 3,897     |  
|                                                      |  |                                              |           |   |                           |   |        |                             |  |   |                                      |   |  |                   |       |   |  |   |           |  
|Total operating costs and expenses                    |  |                                              | 1,003,792 |   |                           |   | 6,992  |                             |  |   | 96                                   |   |  |                   | (571  | ) |  |   | 1,010,309 |  
|                                                      |  |                                              |           |   |                           |   |        |                             |  |   |                                      |   |  |                   |       |   |  |   |           |  
|Income (loss) from operations                         |  |                                              | 250,226   |   |                           |   | (3,513 | )                           |  |   | (96                                  | ) |  |                   |      |   |  |   | 246,617   |  
|Accretion of discount to the relinquishment liability |  |                                              | (29,939   | ) |                           |   |       |                             |  |   |                                     |   |  |                   |      |   |  |   | (29,939   | )
|Interest expense                                      |  |                                              | (78,765   | ) |                           |   | (205   | )                           |  |   | (2                                   | ) |  |                   | 2     |   |  |   | (78,970   | )
|Loss on early extinguishment of debt                  |  |                                              | (34,138   | ) |                           |   |       |                             |  |   |                                     |   |  |                   |      |   |  |   | (34,138   | )
|Loss on interests in subsidiaries                     |  |                                              | (3,736    | ) |                           |   | (22    | )                           |  |   |                                     |   |  |                   | 3,758 |   |  |   |          |  
|Other income (expense), net                           |  |                                              | (761      | ) |                           |   | 4      |                             |  |   | 58                                   |   |  |                   | (2    | ) |  |   | (701      | )
|                                                      |  |                                              |           |   |                           |   |        |                             |  |   |                                      |   |  |                   |       |   |  |   |           |  
|Income (loss) before minority interest                |  |                                              | 102,887   |   |                           |   | (3,736 | )                           |  |   | (40                                  | ) |  |                   | 3,758 |   |  |   | 102,869   |  
|Minority interest                                     |  |                                              |          |   |                           |   |       |                             |  |   |                                     |   |  |                   | 18    |   |  |   | 18        |  
|                                                      |  |                                              |           |   |                           |   |        |                             |  |   |                                      |   |  |                   |       |   |  |   |           |  
|Net income (loss)                                     |  | $                                            | 102,887   |   |                           | $ | (3,736 | )                           |  | $ | (40                                  | ) |  | $                 | 3,776 |   |  | $ | 102,887   |  
|                                                      |  |                                              |           |   |                           |   |        |                             |  |   |                                      |   |  |                   |       |   |  |   |           |  

---

|(1) | Period from date of inception (July 23, 2004) to September 30, 2004 for Mohegan Ventures-NW and Salishan-Mohegan.
|--- | -----------------------------------------------------------------------------------------------------------------

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS



|                                                            |  |                                              |          |   |                       |   |         |                         |  |   |                                      |   |  |                   |         |   |  |   |          |  
|----------------------------------------------------------- |  | -------------------------------------------- | -------- | - | --------------------- | - | ------- | ----------------------- |  | - | ------------------------------------ | - |  | ----------------- | ------- | - |  | - | -------- | -
|                                                            |  | For the Fiscal Year Ended September 30, 2006 |         
|                                                            |  | Authority                                    |          |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiary |  |   | Consolidating/EliminatingAdjustments |   |  | ConsolidatedTotal |        
|Net cash flows provided by (used in) operating activities   |  | $                                            | 259,832  |   |                       | $ | (8,959  | )                       |  | $ | 4                                    |   |  | $                 |        |   |  | $ | 250,877  |  
|                                                            |  |                                              |          |   |                       |   |         |                         |  |   |                                      |   |  |                   |         |   |  |   |          |  
|Cash flows used in investing activities:                    |  |                                              |          |   |                       |   |         |                         |  |   |                                      |   |  |                   |         |   |  |   |          |  
|Purchases of property and equipment                         |  |                                              | (43,095  | ) |                       |   | (42,326 | )                       |  |   | (13,082                              | ) |  |                   |         |   |  |   | (98,503  | )
|Other cash flows used in investing activities               |  |                                              | (64,846  | ) |                       |   | (15,157 | )                       |  |   | (3,405                               | ) |  |                   | 81,130  |   |  |   | (2,278   | )
|                                                            |  |                                              |          |   |                       |   |         |                         |  |   |                                      |   |  |                   |         |   |  |   |          |  
|Net cash flows used in investing activities                 |  |                                              | (107,941 | ) |                       |   | (57,483 | )                       |  |   | (16,487                              | ) |  |                   | 81,130  |   |  |   | (100,781 | )
|                                                            |  |                                              |          |   |                       |   |         |                         |  |   |                                      |   |  |                   |         |   |  |   |          |  
|Cash flows provided by (used in) financing activities:      |  |                                              |          |   |                       |   |         |                         |  |   |                                      |   |  |                   |         |   |  |   |          |  
|Bank Credit Facility borrowingsrevolving loan              |  |                                              | 233,000  |   |                       |   |        |                         |  |   |                                     |   |  |                   |        |   |  |   | 233,000  |  
|Bank Credit Facility repaymentsrevolving loan              |  |                                              | (233,000 | ) |                       |   |        |                         |  |   |                                     |   |  |                   |        |   |  |   | (233,000 | )
|Line of credit borrowings                                   |  |                                              | 444,226  |   |                       |   |        |                         |  |   |                                     |   |  |                   |        |   |  |   | 444,226  |  
|Line of credit repayments                                   |  |                                              | (444,226 | ) |                       |   |        |                         |  |   |                                     |   |  |                   |        |   |  |   | (444,226 | )
|Principal portion of relinquishment liability payments      |  |                                              | (44,731  | ) |                       |   |        |                         |  |   |                                     |   |  |                   |        |   |  |   | (44,731  | )
|Distributions to Tribe                                      |  |                                              | (88,900  | ) |                       |   |        |                         |  |   |                                     |   |  |                   |        |   |  |   | (88,900  | )
|Other cash flows provided by (used in) financing activities |  |                                              | (13,970  | ) |                       |   | 64,973  |                         |  |   | 16,483                               |   |  |                   | (81,130 | ) |  |   | (13,644  | )
|                                                            |  |                                              |          |   |                       |   |         |                         |  |   |                                      |   |  |                   |         |   |  |   |          |  
|Net cash flows provided by (used in) financing activities   |  |                                              | (147,601 | ) |                       |   | 64,973  |                         |  |   | 16,483                               |   |  |                   | (81,130 | ) |  |   | (147,275 | )
|                                                            |  |                                              |          |   |                       |   |         |                         |  |   |                                      |   |  |                   |         |   |  |   |          |  
|Net increase (decrease) in cash and cash equivalents        |  |                                              | 4,290    |   |                       |   | (1,469  | )                       |  |   |                                     |   |  |                   |        |   |  |   | 2,821    |  
|Cash and cash equivalents at beginning of year              |  |                                              | 71,504   |   |                       |   | 921     |                         |  |   |                                     |   |  |                   |        |   |  |   | 72,425   |  
|                                                            |  |                                              |          |   |                       |   |         |                         |  |   |                                      |   |  |                   |         |   |  |   |          |  
|Cash and cash equivalents at end of year                    |  | $                                            | 75,794   |   |                       | $ | (548    | )                       |  | $ |                                     |   |  | $                 |        |   |  | $ | 75,246   |  
|                                                            |  |                                              |          |   |                       |   |         |                         |  |   |                                      |   |  |                   |         |   |  |   |          |  



