WATERFORD GAMING LLC
A. THE COMPANY  The  Company  was formed  solely for the  purpose  of  holding  its  partnership interest in Trading Cove Associates, a Connecticut general partnership.  Trading Cove is the former manager and original  developer of the Mohegan Sun located in Uncasville,  Connecticut,  a casino  owned by the  Mohegan  Tribe of  Indians of Connecticut (the "MOHEGAN TRIBE" or the "TRIBE").  The Company's interest in TCA is its principal asset and source of income and cash flow.  Trading Cove developed the Mohegan Sun and managed the property from its opening in 1996 until  midnight  December  31,  1999.  On January 1, 2000,  Trading Cove turned over management of the Mohegan Sun to the Mohegan Tribal Gaming Authority (the "AUTHORITY").  TCA and the Company's  principals assisted the Mohegan Tribe in obtaining federal recognition,  negotiating the tribal-state compact with the State of Connecticut,  obtaining numerous governmental  approvals,  raising debt financing for the initial  construction  and development of the Mohegan Sun, and developing the Project Sunburst expansion (the "PROJECT SUNBURST EXPANSION"), an approximately  $1.0  billion  expansion  at the Mohegan  Sun, the final phase of which opened in June 2002.  The Company is a wholly owned subsidiary of Waterford Group, L.L.C.  ("WATERFORD GROUP").  The Limited  Liability  Company  Agreement  of the  Company  (the "LLC AGREEMENT") is effective  until  September 30, 2020 and may be terminated by the Company's  sole member or upon the occurrence of certain events as stated in the LLC Agreement.  The LLC Agreement provides for the property, affairs and business of the Company to be managed by a four-member  Board of Directors  (the "BOARD OF  DIRECTORS"), which consists of two directors  appointed by Slavik Suites, Inc. ("SLAVIK") and two directors appointed by LMW Investments, Inc. ("LMW"). A quorum for the Board of Directors  requires all four members.  LMW and Slavik  initially  contributed capital  to the  Company  consisting  of all of their  respective  interests  in Trading Cove.  Prior to the  offering of the  Company's  $65 Million  12.75%  Senior Notes (the "12.75%  SENIOR  NOTES"),  Slavik  and LMW were  partners  of Trading  Cove.  In connection with the formation of the Company, Slavik and LMW each contributed to the Company its  interests in Trading Cove in exchange for a 66-2/3% and 33-1/3% ownership  interest,  respectively,  of the Company.  Upon  consummation  of the offering of the 12.75%  Senior  Notes,  (i) $6.7 million of the proceeds of such offering  were  distributed  directly  to Slavik for the  purpose  of  redeeming certain  ownership  interests  in Slavik,  and (ii) $3.3 million of the proceeds were  distributed  to LMW,  which in turn loaned  such  proceeds to Len and Mark Wolman,  as individuals,  who used such funds to purchase  certain  interests in Slavik.  The Company used $10.6 million of the proceeds from the offering of the 12.75% Senior Notes to purchase RJH Development  Corp.'s  ownership  interest in Trading   Cove.   As  a  result   of  these   transactions   (collectively   the "REORGANIZATION"),  Slavik and LMW owned  67.7967%  and 32.2033% of the Company, respectively.  The Company is a managing  general  partner of Trading Cove. As a result of the  Reorganization,  the only two  partners  of Trading  Cove are the Company and  Kerzner  Investments  Connecticut,  Inc.  ("KERZNER  INVESTMENTS"), formerly Sun Cove Limited.                                           1    In  connection  with the  issuance on March 17, 1999 of the $125  Million  9.50% Senior  Notes (the "9.50%  SENIOR  NOTES"),  each of Slavik and LMW  contributed their  respective  interests in the Company  concurrently  to  Waterford  Group. Waterford  Group is now the  sole  member  of the  Company.  Slavik  and LMW own Waterford  Group in the same  respective  interest  as they had in the  Company, which are as follows:    Slavik Suites, Inc.                         67.7967% LMW Investments, Inc.                       32.2033%                                           -----------                                            100.0000%                                           ===========   Additional  capital  contributions  may be made to the  Company  by its  member, Waterford Group. If it is determined that the Company requires additional funds, such funds may be loaned to the Company by its member  pursuant to the terms set forth in the LLC Agreement;  however,  the indenture  governing the $155 Million 8.625%  Senior Notes (the "8.625%  SENIOR  NOTES"),  prohibits  the Company from incurring  additional  indebtedness.  The LLC  Agreement  also provides that any disputes which arise under the LLC Agreement and which remain  unresolved  after 30 days will be settled through arbitration.  LMW, one of the two members of Waterford  Group, is a development  firm based in southeastern Connecticut.  LMW is owned by Len Wolman and Mark Wolman. The other member of Waterford Group, Slavik, is based in Detroit,  Michigan. The directors of Slavik are Del J. Lauria, Len Wolman, Mark Wolman and Stephan F. Slavik.  For the  fiscal  years  2005,  2004 and  2003,  the  Company  had net  income of $17,606,670,  $13,923,694  and  $3,891,633,  respectively.  At the end of fiscal years  2005,  2004 and  2003,  the  Company  had total  assets  of  $33,791,451, $34,490,765, and $36,219,560, respectively.  As of December 31, 2005,  the Company  employed  one  full-time  employee and no part-time  employees.  The  Company's  employee is not  covered by a  collective bargaining agreement.  B. $155 MILLION 8.625% SENIOR NOTES PAYABLE:  On June 11, 2003,  the Company and Waterford  Gaming  Finance Corp.  ("FINANCE") issued the 8.625%  Senior  Notes.  Payment of the principal of, and interest on, the  8.625%  Senior  Notes is pari  passu in  right of  payment  with all of the Company's and Finance's  senior debt,  and  effectively  subordinate in right of payment to all of the Company's and Finance's existing and future collateralized and subordinated debts.  The 8.625%  Senior  Notes bear  interest at a rate of 8.625% per annum,  payable semi-annually  in  arrears  on  March  15th  and  September  15th of each  year, commencing  September 15, 2003.  The  principal  amount due on the 8.625% Senior Notes is payable on September 15, 2012.  The  Company  and  Finance  may elect to redeem all or any of the 8.625%  Senior Notes at any time on or after September 15, 2008 at a redemption  price equal to a  percentage  of the  principal  amount of notes being  redeemed  plus  accrued interest. Such percentage is set forth in the following table:             If notes are redeemed                                   Percentage         ---------------------                                   ----------          after September 14, 2008 but         on or before September 14, 2009                          103.551%         after September 14, 2009 but         on or before September 14, 2010                          102.537%         after September 14, 2010         but on or before September 14, 2011                      101.522%         after September 14, 2011 but         on or before September 14, 2012                          100.507%         after September 14, 2012                                 100.000%     The 8.625% Senior Notes provide that upon the  occurrence of a Change of Control as defined in the  indenture  governing  the 8.625%  Senior  Notes (the  "8.625% SENIOR NOTES  INDENTURE"),  the holders  thereof will have the option to require the redemption of the 8.625% Senior Notes at a redemption price equal to 101% of the principal amount thereof plus accrued interest.                                           2    Pursuant to the terms of the 8.625% Senior Notes  Indenture,  if the Company and Finance  have any Company  Excess  Cash,  as defined in the 8.625%  Senior Notes Indenture, on February 1st or August 1st of any year, they must use such Company Excess Cash less all  Required  IRA True-Up  Payments,  as defined in the 8.625% Senior Notes Indenture, and less any amount set aside for the payment of accrued and  unpaid  interest  on the  interest  payment  date that  corresponds  to the redemption date for which the  determination is being made, to redeem the 8.625% Senior Notes on the March 15th or September 15th following such dates.  Any such redemption will be made at a price equal to a percentage of the principal amount being redeemed. Such percentage is set forth in the following table:                If notes are redeemed with                Redemption Price (expressed as a percentage         Company Excess Cash                       of the principal amount being redeemed)         -------------------------                 --------------------------------------------          after September 14, 2003 but         on or before September 14, 2004                          108.625%         after September 14, 2004 but         on or before September 14, 2005                          107.610%         after September 14, 2005 but         on or before September 14, 2006                          106.596%         after September 14, 2006 but         on or before September 14, 2007                          105.581%         after September 14, 2007 but         on or before September 14, 2008                          104.566%         after September 14, 2008 but         on or before September 14, 2009                          103.551%         after September 14, 2009 but         on or before September 14, 2010                          102.537%         after September 14, 2010         but on or before September 14, 2011                      101.522%         after September 14, 2011 but         on or before September 14, 2012                          100.507%         after September 14, 2012                                 100.000%     The Company and Finance have periodically redeemed portions of the 8.625% Senior Notes with Company  Excess Cash pursuant to the terms of the 8.625% Senior Notes Indenture. The table below summarizes (a) the amount of Company Excess Cash that the  Company  and  Finance  have  determined  was  available  for the  mandatory redemption  of the 8.625%  Senior  Notes on February  1st and August 1st of each applicable year pursuant to the terms of the 8.625% Senior Notes Indenture,  (b) the aggregate principal amount of 8.625% Senior Notes redeemed with such Company Excess Cash, (c) the date on which such redemption was consummated,  and (d) the redemption price at which such redemption was made.         Date                Company Excess Cash        Principal Amount of      Dates of Redemption     Price (expressed as percentage of                     (approximately)            notes redeemed                                   principal amount being redeemed - ----------------    -------------------        -------------------      --------------------    --------------------------------- August 1, 2003        $   5,568,000              $ 1,912,000             September 15, 2003                 108.625% February 1, 2004      $  14,534,000              $ 7,302,000               March 15, 2004                   108.625% August 1, 2004        $  11,695,000              $ 5,025,000             September 15, 2004                 107.610% February 1, 2005      $  12,098,000              $ 5,600,000               March 15, 2005                   107.610% August 1, 2005        $  11,798,000              $ 5,599,000             September 15, 2005                 106.596% February 1, 2006      $  12,492,000              $ 6,477,000               March 15, 2006                   106.596%      In certain  circumstances,  if either the  Company or Kerzner  Investments,  the Company's  partner  in TCA,  exercises  the  option  to buy or sell  partnership interests in TCA, the Company and Finance must redeem the 8.625% Senior Notes.  The 8.625% Senior Notes  Indenture  contains  certain  affirmative  and negative covenants   customarily   contained  in  such  agreements,   including   without limitation,  covenants  that  restrict,  subject  to  specified  exceptions  the Company's and Finance's ability to (i) borrow money, (ii) make  distributions on its equity interests or certain other restricted  payments,  (iii) use assets as security in other transactions,  (iv) make investments, (v) sell other assets or merge with other companies,  and (vi) engage in any business except as currently conducted  or  contemplated  or amend their  relationship  with TCA.  The 8.625% Senior Notes  Indenture  also provides for  customary  events of default and the establishment  of a  restricted  investment  account with a trustee for interest reserves  ("IRA").  The IRA consists of an amount of funds equal to the interest payment due on the 8.625% Senior Notes on the following  interest  payment date. The IRA will be released  and the Company can make a permitted  distribution  to Waterford  Group once the Leverage  Ratio, as defined in the 8.625% Senior Notes Indenture, is less than or equal to 3.0 to 1.0.                                          3      The fair value of the Company's  long term debt at December 31, 2005 and 2004 is estimated to be approximately $137,984,000 and $150,614,000, respectively, based on the market quotations obtained by the Company.  In June 2005,  the Financial  Accounting  Standards  Board issued DIG Issue B38, "Evaluation  of  Net  Settlement  with  Respect  to  the  Settlement  of a  Debt Instrument  Through  Exercise of an Embedded Put Option or Call Option"  ("Issue B38").  As a  result  of the  issuance  of Issue  B38,  effective  with  periods beginning  after  December  15, 2005,  the Company is required to bifurcate  and separately  account for the excess cash  feature  embedded in its 8.625%  Senior Notes under the provisions of Financial Accounting Standard No. 133, "Accounting for Derivative  Instruments and Hedging  Activities".  The Company is evaluating the impact of this  guidance and will adopt the  accounting in its first quarter of 2006.  The 8.625%  Senior  Notes  Indenture  was filed as an  exhibit to the  Company's Quarterly Report on Form 10-Q for the period ended June 30, 2003 (Securities and Exchange  Commission (the  "COMMISSION")  File No. 333-17795) as accepted by the Commission on August 12, 2003 and is incorporated herein by reference.  C. TRADING COVE ASSOCIATES  TCA was organized on July 23, 1993. The primary purpose of TCA has been,  - - to assist the Tribe in obtaining federal recognition, - - to negotiate the tribal-state  compact with the State of Connecticut on behalf   of the Tribe, - - to obtain  financing  for the initial  development  of the  Mohegan  Sun, - to negotiate the Amended and Restated Gaming Facility Management Agreement   (the "MANAGEMENT AGREEMENT"), - - to oversee all  operations  of the  Mohegan  Sun  pursuant to the terms of the   Management Agreement until midnight December 31, 1999, and - - to participate in the design and development of the Mohegan Sun.  The Mohegan Sun commenced  operations  on October 12, 1996.  From the opening of the Mohegan Sun until January 1, 2000, TCA oversaw the Mohegan Sun's  day-to-day operations.  TCA's partnership agreement (the "TCA PARTNERSHIP  AGREEMENT") will terminate on December 31, 2040, or earlier,  in accordance with its terms.  The Company has a 50% partnership  interest in TCA. The remaining 50% interest is owned by Kerzner Investments,   an  affiliate   of  Kerzner   International   Limited   ("KERZNER INTERNATIONAL").  TCA's sole source of revenue is payment  under the  Relinquishment  Agreement as described below.  D. TRADING COVE ASSOCIATES MATERIAL AGREEMENTS  1 - RELINQUISHMENT AGREEMENT  On February  7, 1998,  TCA and the  Authority  entered  into the  Relinquishment Agreement   (the   "RELINQUISHMENT   AGREEMENT").   Under   the   terms  of  the Relinquishment  Agreement,  TCA  continued  to manage the  Mohegan Sun under the Management  Agreement until midnight  December 31, 1999, and on January 1, 2000, the Management Agreement terminated and the Tribe assumed day-to-day  management of the Mohegan Sun.  Under the Relinquishment Agreement, to compensate TCA for terminating its rights under the Management Agreement and the Hotel/Resort  Management  Agreement,  the Authority agreed to pay to TCA a fee (the "RELINQUISHMENT  FEES") equal to 5% of Revenues, as defined in the Relinquishment  Agreement,  generated by the Mohegan Sun during the 15-year period  commencing on January 1, 2000,  including revenue generated by the Project Sunburst expansion.  The  Relinquishment  Fees are divided  into senior  relinquishment  payments and junior  relinquishment  payments,  each of  which  equals  2.5%  of  "Revenues". Revenues are defined in the  Relinquishment  Agreement as gross gaming  revenues (other  than Class II gaming  revenue)  and all other  facility  revenues.  Such revenue  includes hotel  revenues,  food and beverage sales,  parking  revenues, ticket revenues and other fees or receipts from the convention/events  center in the Project  Sunburst  expansion and all rental or other  receipts from lessees, licensees  and  concessionaires  operating  in the  facility,  but not the gross receipts of such lessees,  licensees and concessionaires.  Such revenues exclude revenues generated by any other expansion of the Mohegan Sun.  Senior  relinquishment  payments are payable quarterly in arrears  commencing on April  25,  2000  for  the  quarter  ended  March  31,  2000,   and  the  junior relinquishment  payments are payable semi-annually in arrears commencing on July 25, 2000 for the six months ended June 30, 2000,  assuming  sufficient funds are available after satisfaction of the Authority's senior  obligations,  as defined in the  Relinquishment  Agreement.  See section  below  titled  "Risk  Factors - Subordination - Trading Cove's right to receive the relinquishment payments from the  Authority  is junior to certain  payments by the  Authority  to the Mohegan Tribe and holders of its indebtedness."                                           4      A summary of relinquishment  payments received by TCA for 2005, 2004 and 2003 is as follows:                        DATE                        SENIOR          JUNIOR          TOTAL - -------------------------------------   -------------   -------------   -------------  April 25, 2005                          $   8,330,592   $          --   $   8,330,592 July 25, 2005                               9,104,412      17,435,004      26,539,416 October 25, 2005                            9,576,524           7,072       9,583,596 January 25, 2006                            9,470,705      19,040,157      28,510,862                                         -------------   -------------   ------------- Relinquishment Fees for the year  ended December 31, 2005                $  36,482,233   $  36,482,233   $  72,964,466                                         =============   =============   =============  April 26, 2004                          $   8,196,363   $          --   $   8,196,363 July 26, 2004                               8,477,030      16,673,392      25,150,422 October 25, 2004                            9,165,092              --       9,165,092 January 25, 2005                            8,712,261      17,877,353      26,589,614                                         -------------   -------------   ------------- Relinquishment Fees for the year  ended December 31, 2004                $  34,550,746   $  34,550,745   $  69,101,491                                         =============   =============   =============  April 25, 2003                          $   7,433,160   $          --   $   7,433,160 July 25, 2003                               8,101,075      15,534,235      23,635,310 October 27, 2003                            8,691,811              --       8,691,811 January 26, 2004                            8,323,731      17,015,541      25,339,272                                         -------------   -------------   ------------- Relinquishment Fees for the year  ended December 31, 2003                $  32,549,777   $  32,549,776   $  65,099,553                                         =============   =============   =============         The amount of  Relinquishment  Fees  reported in this annual report on Form 10-K are based upon Revenues reported to TCA by the Authority.  The  senior and  junior  relinquishment  payments  rank  behind the  Authority's obligation to pay an annual minimum  priority  distribution to the Mohegan Tribe and all of the  Authority's  existing and future  senior  secured  indebtedness, including  the  Authority's  bank  credit  facility.   As  a  result,  upon  any distribution  by the Authority to its  creditors in a  bankruptcy,  liquidation, reorganization or similar proceeding  relating to the Authority or its property, the  priority  distributions  owed to the  Mohegan  Tribe and the holders of the Authority's senior secured  indebtedness will be entitled to be paid in full and in cash  before  any  senior or junior  relinquishment  payments  may be made to Trading Cove. In addition, the junior relinquishment payments rank behind all of the Authority's  existing and future senior  indebtedness.  As a result,  in any such  proceedings,  the holders of the Authority's  senior  indebtedness will be entitled  to be paid  in  full  and in cash  before  any  junior  relinquishment payments may be made to Trading Cove.  In the event of a bankruptcy, liquidation,  reorganization or similar proceeding relating to the Authority,  Trading Cove will receive  distributions (if at all) on a pari passu basis with all other holders of the Authority's senior unsecured indebtedness with respect to the senior relinquishment  payments from the assets remaining  after the Authority has paid all of its senior  secured  indebtedness and with all other  holders of  subordinated  indebtedness  with  respect to the junior relinquishment payments from the assets remaining after the Authority has paid all of its  senior  indebtedness.  However,  the  Relinquishment  Agreement requires  that amounts  otherwise  payable to Trading  Cove in a  bankruptcy  or similar  proceeding  of the  Authority  be paid to  holders  of  senior  secured indebtedness   until  they  are  paid  in  full,  with  respect  to  the  senior relinquishment  payments,  and to holders of senior secured  indebtedness,  with respect to junior relinquishment payments,  instead of to Trading Cove. For that reason  Trading  Cove  may  receive  less,  ratably,   than  holders  of  senior indebtedness of the Authority in any such proceeding. In any of these cases, the Authority may not have sufficient  funds to pay all of its creditors and Trading Cove may  receive  less,  ratably,  than the holders of the  Authority's  senior indebtedness.  In the event of an acceleration of any indebtedness of the Authority, the senior and junior relinquishment payments that are not yet due under the Relinquishment Agreement  would be effectively  subordinated  to the  Authority's  indebtedness since the  payment  obligations  under the  Relinquishment  Agreement  cannot be accelerated by their terms and have no blockage rights as designated senior debt of the Authority.                                           5     If Trading Cove becomes the debtor in a bankruptcy  or similar  proceeding,  the Company would have the status of an equity holder, not a creditor, and would not be entitled to receive any  distributions  until all of Trading Cove's creditors were paid in full.  If the  Authority  became the  debtor in a  bankruptcy  or  similar  proceeding, Trading Cove's rights and recovery would depend on numerous  factors,  including the type and outcome of the proceeding.  If the Authority ceased  operations and liquidated,  under Chapter 7 of the Bankruptcy Code or otherwise, Trading Cove's claim would likely be limited to the amount of unpaid  Relinquishment Fees as of the time of liquidation.  