F-36



---

##### Table of Contents

MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                                            |  |                                              |          |   |                            |   |          |                          |  |   |                                        |   |  |                    |          |   |  |   |          |  
|----------------------------------------------------------- |  | -------------------------------------------- | -------- | - | -------------------------- | - | -------- | ------------------------ |  | - | -------------------------------------- | - |  | ------------------ | -------- | - |  | - | -------- | -
|                                                            |  | For the Fiscal Year Ended September 30, 2005 |         
|                                                            |  | Authority                                    |          |   | Guarantor Subsidiaries (1) |   |          | Non-Guarantor Subsidiary |  |   | Consolidating/ Eliminating Adjustments |   |  | Consolidated Total |         
|Net cash flows provided by (used in) operating activities   |  | $                                            | 247,340  |   |                            | $ | (264     | )                        |  | $ | (1                                     | ) |  | $                  |         |   |  | $ | 247,075  |  
|                                                            |  |                                              |          |   |                            |   |          |                          |  |   |                                        |   |  |                    |          |   |  |   |          |  
|Cash flows used in investing activities:                    |  |                                              |          |   |                            |   |          |                          |  |   |                                        |   |  |                    |          |   |  |   |          |  
|Purchases of property and equipment                         |  |                                              | (45,737  | ) |                            |   | (3,482   | )                        |  |   |                                       |   |  |                    |         |   |  |   | (49,219  | )
|Acquisition of Pocono Downs, net of cash acquired of $875   |  |                                              |         |   |                            |   | (280,114 | )                        |  |   |                                       |   |  |                    |         |   |  |   | (280,114 | )
|Other cash flows used in investing activities               |  |                                              | (291,509 | ) |                            |   | (5,163   | )                        |  |   | (4,892                                 | ) |  |                    | 295,719  |   |  |   | (5,845   | )
|                                                            |  |                                              |          |   |                            |   |          |                          |  |   |                                        |   |  |                    |          |   |  |   |          |  
|Net cash flows used in investing activities                 |  |                                              | (337,246 | ) |                            |   | (288,759 | )                        |  |   | (4,892                                 | ) |  |                    | 295,719  |   |  |   | (335,178 | )
|                                                            |  |                                              |          |   |                            |   |          |                          |  |   |                                        |   |  |                    |          |   |  |   |          |  
|Cash flows provided by (used in) financing activities:      |  |                                              |          |   |                            |   |          |                          |  |   |                                        |   |  |                    |          |   |  |   |          |  
|Bank Credit Facility borrowingsrevolving loan              |  |                                              | 750,000  |   |                            |   |         |                          |  |   |                                       |   |  |                    |         |   |  |   | 750,000  |  
|Bank Credit Facility repaymentsrevolving loan              |  |                                              | (838,000 | ) |                            |   |         |                          |  |   |                                       |   |  |                    |         |   |  |   | (838,000 | )
|Bank Credit Facility borrowingsterm loan                   |  |                                              | 58,333   |   |                            |   |         |                          |  |   |                                       |   |  |                    |         |   |  |   | 58,333   |  
|Bank Credit Facility repaymentsterm loan                   |  |                                              | (150,000 | ) |                            |   |         |                          |  |   |                                       |   |  |                    |         |   |  |   | (150,000 | )
|Line of credit borrowings                                   |  |                                              | 474,900  |   |                            |   |         |                          |  |   |                                       |   |  |                    |         |   |  |   | 474,900  |  
|Line of credit repayments                                   |  |                                              | (479,985 | ) |                            |   |         |                          |  |   |                                       |   |  |                    |         |   |  |   | (479,985 | )
|Proceeds from the issuance of long-term debt                |  |                                              | 400,000  |   |                            |   |         |                          |  |   |                                       |   |  |                    |         |   |  |   | 400,000  |  
|Principal portion of relinquishment liability payments      |  |                                              | (42,540  | ) |                            |   |         |                          |  |   |                                       |   |  |                    |         |   |  |   | (42,540  | )
|Distributions to Tribe                                      |  |                                              | (67,500  | ) |                            |   |         |                          |  |   |                                       |   |  |                    |         |   |  |   | (67,500  | )
|Other cash flows provided by (used in) financing activities |  |                                              | (4,204   | ) |                            |   | 289,556  |                          |  |   | 4,893                                  |   |  |                    | (295,719 | ) |  |   | (5,474   | )
|                                                            |  |                                              |          |   |                            |   |          |                          |  |   |                                        |   |  |                    |          |   |  |   |          |  
|Net cash flows provided by financing activities             |  |                                              | 101,004  |   |                            |   | 289,556  |                          |  |   | 4,893                                  |   |  |                    | (295,719 | ) |  |   | 99,734   |  
|                                                            |  |                                              |          |   |                            |   |          |                          |  |   |                                        |   |  |                    |          |   |  |   |          |  
|Net increase in cash and cash equivalents                   |  |                                              | 11,098   |   |                            |   | 533      |                          |  |   |                                       |   |  |                    |         |   |  |   | 11,631   |  
|Cash and cash equivalents at beginning of year              |  |                                              | 60,406   |   |                            |   | 388      |                          |  |   |                                       |   |  |                    |         |   |  |   | 60,794   |  
|                                                            |  |                                              |          |   |                            |   |          |                          |  |   |                                        |   |  |                    |          |   |  |   |          |  
|Cash and cash equivalents at end of year                    |  | $                                            | 71,504   |   |                            | $ | 921      |                          |  | $ |                                       |   |  | $                  |         |   |  | $ | 72,425   |  
|                                                            |  |                                              |          |   |                            |   |          |                          |  |   |                                        |   |  |                    |          |   |  |   |          |  