If the Authority  reorganized  under Chapter 11 of the Bankruptcy  Code,  Trading  Cove's claim would likely be based on an estimate of the Mohegan Sun's future revenues for the term of the Relinquishment  Agreement. In any event,  any  recovery by Trading  Cove on its claims for senior or junior Relinquishment  Fees  would  be  subject  to the  prior  payment  in full of all indebtedness senior thereto.  As a result, there is no assurance that, in the event of bankruptcy or financial difficulty of either Trading Cove or the Authority, the Company would ultimately recover  sufficient (or any) funds to pay amounts  outstanding  under the 8.625% Senior Notes.  Under the  Relinquishment  Agreement,  the Authority makes certain covenants for the benefit of Trading Cove, including the following:  (1) PAYMENTS TO THE MOHEGAN TRIBE.  Except for payments of the minimum  priority distributions  and  reasonable  charges  for  utilities  or  other  governmental services  supplied by the Mohegan Tribe to the Authority,  the Authority may not make any  distributions  to the  Mohegan  Tribe or its  members  at any time any relinquishment payments are outstanding.  (2)  AFFILIATE  TRANSACTIONS.  Except  for  payments  of  the  minimum  priority distributions  and  reasonable  charges  for  utilities  or  other  governmental services supplied by the Mohegan Tribe to the Authority, the Authority agrees to abide by certain  restrictions  on  transactions  with the Mohegan Tribe and its members, all as set forth in the Relinquishment Agreement.  (3)  REPLACEMENT/RESTORATION  OF THE MOHEGAN  SUN. If any portion of the Mohegan Sun facilities is damaged by fire or other casualty, the Authority shall replace or restore such facilities to substantially  the same condition as prior to such casualty,  but only to the extent insurance  proceeds are available to do so. If sufficient  insurance  proceeds  are  not  available,  the  Authority  will  use reasonable efforts to obtain the required financing,  on commercially reasonable terms, to undertake and complete such replacement or restoration.  (4)  BUSINESS  PURPOSE.  The  Authority  has agreed  that during the term of the Relinquishment  Agreement  it will engage  only in the casino  gaming and resort business (and any incidental  business or activity) and will continue to operate the Mohegan Sun as currently operated.  Under the  Relinquishment  Agreement,  the  Authority and Trading Cove have each agreed not to solicit any  employee of the other party or any  affiliate  of the other party for five years.  With certain  limitations set forth in the  Relinquishment  Agreement,  both the Mohegan Tribe and the Authority waive immunity from uncontested suit for certain enforcement rights of Trading Cove arising under the Relinquishment Agreement.  The  Company's  right to receive a portion of the  relinquishment  payments from Trading  Cove is  governed  by the  Amended  and  Restated  Omnibus  Termination Agreement discussed below.  The Relinquishment  Agreement was filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1998 (Commission File No. 333-17795),  as  accepted  by  the  Commission  on  November  13,  1998,  and is incorporated herein by reference.  2 - DEVELOPMENT AGREEMENT AND RELATED AGREEMENTS  On February 7, 1998, TCA and the Authority entered into the Development Services Agreement (the "DEVELOPMENT AGREEMENT").  Pursuant to the Development Agreement, TCA  agreed to oversee  the  design,  construction,  furnishing,  equipping  and staffing of the Project Sunburst  expansion for a $14.0 million  development fee (the "DEVELOPMENT FEE").  The first phase of the Project Sunburst  expansion,  including the Casino of the Sky, The Shops at Mohegan Sun, and the  10,000-seat  Mohegan Sun Arena opened in September 2001.  In April 2002, 734 of the approximately 1,200-hotel rooms in the 34-story luxury hotel as well as the meeting and convention space and spa opened. The balance of the  approximately  1,200-hotel  rooms  opened  during  June 2002.  The  Project Sunburst expansion is complete in terms of the Development Agreement.                                           6     Pursuant  to  the  Development  Agreement,  the  Authority  agreed  to  pay  the Development  Fee to TCA  quarterly  beginning  on  January  15,  2000,  based on incremental  completion  of the Project  Sunburst  expansion  as of each payment date.  TCA had received  $14.0  million from the  Authority as  Development  Fee payments.  On February 9, 1998, TCA and Kerzner International  Management Limited ("KIML"), an affiliate of Kerzner Investments,  the Company's partner in TCA, entered into the  Agreement  Relating to  Development  Services  (the  "DEVELOPMENT  SERVICES AGREEMENT PHASE II").  Pursuant to the Development  Services Agreement Phase II, TCA  subcontracted  with KIML, who agreed to perform those services  assigned to KIML  by TCA in  order  to  facilitate  TCA's  fulfillment  of  its  duties  and obligations to the Authority under the Development Agreement.  KIML assigned the Development Services Agreement Phase II to Kerzner Investments.  Pursuant to the  Development  Services  Agreement  Phase II, TCA pays to Kerzner Investments a fee, as subcontractor  (the "DEVELOPMENT  SERVICES FEE PHASE II"), equal  to 3% of  the  development  costs  of  the  Project  Sunburst  expansion, excluding  capitalized  interest,  less all costs  incurred by TCA in connection with the Project  Sunburst  expansion.  At December 31, 2005, all of TCA's costs associated  with the  Project  Sunburst  expansion  had not been  paid,  however reasonable  estimates of those costs have been  provided for in TCA's  financial statements at December 31, 2005. The  Development  Services Fee Phase II is paid in installments - on December 31, 1999,  December 31, 2000 and on the Completion Date,  as defined in the  Development  Agreement - with the final  payment being made when the actual  development  costs of the Project  Sunburst  expansion are known. TCA pays the Development  Services Fee Phase II from available cash flow, if any,  in  accordance  with  the  Amended  and  Restated  Omnibus  Termination Agreement described below. TCA's total development costs of the Project Sunburst expansion which comprises the Development  Services Fee Phase II and TCA's costs related to the  development  of the Project  Sunburst  expansion will exceed the related revenue received by TCA under the Development Agreement by approximately $15,964,000.  This cost  overrun  has  previously  been  recorded  by TCA in its statement of operations.  Before KIML  assigned the  Development  Services  Agreement  Phase II to Kerzner Investments,  it entered into the Local  Construction  Services  Agreement  (the "LOCAL  CONSTRUCTION  SERVICES  AGREEMENT")  with  Wolman  Construction,  L.L.C. ("CONSTRUCTION"),  an affiliate of the Company,  pursuant to which  Construction agreed to provide certain of those services  assigned to KIML by TCA pursuant to the Development  Services  Agreement Phase II. Kerzner  Investments  assumed the obligation of KIML under the Local Construction Services Agreement.  Pursuant  to the Local  Construction  Services  Agreement,  Kerzner  Investments agreed to pay to Construction a fee equal to 20.83% of the Development  Services Fee Phase II as and when Kerzner Investments  receives payment from TCA pursuant to the Development Services Agreement Phase II.  Pursuant to a Letter Agreement,  Construction has subcontracted  with The Slavik Company,  an affiliate of the Company,  to provide  certain  services  under the Local Construction Services Agreement.  In exchange for providing such services, Construction  agreed that The Slavik Company would be paid a fee equal to 14.30% of its fee under the Local Construction Services Agreement.  On April 26, 2000,  July 26,  2000,  January 26, 2001 and July 28, 2003 TCA paid $3,095,000,  $1,238,000,  $6,474,000 and  $9,157,000,  respectively,  as partial payment  of  the  Development  Services  Fee  Phase  II.  Construction  received $644,688, $257,875,  $1,348,534 and $1,907,403,  respectively,  and Construction paid The Slavik  Company  $92,190,  $36,876,  $192,840 and $259,121 on April 26, 2000, July 26, 2000, January 26, 2001 and July 28, 2003, respectively.  At December 31, 2005 TCA's accrued liability to Kerzner Investments with respect to such fee was  approximately  $384,000  pursuant  to the  Development  Service Agreement Phase II.  The  Development  Services  Agreement  was filed as an exhibit to the  Company's Quarterly  Report  on  Form  10-Q  for  the  period  ended  September  30,  1998 (Commission File No.  333-17795),  as accepted by the Commission on November 13, 1998, and is incorporated herein by reference.                                           7    3 - TCA PARTNERSHIP AGREEMENT  In September 1994, Kerzner  Investments,  RJH Development Corp.,  Leisure Resort Technology,  Inc.  ("LEISURE"),  Slavik  and LMW  entered  into an  amended  and restated  partnership  agreement  to,  among  other  things:  (i) admit  Kerzner Investments  as a  partner  to the  Trading  Cove  partnership;  (ii) act as the exclusive agent of the Mohegan Tribe to manage and develop an entertainment  and gaming facility on the Mohegan Tribal Reservation; and (iii) engage in any other activities incidental or related to the foregoing.  In  February  1995,  the  parties  entered  into an  acknowledgment  and release agreement  whereby Leisure  withdrew from Trading Cove for all purposes,  except that Leisure  retained a 5%  "beneficial  interest" in Trading  Cove.  Leisure's beneficial interest is defined as the right to receive certain  distributions of excess  cash and the  organizational  and  administrative  fee on the earlier to occur of (i) 14 years from the date of commencement of the Management  Agreement and (ii) the termination of the Management Agreement.  On January 6, 1998,  pursuant to the Settlement and Release Agreement  described in Item 3 (Legal  Proceedings)  the Company  paid $5.0  million to Leisure  and, among other things, Leisure gave up (a) its beneficial interest of 5% in certain fees and excess cash flows, as defined, of Trading Cove and (b) any other claims it may have had against the  Company,  Kerzner  Investments  and Trading  Cove's partners and former partner.  As a result of (i) a First  Amendment  to the Amended and  Restated  Partnership Agreement of Trading  Cove,  dated  October 22, 1996 and (ii) an  Agreement  for Purchase and Sale of Partnership Interest,  dated September 12, 1996 whereby RJH Development  Corp.  agreed to sell and the Company agreed to buy RJH Development Corp.'s  partnership  interest  for  $10.6  million,  the  Company  and  Kerzner Investments are the only partners in Trading Cove.  Pursuant to the TCA Partnership  Agreement,  Trading Cove will continue to exist until the first to occur of: (i) December 31, 2040; (ii) a final  disposition of Trading Cove's interest in the Mohegan Sun (or any alternative facility that may be  developed  or  acquired  pursuant  to  the  terms  of  the  TCA  Partnership Agreement);  (iii) the  decision of the managing  partners to terminate  Trading Cove; and (iv) any other event which results in dissolution of Trading Cove.  In connection with its entry into the  partnership,  Kerzner  Investments made a capital  contribution  in an  amount  sufficient  to  equal  a  50%  partnership interest.   The  TCA  Partnership  Agreement  provides  for  additional  capital contributions.  In the event that Trading Cove requires  additional  funds,  and subject to unanimous approval by the partners,  the partners may make loans on a PRO RATA basis, based on their respective partnership interests.  Such loans are non-recourse  and  unsecured and bear interest at an annual rate of 2% above the prime rate.  In the event that the Company and Kerzner Investments  determine that additional capital is required to fund TCA's  obligations,  either may make a capital call. In the event that a capital call is made and Kerzner  Investments  does not make the requested  additional capital contribution within 30 days, generally Kerzner Investments is automatically deemed to have withdrawn from Trading Cove. In such event,  Kerzner Investments is not entitled to any return of any of its previous capital contributions or additional contributions,  but it is generally entitled to receive repayment of any loans.  In the event that a capital call is made and the Company  elects not to make the requested capital  contribution,  Kerzner Investments may, at its election,  pay such  contributions,  which payment shall be deemed,  at the election of Kerzner Investments,  to be  either  (i) a  loan  to  the  Company  or  (ii)  a  capital contribution by Kerzner  Investments,  thereby increasing  Kerzner  Investments' partnership interest and diluting the Company's partnership interest. The 8.625% Senior Notes  Indenture  limits the  Company's  ability to make further  capital contributions to TCA.  No partner is obligated to restore a capital account deficit.  The  partners  are required to bring to the  attention  of the  partnership  all opportunities to manage or operate (1) any gaming  activities on Native American reservations  and involving  Native  Americans or (2) any other gaming  activity within 100 miles of the Mohegan Sun. Any such  opportunities  will be pursued by an  affiliate of Trading  Cove,  in which the Company will not have any economic interest.  The Company  and Kerzner  Investments  are the  managing  partners of Trading Cove, and as such, have the full,  exclusive and absolute  right,  power and authority to manage and control the partnership and the property, assets and business  thereof.  All  decisions  relating to the  management  of Trading Cove require unanimous agreement between the Company and Kerzner Investments.  The TCA  Partnership  Agreement  provides that Howard  Kerzner will serve as the designated  representative  of Kerzner  Investments  in its capacity as managing partner.  In the  absence of Mr.  Kerzner,  John  Allison  will serve as Kerzner Investments' designated  representative.  Each designated representative has the right,  power and  authority  to act for and on  behalf  of and to bind  Kerzner Investments  with respect to all matters  relating to the  partnership.  The TCA Partnership  Agreement  grants  Mr.  Kerzner  the right to  appoint a proxy upon written   notice  to  the  Company.   Len  Wolman   serves  as  the   designated representative of the Company.                                           8    In the event that a dispute  arises under the TCA  Partnership  Agreement,  upon notice by one disputing party to the other, the parties have ten days to resolve the  dispute.  If the dispute is not resolved in such  ten-day  period then,  in accordance  with specific  notice  procedures  set forth in the TCA  Partnership Agreement,  either party has the right to deliver a buy-out  notice to the other to require such party to elect to either (i) sell their partnership  interest to the party  delivering  the  notice  (at a price and under the terms set forth in such buy-out notice),  or (ii) have the other party or its designee purchase the interest of the party giving notice at the buy-out price.  In the event that the party  receiving  the buy-out  notice fails to respond,  such party is deemed to have agreed to sell its partnership interest to the party delivering such notice at the buy-out price specified therein. See "Risk Factors--Risks Associated with the Buy/Sell Option Under Trading Cove Partnership Agreement".  Subject to the following exceptions, Kerzner Investments is generally prohibited from assigning its  partnership  interest.  Kerzner  Investments  may assign its interest to (1)  certain of its  affiliates  and (2) to any party  making a bona fide written  offer to purchase any or all of Kerzner  Investments'  partnership interest if, after offering its interest to the Company at the same price and on the same terms and  conditions as set forth in such written  offer,  the Company elects not to purchase Kerzner Investments' partnership interest.  The Company is generally prohibited from assigning its partnership interest. The Company may not assign its  interest  except (1) to an affiliate of the Company, (2) to any party making a bona fide written  offer to purchase all, but not less than all, of the Company's  partnership interest if, after offering its interest to Kerzner Investments at the same price and on the same terms and conditions as set forth in such written offer,  Kerzner Investments elects not to purchase the Company's partnership interest.  Except as otherwise permitted by the TCA Partnership  Agreement,  no partner may withdraw from the partnership without the consent of the remaining partners.  In the event that a partner  withdraws from the partnership in violation of the TCA Partnership Agreement, such partner will be liable to the remaining partners for all damages caused by such  withdrawal and shall  immediately  cease to have any rights (including rights to receive any monies) in the partnership.  The Amended and Restated Partnership Agreement of Trading Cove Associates, dated as of September  21,  1994,  among Sun Cove Limited  (now,  Kerzner  Investments Connecticut,  Inc.), RJH Development  Corp.,  Leisure Resort  Technology,  Inc., Slavik Suites,  Inc.,  and LMW  Investments,  Inc.,  and the First  Amendment to Amended and Restated Partnership Agreement of Trading Cove Associates,  dated as of  October  22,  1996,  among  Sun  Cove  Limited  (now,  Kerzner   Investments Connecticut, Inc.), Slavik Suites, Inc., RJH Development Corp., LMW Investments, Inc.  and  Waterford  Gaming,  L.L.C.  were filed as exhibits  to the  Company's Registration  Statement  on Form  S-4,  filed  with  the  Commission  (File  No. 333-17795)  and declared  effective on May 15,  1997,  and each is  incorporated herein by reference.  4 - AMENDED AND RESTATED OMNIBUS TERMINATION AGREEMENT  Effective March 18, 1999, the Amended and Restated Omnibus Termination Agreement (the "AMENDED AND RESTATED OMNIBUS  TERMINATION  AGREEMENT") was entered into by TCA, Kerzner International,  the Company, KIML, LMW, Kerzner Investments, Slavik and  Construction.  The Amended and Restated Omnibus  Termination  Agreement (i) terminated  the  Memorandum of  Understanding,  dated February 7, 1998; and (ii) effective  January  1, 2000  terminated  a) the  Amended  and  Restated  Omnibus Financing  Agreement,  b) the Completion  Guarantee and  Investment  Banking and Financing Arrangement Fee Agreement (the "FINANCING ARRANGEMENT AGREEMENT");  c) the Management  Services  Agreement;  d) the  Organizational  and Administrative Services  Agreement;  e) the  Marketing  Services  Agreement;  and  f) a  Letter Agreement relating to expenses, dated October 19, 1996.  In consideration  for the termination of such agreements,  TCA agreed to use its cash to pay the following obligations in the priority set forth below:  (i)  First,  to pay all  unpaid  amounts  which may be due under the  terminated Letter  Agreement  and to pay certain  affiliates  of the Company and to Kerzner Investments  a  percentage  of an annual  fee of $2.0  million  less the  actual expenses  incurred by TCA during such year.  Such annual fee is payable in equal quarterly  installments  beginning  March 31, 2000 and ending December 31, 2014. For the years ended December 31, 2005,  2004 and 2003,  $1,851,397  ($925,698 to Kerzner  Investments  and $925,699 to  affiliates  of the  Company),  $1,869,157 ($934,579 to Kerzner  Investments and $934,578 to affiliates of the Company) and $1,840,346  ($920,173  to each of  Kerzner  Investments  and  affiliates  of the Company), respectively, had been incurred by TCA in terms of the first priority.  (ii)  Second,  to return all capital  contributions  made by the partners of TCA after  September 29, 1995. As of December 31, 2005, $0 in capital  contributions remained outstanding.                                          9    (iii)  Third,  to pay any accrued  amounts for  obligations  performed  prior to January 1, 2000 under the  Financing  Arrangement  Agreement.  All such required payments were made during 2000.  (iv) Fourth,  to make the payments set forth in the  agreements  relating to the Development  Services  Agreement  Phase II and the Local  Construction  Services Agreement.  No such  payments  are  required or due at December  31,  2005.  The accrued  liability to Kerzner  Investments  with respect to such fee at December 31, 2005 was approximately $384,000.  (v) Fifth,  to pay Kerzner  Investments an annual fee (in the form of a priority distribution)  of $5.0 million payable in equal quarterly  installments of $1.25 million beginning March 31, 2000 and ending December 31, 2006.  (vi) Sixth, to pay any accrued amounts for obligations performed with respect to periods prior to January 1, 2000 under the Management  Services  Agreement,  the Organizational and Administrative  Services Agreement and the Marketing Services Agreement.  The final  required  payments  under this sixth  priority  were made during 2001.  (vii) Seventh,  for the period  beginning March 31, 2000 and ending December 31, 2014, to pay each of Kerzner  Investments  and the Company  twenty-five  percent (25%) of the relinquishment payments as distributions.  (viii) Eighth, to distribute all excess cash.  On January 26, 2006, TCA made distributions of $1,250,000  pursuant to the fifth priority,  $14,262,503  ($7,131,252 to Kerzner Investments and $7,131,251 to the Company) pursuant to the seventh priority and $12,064,928 ($6,032,464 to each of Kerzner  Investments  and the  Company)  pursuant to the eighth  priority.  Such distributions will be recorded in the fiscal 2006 financial statements.  In  addition,  TCA will not make any  distributions  pursuant to the Amended and Restated Omnibus Termination  Agreement until it has annually distributed to its partners  pro rata,  the amounts  related to its  partners  tax  obligations  as described in Section  3.03a(1) of the TCA  Partnership  Agreement less twice the amount of all other funds paid or  distributed  to the Company  during such year pursuant to the Amended and Restated Omnibus Termination Agreement.  To the extent TCA does not have adequate  cash to make the payments  pursuant to the Amended and Restated Omnibus Termination Agreement, such amount due shall be deferred  without the accrual of interest until TCA has  sufficient  cash to pay them.  The Amended and Restated Omnibus  Termination  Agreement was filed as an exhibit to the  Company's  Quarterly  Report on Form 10-Q for the period ended March 31, 2001  (Commission  File No.  333-17795) as accepted by the Commission on May 14, 2001, and is incorporated herein by reference.  E. THE MOHEGAN TRIBAL GAMING AUTHORITY  The Tribe is a federally recognized Indian tribe with an approximately  405-acre reservation  situated in  southeastern  Connecticut.  The Tribe  established the Authority  on July 15, 1995 with the  exclusive  power to conduct  and  regulate gaming activities for the Tribe. Under the Indian Gaming Regulatory Act of 1988, as amended ("IGRA"), 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 tribal state compact with the affected state.  The Tribe and the  State of  Connecticut  have  entered  into  such a  compact  (the "MOHEGAN COMPACT") that has been approved by the U.S. Secretary of the Interior. The Authority is governed by a management board (the "MANAGEMENT BOARD"),  which consists of the nine members of 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 the Management Board.  Under the terms of the Relinquishment  Agreement, at midnight December 31, 1999, the Management  Agreement  terminated,  and on January 1, 2000 the Tribe assumed day-to-day management of the Mohegan Sun.  The Tribe and the Authority have entered into a land lease ("LEASE") pursuant to which the Tribe is leasing to the Authority the land on which the Mohegan Sun is located (the  "SITE").  The Site is part of the Tribe's  approximately  405-acre reservation  which was acquired and is held in trust for the Tribe by the United States of America with the Tribe  retaining  perpetual  rights to the use of the Site.                                         10   F. THE MOHEGAN TRIBAL GAMING AUTHORITY  The Authority  owns and operates the Mohegan Sun, an  approximately  3.0 million square foot gaming and entertainment  complex on a 240-acre site overlooking the Thames River on the Tribe's reservation in southeastern Connecticut. The Mohegan Sun is located approximately one mile from the interchange of Interstate 395 and Route 2A in  Uncasville,  Connecticut.  The  Authority  constructed  a four-lane access road and  entrance/exit  ramps off of Route 2A,  providing  guests direct access to Interstate 395 and Interstate 95, the main highways connecting Boston, Providence and New York City. The Mohegan Sun opened in October 1996.  The gaming and entertainment complex includes the following:  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, three  full-service  themed fine dining  restaurants  with a fourth area  featuring  cuisine  from all three  themes,  a 610-seat  buffet,  a ten-station food court featuring international and domestic cuisine and multiple service bars, all operated by the Authority,  for a total of approximately 1,700 restaurant seats. An approximately  10,000 square foot, 410-seat lounge features live  entertainment  seven days a week. There is 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 105 table games (including,   blackjack,  roulette,  craps  and  baccarat).  Food  and  beverage amenities,  include two full-service restaurants, two quick-service restaurants, a 24-hour  coffee shop, a 320-seat  buffet,  a six station food court  featuring international  and domestic  cuisine and five  lounges and bars  operated by the Authority,  as well as four  full-service  and three  quick-service  restaurants 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, which are all operated by a third party,  the Mohegan Sun Arena with seating for up to 10,000, a 350-seat  cabaret,  a child care facility and an arcade-style  recreation area operated by a third party, The Shops at Mohegan Sun containing  approximately 29 different  retail  shops,  seven  of  which  are  owned  by  the  Authority,  an approximately  1,200-room luxury hotel, an approximately  20,000 square foot spa operated by a third party and  approximately  100,000  square feet of convention space.  Mohegan  Sun has  parking  spaces  for  approximately  13,000  guests  and 3,100 employees.  In addition,  the Authority  operates an approximately  4,000 square foot,  20-pump gasoline  station and convenience  center located adjacent to the Mohegan Sun.  The Authority formed the Mohegan  Basketball Club,  ("MBC"),  for the purpose of holding a membership in the Women's National Basketball Association ("WNBA") and owning and operating a  professional  basketball  team in the 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.  POCONO DOWNS. On January 25, 2005 the Authority and its wholly owned subsidiary, Mohegan Commercial  Ventures PA, LLC acquired from subsidiaries of Penn National Gaming, Inc. the Pocono Downs Racetrack,  a standardbred harness racing facility located on approximately 400 acres of land in Plains Township,  Pennsylvania, or Pocono Downs, and five Pennsylvania  off-track  wagering  facilities  located in Carbondale, East Stroudsburg,  Erie, Hazleton and Lehigh Valley (Allentown). The Pocono  Downs  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 5/8 mile all-weather, lighted track with seating for approximately  3,500 and parking capacity for approximately  6,500.  Harness racing has been  conducted  at Pocono Downs since 1965,  and in 2005,  the track held 143  live  racing  days.  The  Lehigh  Valley  (Allentown)  OTW is a 28,000 square-foot facility and is the largest OTW in the state of Pennsylvania.                                         11    The  Authority  has the  right to apply  for a  Pennsylvania  Category  One Slot Machine License, which, if approved, would initially permit the installation and operation of up to 3,000 slot  machines at Pocono  Downs.  Down's  Racing,  L.P. submitted an  application  for a conditional  Category One Slot Machine  License with the Pennsylvania  Gaming Control Board, or PGCB, on December 8, 2005. Downs Racing L.P. will submit an application for a permanent Category One Slot Machine License  on or before  December  28,  2005.  Upon  receipt of a  conditional  or permanent license, the Authority would be required to pay a one-time $50 million fee to the Commonwealth of Pennsylvania.  A minimum  of 1,500  slot  machines  are  required,  and a maximum of 3,000 slot machines are permitted,  to be in operation  within 18 months of the issuance of the slot machine  license.  Under  certain  circumstances,  the Authority may be permitted to install up to a total of 5,000 slot machines.  On  June  22,  2005,  the   Pennsylvania   Supreme  Court   unanimously   upheld substantially  all of the Pennsylvania Race Horse Development and Gaming Act, or the  Pennsylvania  Gaming  Act.  Following  the  Pennsylvania   Supreme  Court's decision, the PGCB has begun the process of issuing final licensing regulations. Published  reports  indicate  that  the  PGCB is  expected  to  begin  approving conditional Category One Slot Machine Licenses in June 2006.  On July 21,  2005,  the  Authority  announced  plans  for the  development  of a proposed 400,000 square foot gaming and entertainment facility to be constructed on the existing  grounds of Pocono Downs.  The plans  provide for  approximately 2,000 slot machines,  3 full-service  restaurants,  a 300 seat buffet,  a 15,000 square  foot  food  court,  several  bars and  lounges,  an 18,000  square  foot nightclub,  a "Kid's Quest"  center,  20,000  square feet of retail  space,  new parking facilities and an enhanced employee services area.  Construction  of the new facility  will begin upon the issuance of a conditional Category One Slot Machine  License by the PGCB.  The new facility is expected to open approximately 14 months from the beginning of construction.  Estimated cost of construction for the new facility is between $140 million and $160 million.  In addition to the development of the new gaming and entertainment facility, the Authority plans to make  significant  improvements and additions to the existing Pocono Downs  Clubhouse  and  Grandstand,  including a new  simulcast  facility, improvements to the Grandstand for the installation of approximately  1,000 slot machines (upon receipt of a conditional Category One Slot Machine License) and a new 10,000  square foot food court.  These  improvements  are  estimated to cost approximately  $47.0  million.  Construction  began  in  September  2005  and is estimated to be completed by the spring of 2006.  COWLITZ PROJECT. In July 2004, the Authority formed Mohegan  Ventures-Northwest, LLC,  or Mohegan  Ventures-NW,  one of two 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 will be owned by the Cowlitz Indian Tribe. Both Mohegan Ventures-NW and Salishan-Mohegan were designated as the Authority's unrestricted  subsidiaries,  which  are not  required  to be  guarantors  of the Authority's debt obligations.  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  through   Salishan-Mohegan   pursuant  to  the  operating 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  earned 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.  MENOMINEE  PROJECT.  In October  2004 the  Authority  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 the  Authority 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.  The information  concerning Kerzner  International,  the Tribe and the Authority has been derived from publicly filed information.                                         12     G. CONTACT INFORMATION; INTERNET ADDRESS  The  principal  executive  offices of the  Company  is  located at 914  Hartford Turnpike,  Waterford,  Connecticut  06385  and its  telephone  number  is  (860) 442-4559.  The Company's internet address is  http://www.waterfordgroup.net.  In light of the limited  trading market for the Company's  securities,  the Company does not  currently  make its periodic and current  reports  available,  free of charge,  on  its  website.  The  Company's  periodic  and  current  reports  are available, however, free of charge, on the Commission's website, at www.sec.gov. The Company  will  provide  electronic  or paper  copies of its filings  free of charge upon request.
The Company does not own or lease any real property.
On January 6, 1998, Leisure Resort Technology,  Inc.  ("Leisure") and defendants Waterford Gaming,  L.L.C., Trading Cove Associates,  LMW Investments,  Inc., and Slavik Suites,  Inc.  settled a prior lawsuit brought by Leisure.  In connection with this settlement,  Leisure,  TCA, the Company,  LMW  Investments,  Inc., and Slavik Suites, Inc. entered into a settlement and release agreement. Pursuant to this settlement and release agreement,  the Company bought Leisure's  beneficial interest in TCA.  By complaint dated January 7, 2000, as amended February 4, 2000, Leisure filed a four count complaint naming as defendants Waterford Gaming, L.L.C., Trading Cove Associates, LMW Investments, Inc., Slavik Suites, Inc., Waterford Group, L.L.C., Len Wolman and Mark Wolman (collectively, the "Defendants"). The matter has been transferred  to the  complex  litigation  docket and is  pending  in  Waterbury, Connecticut.  The  complaint  alleged  breach of  fiduciary  duties,  fraudulent non-disclosure,  violation of Connecticut  Statutes Section 42-110a, et seq. and unjust  enrichment  in  connection  with  the  negotiation  by  certain  of  the Defendants of the settlement and release agreement. The complaint also brought a claim for an accounting.  The complaint  seeks  unspecified  legal and equitable damages.  On  February  29,  2000,  Defendants  filed a Motion to Strike  and a Motion for Summary Judgment, each with respect to all claims. The Court granted Defendants' Motion to Strike in part and denied Defendants' Motion for Summary Judgment,  on October 13, 2000.  The Court's order  dismissed the claim for an accounting  and the claim under  Connecticut  Statutes Section  42-110a,  et seq. The Court also struck the alter ego allegations in the complaint against LMW Investments, Inc., Slavik Suites,  Inc., Len Wolman and Mark Wolman.  In a decision dated August 6, 2001,  the Court  dismissed all claims  against LMW  Investments,  Inc.,  Slavik Suites, Inc., Len Wolman and Mark Wolman.  On November 15, 2000, the Company and its co-defendants  answered the complaint. In addition,  the Company and Trading Cove Associates asserted counterclaims for breach of the  settlement  and  release  agreement  and  breach  of the  implied covenant  of good faith  against  Leisure  and its  president,  Lee Tyrol.  In a decision dated June 6, 2001, the Court dismissed the  counterclaims  against Lee Tyrol.  Leisure  moved for summary  judgment  seeking  dismissal  of the counter claims in full. This motion for summary judgment was denied on April 14, 2003.  Fact   discovery  is  completed.   On  April  15,  2004,  the  Company  and  its co-defendants filed a motion for summary judgment as to all of Leisure's claims. The Court heard arguments on this Motion on June 23, 2004. In an August 4, 2004, Memorandum of Decision, the Court granted summary judgment for the Defendants as to  each  of the  remaining  three  counts  of the  plaintiff's  complaint.  The plaintiff  has appealed  this  decision.  On May 9, 2005,  the Supreme  Court of Connecticut,  without  issuing any ruling on the  substantive  issues  raised by plaintiff's appeal, transferred the appeal to itself. Oral argument was heard on September  21, 2005. On January 23, 2006,  the Supreme Court  affirmed the trial court's decision granting summary judgement in favor of the Defendants on all of plaintiff's claims. Defendants' counterclaims against plaintiff remain pending.
No matters were submitted to the Company's  security  holders for a vote for the fiscal year ended December 31, 2005.                                          13                                          PART II
Not applicable. The Company did not sell any of its equity securities during the period covered by this report.
FOR THE YEAR ENDED                            2005             2004            2003            2002            2001                       --------------   --------------  --------------  --------------  -------------   Total expenses        $  (15,162,312)  $  (16,697,545) $  (24,751,861) $  (13,102,082) $ (13,579,600)  Interest and   dividend income            327,064          117,608         123,634         534,012      1,330,711  Equity in income of   Trading Cove   Associates              32,441,918       30,503,631      28,519,860      24,601,380     18,823,461                       --------------   --------------  --------------  --------------  ------------- Net income            $   17,606,670   $   13,923,694  $    3,891,633  $   12,033,310  $   6,574,572                       ==============   ==============  ==============  ==============  =============   OTHER DATA  Interest expense     $   12,410,198   $   13,588,087  $   19,481,783  $   11,080,139  $  11,560,994   Net change in cash    and cash    equivalents        $      396,057   $     (320,320) $      233,470  $    1,087,653  $    (453,072)                                                            YEAR-END STATUS                            2005             2004            2003             2002           2001                       --------------   --------------  --------------  --------------  -------------   Total current assets  $   10,653,624   $   10,750,950  $   11,523,049  $   15,010,697  $  29,769,455  Trading Cove    Associates-equity    investment             17,406,115       17,052,615      16,965,487      11,972,338     10,639,562  Beneficial    Interest-Leisure    Resort    Technology, Inc.        3,406,069        3,784,059       4,162,049       4,540,039      4,918,029  Deferred financing    costs net of    accumulated    amortization            2,325,643        2,903,141       3,568,059       2,643,338      3,010,202  Fixed assets, net    of accumulated    depreciation                  ---              ---             916          11,696         22,476                       --------------   --------------  --------------  --------------  ------------- Total assets          $   33,791,451   $   34,490,765  $   36,219,560  $   34,178,108  $  48,359,724                       ==============   ==============  ==============  ==============  =============  Total current    liabilities        $    3,653,206   $    3,728,147  $    4,038,332  $    3,133,192  $   3,400,556  9.50% senior    notes payable                 ---              ---             ---     108,007,000    115,434,000  8.625% senior    notes payable         129,562,000      140,761,000     153,088,000             ---            ---                        --------------   --------------  --------------  --------------  -------------  Total liabilities    $  133,215,206   $  144,489,147  $  157,126,332  $  111,140,192  $ 118,834,556                       --------------   --------------  --------------  --------------  -------------  Member's    deficiency         $  (99,423,755)  $ (109,998,382) $ (120,906,772) $  (76,962,084) $ (70,474,832)                       ==============   ==============  ==============  ==============  =============                                            14
The following discussion should be read in conjunction with, and is qualified in its  entirety  by, the  Company's  financial  statements  and the notes  thereto included elsewhere herein.  A - DEVELOPMENT AND OPERATIONAL ACTIVITIES  The  Company  was formed  solely for the  purpose  of  holding  its  partnership interest  in Trading  Cove.  Trading  Cove is the former  manager  and  original developer  of the Mohegan  Sun.  The  Company's  interest in Trading Cove is its principal asset and source of income and cash flow.  B - CERTAIN RISK FACTORS  1 - LACK OF OPERATIONS;  DEPENDENCE ON THE MOHEGAN SUN - The Company is entirely dependent  upon the  performance  of the  Mohegan  Sun to meet its debt  service obligations.  The Company does not conduct any business  operations  other than in  connection with its role as a general partner of Trading Cove, activities incidental to the issuance of the 8.625% Senior Notes and the making of  restricted  and temporary investments.  The Company is  prohibited by the terms of the 8.625% Senior Notes Indenture from engaging in any other business activities. The Company intends to fund its  operating  debt service and capital needs from cash flows from Trading Cove and from cash flows (dividend and interest) from temporary investments.  Trading  Cove's  only  material   source  of  revenue  and  cash  flows  is  the Relinquishment  Fees it receives from the  Authority.  There can be no assurance that the Mohegan  Sun will  continue to  generate  sufficient  revenues  for the Authority  to be  profitable  or to  service  its  debt  obligations,  or to pay Relinquishment  Fees. The Company's  ability to meet its  obligations  under the 8.625% Senior Notes is entirely  dependent  upon the  performance of the Mohegan Sun, which is subject to matters over which Trading Cove and the Company have no control, including, without limitation,  general economic conditions, effects of competition,  political,  regulatory  and other  factors,  the actual  number of gaming customers and the amount wagered.  The  Company  cannot  assure  you that its  future  operating  cash flow will be sufficient to cover its expenses, including interest on the 8.625% Senior Notes.  2 - LEVERAGE - The Company's and the Authority's substantial  indebtedness could adversely  affect the  Company's  ability to fulfill its  obligations  under the 8.625% Senior Notes.  As of  December  31,  2005,  the  Company  has  an  aggregate  long-term  senior indebtedness  of  $129,562,000,  consisting of the 8.625% Senior Notes. On March 15, 2006,  $6,477,000 of principal amount of 8.625% Senior Notes was redeemed at the redemption  price of 106.596% of the principal  amount being  redeemed.  The Authority is also highly leveraged. As of December 31, 2005, the Authority had a total of approximately $1.244 billion of indebtedness outstanding.  The  degree  to  which  the  Authority  is  leveraged  could  have   significant consequences  for the holders of the 8.625%  Senior  Notes,  including,  without limitation, the following:  a) making it more  difficult  for the  Authority to pay the fees owed to Trading Cove under the Relinquishment Agreement; and  b) the Authority's high degree of leverage may make it vulnerable to an economic downturn,  which may hamper the Mohegan Sun's ability to meet expected operating results.  3 - SUBORDINATION - Trading Cove's right to receive the relinquishment  payments from the Authority is junior to certain payments by the Authority to the Mohegan Tribe and holders of its indebtedness.  The senior and junior relinquishment payments from the Authority to Trading Cove rank  behind all of the  Authority's  obligations  to pay the  minimum  priority distributions  to the  Mohegan  Tribe and all of the  Authority's  existing  and future senior secured indebtedness.  As a result,  upon any  distribution  by the  Authority  to its  creditors  in a bankruptcy,  liquidation,  reorganization or similar proceeding  relating to the Authority or its property,  the priority distributions owed to the Mohegan Tribe and the holders of the Authority's senior secured  indebtedness will be entitled to be paid in full  and in cash  before  any  senior  or  junior  relinquishment payments may be made to Trading  Cove.  In addition,  the junior  relinquishment payments  rank  behind  all  of  the  Authority's  existing  and  future  senior indebtedness.  As a  result,  in  any  such  proceedings,  the  holders  of  the Authority's senior  indebtedness will be entitled to be paid in full and in cash before any junior relinquishment payments may be made to Trading Cove.                                           15    In  addition,  all  relinquishment  payments  will be  blocked in the event of a payment default on senior secured indebtedness of the Authority,  and all junior relinquishment  payments  will be blocked  in the event of a payment  default on senior indebtedness of the Authority and, in each case, may be blocked for up to 179 of 360  consecutive  days in the event of certain  non-payment  defaults  on senior  secured  indebtedness  or  senior  indebtedness  of  the  Authority,  as applicable.  In the event of a bankruptcy, liquidation,  reorganization or similar proceeding relating to the Authority,  Trading Cove will receive  distributions (if at all) on a pari passu basis with all other holders of the Authority's senior unsecured indebtedness with respect to the senior relinquishment  payments from the assets remaining  after the Authority has paid all of its senior  secured  indebtedness and with all other  holders of  subordinated  indebtedness  with  respect to the junior relinquishment payments from the assets remaining after the Authority has paid all of its  senior  indebtedness.  However,  the  Relinquishment  Agreement requires  that amounts  otherwise  payable to Trading  Cove in a  bankruptcy  or similar  proceeding  of the  Authority  be paid to  holders  of  senior  secured indebtedness, with respect to the senior and junior relinquishment payments, and to  holders  of senior  indebtedness,  with  respect  to  junior  relinquishment payments,  until they are paid in full,  instead of to  Trading  Cove.  For that reason, Trading Cove may receive less, ratably, than holders of senior unsecured indebtedness and junior indebtedness of the Authority in any such proceeding. In any of these cases,  the Authority may not have  sufficient  funds to pay all of its creditors and Trading Cove may receive  less,  ratably,  than the holders of the Authority's senior indebtedness.  For the year ending September 30, 2005, the annual minimum priority distribution to the Mohegan Tribe was $15.8 million.  The minimum  priority  distribution  is adjusted  annually to reflect the  cumulative  increase  in the  consumer  price index.  The Authority will be permitted to borrow substantial  additional  indebtedness, including senior secured indebtedness, in the future.  4 - RISKS  ASSOCIATED  WITH  TRADING  COVE  AND  THE  TRADING  COVE  PARTNERSHIP AGREEMENT  - The Company  would not be a creditor of Trading  Cove and it has no rights to the assets of the  Authority in the event of a  bankruptcy  or similar proceeding  against either  Trading Cove or the Authority.  The Company does not have the power under the TCA Partnership Agreement to cause Trading Cove to make any distributions to the Company.  If Trading Cove becomes the debtor in a bankruptcy  or similar  proceeding,  the Company would have the status of an equity holder, not a creditor, and would not be entitled to receive any  distributions  until all of Trading Cove's creditors were paid in full.  If the  Authority  became the  debtor in a  bankruptcy  or  similar  proceeding, Trading Cove's rights and recovery would depend on numerous  factors,  including the type and outcome of the proceeding.  If the Authority ceased  operations and liquidated,  under Chapter 7 of the Bankruptcy Code or otherwise, Trading Cove's claim would likely be limited to the amount of unpaid  Relinquishment Fees as of the time of liquidation.  If the Authority  reorganized  under Chapter 11 of the Bankruptcy  Code,  Trading  Cove's claim would likely be based on an estimate of the Mohegan Sun's future revenues for the term of the Relinquishment  Agreement. In any event,  any  recovery by Trading  Cove on its claims for senior or junior relinquishment  fees  would  be  subject  to the  prior  payment  in full of all indebtedness senior thereto.  As a  result,  the  Company  cannot  give any  assurance  that,  in the event of bankruptcy or financial  difficulty of either Trading Cove or the Authority,  it would ultimately  recover  sufficient (or any) funds to pay amounts  outstanding under the 8.625% Senior Notes.  The 8.625%  Senior  Notes are not  collateralized  by a pledge of the  Company's partnership  interest  in  Trading  Cove.  