---

|(1) | Period from date of inception (January 25, 2005) to September 30, 2005 for Pocono Downs entities and MCV-PA.
|--- | ------------------------------------------------------------------------------------------------------------



|                                                            |  |                                              |          |   |                            |   |        |                              |  |   |                                        |   |  |                    |        |   |  |   |          |  
|----------------------------------------------------------- |  | -------------------------------------------- | -------- | - | -------------------------- | - | ------ | ---------------------------- |  | - | -------------------------------------- | - |  | ------------------ | ------ | - |  | - | -------- | -
|                                                            |  | For the Fiscal Year Ended September 30, 2004 |         
|                                                            |  | Authority                                    |          |   | Guarantor Subsidiaries (1) |   |        | Non-Guarantor Subsidiary (1) |  |   | Consolidating/ Eliminating Adjustments |   |  | Consolidated Total |       
|Net cash flows provided by (used in) operating activities   |  | $                                            | 216,672  |   |                            | $ | (1,868 | )                            |  | $ | 1                                      |   |  | $                  |       |   |  | $ | 214,805  |  
|                                                            |  |                                              |          |   |                            |   |        |                              |  |   |                                        |   |  |                    |        |   |  |   |          |  
|Cash flows used in investing activities:                    |  |                                              |          |   |                            |   |        |                              |  |   |                                        |   |  |                    |        |   |  |   |          |  
|Purchases of property and equipment                         |  |                                              | (31,874  | ) |                            |   | (38    | )                            |  |   |                                       |   |  |                    |       |   |  |   | (31,912  | )
|Other cash flows used in investing activities               |  |                                              | (5,512   | ) |                            |   | (2,692 | )                            |  |   | (176                                   | ) |  |                    | 8,104  |   |  |   | (276     | )
|                                                            |  |                                              |          |   |                            |   |        |                              |  |   |                                        |   |  |                    |        |   |  |   |          |  
|Net cash flows used in investing activities                 |  |                                              | (37,386  | ) |                            |   | (2,730 | )                            |  |   | (176                                   | ) |  |                    | 8,104  |   |  |   | (32,188  | )
|                                                            |  |                                              |          |   |                            |   |        |                              |  |   |                                        |   |  |                    |        |   |  |   |          |  
|Cash flows provided by (used in) financing activities:      |  |                                              |          |   |                            |   |        |                              |  |   |                                        |   |  |                    |        |   |  |   |          |  
|Bank Credit Facility borrowingsrevolving loan              |  |                                              | 290,000  |   |                            |   |       |                              |  |   |                                       |   |  |                    |       |   |  |   | 290,000  |  
|Bank Credit Facility repaymentsrevolving loan              |  |                                              | (268,000 | ) |                            |   |       |                              |  |   |                                       |   |  |                    |       |   |  |   | (268,000 | )
|Line of credit borrowings                                   |  |                                              | 208,923  |   |                            |   |       |                              |  |   |                                       |   |  |                    |       |   |  |   | 208,923  |  
|Line of credit repayments                                   |  |                                              | (203,837 | ) |                            |   |       |                              |  |   |                                       |   |  |                    |       |   |  |   | (203,837 | )
|Proceeds from the issuance of long-term debt                |  |                                              | 225,000  |   |                            |   |       |                              |  |   |                                       |   |  |                    |       |   |  |   | 225,000  |  
|Payments on long-term debt                                  |  |                                              | (325,925 | ) |                            |   |        |                              |  |   |                                        |   |  |                    |        |   |  |   | (325,925 | )
|Principal portion of relinquishment liability payments      |  |                                              | (36,525  | ) |                            |   |       |                              |  |   |                                       |   |  |                    |       |   |  |   | (36,525  | )
|Distributions to Tribe                                      |  |                                              | (65,017  | ) |                            |   |       |                              |  |   |                                       |   |  |                    |       |   |  |   | (65,017  | )
|Other cash flows provided by (used in) financing activities |  |                                              | (16,189  | ) |                            |   | 4,412  |                              |  |   | 175                                    |   |  |                    | (8,104 | ) |  |   | (19,706  | )
|                                                            |  |                                              |          |   |                            |   |        |                              |  |   |                                        |   |  |                    |        |   |  |   |          |  
|Net cash flows provided by (used in) financing activities   |  |                                              | (191,570 | ) |                            |   | 4,412  |                              |  |   | 175                                    |   |  |                    | (8,104 | ) |  |   | (195,087 | )
|                                                            |  |                                              |          |   |                            |   |        |                              |  |   |                                        |   |  |                    |        |   |  |   |          |  
|Net decrease in cash and cash equivalents                   |  |                                              | (12,284  | ) |                            |   | (186   | )                            |  |   |                                       |   |  |                    |       |   |  |   | (12,470  | )
|Cash and cash equivalents at beginning of year              |  |                                              | 72,690   |   |                            |   | 574    |                              |  |   |                                       |   |  |                    |       |   |  |   | 73,264   |  
|                                                            |  |                                              |          |   |                            |   |        |                              |  |   |                                        |   |  |                    |        |   |  |   |          |  
|Cash and cash equivalents at end of year                    |  | $                                            | 60,406   |   |                            | $ | 388    |                              |  | $ |                                       |   |  | $                  |       |   |  | $ | 60,794   |  
|                                                            |  |                                              |          |   |                            |   |        |                              |  |   |                                        |   |  |                    |        |   |  |   |          |  

---

|(1) | Period from date of inception (July 23, 2004) to September 30, 2004 for Mohegan Ventures-NW and Salishan-Mohegan.
|--- | -----------------------------------------------------------------------------------------------------------------



F-37



---

##### Table of Contents

MOHEGAN TRIBAL GAMING AUTHORITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 18SUBSEQUENT EVENTS

Salishan-Mohegan Bank Credit Facility

On October 17, 2006, Salishan-Mohegan entered into a
$25.0 million revolving loan agreement with Bank of America (the Salishan Credit Facility), which matures on September 30, 2009. The revolving loan has no mandatory amortization provisions and is payable in full at maturity. At the
option of Salishan-Mohegan, each advance of loan proceeds accrues interest on the basis of a base rate or on the basis of a one-month, two-month, three-month or six-month LIBOR, plus the applicable spread of 1.25% for base rate loans and 2.25% for
LIBOR loans. The Salishan Credit Facility is collateralized by a lien on substantially all of the existing and future assets of Salishan-Mohegan. The obligations of Salishan-Mohegan under the Salishan Credit Facility are also guaranteed by the
Mohegan Tribe. The Salishan Credit Facility subjects Salishan-Mohegan to a number of restrictive covenants, including financial and non-financial covenants customarily found in loan agreements for similar transactions.

In exchange for the Mohegan Tribes guarantee of the Salishan Credit Facility, a 2.85% membership interest in Salishan-Mohegan was transferred from
Salishan Company to the Mohegan Tribe on October 17, 2006. The amount of the membership interest transferred was approximately $197,000, reflecting the carrying value of the 2.85% interest. Subsequent to this transaction, Mohegan Ventures-NW
holds a 49.15% membership interest, the Tribe holds a 7.85% membership interest and Salishan Company holds a 43.0% membership interest in Salishan-Mohegan. Mohegan Ventures-NW and the Tribe continue to each hold one of four seats on the Board of
Managers of Salishan-Mohegan.