Accordingly,   in  the  event  of  an acceleration  under the 8.625%  Senior Notes  Indenture,  the trustee  under the 8.625% Senior Notes  Indenture  will not be able to foreclose upon the equity in Trading Cove.  The TCA Partnership Agreement requires consent by both partners in order to take any action.  Accordingly,  neither the Company nor Kerzner  Investments  has the authority  to  cause  Trading  Cove  to  make  any  distributions,  and  Kerzner Investments has the ability to block any action taken by Trading Cove.  Although the TCA Partnership  Agreement  requires  Trading Cove to make  distributions of excess cash, the distributions are reduced by certain  undefined,  discretionary amounts,  including  foreseeable  needs of cash,  obligations  to third parties, adequate  working  capital and reserves and the amount needed by the partnership to conduct  its  business  and carry out its  purposes.  A dispute  between  the partners as to the appropriate  amount of such reductions  could result in no or limited  distributions  by Trading  Cove,  which  could have a material  adverse effect on the Company's ability to make required payments of interest, principal and premium on the 8.625% Senior Notes.  Under the TCA  Partnership  Agreement  and certain  other  existing  agreements, Trading  Cove  must  pay  expenses  and  make  certain   payments  and  priority distributions  prior to making  distributions  to the  Company.  Such  expenses, payments and priority distributions include,  (1) operating  expenses and to the extent operating  expenses are less than $2.0 million annually,  payment of the difference to each of Kerzner  Investments and the principals of the Company;                                          16   (2) the development fee to be paid to Kerzner Investments, Construction, and The Slavik Company and related development expenses equal to 3% of the total cost of the Project Sunburst expansion,  excluding  capitalized  interest,  less Trading Cove's actual costs relating to the Project Sunburst  expansion  (Trading Cove's accrued  liability to Kerzner  Investments  with respect to such fee at December 31, 2005 was approximately $384,000), and  (3) a $5.0 million  annual  payment to Kerzner  Investments,  payable  quarterly until December 31, 2006.  5 - RISKS ASSOCIATED WITH THE BUY/SELL OPTION UNDER THE TRADING COVE PARTNERSHIP AGREEMENT - If a dispute occurs between the Company and Kerzner Investments, the buy/sell  provision of the TCA Partnership  Agreement  could be invoked.  If the buy/sell provision is invoked,  the Company cannot assure you that it would have sufficient  funds to buy out Kerzner  Investments  or, if the Company  agreed to sell to Kerzner  Investments,  that the selling price would be sufficient to pay all amounts due on the 8.625% Senior Notes.  In the event of any dispute between the partners in Trading Cove, either partner could invoke the buy/sell provision contained in the TCA Partnership  Agreement. Pursuant to the buy/sell  provision,  the party invoking the buy/sell  provision would  deliver a notice to the other party  requiring it to sell its interest or buy the invoking party's  interest,  in each case at the price set forth in such notice.  The party receiving the notice must make the election within 45 days of receipt of the notice or be deemed to have  accepted  the offer to sell.  If the offer to buy is elected, the party must close the purchase within 75 days of the end of the 45-day  period.  Any party may terminate the option at any time prior to closing by accepting  the position of the other party.  In the event  Kerzner Investments were to invoke the buy/sell provision, the Company could:  a) buy Kerzner Investments' interest;  b) sell its interest; or  c) agree with Kerzner Investments on the point of dispute.  The Company may transfer  its right to buy under the  buy/sell  provision of the TCA Partnership Agreement to the Waterford Group or the Waterford Group may fund the purchase of Kerzner Investments partnership interest. If the Company were to elect to buy  Kerzner  Investments  partnership  interest  other than with funds provided by the Waterford Group, the 8.625% Senior Notes Indenture  requires the Company to redeem the 8.625% Senior Notes; however the Company cannot assure you that it would be able to raise  funds  sufficient  for the Company to redeem the 8.625% Senior Notes on satisfactory terms, or at all.  If the Company  were to sell its  partnership  interest in Trading  Cove,  it is possible that the amount the Company  receives would be  insufficient to pay all amounts  due on the 8.625%  Senior  Notes.  If the  Company  were to concur with Kerzner  Investments with respect to the point of dispute,  it cannot assure you that Kerzner  Investments'  position would not have a material adverse effect on the  Company's  ability to pay  principal,  interest  and  premium on the 8.625% Senior Notes.  6 - DIFFICULTIES IN ENFORCING OBLIGATIONS AGAINST THE AUTHORITY - The ability to enforce  obligations  against the  Authority and the Mohegan Tribe is limited by the Mohegan Tribe's sovereign immunity.  Although the Mohegan Tribe and the Authority have sovereign immunity and may not be sued without their  consent,  both the Mohegan  Tribe and the Authority  have granted a limited waiver of sovereign immunity and consent to suit in connection with the  Relinquishment  Agreement,  including  suits  against the Authority to enforce the obligation to pay fees due under the  Relinquishment  Agreement.  In the event that such  waiver of  sovereign  immunity  is held to be  ineffective, Trading  Cove  could be  precluded  from  judicially  enforcing  its  rights and remedies.  Generally,  waivers  of  sovereign  immunity  have  been  held  to be enforceable  against Indian tribes such as the Mohegan Tribe.  In addition,  the Company has no standing to enforce the  Relinquishment  Agreement  and therefore would have to rely on Trading Cove to enforce such agreement.                                          17   The  Relinquishment  Agreement  provides that disputes  shall be resolved in any court of  competent  jurisdiction  including  the Gaming  Disputes  Court of the Mohegan Tribe,  which was established under the Mohegan Tribe's  constitution to rule on disputes  with respect to the Mohegan Sun.  Appeals of the  decisions of the Trial  Division  are heard by the  Appellate  Branch of the Gaming  Disputes Court.  Matters as to which applicable federal or state courts have jurisdiction may be  brought  in such  courts.  However,  the  federal  courts  may not  have jurisdiction  over  disputes not arising under federal law, and the state courts may not have jurisdiction over any disputes arising on the Mohegan  reservation. Moreover,  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 the federal or state court.  Thus, there may be no federal or state court forum with respect to  a  dispute  with  the  Authority  or  the  Mohegan  Tribe  relating  to  the Relinquishment  Agreement.  In addition, the Authority may not be subject to the federal  bankruptcy  laws.  Thus, no assurance can be given that, if an event of default occurs,  any forum will be available other than an arbitration  panel of the Gaming Disputes  Court. In the Gaming Disputes Court,  there are few guiding precedents  for the  interpretation  of Mohegan  Tribal law. Any  execution of a judgment  of the Gaming  Disputes  Court will  require  the  cooperation  of the Mohegan 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 Mohegan Tribal lands,  the practical  realization of any benefit of such a judgment will be dependent upon the willingness and ability of the Mohegan Tribal officials to carry out such judgment. In addition, the land under the Mohegan Sun is owned by the United States in trust for the Mohegan Tribe, and creditors of the Authority or the Mohegan Tribe may not force or obtain title to the land.  The Mohegan Tribe is permitted to amend the provisions of its constitution  that establish  the  Authority  and the Gaming  Disputes  Court with the  approval of two-thirds  of the  members  of the Tribal  Council  and a  ratifying  vote of a two-thirds  majority of all of the members of the Mohegan  Tribe,  with at least 40% of the registered voters of the Mohegan Tribe voting.  However, 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.  Further, the Mohegan Tribe's constitution prohibits the Mohegan  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 Mohegan  Tribal lands.  Amendments to this provision of the Mohegan Tribe's  constitution  require the affirmative  vote of 75% of all  registered  voters of the Mohegan  Tribe.  Amendment  to any of such provisions  of the  Mohegan  Tribe's  constitution  could  adversely  affect the ability of Trading Cove to enforce the  obligations of the Authority,  which, in turn would adversely affect the Company's ability to pay principal, interest and premium on the 8.625% Senior Notes.  7 - FUTURE  EXPANSION  OF THE MOHEGAN SUN - In the event that the Mohegan  Tribe decides to expand the Mohegan Sun,  Trading Cove has no rights  associated  with such expansion.  The Mohegan Tribe may in the future decide to expand the Mohegan Sun.  Under the terms of the  Relinquishment  Agreement,  Trading  Cove is entitled to 5% of all revenues  derived  directly or  indirectly  from the Mohegan Sun,  including the Project  Sunburst  expansion  but  excluding  revenues  derived  from any future expansions  and from Class II gaming  activities.  If the Mohegan Sun is further expanded, Trading Cove, under the terms of the Relinquishment Agreement will not be entitled to any of the revenues generated by the incremental  expansion.  The Relinquishment  Agreement  does not describe how the  Authority  would  allocate which revenues were covered by the  Relinquishment  Agreement and which revenues were not. In  addition,  Trading  Cove has no rights to act as  developer of any such expansion.  The Company cannot assure you that any future  expansion of the Mohegan Sun will not have a material adverse affect on the Authority,  including by  disrupting  the current  operations  of the  Mohegan  Sun thereby  affecting revenues and the Authority's ability to pay Relinquishment Fees to Trading Cove. In addition,  the Company  cannot assure you that any future  expansion will not draw guests to those  portions of the Mohegan Sun from which Trading Cove is not entitled to a percentage of revenues, thereby impacting the Relinquishment Fees. If the  Mohegan  Tribe were to take any action  that would  prejudice  or have a material  adverse effect on the rights of Trading Cove under the  Relinquishment Agreement,  Trading Cove could sue the Mohegan Tribe for breach of contract. The Company  cannot  assure  you that  any such  lawsuit  would be  successful.  See "Difficulties in Enforcing Obligations Against the Authority".  8 -  COMPETITION  FROM  OTHER  GAMING  OPERATIONS  -The  Mohegan  Sun  may  face significant competition from other persons who may receive approval to engage in gaming in the region.                                         18   The gaming industry is highly  competitive.  The Mohegan Sun currently  competes primarily with Foxwoods Resort Casino ("Foxwoods") and, to a lesser extent, with casinos in Atlantic City,  New Jersey and upstate New York.  Foxwoods is located approximately 10 miles from the Mohegan Sun.  Currently,   other  than  Atlantic  City,  New  Jersey,  casino  gaming  in  the Northeastern  United  States is conducted  only by federally  recognized  Indian tribes operating under federal Indian gaming law. The New York State legislature authorized  certain  limited  machine gaming at several race tracks in the state but not full-scale  casino gaming.  To date,  three separate race tracks operate approximately  6,000  machines.  Two  other  race  tracks  in New  York are each authorized to install 5,000 machines for a total of 10,000 additional  machines. The legislature  also authorized three Indian casinos in the Catskills region of New York (Sullivan and Ulster  counties) and three casinos to be operated by the Seneca Nation of Indians in the Niagara/Buffalo area. The Seneca Nation opened a facility in Niagara Falls in late December 2002 and opened  another  facility in Salamanca,  New York,  in early May 2004. A third  Seneca  casino is planned for Buffalo. The State's highest court of appeals has recently affirmed the validity of the New York State statute that governs  machine  gaming and gaming on Indian lands.  In the Spring of 2005,  the  Governor of New York  entered  into five land claim settlement  agreements  with  five  Indian  tribes.  Because  of  certain  court decisions involving New York tribes, the agreements were allowed to lapse and it is not clear at this time  whether the  Governor and the five tribes will revive the agreements  that would,  among other things,  permit gaming by the tribes in the  Catskill  Region of New York.  In the event this is  approved  and  federal legislation  is also  enacted,  then there is the  likelihood  that  significant competition for New York patrons will ensue.  The Catskills  region is about 185 miles from Mohegan Sun.  The Oneida Indian  Nation  operates  Turning Stone Casino Resort in Verona,  New York,  approximately  270 miles from the Mohegan Sun. The St. Regis Mohawk Tribe in Hogansburg,  New York has entered into a gaming compact with the State of New York to conduct gaming on its reservation near the Canadian border.  In  addition,  several  other  federally  recognized  tribes in New  England are seeking to establish  gaming  operations.  These  include the  Historic  Eastern Pequot Tribe of Connecticut and the  Schaghticoke  Tribal Nation of Connecticut. The Bureau of Indian Affairs issued final revised  negative  determinations  for both tribes.  They have each appealed the decisions and a long judicial  process will likely  ensue.  In addition the  Narragansett  Tribe of Rhode  Island,  the Aquinnah  Wampanoag Tribe (Gay Head) of Massachusetts and all four of the tribes in the State of Maine:  the  Penobscot,  Passamaquoddy,  Houlton Band and Micmac Tribes continue to explore gaming opportunities. A 2004 state wide referendum in Maine rejected any off-reservation Indian casino gaming.  In Rhode Island,  a gaming  expansion bill has recently been introduced into the Rhode Island House of  Representatives,  the approval of which would result in a November  2006  voter  referendum  on a  West  Warwick  casino  operated  by the Narragansett  Tribe  and an  undisclosed  partner.  Also,  in Rhode  Island,  an affiliate of the Company,  BLB Investors,  LLC recently  purchased the greyhound race track in Lincoln,  RI,  about 63 miles from the Mohegan  Sun.  The facility currently  operates  3,602  VLTs and the State has  agreed  to  placement  of an additional 1,150 devices. The facility is undergoing renovation and all VLTs are scheduled  to be  operational  in the first  quarter of 2007.  The extent of the impact of the additional devices on revenues at Mohegan Sun is unknown.  There are several other groups in New England  seeking  federal  recognition  as tribes.  If successful,  these groups will most likely seek to establish  casino operations.  In Massachusetts,  one such group is the Mashpee Wampanoag which is awaiting a proposed finding.  A number  of states in the  region  are  projecting  budget  shortfalls  and are considering  permitting forms of gaming to provide state revenues.  In an effort to address its state budget shortfalls,  the Governor of Massachusetts and other leaders  in that  state  have  indicated  interest  in both  Indian  gaming  and non-Indian  commercial  gaming.  State officials in Pennsylvania  are reportedly considering  authorization of commercial casino gaming activities in that State. Because of the close  proximity  of many areas of  Pennsylvania  to the New York City metropolitan area, gaming in those areas would mean competition for Mohegan patrons from New York City.  The Mohegan Sun also competes with other forms of gaming, including on-track and off-track  wagering,  state  lotteries  and  Internet  gaming,  as  well as with non-gaming leisure activities.                                          19    9 - Effect of General  Economic  Conditions - The U.S. economy is experiencing a downturn, which could have an adverse impact on the financial performance of the Mohegan Sun.  10 - Dependence on Key Personnel;  significant change in Tribal Management - The loss of any key management member or any significant change in the makeup of the Tribal Council could have a material adverse effect on the Mohegan Sun.  The Mohegan  Sun's  success  depends in large part on the  continued  service of certain key management personnel,  particularly William Velardo, the Authority's President  and Chief  Executive  Officer,  Mitchell  Etess,  the  Mohegan  Sun's President  and Chief  Executive  Officer,  Jeffrey  Hartmann,  the Mohegan Sun's Executive  Vice President and Chief  Operating  Officer,  and Leo Chupaska,  the Authority's Chief Financial Officer.  The loss of the services of one or more of these individuals or other key personnel could have a material adverse effect on the Authority's  business,  operating results and financial  condition which, in turn, would have a material adverse effect on the Company's  ability to meet its obligations under the 8.625% Senior Notes.  The Authority is governed by a nine-member  Management  Board  consisting of the nine members of the Mohegan  Tribal  Council (the  governing body of the Mohegan Tribe). Any change in the composition of the Mohegan Tribal Council results in a corresponding change in the Authority's Management Board.  On August 28, 2005, the Mohegan Tribe  announced the results of an election held that day where all nine seats on the Mohegan  Tribal  Council were  chosen.  The terms of the newly elected Mohegan Tribal Council members  commenced  October 3, 2005. The change in the composition of the members of the Mohegan Tribal Council could have a material adverse effect on the Authority which, in turn, would have a material adverse effect on the Company's ability to meet its obligations under the 8.625% Senior Notes.  11 - Highly  Regulated  Industry  -  Changes  in the law could  have a  material adverse effect on the Authority's ability to conduct gaming.  Gaming on the Mohegan Tribe's  reservation is extensively  regulated by federal, state and  tribal  regulatory  bodies,  including  the  National  Indian  Gaming Commission and agencies of the State of Connecticut  (for example,  the Division of Special Revenue,  the State Police and the Department 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 the  Authority can conduct and the revenues they realize.  Congress has  regulatory  authority  over Indian affairs  and can  establish  and change the terms upon which  Indian  tribes may conduct  gaming.  Currently,  the  operation  of all  gaming on Indian  lands is subject to the Indian Gaming Regulatory Act of 1988. For the past several years, legislation  has been  introduced  in  Congress  with the intent of  modifying a variety of perceived  problems with the Indian Gaming  Regulatory Act.  However, none  of the  substantive  proposed  adverse  amendments  to the  Indian  Gaming Regulatory Act have proceeded out of committee  hearings to a vote by either the House or the Senate.                                          20   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, the Authority's ability to meet its  obligations  to  creditors,  such as Trading Cove under the Relinquishment  Agreement,  would be doubtful.  If the Authority  were unable to meet its  obligations,  it would have a material adverse effect on the Company's ability to make  payments  of  principal,  interest  and  premiums on the 8.625% Senior Notes.  Under  federal law,  gaming on Indian land is  dependent  on the  permissibility under state law of certain 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 the ability of the Authority to conduct  gaming.  In fact,  the State of  Connecticut  repealed the Las Vegas Casino Nights statute in 2003,  but the state  attorney  general has opined that this will not affect the two existing Indian gaming compacts.  12 -  Possible  Environmental  Liabilities  - Risks  of  material  environmental liability  may exist as a result of  possibly  incomplete  remediation  of known environmental hazards and the existence of unknown environmental hazards.  The site on which the  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.  Notwithstanding the foregoing, the Company cannot assure you that:  a) the various environmental reports or any other existing environmental studies revealed all environmental liabilities;  b) any  prior  owners or  tenants  did not  create  any  material  environmental condition not known to the Company;  c)  future  laws,  ordinances  or  regulations  will  not  impose  any  material environmental liability; or  d) a material environmental condition does not otherwise exist on the site.  13 - Taxation of Indian Gaming - A change in the Authority's  current tax-exempt status could have a material  adverse effect on the Authority's  ability to make capital improvements and repay its indebtedness.  Based on  current  interpretations  of the  Internal  Revenue  Code of 1986,  as amended (the  "Code"),  neither the Mohegan Tribe nor the Authority is a taxable entity for purposes of federal income  taxation.  There can be no assurance that Congress will not reverse or modify the non-tax status of Indian Tribes.  Efforts were made in Congress in the  mid-1990s to amend the Code to provide for taxation of the net income of tribal  business  entities.  These have included a House bill  which  would have taxed  gaming  income  earned by Indian  tribes as unrelated  business income subject to corporate tax rates.  This legislation was not enacted.  However,  tax reform is being considered in the 109th Congress and some  leading  proposals  include  taxation  of  gaming  proceeds.  If  enacted, legislation in this area could  materially and adversely  affect the Authority's ability to make capital  improvements and repay its indebtedness which, in turn, would  have a  material  adverse  effect on the  Company's  ability  to meet its obligations under the 8.625% Senior Notes.                                          21   C - SIGNIFICANT ACCOUNTING POLICIES  The preparation of financial statements in conformity with accounting principles generally  accepted in the United States of America requires  management to make estimates and  assumptions  that affect the amounts of assets and liabilities at the  date  of the  financial  statements,  as well as the  reported  amounts  of revenues and expenses during the reporting  period.  Actual results could differ from those estimates.  In the  opinion  of  management,  the  Company  does  not  have  any  individual accounting  policy  that  is  critical  in  the  preparation  of  its  financial statements.  This is due to the  definitive  nature of the business in which the Company is engaged.  Also,  in many cases,  the Company  must use an  accounting policy or  method  because  it is the only  policy  or  method  permitted  under accounting principles generally accepted in the United States of America.  The  following  is a review  of the more  significant  accounting  policies  and methods used by the Company:  1 -  CONCENTRATION  OF  CREDIT  RISK  - The  Company's  interest  in  TCA is its principal  asset and  source of income and cash flow.  The  Company  anticipates regular distributions from TCA based upon the operating results of the Authority and the related Relinquishment Fees paid and to be paid by the Authority.  2 - EQUITY INVESTMENTS - The Company's equity investment in TCA is accounted for utilizing the equity  method.  Included in the  investment is the purchase price paid to a corporation  for its 12.50%  interest in TCA. This amount is amortized on a  straight  line  basis  over  a 189  month  period.  The  Company  receives distributions  from TCA in  accordance  with an  Amended  and  Restated  Omnibus Termination  Agreement.  The amount of distributions relies upon the fees earned and cash  received by TCA  pursuant  to the  Relinquishment  Agreement  with the Authority. Distributions are recorded when received.  D - TABLE OF CONTRACTUAL OBLIGATIONS  The following table provides an overview of the Company's aggregate  contractual obligations as of the latest fiscal year end balance sheet date.          CONTRACTUAL OBLIGATIONS                                                    PAYMENTS DUE BY PERIOD - -----------------------                                                    ----------------------                                                                 LESS THAN 1                                      MORE THAN                                                 TOTAL              YEAR          1-3 YEARS       3-5 YEARS        5 YEARS                                              -------------     ------------    ------------     ------------   ------------- Long-Term Debt     Obligations(1).................          $ 207,785,054     $ 11,174,722    $ 22,349,444     $ 22,349,444   $ 151,911,444 Capital Lease     Obligations....................                      0                0               0                0               0 Operating Lease      Obligations ..................                      0                0               0                0               0 Purchase Obligations ..............                      0                0               0                0               0 Other Long-Term     Liabilities on the       Registrant's Balance         Sheet under GAAP ..........                      0                0               0                0               0                                              -------------     ------------    ------------     ------------   ------------- Total (1)..........................          $ 207,785,054     $ 11,174,722    $ 22,349,444     $ 22,349,444   $ 151,911,444                                              =============     ============    ============     ============   =============    (1)  As  of  December  31,  2005,  the  Company's  long-term  debt  consists  of obligations under its 8.625% Senior Notes. As of March 15, 2006, $123,085,000 in aggregate  principal  amount of 8.625% Senior Notes is outstanding.  At December 31,  2005,  the  Company  had an  aggregate  long-term  senior  indebtedness  of $129,562,000. On March 15, 2006, $6,477,000 of principal amount of 8.625% Senior Notes was redeemed at the redemption  price of 106.596% of the principal  amount being redeemed.  Interest on the outstanding  principal  amount of 8.625% Senior Notes is  payable  by the  Company  semi-annually  in  arrears on March 15th and September 15th at a rate of 8.625% per annum.  The outstanding  principal amount of 8.625%  Senior  Notes is due and payable in full on September  15,  2012.  In addition to making  payments of  principal  and  interest  as  described  in the preceding sentences,  on March 15th and September 15th of each year, the Company and Finance must redeem their 8.625% Senior Notes with any "Company Excess Cash" (as  defined  in the  8.625%  Senior  Notes  Indenture)  at a  redemption  price expressed as a percentage of the principal amount of notes being redeemed.  Such redemption  price declines  annually from 108.625% for redemptions  made between September 15, 2003 and September  14, 2004, to 100% for  redemptions  made after September 14, 2012. Any reduction in principal amount of the 8.625% Senior Notes with Company Excess Cash will lower the interest payments payable by the Company in subsequent periods.  OFF-BALANCE SHEET ARRANGEMENTS - ------------------------------  The Company does not have any off-balance  sheet  arrangements  that have or are reasonably likely to have a current or future effect on the Company's  financial condition,  changes in financial  condition,  revenues or  expenses,  results of operations, liquidity, capital expenditures or capital resources.                                         22    E - OVERVIEW OF CURRENT AND FUTURE CASH FLOWS  The Company  expects to fund its operating,  debt service and capital needs from cash flows from the  Company's  distributions  from TCA, and from the  Company's available  cash.  Based  upon  the  Company's   anticipated  future  operations, management  believes  that  available  cash flow will be  sufficient to meet the Company's  anticipated  requirements  for  future  operating  expenses,   future scheduled  payments of  principal  and  interest on the 8.625%  Senior Notes and additional  investments  in TCA  that may be  required  in  connection  with the Project Sunburst expansion.  No assurance,  however, can be given that operating cash flows will be sufficient for that purpose.  1 - SOURCES OF INCOME AND CASH FLOWS  The Company has one primary  source of income and cash flow:  equity  income and distributions from TCA. The Company  anticipates regular payments from TCA based on the  results of the  Mohegan  Sun and  Relinquishment  Fees  payments  by the Authority to TCA.  2 - PAYMENTS OF DISTRIBUTIONS ON THE COMPANY'S PARTNERSHIP INTEREST IN TCA  On April 26, 2005, the Company received $3,296,493, on July 26, 2005 the Company received $12,375,000,  on October 26, 2005 the Company received $3,969,521,  and on January 26, 2006 the Company received  $13,163,715 from TCA as distributions, which  represents  the  Company's  share under the Amended and Restated  Omnibus Termination Agreement of approximately $72,964,000 in Relinquishment Fees earned by TCA pursuant to the  Relinquishment  Agreement for the year January 1 through December 31, 2005.  On April 27,  2004,  on July 27,  2004,  on October  26, 2004 and on January 26, 2005, the Company received $2,620,000,  $11,925,000, $4,073,386 and $12,447,404, respectively,  from TCA as  distributions,  which represents the Company's share under the Amended and Restated  Omnibus  Termination  Agreement of approximately $69,001,000 in Relinquishment  Fees earned by TCA pursuant to the Relinquishment Agreement for the year January 1 through December 31, 2004.  F - RESULTS OF OPERATIONS  COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004  Total  expenses for the twelve months ended  December 31, 2005 were  $15,162,312 compared with  $16,697,545  for the twelve months ended  December 31, 2004.  (a) Interest expense decreased by $1,177,889 and amortization on deferred  financing costs  decreased by $87,420 due primarily to the redemption of the 8.625% Senior Notes in the principal  amounts of $5,600,000  and  $5,599,000 on March 15, 2005 and September 15, 2005, respectively,  (b) salaries-related parties increased by $200,011  due to (i) the  increase  in  Revenues  of the  Mohegan  Sun and  (ii) effective  January  1,  2004 the  incentive  compensation  in  terms of Mr.  Len Wolman's employment  agreement changed from a fixed 0.05% of the Revenues of the Mohegan Sun to an amount that ranges from 0.00% to 0.10% of the  revenues of the Mohegan  Sun  (for  the  years  ended  December  31,  2005  and  2004  incentive compensation was calculated at 0.08% and 0.07%, respectively, of the Revenues of the Mohegan Sun) and (c) general and administrative  costs decreased by $469,019 (primarily attributable to a decrease in legal and other expenses related to the defense  of the  Leisure  litigation  as  described  in  Part  I:  Item 3  LEGAL PROCEEDINGS, of approximately $470,200).  Equity in income of Trading Cove Associates for the year ended December 31, 2005 was $32,441,918  compared with $30,503,631 for the year ended December 31, 2004. The Company has included amortization of purchased interests of $440,028 in each year's equity income. The Company's share of TCA's results fluctuates based upon revenues earned by TCA under the Relinquishment Agreement. In addition, interest and divided income increased by $209,456.  As a result of the  foregoing  factors,  the Company  experienced  net income of $17,606,670  for the year ended  December 31, 2005,  compared with net income of $13,923,694 for the year ended December 31, 2004.                                         23   COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003  Total  expenses for the twelve months ended  December 31, 2004 were  $16,697,545 compared with  $24,751,861  for the twelve months ended  December 31, 2003.  (a) Interest expense decreased by $5,893,696 and amortization on deferred  financing costs  decreased by  $2,253,392  due  primarily to the  redemption  of the 9.50% Senior Notes in the  principal  amount of  $102,349,000  and the issuance of the 8.625%  Senior Notes in the principal  amount of $155 million in June 2003,  (b) salaries-related  parties  increased  by  $316,422  due to (i) the  increase  in Revenues  of the Mohegan Sun and (ii)  effective  January 1, 2004 the  incentive compensation in terms of Mr. Len Wolman's  employment  agreement  changed from a fixed  0.05% of the  revenues  of the  Mohegan Sun to an amount that ranges from 0.00% to 0.10% of the  revenues of the Mohegan Sun (for the year ended  December 31, 2004, incentive  compensation was calculated at 0.07% of the revenues of the Mohegan  Sun) and (c) general and  administrative  costs  increased  by $295,628 (primarily  attributable to (i) an increase in legal and other expenses  related to the defense of the Leisure  litigation  as  described in PART I: Item 3 LEGAL PROCEEDINGS, of approximately $303,300, (ii) by an increase in insurance expense of  approximately  $5,900,  (iii) by an  increase  in other  legal  expenses  of approximately  $7,300,  (iv) by an  increase in payroll  taxes of  approximately $4,300  and  offset  by  (v)  a  decrease  in  Commission   filing  expenses  of approximately  $8,700 and (vi) by a decrease in accounting fees of approximately $14,500), (d) 9.50% senior notes tender expense decreased by $509,414 due to the redemption of the 9.50% Senior Notes in June 2003 and (e) depreciation decreased by $9,864.  Equity in income of Trading Cove Associates for the year ended December 31, 2004 was $30,503,631  compared with $28,519,860 for the year ended December 31, 2003. The Company has included amortization of purchased interests of $440,028 in each year's equity income. The Company's share of TCA's results fluctuates based upon revenues earned by TCA under the Relinquishment Agreement. In addition, interest and dividend income decreased by $6,026.  As a result of the  foregoing  factors,  the Company  experienced  net income of $13,923,694  for the year ended  December 31, 2004,  compared with net income of $3,891,633 for the year ended December 31, 2003.  LIQUIDITY AND CAPITAL RESOURCES  The initial capital of the Company consists of the partnership  interests in TCA contributed  by Slavik  Suites,  Inc. and LMW  Investments,  Inc. in forming the Company. In connection with the offering of the 12.75% Senior Notes, the Company used approximately  $25.1 million to purchase from Kerzner  International  $19.2 million in  principal  amount of Authority  subordinated  notes plus accrued and unpaid interest and subordinated notes fee amounts. In addition, TCA distributed approximately  $850,000 in principal amount of Authority  subordinated  notes to the Company.  In addition,  the Company used approximately  $10.6 million of the proceeds  from the 12.75%  Senior  Notes to  purchase  RJH  Development  Corp.'s interests in TCA.   During  September 1997 and on October 12, 1998 and 1999,  the Company  purchased from  Kerzner  International  $2.5  million  Authority  subordinated  notes plus accrued and unpaid  interest and  completion  guarantee fee amounts  (total cost approximately $2.8 million for each transaction).  On January 6, 1998 the Company paid $5 million to Leisure  whereby  Leisure gave up its beneficial  interest of 5% of the  organizational  and administrative fee and excess cash of TCA and any other claims it may have had against the Company, TCA and TCA's partners and former partner.  In  connection  with the  offering of the 9.50% Senior  Notes,  the Company used approximately  $72 million to repurchase  the 12.75%  Senior Notes,  distributed approximately $37 million to its new parent, Waterford Group, and paid the final $2 million to Leisure.  On  December  30,  1999,  the  Authority  paid to the  holders of the  Authority subordinated  notes,  an amount to satisfy  all  obligations  of such  Authority subordinated  notes.  The Company received  $44,403,517  from the Authority.  On December 30, 1999,  TCA  distributed  $10,536,543  to its partners.  The Company received $5,268,272.  On  January  4, 2000 in  accordance  with the terms of the  9.50%  Senior  Notes indenture,  dated as of March 17,  1999  between the  Company  and  Finance,  as issuers,  and State Street Bank and Trust Company, as trustee,  and the Security and  Control  Agreement,  dated as of March 17,  1999  between  the  Company and Finance and State Street Bank and Trust Company,  $15,000,000 was transferred to restricted investments.  On January 4, 2000 also in  accordance  with the terms of the 9.50% Senior Notes indenture, the Company distributed $34,671,789 to its member Waterford Group.  On November 1, 2002, the Company distributed  $15,000,000 to Waterford Group, as a Permitted  Dividend,  in  accordance  with the terms of the 9.50% Senior Notes indenture.  In connection  with the offering of the 8.625%  Senior  Notes,  the Company used approximately   $111.8   million  to  repurchase  the  9.50%  Senior  Notes  and distributed $44.5 million to Waterford Group.                                          24     Tax distributions  totaling  approximately  $21,262,000 were made by the Company during 1999,  2000, 2001, 2002, 2003, 2004 and 2005 in accordance with the terms of  the  applicable  indentures.  On  January  10,  2006 a tax  distribution  of approximately $3,314,000 was made by the Company.  The Company  distributed the following  amounts to Waterford Group in accordance with the terms of the 8.625% Senior Notes Indenture.                  Date of Distribution                    Amount Distributed                ----------------------                  --------------------                 September 15, 2003                           $98,080                  March 15, 2004                              $349,247                  September 15, 2004                          $249,567                  March 15, 2005                              $294,585                  September 15, 2005                          $336,050                  March 15, 2006                              $382,832  Accordingly,  after taking into  consideration net income (loss) since inception the Company has a member's deficit of approximately $99,424,000 and $109,998,000 at December 31, 2005 and 2004, respectively.  For the years ended  December 31, 2005 and 2004,  net cash provided by operating activities  (as shown in the  Statements  of Cash  Flows)  was  $18,003,528  and $14,425,391, respectively.  Current assets decreased from $10,750,950 at December 31, 2004 to $10,653,624 at December 31, 2005. The decrease was primarily  attributable to (i) the scheduled semi-annual  payment of interest on March 15, 2005 and September 15, 2005 on the 8.625% Senior Notes in the amounts of  approximately  $6,070,000 and $5,829,000, respectively, (ii) by the redemption on March 15, 2005 of 8.625% Senior Notes in the principal  amount of $5,600,000,  at the redemption price of 107.610% of the principal  amount being redeemed,  (iii) by the redemption on September 15, 2005 of 8.625% Senior Notes in the principal amount of $5,599,000,  at the redemption price of 106.596% of the principal amount being redeemed,  (iv) by distributions to Waterford  Group on March 15, 2005 and  September  15, 2005 of  approximately $294,600 and $336,100,  respectively  and (v) by tax  distributions to Waterford Group on January 10, 2005,  April 11, 2005, June 10, 2005 and December 27, 2005, of approximately $2,875,400, $11,100, $3,041,600 and $473,400, respectively, and offset  by  (vi)  approximately   $18,003,500  of  cash  provided  by  operating activities.  Current liabilities decreased from $3,728,147 at December 31, 2004 to $3,653,206 at December 31, 2005. The decrease was primarily  attributable to (i) a decrease in accrued  interest on Senior Notes payable of  approximately  $284,400 (during the year 2005,  8.625% Senior Notes in the principal  amount of $11,199,000 were redeemed)  and offset by (ii) an  increase  in  accrued  expenses  and  accounts payable of approximately  $209,500 primarily  attributable to (a) an increase in amount due for  salaries-related  parties of approximately  $218,200,  (b) by an increase in amounts due for  accounting  services  of  approximately  $9,800 and offset by (c) a decrease in legal and other  expenses  related to the defense of the Leisure Litigation,  as detailed under PART I: Item 3 LEGAL PROCEEDINGS,  of approximately $11,600.  For the years ended  December  31, 2005 and 2004 net cash  provided by investing activities (as shown in the Statements of Cash Flows) was $623,572 and $596,593, respectively. The net cash provided by investing activities in 2005 and 2004 was the result of net maturities and purchases of restricted investments.                                         25     The Company anticipates that no additional contributions will have to be made by the Company to TCA (to fund certain of TCA's development  expenses in connection with the Project Sunburst expansion at the Mohegan Sun). As of December 31, 2005 $5,000,000  had been  contributed by the Company to TCA to fund certain of TCA's development  expenses in connection with the Project  Sunburst  expansion at the Mohegan Sun.  For the  twelve  months  ended  December  31,  2005 and  2004,  net cash used in financing  activities (as shown in the Statements of Cash Flows) was $18,231,043 and $15,342,304, respectively. The net cash used in financing activities in 2005 was primarily  the result of the  redemption of the 8.625% Senior Notes on March 15, 2005 and  September  15, 2005 in the  principal  amounts of  $5,600,000  and $5,599,000, respectively, and by distributions to Waterford Group of $7,032,043. The net cash used in financing  activities  in 2004 was  primarily the result of the  redemption  of the 8.625%  Senior Notes on March 15, 2004 and September 15, 2004 in the principal amounts of $7,302,000 and $5,025,000, respectively, and by distributions to Waterford Group of $3,015,304.  Pursuant to the terms of the 8.625% Senior Notes  Indenture,  if the Company and Finance  have any Company  Excess  Cash,  as defined in the 8.625%  Senior Notes Indenture, on February 1st or August 1st of any year, they must use such Company Excess Cash less all  Required  IRA True-Up  Payments,  as defined in the 8.625% Senior Notes Indenture, and less any amount set aside for the payment of accrued and  unpaid  interest  on the  interest  payment  date that  corresponds  to the redemption date for which the  determination is being made, to redeem the 8.625% Senior Notes on the March 15th or September 15th following such dates.  Any such redemption will be made at a price equal to a percentage of the principal amount being redeemed.  The Company and Finance have periodically redeemed portions of the 8.625% Senior Notes with Company  Excess Cash pursuant to the terms of the 8.625% Senior Notes Indenture. The table below summarizes (a) the amount of Company Excess Cash that the  Company  and  Finance  have  determined  was  available  for the  mandatory redemption  of the 8.625%  Senior  Notes on February  1st and August 1st of each applicable year pursuant to the terms of the 8.625% Senior Notes Indenture,  (b) the aggregate principal amount of 8.625% Senior Notes redeemed with such Company Excess Cash, (c) the date on which such redemption was consummated,  and (d) the redemption price at which such redemption was made.         Date                Company Excess Cash        Principal Amount of      Dates of Redemption     Price (expressed as percentage of                     (approximately)            notes redeemed                                   principal amount being redeemed - ----------------    -------------------        -------------------      --------------------    --------------------------------- August 1, 2003        $   5,568,000              $ 1,912,000             September 15, 2003                 108.625% February 1, 2004      $  14,534,000              $ 7,302,000               March 15, 2004                   108.625% August 1, 2004        $  11,695,000              $ 5,025,000             September 15, 2004                 107.610% February 1, 2005      $  12,098,000              $ 5,600,000               March 15, 2005                   107.610% August 1, 2005        $  11,798,000              $ 5,599,000             September 15,2005                  106.596% February 1, 2006      $  12,492,000              $ 6,477,000               March 15, 2006                   106.596%     The Company  expects to fund its operating,  debt service and capital needs from cash flows from the Company's share of payments from TCA, and from the Company's available  cash.  Based  upon  the  Company's   anticipated  future  operations, management  believes  that  available  cash flow will be  sufficient to meet the Company's  anticipated  requirements  for  future  operating  expenses,   future scheduled  payments of  principal  and  interest on the 8.625%  Senior Notes and additional  investments  in TCA  that may be  required  in  connection  with the Project  Sunburst  expansion at the Mohegan Sun. No assurance,  however,  can be given that the operating cash flow will be sufficient for that purpose.                                          26
Market risk  represents the risk of changes in value of a financial  instrument, derivative or non-derivative,  caused by fluctuations in interest rates, foreign exchange  rates  and  equity  prices.  Changes  in  these  factors  could  cause fluctuations in earnings and cash flows.  For fixed rate debt,  changes in interest rates generally  affect the fair value of the debt instrument, but not earnings or cash flows. Therefore, interest rate risk  and  changes  in the  fair  value of fixed  rate  debt  should  not have a significant  impact on earnings or cash flows until such debt is refinanced,  if necessary.  For variable rate debt,  changes in interest rates  generally do not impact the fair value of the debt instrument,  but do affect future earnings and cash flows.  The  Company did not have any  variable  rate debt  outstanding  at December 31, 2005 and 2004.  The fair value of the Company's  long-term  debt at December  31, 2005 and 2004 is estimated to be  approximately  $137,984,000  and $150,614,000,  respectively,  based on the  market  quotations  obtained  by the Company.  The Company is exposed to market risks from  fluctuations  in interest rates and the  effects  of those  fluctuations  on  market  values of the  Company's  cash equivalents and restricted  investments.  Cash equivalents  generally consist of overnight investments while the restricted  investments at December 31, 2005 are principally   comprised  of  an  investment  in  a  Federal  National   Mortgage Association Discount Note which was purchased at a discount of 3.68% and matured March 8, 2006 and an investment in the First American Treasury Obligations Fund. These investments are not significantly exposed to interest rate risk, except to the extent that changes in interest rates will  ultimately  affect the amount of interest income earned and cash flow from these investments.  The Company does not currently  have any  derivative  financial  instruments  in place to manage interest costs, but that does not mean that the Company will not use them as a means to manage interest rate risk in the future.  The  Company  does  not use  foreign  currency  exchange  forward  contracts  or commodity  contracts  and  does  not  have  foreign  currency  exposure  in  its operations.
The Company's  financial  statements and notes thereto are filed as part of this report and appear in this annual report on Form 10-K beginning on page 35.  Item  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND FINANCIAL DISCLOSURE  None.