Immediately following the execution of the loan agreement, $10.0 million in loan proceeds were used by
Salishan-Mohegan to provide a partial repayment of its outstanding loan balance with Mohegan Ventures-NW. Another $2.6 million in loan proceeds were used to pay off the mortgage payable discussed in Note 8.

Category One Slot Machine License

Conditional and permanent Category One slot machine licenses were granted to Downs Racing, L.P. by the PGCB on September 27, 2006 and December 20, 2006, respectively, for the operation of slot machines at Mohegan Sun at Pocono Downs.
After the satisfaction of certain regulatory conditions and the payment of a one-time slot machine license fee of $50.0 million to the PGCB, the Phase I slot machine facility at Mohegan Sun at Pocono Downs was opened to the public on
November 14, 2006. The $50.0 million letter of credit required by the PGCB was terminated upon the payment of the slot machine license fee on October 31, 2006.

Mohegan Golf, LLC

In November 2006, the Authority formed a wholly-owned subsidiary, Mohegan Golf,
LLC, or Mohegan Golf, to purchase, own and operate a golf course in southeast Connecticut. On November 21, 2006, Mohegan Golf entered into an agreement to purchase assets owned by Pautipaug Country Club, Incorporated, including a golf course
and related facilities on land located in Sprague and Franklin, Connecticut, for $4.4 million. Closing of the acquisition is pending the sellers satisfaction of certain conditions. The Authority designated Mohegan Golf as a restricted
subsidiary under the Bank Credit Facility and certain of the indentures relating to its senior and senior subordinated notes. As a result of this designation, Mohegan Golf will be required to execute appropriate agreements to guarantee the
Authoritys debt obligations under the Bank Credit Facility, the 2005 Senior Notes, the 2002 Senior Subordinated Notes, the 2003 Senior Subordinated Notes, the 2004 Senior Subordinated Notes and the 2005 Senior Subordinated Notes.



F-38



---

##### Table of Contents

MOHEGAN TRIBAL GAMING AUTHORITY

SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS AND RESERVES

FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2006, 2005 and 2004

(in thousands)



|                                                      |  |                              |       |                             |   |                             |  |                            |     |                         |   |     |  |   |      
|----------------------------------------------------- |  | ---------------------------- | ----- | --------------------------- | - | --------------------------- |  | -------------------------- | --- | ----------------------- | - | --- |  | - | -----
|                                                      |  | Column A                     |       | Column B                    |   | Column C                    |  | Column D                   |     | Column E               
|                                                      |  | Balance atbeginningof period |       | Charges tocosts andexpenses |   | Charged tootheraccounts (1) |  | Deductionsfromreserves (2) |     | Balances atend ofperiod
|Description:                                          |  |                              |       |                             |   |                             |  |                            |     |                         |   |     |  |   |      
|Fiscal Year Ended September 30, 2006                  |  |                              |       |                             |   |                             |  |                            |     |                         |   |     |  |   |      
|Reserves and allowances deducted from asset accounts: |  |                              |       |                             |   |                             |  |                            |     |                         |   |     |  |   |      
|Reserves for uncollectible accounts                   |  | $                            | 4,992 |                             | $ | 3,557                       |  | $                          |    |                         | $ | 433 |  | $ | 8,116
|                                                      |  |                              |       |                             |  
|Fiscal Year Ended September 30, 2005                  |  |                              |       |                             |   |                             |  |                            |     |                         |   |     |  |   |      
|Reserves and allowances deducted from asset accounts: |  |                              |       |                             |   |                             |  |                            |     |                         |   |     |  |   |      
|Reserves for uncollectible accounts                   |  | $                            | 3,013 |                             | $ | 2,286                       |  | $                          |    |                         | $ | 307 |  | $ | 4,992
|                                                      |  |                              |       |                             |  
|Fiscal Year Ended September 30, 2004                  |  |                              |       |                             |   |                             |  |                            |     |                         |   |     |  |   |      
|Reserves and allowances deducted from asset accounts: |  |                              |       |                             |   |                             |  |                            |     |                         |   |     |  |   |      
|Reserves for uncollectible accounts                   |  | $                            | 1,949 |                             | $ | 710                         |  | $                          | 594 |                         | $ | 240 |  | $ | 3,013

---

|Note | (1):   Based upon a collectibility analysis performed by management of the Mohegan Tribal Gaming Authority on the
notes receivable contributed at formation of Salishan-Mohegan LLC, a reserve amount of $594,000 was estimated and recorded.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Note | (2):   Deductions from reserves include the write-off of uncollectible accounts, net of recoveries of accounts
previously written off. | 
|---- | -------------------------------------------------------------------------------------------------------------------------------------- | 