(a)  Evaluation of Disclosure Controls and Procedures  The Company  maintains  disclosure  controls and procedures that are designed to ensure that information  required to be disclosed in the Company's  Exchange Act reports, is recorded, processed, summarized and reported within the time periods specified  in the  Commission's  rules and forms  and that such  information  is accumulated and  communicated to the Company's  management,  including its Chief Executive  Officer and Chief Financial  Officer,  as  appropriate,  to allow for timely decisions regarding required disclosure. In designing, and evaluating the disclosure controls and procedures,  management recognizes that any controls and procedures,  no  matter  how  well  designed  and  operated,  can  provide  only reasonable  assurance of achieving  the desired  objectives,  and  management is required to apply its judgment in evaluating  the cost benefit  relationship  of possible controls and procedures.  As  required  by the  Commission  Rule  13a-15(b),  the  Company  carried out an evaluation,  under the supervision and with the  participation  of the Company's management,  including the Company's Chief  Executive  Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's  disclosure  controls and procedures as of December 31, 2005. Based on the  foregoing  evaluation,  the  Company's  Chief  Executive  Officer and Chief Financial  Officer  concluded  that  the  Company's   disclosure   controls  and procedures were effective.  (b)  Changes in Internal Controls  There has been no change  in the  Company's  internal  controls  over  financial reporting during the Company's most recent quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal controls or financial reporting.                                        27                                         PART III
The following tables sets forth certain  information with respect to persons who are  members  of the Board of  Directors  of the  Company  or who are  Executive Officers of the Company.  NAME                       AGE                     POSITION - ----                       ---                     -------- Len Wolman                 51            Chairman of the Board and Chief                                          Executive Officer Alan Angel                 49            Chief Financial Officer Del J. Lauria              57            Director and Secretary Mark Wolman                48            Director Stephan F. Slavik          59            Director Richard Slavik             55            Vice President   LEN WOLMAN.  Mr. Len Wolman has been the Chairman of the Board of Directors  and the Chief  Executive of the Company  since its  formation.  Since 1986,  Mr. Len Wolman has been the Chairman of the Board of Directors  and the Chief  Executive Officer of the  Waterford  Hotel  Group,  Inc.  Mr. Len Wolman is the  Company's designated  representative to TCA under the TCA Partnership  Agreement.  Mr. Len Wolman was  instrumental  in the formation of the  relationship  between Trading Cove and the Mohegan Tribe and had been actively  working with the Mohegan Tribe in connection  with obtaining  federal  recognition,  acquiring the site for the Mohegan Sun and  obtaining  the  financing to construct the Mohegan Sun. Mr. Len Wolman was actively  involved in the development,  construction and operation of the Mohegan  Sun.  Mr. Len Wolman has served as  President  and Chief  Executive Officer of Finance since its inception. Mr. Len Wolman is a Director and Officer of Slavik,  one of the Waterford Group's members.  Mr. Len Wolman is the brother of Mr. Mark Wolman. Mr. Len Wolman's wife and Mr. Angel's wife are sisters.  ALAN ANGEL.  Mr. Angel became Chief Financial  Officer of the Company in January 1999.  Since  1997,  Mr.  Angel has been the Chief  Financial  Officer of Mystic Suites, L.L.C. Mystic Suites,  L.L.C. is a commercial  development firm based in Eastern  Connecticut which currently holds an ownership  interest in a number of hotels  managed by the  Waterford  Hotel  Group,  Inc.  Prior to joining  Mystic Suites,  L.L.C., Mr. Angel resided in South Africa and served as Chief Financial Officer of Rowan & Angel cc. Mr. Angel is a certified  public  accountant  and a chartered accountant.  Mr. Angel has over 20 years of accounting experience. Mr. Angel's wife and Mr. Len Wolman's wife are sisters.  DEL J.  LAURIA.  Mr.  Lauria  became a  Director,  Chief  Financial  Officer and Secretary of the Company upon its  formation.  Mr. Lauria was succeeded as Chief Financial  Officer in January  1999 by Mr.  Alan  Angel.  Mr.  Lauria is also an Officer and Director of the Waterford  Hotel Group,  Inc. and is Executive  Vice President   and  Director  of  Slavik.   Mr.  Lauria  first  joined  the  Slavik Organization in 1980 as the Chief Financial  Officer of its real estate property management  division.  The Slavik  Organization  is an affiliated  group of full service real estate companies first  established in Michigan in the early 1950s. Mr. Lauria  rapidly  advanced at the Slavik  Organization  and  currently  holds various key managerial  positions  within the  enterprise.  Prior to joining the Slavik  Organization,  Mr. Lauria was associated  with the  accounting  firm now known as Deloitte & Touche and is a certified public accountant.  Mr. Lauria has served as Treasurer and Secretary of Finance since its inception.  MARK  WOLMAN.  Mr.  Mark  Wolman  became  a  Director  of the  Company  upon its formation.  Mr. Mark Wolman is the president of Wolman Homes, Inc. Wolman Homes, Inc.  is a  commercial  development  and  construction  firm  based  in  Eastern Connecticut.  Mr. Mark Wolman has been working with the Mohegan Tribe since 1992 and had been  instrumental  in assisting the Mohegan Tribe in obtaining a number of governmental approvals in connection with the development and construction of the Mohegan Sun. Mr. Mark Wolman is a Director of Slavik. Mr. Mark Wolman is the brother of Mr. Len Wolman.  STEPHAN F. SLAVIK. Mr. Stephen Slavik was appointed a Director of the Company on April 9, 2001.  Mr.  Stephen  Slavik is the  President of Michigan  based Slavik Builders.  Mr. Stephen Slavik has over 30 years of experience with all phases of land  planning,  product  design,  estimating  and site  construction  in single family, multiple and commercial design/build developments. Mr. Stephen Slavik is a Director and Vice  President of Slavik.  Mr.  Stephen Slavik is the brother of Mr. Richard Slavik.  MR.  RICHARD  SLAVIK.  Mr.  Richard Slavik was appointed a Vice President of the Company on April 9, 2001. Mr. Richard Slavik is Chief  Operating  Officer of the Fourmidable  Group,  Inc., a Michigan  based real estate  management  firm.  Mr. Richard  Slavik  has over 20  years of  constructing  and  operating  commercial residential real estate  experience.  Mr. Richard Slavik is President of Slavik. Mr. Richard Slavik is the brother of Mr. Stephan F. Slavik.  In light of the  Company's  limited  operations  and the fact that the Company's interest in TCA is its principal  asset and source of income and cash flow,  the Company has not adopted a code of ethics that applies to the Company's principal executive officer,  principal financial officer, principal accounting officer or controller, or persons performing similar functions.                                         28
The following table  summarizes the  compensation  paid to the Directors and the named Executive Officers of the Company.   NAME                      YEAR ENDED                SALARY - ----                      ----------                ------ Len Wolman(i)                2005               $   1,417,431                              2004               $   1,217,420                              2003               $     900,998  Del Lauria                   2005               $        -                              2004               $        -                              2003               $        -  Stephan F. Slavik            2005               $        -                              2004               $        -                              2003               $        -  Mark Wolman                  2005               $        -                              2004               $        -                              2003               $        -  Alan Angel                   2005               $        -                              2004               $        -                              2003               $        -  Richard Slavik               2005               $        -                              2004               $        -                              2003               $        -  (i) As detailed in Item 13, Mr. Len Wolman has an  employment  contract with the Company.  For the years ended  December  31,  2005,  2004 and 2003,  $1,417,431, $1,217,420 and $900,998,  respectively,  was incurred by the Company pursuant to the employment contract.  From January 1, 2000, the Company's Directors have also received compensation as part of the  operating  expenses of TCA as detailed  under point a) of the table set forth above under "Amended and Restated Omnibus Termination Agreement".  The Company does not have a compensation  committee,  and all compensation decisions are made by the Board of Directors.
The Company's sole member is Waterford Group, L.L.C.  The following  table sets forth the beneficial  ownership  interest in Waterford Group, L.L.C.   NAME OF                                                         % OWNERSHIP BENEFICIAL OWNER                                              IN THE COMPANY - ----------------                                              -------------- LMW Investments, Inc.(i)..................................        32.2033% Slavik Suites, Inc.(ii)...................................        67.7967%                                                               --------------                                                                        100.0000%                                                               ==============  (i) LMW  Investments,  Inc.  is owned 50% by Mr. Len Wolman and 50% by Mr.  Mark Wolman. The address for LMW Investments, Inc. is 914 Hartford Turnpike, P.O. Box 715, Waterford, Connecticut 06385.  (ii)  Messrs.  Len  and  Mark  Wolman  each  own  approximately  11.875%  of the outstanding shares of Slavik Suites, Inc. Messrs.  Stephan F. Slavik and Richard Slavik each own approximately 14.35% of the outstanding shares of Slavik Suites, Inc. The address for Slavik Suites,  Inc. is 32605 West 12 Mile Road, Suite 350, Farmington Hills, Michigan 48334.  The Company does not currently have in place any equity compensation plans.                                          29
DEVELOPMENT SERVICES AGREEMENT PHASE II AND RELATED AGREEMENTS AND PAYMENTS  As noted in the  section  above  entitled  "Business - Trading  Cove  Associates Material Agreements - Development Agreement and Related Agreements", on February 9, 1998,  TCA and KIML,  an  affiliate  of Kerzner  Investments,  the  Company's partner  in TCA,  entered  into the  Development  Services  Agreement  Phase II. Pursuant to the Development  Services Agreement Phase II, TCA subcontracted with KIML, who agreed to perform those  services  assigned to KIML by TCA in order to facilitate  TCA's  fulfillment  of its duties and  obligations  to the Authority under  the  Development  Agreement.   KIML  assigned  the  Development  Services Agreement Phase II to Kerzner Investments.  Pursuant to the  Development  Services  Agreement  Phase II, TCA pays to Kerzner Investments  the  Development  Services  Fee  Phase II,  which  equals 3% of the development  costs of the  Project  Sunburst  expansion,  excluding  capitalized interest, less all costs incurred by TCA in connection with the Project Sunburst expansion.  At December 31, 2005 all of TCA's costs  associated with the Project Sunburst  expansion  had not been paid,  however  reasonable  estimates of those costs have been provided for in TCA's financial statements at December 31, 2005. The Development  Services Fee Phase II is paid in installments - on December 31, 1999,  December  31,  2000  and  on  the  Completion  Date,  as  defined  in the Development  Agreement  - with the final  payment  being  made  when the  actual development  costs of the Project  Sunburst  expansion  are known.  TCA pays the Development  Services  Fee  Phase  II from  available  cash  flow,  if  any,  in accordance with the Amended and Restated Omnibus  Termination  Agreement.  TCA's total  development  costs of the Project Sunburst  expansion which comprises the Development  Services Fee Phase II and TCA's costs related to the development of the Project  Sunburst  expansion will exceed the related revenue received by TCA under the Development Agreement by approximately $15,964,000.  This cost overrun has previously been recorded by TCA in its statement of operations.  Before KIML  assigned the  Development  Services  Agreement  Phase II to Kerzner Investments,  it entered into the Local  Construction  Services  Agreement  with Construction, an affiliate of the Company, pursuant to which Construction agreed to provide  certain of those  services  assigned to KIML by TCA  pursuant to the Development  Services  Agreement  Phase  II.  Kerzner  Investments  assumed  the obligation of KIML under the Local Construction Service Agreement.  Pursuant  to the Local  Construction  Services  Agreement,  Kerzner  Investments agreed to pay to Construction a fee equal to 20.83% of the Development  Services Fee  Phase II as and  when  Kerzner  Investments  receives  payment  from TCA in accordance with the Development Services Agreement Phase II.  Pursuant to a Letter agreement,  Construction has subcontracted  with The Slavik Company,  an affiliate of the Company,  to provide  certain  services  under the Local Construction Services Agreement.  In exchange for providing such services, Construction  agreed that The Slavik Company would be paid a fee equal to 14.30% of its fee under the Local Construction Services Agreement.  On April 26, 2000,  July 26,  2000,  January 26, 2001 and July 28, 2003 TCA paid $3,095,000,  $1,238,000,  $6,474,000 and  $9,157,000,  respectively,  as partial payment  of  the  Development  Services  Fee  Phase  II.  Construction  received $644,688, $257,875,  $1,348,534, and $1,907,403,  respectively, and Construction paid The Slavik  Company  $92,190,  $36,876,  $192,840 and $259,121 on April 26, 2000, July 26, 2000, January 26, 2001 and July 28, 2003, respectively.  At December 31, 2005 the accrued  liability to Kerzner  Investments  pursuant to the Development Services Agreement Phase II was approximately $384,000.  The Development Services Agreement Phase II and the Local Construction  Services Agreement  were each filed as an exhibit to the Company's,  Quarterly  Report on Form 10-Q for the period ended March 31, 1999 (Commission File No. 333-17795) as accepted by the Commission on May 17, 1999, and each is  incorporated  herein by reference.                                          30                        EMPLOYMENT AGREEMENT WITH MR. LEN WOLMAN  Len Wolman, the Company's Chairman of the Board of Directors and Chief Executive Officer,  is the  Company's  designated  representative  to TCA  under  the  TCA Partnership Agreement.  On September 28, 1998, the Company entered into an employment agreement with Len Wolman.  The employment  agreement provides for a base annual salary of $250,000 reduced by any amounts Mr. Wolman receives as a salary from TCA for such period. In addition, pursuant to the employment agreement, the Company agreed pay to Mr. Wolman an amount equal to 0.05% of the revenues of the Mohegan Sun including the Project  Sunburst  expansion  to the extent Mr.  Wolman  has not  received  such amounts from TCA. On and after January 1, 2004, the Company agreed to pay to Mr. Wolman  incentive  compensation  based  on  the  revenues  of the  Mohegan  Sun, including the Project Sunburst expansion, as a percentage (ranging from 0.00% to 0.10%) to be determined  using a formula  attached to the employment  agreement, which compares actual revenues to predetermined  revenue targets.  For the years ended  December  31,  2005,  2004 and 2003,  the  Company  incurred  $1,417,431, $1,217,420, and $900,998,  respectively,  as an expense pursuant to Len Wolman's employment agreement.                          OTHER RELATED PARTY TRANSACTIONS  For each of the years ended  December 31,  2005,  2004,  and 2003  approximately $42,000 was incurred by TCA to the  principals  and affiliates of the Company as part of TCA's  operating  expenses.  In  addition,  in  2005,  2004 and 2003 TCA incurred approximately  $926,000,  $935,000 and $920,000,  respectively,  to the principals of the Company in  connection  with the first  priority  payments set forth under the section "Business - Trading Cove Associates  Material Agreements - - Amended and Restated Omnibus Termination Agreement".  In 1999, the Company  renovated Len Wolman's  office space at a cost of $32,413, of which  $30,000 was paid to Wolman  Homes Inc.,  an  affiliate of the Company. Cost of the improvement is being  depreciated  over five years.  Expense for the years  ended  December  31,  2005,  2004  and  2003 was $0,  $553,  and  $6,480, respectively.  Waterford Group, Slavik Suites, Inc. and the other principals of the Company and Waterford  Group  have  interests  in and may  acquire  interests  in  hotels in Southeastern  Connecticut  which have or may have  arrangements with the Mohegan Sun to reserve and provide hotel rooms to patrons of the Mohegan Sun.
For the year ended December 31, 2005  Audit fees                                              $  47,250 Tax fees                                                      750 All other fees     Excess cash certification                               3,000                                                         ---------  Total                                                  $  51,000                                                         =========  For the year ended December 31, 2004  Audit fees                                              $  44,250 Tax fees                                                      750 All other fees      Excess cash certification                              2,250   Total                                                  ---------                                                         $  47,250                                                         =========                                             31                                           PART IV
a) EXHIBITS                 Exhibit No.    Description                  3.1          Certificate of Formation, as amended, of Waterford                                  Gaming, LLC (i)                  3.2          Certificate of Incorporation of Waterford Gaming                                 Finance Corp. (i)                  3.3          Bylaws of Waterford Gaming Finance                               Corp. (i)                  4.1          Indenture, dated as of November 8, 1996, between                               Waterford Gaming, L.L.C. and Waterford Gaming                               Finance Corp., the issuers, and Fleet National                               Bank, as trustee, relating to $65,000,000 12-3/4%                               Senior Notes due 2003. (i)                  4.1.1        First Supplemental Indenture, dated as of March 4,                               1999, among Waterford Gaming, L.L.C. and Waterford                               Gaming Finance, Corp., as issuers, and State                               Street Bank and Trust Company, as trustee,                               relating to $65,000,000 12-3/4% Senior Notes due                               2003.  (vi)                  4.2          Indenture, dated as of March 17, 1999, among                               Waterford Gaming, L.L.C. and Waterford Gaming                               Finance Corp., as issuers, and State Street Bank                               and Trust Company, as trustee, relating to                               $125,000,000 9-1/2% Senior Notes                               due 2010. (vi)                  4.2.1        First Supplemental Indenture, dated as of June 6,                               2003, among Waterford Gaming, L.L.C. and Waterford                               Gaming Finance Corp., as issuers, and U.S. Bank                               National Association, as trustee, relating to                               $125,000,000 9-1/2% Senior Notes due 2010. (viii)                  4.3          Security and Control Agreement, dated as of March                               17, 1999, among Waterford Gaming, L.L.C. and                               Waterford Gaming Finance Corp., as pledgors and                               State Street Bank and Trust Company, as securities                               intermediary. (vi)                  4.3.1        Termination Agreement, dated as of June 11,                               2003, among Waterford Gaming, L.L.C. and                               Waterford Gaming Finance Corp., and                               U.S. Bank National Association, as securities                               intermediary. (viii)                  4.4          Specimen Form of 9-1/2% Senior Notes due 2010                               (included in Exhibit 4.2).  (vi)                  4.5          Indenture, dated as of June 11, 2003, among                               Waterford Gaming, L.L.C. and Waterford Gaming                               Finance Corp., as issuers, and U.S. Bank National                               Association, as trustee, relating to $155,000,000                               8-5/8% Senior Notes due 2012. (viii)                  4.6          Security and Control Agreement, dated as of                               June 11, 2003, among Waterford Gaming, L.L.C. and                               Waterford Gaming Finance Corp., as pledgors and                               U.S. Bank National Association, as securities                               intermediary. (viii)                  4.7          Specimen Form of 8-5/8% Senior Notes due 2012                               (included in Exhibit 4.5). (viii)                  10.1         Omnibus Financing Agreement, dated as of September                               21, 1995, between Trading Cove Associates and Sun                               International Hotels Limited. (i)                  10.2         First Amendment to the Omnibus Financing                               Agreement, dated as of October 19, 1996, among                               Trading Cove Associates, Sun International Hotels                               Limited and Waterford Gaming, L.L.C. (i)                  10.2.1       Amended and Restated Omnibus Financing Agreement                               dated September 10, 1997 (ii)                  10.2.2       Omnibus Termination Agreement, dated as of March                               18, 1999, among Sun International Hotels Limited,                               Trading Cove Associates, Waterford Gaming,                               L.L.C., Sun International Management Limited, LMW                               Investments, Inc., Sun Cove Limited, Slavik                               Suites, Inc., and Wolman Construction, L.L.C.(vi)                  10.2.3       Amended and Restated Omnibus Termination                               Agreement,  dated as of January 1, 2000 and                               effective as of March 18, 1999, among Sun                               International  Hotels Limited, Trading  Cove                               Associates, Waterford Gaming, L.L.C., Sun                               International Management Limited, LMW                               Investments, Inc., Sun Cove Limited, Slavik                               Suites, Inc., and Wolman Construction, L.L.C.(vii)                  10.3         Amended and Restated Partnership Agreement of                               Trading Cove Associates, dated as of September 21,                               1994, among Sun Cove Limited, RJH Development                               Corp., Leisure Resort Technology, Inc., Slavik                               Suites, Inc., and LMW Investments, Inc. (i)                                           32                     10.4         First Amendment to Amended and Restated                               Partnership Agreement of Trading Cove Associates,                               dated as of October 22, 1996, among Sun Cove                               Limited, Slavik Suites, Inc., RJH Development                               Corp., LMW Investments, Inc. and Waterford Gaming,                               L.L.C. (i)                  10.5         Purchase Agreement, dated as of March 10, 1999,                               among Waterford Gaming, L.L.C., Waterford Gaming                               Finance Corp., Bear, Stearns & Co., Inc., Merrill                               Lynch, Pierce, Fenner and Smith Inc. and Salomon                                Smith Barney. (vi)                  10.5.1       Agreement with Respect to Redemption or Repurchase                               of Subordinated Notes, dated September 10,                               1997 (ii)                  10.6         Amended and Restated Limited Liability Company                               Agreement of Waterford Gaming, L.L.C., dated as of                               March 17, 1999 by Waterford Group, L.L.C.  (vi)                  10.7         Note Purchase Agreement, dated as of October 19,                               1996, among Sun International Hotels Limited,                               Waterford Gaming, L.L.C. and Trading Cove                                  Associates. (i)                  10.8         Note Purchase Agreement, dated as of September 29,                               1995, between the Mohegan Tribal Gaming Authority                               and Sun International Hotels Limited relating to                               the Subordinated Notes. (i)                  10.9         Management Agreement, dated as of July 28, 1994,                               between the Mohegan Tribe of Indians of                               Connecticut and Trading Cove Associates. (i)                  10.10        Management Services Agreement, dated September 10,                               1997. (ii)                  10.11        Development Services Agreement, dated September                               10, 1997. (ii)                  10.12        Subdevelopment Services Agreement, dated September                               10, 1997. (ii)                  10.13        Completion Guarantee and Investment Banking and                               Financing Arrangement Fee Agreement, dated                             September 10, 1997. (ii)                  10.14        Settlement and Release Agreement, dated January 6,                               1998, by and among Leisure Resort Technology,                               Inc., Lee R. Tyrol, Trading Cove Associates,                               Slavik Suites, Inc., LMW Investments, Inc., RJH                               Development Corp., Waterford Gaming, L.L.C. and                              Sun Cove Limited. (iii)                  10.15        Waiver and Acknowledgment of Noteholder. (iv)                  10.16        Relinquishment Agreement, dated February 7, 1998,                               between the Mohegan Tribal Gaming Authority and                               Trading Cove Associates.  (v)                  10.17        Development Services Agreement, dated February 7,                               1998, between the Mohegan Tribal Gaming Authority                               and Trading Cove Associates.  (v)                  10.18        Agreement, dated September 28, 1998, by and among,                               Waterford Gaming, L.L.C., Slavik Suites, Inc., LMW                               Investments, Inc., Len Wolman, Mark Wolman,                               Stephan F. Slavik, Sr. and Del J. Lauria (Len                               Wolman's Employment Agreement).  (v)                  10.19        Agreement Relating to Development Services, dated                               as of February 9, 1998, between Trading Cove                               Associates and Sun International Management                               Limited.  (vi)                  10.20        Local Construction Services Agreement, dated as of                               February 9, 1998 between Sun International                               Management Limited and Wolman Construction,                               L.L.C. (vi)                  10.21        Escrow Deposit Agreement,  dated as of the 3rd day                               of March  1999,  by and among the  Mohegan  Tribal                               Gaming Authority and First Union National Bank, as                              Defeasance Agent. (vi)                      21.1 Subsidiaries of Waterford Gaming,                                    L.L.C. (i)                  21.2         Subsidiaries of Waterford Gaming Finance Corp. (i)                  31           Certifications.  (ix)                                          33          (i)  Incorporated by reference to the Registrant's  Registration  Statement           on Form S-4, Commission File No. 333-17795,  declared effective on May           15, 1997.      (ii)  Incorporated by reference to the Registrant's Quarterly Report on Form           10-Q for the period  ended  September  30, 1997,  Commission  File No.           333-17795, as accepted by the Commission on November 14, 1997.      (iii) Incorporated  by reference to the  Registrant's  Annual Report on Form           10-K for the fiscal year ended December 31, 1997,  Commission File No.           333-17795, as accepted by the Commission on March 30, 1998.      (iv)  Incorporated by reference to the Registrant's Quarterly Report on Form           10-Q  for the  period  ended  March  31,  1998,  Commission  File  No.           333-17795, as accepted by the Commission on May 14, 1998.      (v)   Incorporated by reference to the Registrant's Quarterly Report on Form           10-Q for the period  ended  September  30, 1998,  Commission  File No.           333-17795, as accepted by the Commission on November 13, 1998.      (vi)  Incorporated by reference to the Registrant's Quarterly Report on Form           10-Q  for the  period  ended  March  31,  1999,  Commission  File  No.           333-17795 as accepted by the Commission on May 17, 1999.      (vii) Incorporated by reference to the Registrant's Quarterly Report on Form           10-Q  for the  period  ended  March  31,  2001,  Commission  File  No.           333-17795 as accepted by the Commission on May 14, 2001.      (viii)Incorporated by reference to the Registrant's Quarterly Report on Form           10-Q for the period ended June 30, 2003, Commission File No. 333-17795           as accepted by the Commission on August 12, 2003.      (ix) Filed herewith.                                          34    b) FINANCIAL STATEMENTS SCHEDULES    INDEX TO FINANCIAL STATEMENTS   WATERFORD GAMING, L.L.C. Report of Independent Registered Public Accounting Firm         F-1 Financial Statements: Balance Sheets as of December 31, 2005 and 2004                 F-2 Statements of Income for the years ended         December 31, 2005, 2004 and 2003                        F-3 Statements of Changes in Member's Deficiency for the         years ended December 31, 2005, 2004 and 2003            F-4 Statements of Cash Flows for the years ended         December 31, 2005, 2004 and 2003                        F-5 Notes to Financial Statements                                   F-6  TRADING COVE ASSOCIATES Report of Independent Registered Public Accounting Firm         F-18 Financial Statements: Balance Sheets as of December 31, 2005 and 2004                 F-19 Statements of Operations for the years ended         December 31, 2005, 2004 and 2003                        F-20 Statements of Changes in Partners' Capital         for the years ended         December 31, 2005, 2004 and 2003                        F-21 Statements of Cash Flows for the years ended         December 31, 2005, 2004 and 2003                        F-22 Notes to Financial Statements                                   F-23                                               35                   REPORT OF INDEPENDENT REGISTERED PUBIC ACCOUNTING FIRM   To the Member of Waterford Gaming, L.L.C.  In our opinion,  the accompanying  balance sheets and the related  statements of income,  of changes in member's  deficiency and of cash flows present fairly, in all material respects,  the financial position of Waterford Gaming,  L.L.C. (the "Company") at December 31, 2005 and 2004 and the results of its  operations  and its cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.  These financial  statements are the responsibility of the Company's management.  Our  responsibility  is to express  an  opinion on these  financial statements  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.  PricewaterhouseCoopers, LLP Hartford, CT March 15, 2006                                          F-1                                  Waterford Gaming, L.L.C.                                   Balance Sheets                             December 31, 2005 and 2004                          ---------------------------------                                                                                              2005                     2004                                                                                   ---------------           ---------------                   ASSETS  Current assets     Cash and cash equivalents                                                     $    4,967,809            $    4,571,752     Restricted investments                                                             5,651,711                 6,104,635     Other current assets                                                                  34,104                    74,563                                                                                   ---------------           ---------------        Total current assets                                                           10,653,624                10,750,950  Trading Cove Associates - equity investment                                           17,406,115                17,052,615 Beneficial interest - Leisure Resort Technology, Inc.                                  3,406,069                 3,784,059 Deferred financing costs, net of accumulated amortization of $1,517,388        and $939,890 at December 31, 2005 and 2004, respectively                        2,325,643                 2,903,141 Fixed assets, net of accumulated depreciation of $53,918 at December 31, 2005        and 2004                                                                              ---                       ---                                                                                   ---------------           ---------------         Total assets                                                               $   33,791,451            $   34,490,765                                                                                   ===============           ===============                    LIABILITIES AND MEMBER'S DEFICIENCY  Current liabilities     Accrued expenses and accounts payable                                         $      362,871            $      153,404     Accrued interest on senior notes payable                                           3,290,335                 3,574,743                                                                                   ---------------           ---------------        Total current liabilities                                                       3,653,206                 3,728,147  8.625% senior notes payable                                                          129,562,000               140,761,000                                                                                   ---------------           ---------------         Total liabilities                                                             133,215,206               144,489,147                                                                                   ---------------           ---------------  Commitments and contingent liabilities  Member's deficiency                                                                  (99,423,755)             (109,998,382)                                                                                   ---------------           ---------------        Total liabilities and member's deficiency                                  $   33,791,451            $   34,490,765                                                                                   ===============           ===============   The accompanying notes are an integral part of these financial statements.                                           F-2                                  Waterford Gaming, L.L.C.                                Statements of Income                For the years ended December 31, 2005, 2004 and 2003               ---------------------------------------------------------                                                                            2005                     2004                   2003                                                                 -------------           -------------          -------------      Expenses       Interest expense                                          $ 12,410,198            $ 13,588,087           $ 19,481,783       Salaries - related parties                                   1,417,431               1,217,420                900,998       General and administrative                                     379,195                 848,214                552,586       9.50% senior notes tender expense                                  ---                     ---                509,414       Amortization of beneficial interest -          Leisure Resort Technology, Inc.                             377,990                 377,990                377,990       Amortization on deferred financing costs                       577,498                 664,918              2,918,310       Depreciation                                                       ---                     916                 10,780                                                                 -------------           -------------          -------------                Total expenses                                      15,162,312              16,697,545             24,751,861                                                                 -------------           -------------          -------------         Interest and dividend income                                   327,064                 117,608                123,634       Equity in income of          Trading Cove Associates                                  32,441,918              30,503,631             28,519,860                                                                 -------------           -------------          -------------                 Net income                                        $ 17,606,670            $ 13,923,694           $  3,891,633                                                                 =============           =============          =============   The accompanying notes are an integral part of these financial statements.                                          F-3                                  Waterford Gaming, L.L.C.                    Statements of Changes in Member's Deficiency                For the years ended December 31, 2005, 2004 and 2003              ----------------------------------------------------------     Balance, January 1, 2003                                      $  (76,962,084)  Distributions                                                    (47,836,321)  Net income                                                         3,891,633                                                               ---------------  Balance, December 31, 2003                                      (120,906,772)  Distributions                                                     (3,015,304)  Net income                                                        13,923,694                                                               ---------------  Balance, December 31, 2004                                      (109,998,382)  Distributions                                                     (7,032,043)  Net income                                                        17,606,670                                                               ---------------  Balance, December 31, 2005                                    $  (99,423,755)                                                               ===============   The accompanying notes are an integral part of these financial statements.                                         F-4                                   Waterford Gaming, L.L.C.                              Statements of Cash Flows                For the years ended December 31, 2005, 2004 and 2003               --------------------------------------------------------                                                                                     2005              2004             2003                                                                            -------------     -------------    -------------  Cash flows from operating activities     Net income                                                             $ 17,606,670      $ 13,923,694     $  3,891,633                                                                            -------------     -------------    -------------      Adjustments to reconcile net income        to net cash provided by operating activities          Amortization                                                           955,488         1,042,908        3,296,300          Depreciation                                                               ---               916           10,780          Accretion of discount on restricted investment securities             (170,648)          (77,503)         (93,097)          Equity in income of Trading Cove Associates                        (32,441,918)      (30,503,631)     (28,519,860)          Operating distributions from Trading Cove Associates                32,088,418        30,416,503       23,526,711          Changes in operating assets and liabilities             Other current assets                                                 40,459           (67,311)             713             Accrued expenses and accounts payable                               209,467             2,869           38,539             Accrued interest on senior notes payable                           (284,408)         (313,054)         866,601                                                                            -------------     -------------    -------------                    Net cash provided by                       operating activities                                   18,003,528        14,425,391        3,018,320                                                                            -------------     -------------    -------------  Cash flows from investing activities     Maturities of restricted investments                                     12,045,607        12,955,088       26,826,113     Purchases of restricted investments                                     (11,422,035)      (12,358,495)     (23,012,611)     Contributions to Trading Cove Associates                                        ---               ---         (450,000)     Distributions from Trading Cove Associates                                      ---               ---          450,000                                                                            -------------     -------------    -------------                    Net cash provided by                        investing activities                                     623,572           596,593        3,813,502                                                                            -------------     -------------    -------------  Cash flows from financing activities     Redemption of  8.625% senior notes payable                              (11,199,000)      (12,327,000)      (1,912,000)     Distributions to member                                                  (7,032,043)       (3,015,304)     (47,836,321)     Proceeds from 8.625% senior notes issuance                                      ---               ---      155,000,000     Deferred financing costs                                                        ---               ---       (3,843,031)     Redemption of  9.50% senior notes payable                                       ---               ---     (108,007,000)                                                                            -------------     -------------    -------------                    Net cash used in                        financing activities                                 (18,231,043)      (15,342,304)      (6,598,352)                                                                            -------------     -------------    -------------                     Net change in cash and cash equivalents                      396,057          (320,320)         233,470  Cash and cash equivalents  Beginning of year                                                             4,571,752         4,892,072        4,658,602                                                                            -------------     -------------    -------------  End of year                                                                $  4,967,809      $  4,571,752     $  4,892,072                                                                            =============     =============    =============   Supplemental disclosure of cash flow information:     Cash paid during the year for interest                                 $ 12,694,606      $ 13,901,141     $ 18,615,181                                                                            =============     =============    =============   The accompanying notes are an integral part of these financial statements.                                         F-5                                 WATERFORD GAMING, L.L.C.                            NOTES TO FINANCIAL STATEMENTS  ORGANIZATION, MEMBERSHIP AGREEMENT, CHANGE OF OWNERSHIP AND MEMBER ALLOCATIONS:  Waterford Gaming, L.L.C. (the "Company"),  a Delaware limited liability company, was formed on September  30,  1996.  The Company  initially  acquired and owns a partnership  interest in Trading Cove Associates  ("TCA"), a Connecticut general partnership.  The Company is governed  by a Board of  Directors  pursuant to the limited liability company agreement (the "Agreement"). In June 2003, the Company with its  wholly-owned  subsidiary  Waterford  Gaming Finance Corp.  ("Finance") issued $155 Million  8.625% Senior Notes due 2012 (the "8.625% Senior Notes") in connection  with the redemption of the Company's and Finance's $125 Million 9.5% Senior Notes due 2010 (the "$125  Million  Senior  Notes").  In March 1999,  the Company  together  with  Finance  had issued the $125  Million  Senior  Notes in connection with the redemption of the Company's and Finance's $65 Million 12.75% Senior Notes due 2003 (the "$65 Million Senior  Notes").  In connection with the issuance by the  Company's  and Finance's  $125 Million  Senior  Notes,  each of Slavik Suites,  Inc.  ("Slavik") and LMW Investments,  Inc. ("LMW")  contributed their  respective  interests  in the  Company as of March 17, 1999 to a Delaware limited  liability  company,   Waterford  Group,  L.L.C.   ("Waterford  Group"). Waterford  Group is now the  sole  member  of the  Company.  Slavik  and LMW own Waterford Group in the same respective interest as they had in the Company which are as follows:  Slavik Suites, Inc.                     67.7967% LMW Investments, Inc.                   32.2033%                                        ---------                                        100.0000%                                        =========   The Agreement is effective until September 30, 2020 and may be terminated by the member or any other event as stated in the Agreement.  Finance has no activity and maintains  only $100 in cash.  Therefore,  it is not consolidated in the accompanying financial statements of the Company.  In  connection  with  the  $125  Million  Senior  Notes  offering,  the  Company distributed  $37,050,000 to Waterford Group,  L.L.C.  during March 1999.  During December 1999, the Company  received a payment on notes it held due from Mohegan Tribal  Gaming  Authority  (the  "Authority")  and a  distribution  from TCA. As contemplated in the $125 Million Senior Notes offering,  the Company distributed approximately $34,672,000 to Waterford Group during January 2000. On November 1, 2002 the Company  distributed  $15,000,000 to Waterford Group in accordance with the  terms of the  indenture  relating  to the $125  Million  Senior  Notes.  In connection  with the 8.625%  Senior  Notes  offering,  the  Company  distributed approximately $44,500,000 to Waterford Group during June 2003. Tax distributions totaling  approximately  $21,262,000 were made by the Company during 1999, 2000, 2001,  2002,  2003,  2004 and 2005.  On January 10, 2006 a tax  distribution  of approximately  $3,314,000  was made by the  Company.  In  addition  the  Company distributed  the following  amounts to Waterford  Group in  accordance  with the terms of the indenture  relating to the 8.625% senior notes (the "8.625%  Senior Notes Indenture").          Date of Distribution            Amount Distributed         --------------------            ------------------          September 15, 2003                  $  98,080         March 15, 2004                      $ 349,247         September 15, 2004                  $ 249,567         March 15, 2005                      $ 294,585         September 15, 2005                  $ 336,050         March 15, 2006                      $ 382,832   1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:  Accounting Method  The accrual  method of  accounting is used in the  preparation  of the financial statements.  Cash and Cash Equivalents  Cash  and  cash  equivalents  represent  cash  and  short-term,   highly  liquid investments  with  original  maturities  of three  months  or less  from date of purchase.  Restricted Investments  Restricted  investments  at December  31, 2005 are  principally  comprised of an investment in a Federal National Mortgage  Association  Discount Note, which was purchased at a discount of 3.68% and matured March 8, 2006, and an investment in the First  American  Treasury  Obligations  Fund and at  December  31,  2004 are principally  comprised of an  investment  in a Federal  Home Loan Bank  Discount Note,  which was  purchased at a discount of 1.82% and matured March 2, 2005 and an investment in the First American  Treasury  Obligations Fund. The investments represent a restricted  investment fund that has been established with a trustee in terms of the 8.625%  Senior  Notes  Indenture  and is  reported  at cost plus accrued interest, which approximates fair value.                                         F-6   Trading Cove Associates - Equity Investment  The  Company's  equity  investment  in TCA is accounted for utilizing the equity method.  Included in the  investment is the purchase price paid to a corporation for their 12.50%  interest in TCA.  This amount is amortized on a straight  line basis over a 189 month period.  The Company  receives  distributions  from TCA in accordance with an Amended and Restated Omnibus  Termination  Agreement.  The amount of distributions  received relies  on  the  fees  earned  and  cash   received  by  TCA   pursuant  to  its Relinquishment  Agreement  with the Authority.  Distributions  are recorded when received.  Deferred Financing Costs  All costs  incurred  with the issuance of the  Company's  and  Finance's  8.625% Senior Notes,  were capitalized and are amortized on a straight-line  basis over the term of the 8.625% Senior Notes.  Additional  amortization  is recorded when the 8.625% Senior Notes are redeemed. The additional  amortization is the amount that the redeemed 8.625% Senior Notes represents of the total deferred financing costs net of accumulated amortization.  Fixed Assets  Fixed Assets are stated at cost. Depreciation is charged against income over the estimated  life of the  fixed  assets.  The  estimated  life is five  years  for furniture and fixtures and leasehold improvements.  Income Taxes  The Company,  as a wholly owned  subsidiary  of Waterford  Group,  does not file federal or state income tax returns.  As a result,  no provision for federal and state income taxes has been made in the accompanying financial statements.  Concentration of Credit Risk  The Company's  interest in TCA is its  principal  asset and source of income and cash flow. The Company anticipates regular distributions from TCA based upon the operating  results of the Authority  and payments of the related  Relinquishment Fees, as defined, by the Authority.  Financial instruments,  which potentially subject the Company to a concentration of  credit  risk,  principally  consist  of  cash  in  excess  of the  financial institutions'  insurance  limits.  The Company invests  available cash with high credit quality institutions.  Fair Value of Financial Instruments  Fair value of the Company's debt is based on the market  quotations  obtained by the Company.  Use of Estimates  The preparation of financial statements in conformity with accounting principles generally  accepted in the United States of America requires  management to make estimates and  assumptions  that affect the amounts of assets and liabilities at the  date  of the  financial  statements,  as well as the  reported  amounts  of revenues and expenses during the reporting  period.  Actual results could differ from those estimates.  Reclassifications  Certain 2004 and 2003 balances have been  reclassified  to conform with the 2005 presentation.  2. TRADING COVE ASSOCIATES:  TCA was organized on July 23, 1993. The primary purpose of TCA has been,       a)   to assist the Mohegan Tribe of Indians of  Connecticut  (the "Tribe"),           in obtaining federal recognition,       b)   to negotiate the tribal-state compact with the State of Connecticut on           behalf of the Tribe,       c)   to obtain  financing  for the initial  development  of the Mohegan Sun           Casino (the "Mohegan Sun"),       d)   to  negotiate  the Amended and  Restated  Gaming  Facility  Management           Agreement (the "Management Agreement"),       e)   to oversee all  operations of the Mohegan Sun pursuant to the terms of           the Management Agreement until midnight December 31, 1999, and       f)   to participate in the design and development of the Mohegan Sun.                                          F-7    The Mohegan Sun commenced  operations  on October 12, 1996.  From the opening of Mohegan Sun until  January 1, 2000,  TCA oversaw  the Mohegan  Sun's  day-to-day operations.  