S-1



---

##### Table of Contents

EXHIBIT INDEX



|            |  |                                                                                                                                                                                                                                                                                                              
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                  
|3.1         |  | Constitution of the Mohegan Tribe of Indians of Connecticut, as amended (filed as Exhibit 3.1 to the Authoritys Registration Statement on Form S-4, filed with the SEC on November 1, 2004
(the 2004 Form S-4), and incorporated by reference herein).                                                    
|            | 
|3.2         |  | Ordinance No. 95-2 of the Tribe for Gaming on Tribal Lands, enacted on July 15, 1995 (filed as Exhibit 3.2 to the Authoritys Amendment No. 1 to the Authoritys Registration Statement
on Form S-1, filed with the SEC on February 29, 1996 (the 1996 Forms S-1), and incorporated by reference herein).  
|            | 
|3.3         |  | Articles of Organization of Mohegan Basketball Club LLC, dated as of January 27, 2003 (filed as Exhibit 3.3 to the Authoritys Registration Statement on Form S-4, filed with the SEC on
September 23, 2003 (the 2003 Form S-4), and incorporated by reference herein).                                    
|            | 
|3.4         |  | Operating Agreement of Mohegan Basketball Club LLC, a Mohegan Tribe of Indians of Connecticut limited liability company, dated as of January 24, 2003 (filed as Exhibit 3.4 to the 2003 Form S-4,
and incorporated by reference herein).                                                                     
|            | 
|3.5         |  | Certificate of Organization of Mohegan Commercial Ventures PA, LLC, dated as of January 6, 2005, as amended (filed as Exhibit 3.5 to the Authoritys Registration Statement on Form S-4,
filed with the SEC on June 7, 2005 (the 2005 Senior Subordinated Form S-4), and incorporated by reference herein).
|            | 
|3.6         |  | Operating Agreement of Mohegan Commercial Ventures PA, LLC, a Commonwealth of Pennsylvania limited liability company, dated as of December 15, 2004 (filed as Exhibit 3.6 to the 2005 Senior
Subordinated Form S-4, and incorporated by reference herein).                                                   
|            | 
|3.7         |  | Certificate of Limited Partnership of Downs Racing, L.P., dated as of January 7, 2005, as amended (filed as Exhibit 3.7 to the 2005 Senior Subordinated Form S-4, and incorporated by reference
herein).                                                                                                     
|            | 
|3.8         |  | Amended and Restated Limited Partnership Agreement of Downs Racing, L.P., dated as of January 25, 2005 (filed as Exhibit 3.8 to the 2005 Senior Subordinated Form S-4, and incorporated by
reference herein).                                                                                                
|            | 
|3.9         |  | Certificate of Limited Partnership of Backside, L.P., dated as of January 7, 2005, as amended (filed as Exhibit 3.9 to the 2005 Senior Subordinated Form S-4, and incorporated by reference
herein).                                                                                                         
|            | 
|3.10        |  | Amended and Restated Limited Partnership Agreement of Backside, L.P., dated as of January 25, 2005 (filed as Exhibit 3.10 to the 2005 Senior Subordinated Form S-4, and incorporated by reference
herein).                                                                                                   
|            | 
|3.11        |  | Certificate of Limited Partnership of Mill Creek Land, L.P., dated as of January 7, 2005, as amended (filed as Exhibit 3.11 to the 2005 Senior Subordinated Form S-4, and incorporated by
reference herein).                                                                                                 
|            | 
|3.12        |  | Amended and Restated Limited Partnership Agreement of Mill Creek Land, L.P., dated as of January 25, 2005 (filed as Exhibit 3.12 to the 2005 Senior Subordinated Form S-4, and incorporated by
reference herein).                                                                                            
|            | 
|3.13        |  | Certificate of Limited Partnership of Northeast Concessions, L.P., dated as of January 7, 2005, as amended (filed as Exhibit 3.13 to the 2005 Senior Subordinated Form S-4, and incorporated by
reference herein).                                                                                           
|            | 
|3.14        |  | Amended and Restated Limited Partnership Agreement of Northeast Concessions, L.P., dated as of January 25, 2005 (filed as Exhibit 3.14 to the 2005 Senior Subordinated Form S-4, and incorporated
by reference herein).                                                                                      



---

##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|3.15        |  | Articles of Organization of Mohegan Ventures-Northwest, LLC, dated as of July 23, 2004 (filed as Exhibit 3.15 to the Authoritys Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2006, filed with the SEC on August 10, 2006 (the June 2006 10-Q), and incorporated by reference herein).                                                                                                                                                                                                                                                               
|            | 
|3.16        |  | Operating Agreement of Mohegan Ventures-Northwest, LLC, a Mohegan Tribe of Indians of Connecticut limited liability company, dated as of July 23, 2004 (filed as Exhibit 3.16 to the June 2006
10-Q and incorporated by reference herein).                                                                                                                                                                                                                                                                                                                                      
|            | 
|3.17        |  | Articles of Organization of Mohegan Golf, LLC, dated as of November 20, 2006 (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            | 
|4.1         |  | Relinquishment Agreement, dated February 7, 1998, by and among the Mohegan Tribal Gaming Authority, The Mohegan Tribe of Indians of Connecticut and Trading Cove Associates (filed as Exhibit
10.14 to the Authoritys Form 10-K405 for the fiscal year ended September 30, 1998, filed with the SEC on December 29, 1998, and incorporated by reference herein).                                                                                                                                                                                                               
|            | 
|4.2         |  | Indenture, dated as of July 26, 2001, among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and State Street Bank and Trust Company, as Trustee, relating to the
83/8% Senior Subordinated Notes Due 2011 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.9 to the
Authoritys Registration Statement on Form S-4, File No. 333-69472, filed with the SEC on September 14, 2001 (the 2001 Form S-4), and incorporated by reference herein).                                                                                       
|            | 
|4.3         |  | Supplemental Indenture, dated as of January 27, 2003, among the Mohegan Tribal Gaming Authority, the Mohegan Basketball Club LLC, the other Subsidiary Guarantors (as defined in the Indenture)
and the State Street Bank and Trust Company, as Trustee, relating to the 83/8% Senior Subordinated Notes Due
2011 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.12 to the June 2003 10-Q, and incorporated by reference herein).                                                                                                                                   
|            | 
|4.4         |  | Second Supplemental Indenture, dated as of July 28, 2004, among the Mohegan Tribal Gaming Authority, the Mohegan Basketball Club LLC and U.S. Bank National Association (as successor to
State Street Bank and Trust Company), as Trustee, relating to the 83/8% Senior Subordinated Notes Due 2011 of
the Mohegan Tribal Gaming Authority (filed as exhibit 4.9 to the June 2004 10-Q and incorporated by reference herein).                                                                                                                                                   
|            | 
|4.5         |  | Form of Global 83/8% Senior Subordinated Notes Due 2011
of the Mohegan Tribal Gaming Authority (contained in the Indenture filed as Exhibit 4.9 to the 2001 Form S-4, and incorporated by reference herein).                                                                                                                                                                                                                                                                                                                                                                    
|            | 
|4.6         |  | Indenture, dated as of February 20, 2002, among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and State Street Bank and Trust Company, as Trustee, relating to
the 8% Senior Subordinated Notes Due 2012 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.12 to the Authoritys Registration Statement on Form S-4, filed with the SEC on March 27, 2002 (the 2002 Form S-4), and
incorporated by reference herein).                                                                                                             
|            | 
|4.7         |  | Supplemental Indenture, dated as of January 27, 2003, among the Mohegan Tribal Gaming Authority, the Mohegan Basketball Club LLC, the other Subsidiary Guarantors (as defined in the Indenture)
and the State Street Bank and Trust Company, as Trustee, relating to the 8% Senior Subordinated Notes Due 2012 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.16 to the June 2003 10-Q, and incorporated by reference
herein).                                                                                                                                      
|            | 
|4.8         |  | Amended and Restated Supplemental Indenture, dated as of January 25, 2005, among the Mohegan Tribal Gaming Authority, Mohegan Basketball Club LLC and U.S. Bank National Association (as successor
to State Street Bank and Trust Company), as Trustee, relating to the 8% Senior Subordinated Notes Due 2012 of the Mohegan Tribal Gaming Authority (filed as exhibit 4.14 to the Authoritys Quarterly Report on Form 10-Q for the quarter ended
December 31, 2004, filed with the SEC on February 14, 2005 (the December 2004 10-Q), and incorporated by reference herein).



---

##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.9         |  | Supplemental Indenture No. 2, dated as of January 25, 2005, among the Mohegan Tribal Gaming Authority, Mohegan Basketball Club LLC and U.S. Bank National Association (as successor to State
Street Bank and Trust Company), as Trustee, relating to the 8% Senior Subordinated Notes Due 2012 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.15 to the December 2004 10-Q, and incorporated by reference herein).                                                                                          
|            | 
|4.10        |  | Supplemental Indenture No. 3, dated as of January 25, 2005, among the Mohegan Tribal Gaming Authority, the Subsidiary Guarantors (as defined in the Indenture), and U.S. Bank National Association
(as successor to State Street Bank and Trust Company), as Trustee, relating to the 8% Senior Subordinated Notes Due 2012 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.16 to the December 2004 10-Q, and incorporated by reference
herein).                                                             
|            | 
|4.11        |  | Supplemental Indenture No. 4, dated as of August 4, 2006, among the Mohegan Tribal Gaming Authority, Mohegan Ventures-Northwest, LLC (as the Subsidiary Guarantor), the other Subsidiary
Guarantors (as defined in the Indenture) and U.S. Bank National Association (as successor to State Street Bank and Trust Company), as Trustee, relating to the 8% Senior Subordinated Notes Due 2012 of the Mohegan Tribal Gaming Authority (filed as
Exhibit 4.11 to the June 2006 10-Q and incorporated by reference herein).
|            | 
|4.12        |  | Supplemental Indenture No. 5, dated as of December 18, 2006, among the Mohegan Tribal Gaming Authority, Mohegan Golf, LLC (as the Subsidiary Guarantor), the other Subsidiary Guarantors (as
defined in the Indenture) and U.S. Bank National Association (as successor to State Street Bank and Trust Company), as Trustee, relating to the 8% Senior Subordinated Notes Due 2012 of the Mohegan Tribal Gaming Authority (filed
herewith).                                                                             
|            | 
|4.13        |  | Form of Global 8% Senior Subordinated Notes Due 2012 of the Mohegan Tribal Gaming Authority (contained in the Indenture filed as Exhibit 4.12 to the 2002 Form S-4, and incorporated by reference
herein).                                                                                                                                                                                                                                                                                                              
|            | 
|4.14        |  | Indenture, dated as of July 9, 2003, among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut, Mohegan Basketball Club LLC and U.S. Bank National Association, as
Trustee, relating to the 63/8% Senior Subordinated Notes Due 2009 of the Mohegan Tribal Gaming Authority (filed
as Exhibit 4.19 to the June 2003 10-Q, and incorporated by reference herein).                                                                                                                           
|            | 
|4.15        |  | Supplemental Indenture No. 1, dated as of January 25, 2005, among the Mohegan Tribal Gaming Authority, Mohegan Basketball Club LLC and U.S. Bank National Association, as Trustee, relating to the
63/8% Senior Subordinated Notes Due 2009 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.20 to the
December 2004 10-Q, and incorporated by reference herein).                                                                                                                                             
|            | 
|4.16        |  | Supplemental Indenture No. 2, dated as of January 25, 2005, among the Mohegan Tribal Gaming Authority, the Subsidiary Guarantors (as defined in the Indenture), and U.S. Bank National
Association, as Trustee, relating to the 63/8% Senior Subordinated Notes Due 2009 of the Mohegan Tribal Gaming
Authority (filed as Exhibit 4.21 to the December 2004 10-Q, and incorporated by reference herein).                                                                                                                
|            | 
|4.17        |  | Supplemental Indenture No. 3, dated as of August 4, 2006, among the Mohegan Tribal Gaming Authority, Mohegan Ventures-Northwest, LLC (as the Subsidiary Guarantor), the other Subsidiary
Guarantors (as defined in the Indenture) and U.S. Bank National Association, as Trustee, relating to the 63/8%
Senior Subordinated Notes Due 2009 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.16 to the June 2006 10-Q and incorporated by reference herein).                                                   
|            | 
|4.18        |  | Supplemental Indenture No. 4, dated as of December 18, 2006, among the Mohegan Tribal Gaming Authority, Mohegan Golf, LLC (as the Subsidiary Guarantor), the other Subsidiary Guarantors (as
defined in the Indenture) and U.S. Bank National Association, as Trustee, relating to the 63/8% Senior
Subordinated Notes Due 2009 of the Mohegan Tribal Gaming Authority (filed herewith).                                                                                                                                



---

##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.19        |  | Form of Global 63/8% Senior Subordinated Notes Due 2009
of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.20 to the June 2003 10-Q, and incorporated by reference herein).                                                                                                                                                                                                                                                                                  
|            | 
|4.20        |  | Indenture, dated as of August 3, 2004, among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut, Mohegan Basketball Club LLC and U.S. Bank National Association, as
Trustee, relating to the 71/8% Senior Subordinated Notes Due 2014 of the Mohegan Tribal Gaming Authority (filed
as Exhibit 4.19 to the June 2004 10-Q, and incorporated by reference herein).                                                                      
|            | 
|4.21        |  | Supplemental Indenture No. 1, dated as of January 25, 2005, among the Mohegan Tribal Gaming Authority, the Subsidiary Guarantors (as defined in the Indenture), and U.S. Bank National
Association, as Trustee, relating to the 71/8% Senior Subordinated Notes Due 2014 of the Mohegan Tribal Gaming
Authority (filed as Exhibit 4.25 to the December 2004 10-Q, and incorporated by reference herein).                                                             
|            | 
|4.22        |  | Supplemental Indenture No. 2, dated as of August 4, 2006, among the Mohegan Tribal Gaming Authority, Mohegan Ventures-Northwest, LLC (as the Subsidiary Guarantor), the other Subsidiary
Guarantors (as defined in the Indenture) and U.S. Bank National Association, as Trustee, relating to the 71/8%
Senior Subordinated Notes Due 2014 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.20 to the June 2006 10-Q and incorporated by reference herein).
|            | 
|4.23        |  | Supplemental Indenture No. 3, dated as of December 18, 2006, among the Mohegan Tribal Gaming Authority, Mohegan Golf, LLC (as the Subsidiary Guarantor), the other Subsidiary Guarantors (as
defined in the Indenture) and U.S. Bank National Association, as Trustee, relating to the 71/8% Senior
Subordinated Notes Due 2014 of the Mohegan Tribal Gaming Authority (filed herewith).                                                                             
|            | 
|4.24        |  | Form of Global 71/8% Senior Subordinated Notes Due 2014
of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.20 to the June 2004 10-Q, and incorporated by reference herein).                                                                                                                                                                                                                                                                                  
|            | 
|4.25        |  | Indenture, dated as of February 8, 2005, among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut, the Subsidiary Guarantors (as defined in the Indenture) and
U.S. Bank National Association, as Trustee, relating to the 67/8% Senior Subordinated Notes Due 2015 (filed as
Exhibit 4.28 to the December 2004 10-Q, and incorporated by reference herein).                                                                           
|            | 
|4.26        |  | Supplemental Indenture No. 1, dated as of August 4, 2006, among the Mohegan Tribal Gaming Authority, Mohegan Ventures-Northwest, LLC (as the Subsidiary Guarantor), the other Subsidiary
Guarantors (as defined in the Indenture) and U.S. Bank National Association, as Trustee, relating to the 67/8%
Senior Subordinated Notes Due 2015 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.23 to the June 2006 10-Q and incorporated by reference herein).
|            | 
|4.27        |  | Supplemental Indenture No. 2, dated as of December 18, 2006, among the Mohegan Tribal Gaming Authority, Mohegan Golf, LLC (as the Subsidiary Guarantor), the other Subsidiary Guarantors (as
defined in the Indenture) and U.S. Bank National Association, as Trustee, relating to the 67/8% Senior
Subordinated Notes Due 2015 of the Mohegan Tribal Gaming Authority (filed herewith).                                                                             
|            | 
|4.28        |  | Form of Global 67/8% Senior Subordinated Notes Due 2015
of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.29 to the December 2004 10-Q, and incorporated by reference herein).                                                                                                                                                                                                                                                                              
|            | 
|4.29        |  | Indenture, dated as of February 8, 2005, among the Mohegan Tribal Gaming Authority, The Mohegan Tribe of Indians of Connecticut, the Subsidiary Guarantors (as defined in the Indenture) and
Wachovia Bank, National Association, as Trustee, relating to the 61/8% Senior Notes Due 2013 (filed as Exhibit
4.31 to the December 2004 10-Q, and incorporated by reference herein).                                                                                   



---

##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4.30        |  | Supplemental Indenture No. 1, dated as of August 4, 2006, among the Mohegan Tribal Gaming Authority, Mohegan Ventures-Northwest, LLC (as the Subsidiary Guarantor), the other Subsidiary
Guarantors (as defined in the Indenture) and U.S. Bank National Association (as successor to Wachovia Bank, National Association), as Trustee, relating to the 61/8% Senior Notes Due 2013 of the Mohegan Tribal Gaming Authority (filed as Exhibit 4.26 to the June 2006 10-Q and incorporated by reference herein).
|            | 
|4.31        |  | Supplemental Indenture No. 2, dated as of December 18, 2006, among the Mohegan Tribal Gaming Authority, Mohegan Golf, LLC (as the Subsidiary Guarantor), the other Subsidiary Guarantors (as
defined in the Indenture) and U.S. Bank National Association (as successor to Wachovia Bank, National Association), as Trustee, relating to the 61/8% Senior Notes Due 2013 of the Mohegan Tribal Gaming Authority (filed herewith).                                                                             
|            | 
|4.32        |  | Form of Global 61/8% Senior Notes Due 2013 of the Mohegan
Tribal Gaming Authority (filed as Exhibit 4.32 to the December 2004 10-Q, and incorporated by reference herein).                                                                                                                                                                                                                                                                                                                                    
|            | 
|10.1        |  | The Mohegan TribeState of Connecticut Gaming Compact between the Mohegan Tribe of Indians of Connecticut and the State of Connecticut (filed as Exhibit 10.1 to the 1996 Form S-1 and
incorporated herein by reference).                                                                                                                                                                                                                                                                                     
|            | 
|10.2        |  | Agreement, dated April 25, 1994, between the Mohegan Tribe of Indians of Connecticut and the State of Connecticut resolving certain land claims (filed as Exhibit 10.2 to the 1996 Form S-1 and
incorporated herein by reference).                                                                                                                                                                                                                                                                            
|            | 
|10.3        |  | Memorandum of Understanding, dated April 25, 1994, between the Mohegan Tribe of Indians of Connecticut and the State of Connecticut regarding implementation of the Compact and the Resolution
Agreement (filed as Exhibit 10.3 to the 1996 Form S-1 and incorporated herein by reference).                                                                                                                                                                                                                   
|            | 
|10.4        |  | Agreement, dated June 16, 1994, between the Mohegan Tribe of Indians of Connecticut and the Town of Montville, Connecticut (filed as Exhibit 10.4 to the 1996 Form S-1, and incorporated herein by
reference).                                                                                                                                                                                                                                                                                                
|            | 
|10.5        |  | Land Lease, dated September 29, 1995, between the Mohegan Tribe of Indians of Connecticut and the Mohegan Tribal Gaming Authority (filed as Exhibit 10.5 to the 1996 Form S-1, and incorporated
herein by reference).                                                                                                                                                                                                                                                                                         
|            | 
|10.6        |  | Amendment to the Land Lease, dated February 19, 1999, between the Mohegan Tribe of Indians of Connecticut and the Mohegan Tribal Gaming Authority (filed as Exhibit 10.6 to the 1999 Form S-4, and
incorporated herein by reference).                                                                                                                                                                                                                                                                         
|            | 
|10.7        |  | Defeasance Escrow Deposit Agreement, dated as of March 3, 1999, by and among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and First Union National Bank
(filed as Exhibit 10.11 to the 1999 Form S-4, and incorporated herein by reference).                                                                                                                                                                                                                              
|            | 
|10.8        |  | The Merrill Lynch Non-Qualified Deferred Compensation Plan Trust Agreement, dated September 1, 1998, between the Mohegan Tribal Gaming Authority and Merrill Lynch Trust (filed as Exhibit 10.16
to the 1998 Form 10-K, and incorporated by reference herein). *                                                                                                                                                                                                                                              
|            | 
|10.9        |  | Priority Distribution Agreement between the Mohegan Tribal Gaming Authority and the Mohegan Tribe of Indians of Connecticut, dated August 1, 2001 (filed as Exhibit 10.1 to the Authoritys
Quarterly Report on Form 10-Q for the period ended June 30, 2001 (the June 2001 10-Q), and incorporated by reference herein).                                                                                                                                                                                   
|            | 
|10.10       |  | Standard Form of Agreement Between Owner and Construction Manager where the Construction Manager is NOT a Constructor, AIA Document B801/Cma, and Supplemental Conditions, dated July 9, 1999
(filed as Exhibit 10.21 to the 2002 Form 10-K, and incorporated by reference herein).                                                                                                                                                                                                                           



---

##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                  
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                      
|10.11       |  | General Conditions of the Contract for Construction, Construction Manager-Advisor Edition, AIA Document A201/CMa, and Supplementary Conditions to the Agreement Between Owner and Construction
Manager (filed as Exhibit 10.22 to the 2002 Form 10K, and incorporated by reference herein).                                                                      
|            | 
|10.12       |  | Employment Agreement, dated October 4, 2001, by and between the Mohegan Tribal Gaming Authority and Robert Soper (filed as Exhibit 10.23 to the 2001 10-K/A, and incorporated by reference
herein). *                                                                                                                                                            
|            | 
|10.13       |  | Membership Agreement, dated January 28, 2003, by and among WNBA, LLC, the Mohegan Basketball Club LLC, the Mohegan Tribal Gaming Authority and the Mohegan Tribe of Indians of Connecticut (filed
as Exhibit 10.1 to the Form 8-K filed with the SEC on January 30, 2003, and incorporated by reference herein).                                                 
|            | 
|10.14       |  | Amended and Restated Loan Agreement, dated as of March 25, 2003, by and among The Mohegan Tribe of Indians of Connecticut, the Mohegan Tribal Gaming Authority, the Lenders named therein and Bank
of America, N.A., as Administrative Agent (filed as Exhibit 10.1 to the Form 8-K filed with the SEC on March 27, 2003, and incorporated by reference herein). 
|            | 
|10.15       |  | Amendment No. 1 to the Amended and Restated Loan Agreement, dated as of June 26, 2003, by and among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and Bank of
America National Trust and Savings Association (filed as Exhibit 99.1 to the Form 8-K filed with the SEC on July 1, 2003, and incorporated by reference herein).
|            | 
|10.16       |  | Loan Agreement, dated June 27, 2003, between Mohegan Tribal Gaming Authority and Fleet National Bank (filed as Exhibit 10.2 to the June 2003 10-Q, and incorporated by reference
herein).                                                                                                                                                                        
|            | 
|10.17       |  | Revolving Loan Note, dated June 27, 2003, between Mohegan Tribal Gaming Authority and Fleet National Bank (filed as Exhibit 10.3 to the June 2003 10-Q, and incorporated by reference
herein).                                                                                                                                                                   
|            | 
|10.18       |  | First Amendment to Loan Agreement, dated June 11, 2004, between Mohegan Tribal Gaming Authority and Fleet National Bank (filed as Exhibit 10.1 to the June 2004 10-Q, and incorporated by
reference herein).                                                                                                                                                     
|            | 
|10.19       |  | Second Amendment to Loan Agreement, dated June 22, 2004, between Mohegan Tribal Gaming Authority and Fleet National Bank (filed as Exhibit 10.2 to the June 2004 10-Q, and incorporated by
reference herein).                                                                                                                                                    
|            | 
|10.20       |  | Amendment No. 2 to the Amended and Restated Loan Agreement, dated as of July 28, 2004, by and among the Mohegan Tribal Gaming Authority, the Mohegan Tribe of Indians of Connecticut and Bank of
America, N.A., as Administrative Agent (filed as Exhibit 10.1 to the Form 8-K filed with the SEC on July 29, 2004, and incorporated by reference herein).       
|            | 
|10.21       |  | Management Agreement between The Cowlitz Indian Tribe and Salishan-Mohegan, LLC, dated September 21, 2004 (filed as Exhibit 10.30 to the Authoritys Registration Statement on Form S-4, File
No. 333-120119, filed with the SEC on November 1, 2004 (the 2004 Form S-4), and incorporated by reference herein).                                               
|            | 
|10.22       |  | Development Agreement between The Cowlitz Indian Tribe and Salishan-Mohegan, LLC, dated September 21, 2004 (filed as Exhibit 10.31 to the 2004 Form S-4, and incorporated by reference
herein).                                                                                                                                                                  
|            | 
|10.23       |  | Purchase Agreement by and among PNGI Pocono Corp., PNGI, LLC, and Mohegan Tribal Gaming Authority as of October 14, 2004 (filed as Exhibit 10.2 to the Form 8-K filed with the SEC on October 18,
2004, and incorporated by reference herein).                                                                                                                   
|            | 
|10.24       |  | Amendment No. 3 to Amended and Restated Loan Agreement, dated October 14, 2004, by and among the Mohegan Tribe of Indians of Connecticut, the Mohegan Tribal Gaming Authority and Bank of America,
N.A. (filed as Exhibit 10.1 to the Form 8-K filed with the SEC on October 18, 2004, and incorporated by reference herein).                                    



---

##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                      
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                          
|10.25       |  | Third Amendment to Loan Agreement, dated August 31, 2004, between Mohegan Tribal Gaming Authority and Fleet National Bank (filed as Exhibit 10.34 to the 2004 Form S-4, and incorporated by
reference herein).                                                                                                                                                                                       
|            | 
|10.26       |  | Management Agreement by and among the Menominee Indian Tribe of Wisconsin, the Menominee Kenosha Gaming Authority and the Mohegan Tribal Gaming Authority, dated October 21, 2004 (filed as
Exhibit 10.35 to the 2004 Form S-4, and incorporated by reference herein).                                                                                                                               
|            | 
|10.27       |  | Trust Agreement under The Mohegan Retirement and 401(k) Plan dated July 1, 2005 between the Mohegan Tribe of Indians of Connecticut and Merrill Lynch Trust Company, FSB (filed as Exhibit 10.30
to the Authoritys Annual Report on Form 10-K for the fiscal year ended September 30, 2005, filed with the SEC on December 9, 2005, and incorporated by reference herein). *                        
|            | 
|10.28       |  | Employment Agreement, executed July 28, 2006, by and between the Mohegan Tribal Gaming Authority and Mitchell Grossinger Etess (filed as Exhibit 10.1 to the Form 8-K filed with the SEC on August
3, 2006, and incorporated herein by reference). *                                                                                                                                                 
|            | 
|10.29       |  | Employment Agreement, executed July 28, 2006, by and between the Mohegan Tribal Gaming Authority and Jeffrey E. Hartmann (filed as Exhibit 10.2 to the Form 8-K filed with the SEC on August 3,
2006, and incorporated herein by reference). *                                                                                                                                                       
|            | 
|10.30       |  | Employment Agreement, executed July 28, 2006, by and between the Mohegan Tribal Gaming Authority and Leo M. Chupaska (filed as Exhibit 10.3 to the Form 8-K filed with the SEC on August 3, 2006,
and incorporated herein by reference). *                                                                                                                                                           
|            | 
|10.31       |  | Second Amendment to Purchase Agreement and Release of Claims dated as of August 7, 2006 by and among PNGI Pocono, Inc. (as successor to PNGI Pocono, Corp. and PNGI, LLC) and the Mohegan Tribal
Gaming Authority, and is joined in by Penn National Gaming, Inc. for limited purposes described in the agreement (filed as Exhibit 10.4 to the June 2006 10-Q and incorporated by reference herein).
|            | 
|10.32       |  | Employment Agreement, executed December 20, 2006, by and between the Mohegan Tribal Gaming Authority and Anthony Patrone (filed herewith). *                                                                                                                                                                                                                                                         
|            | 
|31.1        |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (filed herewith).                                                                                                                                                                                                                                                                                                                  
|            | 
|31.2        |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer (filed herewith).                                                                                                                                                                                                                                                                                                                  
|            | 
|32.1        |  | Section 1350 Certification of Chief Executive Officer (filed herewith).                                                                                                                                                                                                                                                                                                                              
|            | 
|32.2        |  | Section 1350 Certification of Chief Financial Officer (filed herewith).                                                                                                                                                                                                                                                                                                                              

---

|* | Management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------



7