TCA's Partnership Agreement (the "TCA Partnership  Agreement") will terminate on December 31, 2040, or earlier,  in accordance with its terms.  The Company has a 50% partnership  interest in TCA. The remaining 50% interest is owned by Kerzner Investments  Connecticut,  Inc.  ("Kerzner  Investments"),   formerly  Sun  Cove Limited,   an   affiliate   of   Kerzner    International    Limited   ("Kerzner International").  As of December 31, 2005, 2004 and 2003 the following summary information relates to TCA. Total revenues and net income are for the years ended December 31, 2005, 2004 and 2003.                                                           2005                    2004             2003                                               --------------         --------------   -------------- Total current assets                          $  29,543,888          $  27,322,651    $  26,143,405                                               ==============         ==============   ==============  Total assets                                  $  31,538,844          $  29,539,425    $  28,582,603 Total liabilities                                (1,385,591)              (973,228)      (1,070,719)                                               --------------         -------------    -------------- Partners' capital                             $  30,153,253          $  28,566,197    $  27,511,884                                               ==============         ==============   ==============  Total revenues                                $  72,978,466          $  69,144,891    $  69,797,608                                               ==============         ==============   ==============  Net income                                    $  70,763,892          $  66,887,319    $  62,919,777                                               ==============         ==============   ==============   As of December 31, 2005,  2004 and 2003, the following  summarizes the Company's investment in TCA.                                                          2005                   2004              2003                                               --------------         --------------   --------------   Trading Cove Associates -     equity investment, beginning of year      $  17,052,615          $  16,965,487    $  11,972,338   Contributions                                         ---                    ---          450,000   Distributions                                 (32,088,418)           (30,416,503)     (23,976,711)                                               --------------         --------------   --------------                                                  (15,035,803)           (13,451,016)     (11,554,373)                                               --------------         --------------   -------------- Income from Trading Cove   Associates                                     32,881,946             30,943,659       28,959,888 Amortization of interests   purchased                                        (440,028)              (440,028)        (440,028)                                               --------------         --------------   -------------- Equity in income of   Trading Cove Associates                        32,441,918             30,503,631       28,519,860                                               --------------         --------------   -------------- Trading Cove Associates -    equity investment, end of year             $  17,406,115          $  17,052,615    $  16,965,487                                               ==============         ==============   ==============                                           F-8       TRADING COVE ASSOCIATES - MATERIAL AGREEMENTS   RELINQUISHMENT AGREEMENT  On February  7, 1998,  TCA and the  Authority  entered  into the  Relinquishment Agreement   (the   "Relinquishment   Agreement").   Under   the   terms  of  the Relinquishment  Agreement,  TCA  continued  to manage the  Mohegan Sun under the Management  Agreement until midnight  December 31, 1999, and on January 1, 2000, the Management Agreement terminated and the Tribe assumed day-to-day  management of the Mohegan Sun.  Under the Relinquishment Agreement, to compensate TCA for terminating its rights under the Management Agreement and the Hotel/Resort  Management  Agreement,  the Authority agreed to pay to TCA a fee (the "Relinquishment  Fees") equal to 5% of Revenues, as defined in the Relinquishment  Agreement,  generated by the Mohegan Sun during the 15-year period  commencing on January 1, 2000,  including revenue generated  by the Project  Sunburst  expansion  project (the  "Project  Sunburst expansion").  The  Relinquishment  Fees are divided  into senior  relinquishment  payments and junior  relinquishment  payments,  each of  which  equals  2.5%  of  "Revenues". Revenues are defined in the  Relinquishment  Agreement as gross gaming  revenues (other  than Class II gaming  revenue)  and all other  facility  revenues.  Such revenue  includes hotel  revenues,  food and beverage sales,  parking  revenues, ticket revenues and other fees or receipts from the convention/events  center in the Project  Sunburst  expansion and all rental or other  receipts from lessees, licensees  and  concessionaires  operating  in the  facility,  but not the gross receipts of such lessees,  licensees and concessionaires.  Such revenues exclude revenues generated by any other expansion of the Mohegan Sun.  Senior  relinquishment  payments are payable quarterly in arrears  commencing on April  25,  2000  for  the  quarter  ended  March  31,  2000,   and  the  junior relinquishment  payments are payable semi-annually in arrears commencing on July 25, 2000 for the six months ended June 30, 2000,  assuming  sufficient funds are available after satisfaction of the Authority's senior  obligations,  as defined in the Relinquishment Agreement.  For the years ended  December 31, 2005,  2004 and 2003 the  Relinquishment  Fees earned were $72,964,466,  $69,101,491 and $65,099,553,  respectively. The amount of  Relinquishment  Fees reported are based upon Revenues reported to TCA by the Authority.  DEVELOPMENT AGREEMENT AND OTHER RELATED AGREEMENTS  On February 7, 1998, TCA and the Authority entered into the Development Services Agreement (the "Development Agreement").  Pursuant to the Development Agreement, TCA  agreed to oversee  the  design,  construction,  furnishing,  equipping  and staffing of the Project Sunburst  expansion for a $14.0 million  development fee (the "Development Fee").  The first phase of the Project Sunburst  expansion,  including the Casino of the Sky, The Shops at Mohegan Sun, and the  10,000-seat  Mohegan Sun Arena opened in September 2001. In April 2002, 734 of the approximately 1,200-hotel rooms in the 34-story  luxury  hotel as well as the  meeting  and  convention  space  and spa opened.  The balance of the  approximately  1,200-hotel rooms opened during June 2002.  The Project  Sunburst  expansion is complete in terms of the  Development Agreement.  Pursuant  to  the  Development  Agreement,  the  Authority  agreed  to  pay  the Development  Fee to TCA  quarterly  beginning  on  January  15,  2000,  based on incremental  completion  of the Project  Sunburst  expansion  as of each payment date.  The Authority has paid TCA $14.0 million as  Development  Fee payments in accordance with the terms of the Development Agreement.  On February 9, 1998, TCA and Kerzner  International  Management Limited ("KIML), an affiliate of Kerzner  Investments,  entered  into the  Agreement  Relating to Development  Services (the "Development  Services Agreement Phase II"). Pursuant to the Development Services Agreement Phase II, TCA subcontracted with KIML, who agreed  to  perform,  those  services  assigned  to  KIML by TCA,  in  order  to facilitate  TCA's  fulfillment  of its duties and  obligations  to the Authority under  the  Development  Agreement.   KIML  assigned  the  Development  Services Agreement Phase II to Kerzner Investments.                                         F-9     Pursuant to the  Development  Services  Agreement  Phase II, TCA pays to Kerzner Investments a fee, as subcontractor  (the "Development  Services Fee Phase II"), equal  to 3% of  the  development  costs  of  the  Project  Sunburst  expansion, excluding  capitalized  interest,  less all costs  incurred by TCA in connection with the Project  Sunburst  expansion.  At December 31, 2005, all of TCA's costs associated  with the  Project  Sunburst  expansion  had not been  paid,  however reasonable  estimates of those costs have been  provided for in TCA's  financial statements at December 31, 2005. The  Development  Services Fee Phase II is paid in installments - on December 31, 1999,  December 31, 2000 and on the Completion Date,  as defined in the  Development  Agreement - with the final  payment being made when the actual  development  costs of the Project  Sunburst  expansion are known. TCA pays the Development  Services Fee Phase II from available cash flow, if  any,  in  accordance  with  an  Amended  and  Restated  Omnibus  Termination Agreement. TCA's total development costs of the Project Sunburst expansion which comprises the  Development  Services Fee Phase II and TCA's costs related to the development of the Project  Sunburst  expansion will exceed the related  revenue received by TCA under the Development  Agreement by  approximately  $15,964,000. This cost  overrun  has  previously  been  recorded by TCA in its  statement  of operations.  At December 31, 2005, the accrued liability to Kerzner  Investments pursuant to the Development Agreement Phase II was approximately $384,000.  Before KIML  assigned the  Development  Services  Agreement  Phase II to Kerzner Investments,  it entered into the Local  Construction  Services  Agreement  (the "Local  Construction  Services  Agreement")  with  Wolman  Construction,  L.L.C. ("Construction"),  pursuant to which  Construction  agreed to provide certain of those  services  assigned to KIML by TCA  pursuant to the  Development  Services Agreement Phase II. Kerzner Investments assumed the obligation of KIML under the Local Construction Service Agreement.  Pursuant  to the Local  Construction  Services  Agreement,  Kerzner  Investments agreed to pay to  Construction,  an  affiliate  of the  Company,  a fee equal to 20.83% of the Development  Services Fee Phase II as and when Kerzner Investments receives payment from TCA pursuant to the Development  Services  Agreement Phase II.  Pursuant to a Letter Agreement,  Construction has subcontracted  with The Slavik Company,  an affiliate of the Company,  to provide  certain  services  under the Local Construction Services Agreement.  In exchange for providing such services, Construction  agreed that The Slavik Company would be paid a fee equal to 14.30% of its fee under the Local Construction Services Agreement.  AMENDED AND RESTATED OMNIBUS TERMINATION AGREEMENT  Effective March 18, 1999, the Amended and Restated Omnibus Termination Agreement (the " Amended and Restated Omnibus Termination  Agreement") was entered into by TCA, Kerzner International,  the Company, KIML, LMW, Kerzner Investments, Slavik and  Construction.  The Amended and Restated Omnibus  Termination  Agreement (i) terminated  the  memorandum of  understanding  dated  February 7, 1998; and (ii) effective  January  1, 2000  terminated  a) the  Amended  and  Restated  Omnibus Financing  Agreement,  b)the  completion  guarantee and  investment  banking and financing arrangement fee agreement (the "Financing Arrangement Agreement");  c) the Management  Services  Agreement;  d) the  Organizational  and Administrative Services  Agreement;  e) the  Marketing  Services  Agreement;  and  f) a  Letter Agreement relating to expenses dated October 19, 1996.  In consideration  for the termination of such agreements,  TCA agreed to use its cash to pay the following obligations in the priority set forth below:       (i)  First, to pay all unpaid amounts which may be due under the terminated           Letter  Agreement and to pay certain  affiliates of the Company and to           Kerzner Investments a percentage of an annual fee of $2.0 million less           the actual expenses  incurred by TCA during such year. Such annual fee           is payable in equal  quarterly  installments  beginning March 31, 2000           and ending  December 31, 2014.  For the years ended December 31, 2005,           2004  and  2003,  $1,851,397  ($925,698  to  Kerzner  Investments  and           $925,699  to  affiliates  of the  Company),  $1,869,157  ($934,579  to           Kerzner  Investments  and $934,578 to  affiliates  of the Company) and           $1,840,346  ($920,173 to each of Kerzner Investments and affiliates of           the Company),  respectively,  had been incurred by TCA in terms of the           first priority.       (ii) Second,  to return all capital  contributions  made by the partners of           TCA after  September  29, 1995. As of December 31, 2005, $0 in capital           contributions remained outstanding.                                        F-10        (iii) Third, to pay any accrued  amounts for obligations  performed prior to           January 1, 2000 under the Financing  Arrangement  Agreement.  All such           required payments were made during 2000.      (iv)  Fourth,  to make the payments set forth in the agreements  relating to           the Development Services Agreement Phase II and the Local Construction           Services  Agreement.  No such payments are required or due at December           31, 2005. The accrued liability to Kerzner Investments with respect to           such fee at December 31, 2005 was approximately $384,000.       (v)  Fifth,  to pay  Kerzner  Investments  an annual  fee (in the form of a           priority  distribution)  of $5.0  million  payable in equal  quarterly           installments  of $1.25  million  beginning  March 31,  2000 and ending           December 31, 2006.      (vi)  Sixth,  to pay any accrued  amounts  for  obligations  performed  with           respect  to periods  prior to  January  1, 2000  under the  Management           Services  Agreement,  the Organizational  and Administrative  Services           Agreement and the Marketing  Services  Agreement.  The final  required           payments under this priority were made during 2001.      (vii) Seventh,  for the period  beginning March 31, 2000 and ending December           31,  2014,  to  pay  each  of  Kerzner  Investments  and  the  Company           twenty-five   percent   (25%)  of  the   relinquishment   payments  as           distributions.      (viii)Eighth, to distribute all excess cash.  On January 26, 2006, TCA made distributions of $1,250,000  pursuant to the fifth priority,  $14,262,503  ($7,131,252 to Kerzner Investments and $7,131,251 to the Company) pursuant to the seventh priority and $12,064,928 ($6,032,464 to each of Kerzner  Investments  and the  Company)  pursuant to the eighth  priority.  Such distributions will be recorded in the fiscal 2006 financial statements.  In addition,  TCA shall not make any  distributions  pursuant to the Amended and Restated Omnibus Termination  Agreement until it has annually distributed to its partners  pro rata,  the amounts  related to its  partners  tax  obligations  as described in Section  3.03a(1) of the TCA  Partnership  Agreement less twice the amount of all other funds paid or  distributed  to the Company  during such year pursuant to the Amended and Restated Omnibus Termination Agreement.  To the extent TCA does not have adequate  cash to make the payments  pursuant to the Amended and Restated Omnibus Termination Agreement, such amount due shall be deferred  without the accrual of interest until TCA has  sufficient  cash to pay them.   3. BENEFICIAL INTEREST - LEISURE RESORT TECHNOLOGY, INC.:  On January 6, 1998,  pursuant to the settlement and release agreement  described in Note 7 below, the Company paid $5,000,000 to Leisure Resort Technology,  Inc. ("Leisure") and, among other things, Leisure gave up (a) its beneficial interest of 5% in certain  fees and excess  cash flows,  as  defined,  of TCA and (b) any other claims it may have had against the Company, TCA and TCA's partners and RJH Development Corp. (a former partner of TCA).  On August 6, 1997,  Leisure,  a former partner of TCA,  filed a lawsuit  against TCA,  Kerzner  Investments,  RJH Development  Corp., the Company and its owners, claiming  breach of contract,  breach of fiduciary  duties and other  matters in connection with the development of the Mohegan Sun by TCA.  In connection with the settlement of all matters related to such suit,  pursuant to a settlement and release  agreement,  the Company agreed to acquire Leisure's interests  in TCA.  As a result of this  acquisition,  Leisure no longer has the right to 5% of the  Organizational  and  Administrative  fee,  as defined in the Organizational and  Administrative  Services  Agreement,  and 5% of TCA's Excess Cash as  defined  in the TCA  Partnership  Agreement;  instead  the  Company  is entitled to the fees and cash.  On March 18, 1999, the Company paid an additional $2,000,000 to Leisure pursuant to the settlement  and release  agreement.  On January 7, 2000,  Leisure filed a complaint  against  the Company and  certain  other  defendants  relating to the settlement and release agreement. For a description of the complaint, see Note 7 to these financial statements.  Until March 17, 1999,  the payments made to Leisure  pursuant to the  settlement and release  agreement and associated  costs were  amortized on a  straight-line basis over the remaining  term of the Management  Agreement.  As a result of the Relinquishment  Agreement  becoming  effective,  the  remaining  balance will be amortized over 189 months beginning March 18, 1999. Accumulated  amortization at December 31, 2005 and 2004, amounts to $3,651,142 and $3,273,152 respectively.                                        F-11   4. DEFERRED COSTS:       Deferred costs consist of the following:                                                    December 31, 2005      December 31, 2004                                                 -----------------      -----------------          Deferred financing costs                  $    3,843,031          $   3,843,031         Less accumulated amortization                  1,517,388                939,890                                                 -----------------      -----------------                                                   $    2,325,643          $   2,903,141                                                 =================      =================    Amortization  of  deferred  financing  cost  totaling  $577,498,   $664,918  and $2,918,310  were expensed for the years ending December 31, 2005, 2004 and 2003, respectively.  The Company's  estimate of amortization  expense for each of the succeeding five years and thereafter is as follows:                       Year ending December 31,                            2006                          $  346,473                           2007                             346,473                           2008                             347,423                           2009                             346,473                           2010                             346,473                           Thereafter                       592,328                                                         ----------                                                         $2,325,643                                                         ==========                                        F-12    5. $155 MILLION 8.625% SENIOR NOTES PAYABLE:  On June 11,  2003,  the  Company  and Finance  issued the 8.625%  Senior  Notes. Payment of the  principal  of, and interest on, the 8.625%  Senior Notes is pari passu in right of payment with all of the Company's  and Finance's  senior debt, and  effectively  subordinate  in right of payment to all of the  Company's  and Finance's existing and future collateralized debts.  The 8.625%  Senior  Notes bear  interest at a rate of 8.625% per annum,  payable semi-annually  in  arrears  on  March  15th  and  September  15th of each  year, commencing  September 15, 2003.  The  principal  amount due on the 8.625% Senior Notes is payable on September 15, 2012.  The  Company  and  Finance  may elect to redeem all or any of the 8.625%  Senior Notes at any time on or after September 15, 2008 at a redemption  price equal to a  percentage  of the  principal  amount of notes being  redeemed  plus  accrued interest. Such percentage is set forth in the following table:             If notes are redeemed                                   Percentage         ---------------------                                   ----------          after September 14, 2008 but         on or before September 14, 2009                          103.551%         after September 14, 2009 but         on or before September 14, 2010                          102.537%         after September 14, 2010         but on or before September 14, 2011                      101.522%         after September 14, 2011 but         on or before September 14, 2012                          100.507%         after September 14, 2012                                 100.000%     The 8.625% Senior Notes provide that upon the  occurrence of a Change of Control (as defined in the 8.625% Senior Notes Indenture), the holders thereof will have the option to require the  redemption of the 8.625% Senior Notes at a redemption price equal to 101% of the principal amount thereof plus accrued interest.  Pursuant to the terms of the 8.625% Senior Notes  Indenture,  if the Company and Finance  have any Company  Excess  Cash,  as defined in the 8.625%  Senior Notes Indenture, on February 1st or August 1st of any year, they must use such Company Excess Cash less all  Required  IRA True-Up  Payments,  as defined in the 8.625% Senior Notes Indenture, and less any amount set aside for the payment of accrued and  unpaid  interest  on the  interest  payment  date that  corresponds  to the redemption date for which the  determination is being made, to redeem the 8.625% Senior Notes on the March 15th or September 15th following such dates.  Any such redemption will be made at a price equal to a percentage of the principal amount being redeemed. Such percentage is set forth in the following table:                If notes are redeemed with             Redemption Price (expressed as a percentage         Company Excess Cash                    of the principal amount being redeemed)         --------------------------             -------------------------------------------          after September 14, 2003 but         on or before September 14, 2004                        108.625%         after September 14, 2004 but         on or before September 14, 2005                        107.610%         after September 14, 2005 but         on or before September 14, 2006                        106.596%         after September 14, 2006 but         on or before September 14, 2007                        105.581%         after September 14, 2007 but         on or before September 14, 2008                        104.566%         after September 14, 2008 but         on or before September 14, 2009                        103.551%         after September 14, 2009 but         on or before September 14, 2010                        102.537%         after September 14, 2010         but on or before September 14, 2011                    101.522%         after September 14, 2011 but         on or before September 14, 2012                        100.507%         after September 14, 2012                               100.000%                                           F-13    The Company and Finance have periodically redeemed portions of the 8.625% Senior Notes with Company  Excess Cash pursuant to the terms of the 8.625% Senior Notes Indenture. The table below summarizes (a) the amount of Company Excess Cash that the  Company  and  Finance  have  determined  was  available  for the  mandatory redemption  of the 8.625%  Senior  Notes on February  1st and August 1st of each applicable year pursuant to the terms of the 8.625% Senior Notes Indenture,  (b) the aggregate principal amount of 8.625% Senior Notes redeemed with such Company Excess Cash, (c) the date on which such redemption was consummated,  and (d) the redemption price at which such redemption was made.         Date                Company Excess Cash        Principal Amount of      Dates of Redemption     Price (expressed as percentage of                     (approximately)            notes redeemed                                   principal amount being redeemed - ----------------    -------------------        -------------------      --------------------    --------------------------------- August 1, 2003        $   5,568,000              $ 1,912,000             September 15, 2003                 108.625% February 1, 2004      $  14,534,000              $ 7,302,000               March 15, 2004                   108.625% August 1, 2004        $  11,695,000              $ 5,025,000             September 15, 2004                 107.610% February 1, 2005      $  12,098,000              $ 5,600,000               March 15, 2005                   107.610% August 1, 2005        $  11,798,000              $ 5,599,000             September 15, 2005                 106.596% February 1, 2006      $  12,492,000              $ 6,477,000               March 15, 2006                   106.596%      In certain  circumstances,  if either the  Company or Kerzner  Investments,  the Company's  partner  in TCA,  exercises  the  option  to buy or sell  partnership interests in TCA, the Company and Finance must redeem the 8.625% Senior Notes.  The 8.625% Senior Notes  Indenture  contains  certain  affirmative  and negative covenants   customarily   contained  in  such  agreements,   including   without limitation,  covenants  that  restrict,  subject  to  specified  exceptions  the Company's and Finance's ability to (i) borrow money, (ii) make  distributions on its equity interests or certain other restricted  payments,  (iii) use assets as security in other transactions,  (iv) make investments, (v) sell other assets or merge with other companies,  and (vi) engage in any business except as currently conducted  or  contemplated  or amend their  relationship  with TCA.  The 8.625% Senior Notes  Indenture  also provides for  customary  events of default and the establishment  of a  restricted  investment  account with a trustee for interest reserves  ("IRA").  The IRA consists of an amount of funds equal to the interest payment due on the 8.625% Senior Notes on the following  interest  payment date. The IRA will be released  and the Company can make a permitted  distribution  to Waterford  Group once the Leverage  Ratio, as defined in the 8.625% Senior Notes Indenture, is less than or equal to 3.0 to 1.0.  The fair value of the Company's  long term debt at December 31, 2005 and 2004 is estimated to be approximately $137,984,000 and $150,614,000, respectively, based on the market quotations obtained by the Company.  In June 2005,  the Financial  Accounting  Standards  Board issued DIG Issue B38, "Evaluation  of  Net  Settlement  with  Respect  to  the  Settlement  of a  Debt Instrument  Through  Exercise of an Embedded Put Option or Call Option"  ("Issue B38").  As a  result  of the  issuance  of Issue  B38,  effective  with  periods beginning  after  December  15, 2005,  the Company is required to bifurcate  and separately  account for the excess cash  feature  embedded in its 8.625%  Senior Notes under the provisions of Financial Accounting Standard No. 133, "Accounting for Derivative  Instruments and Hedging  Activities".  The Company is evaluating the impact of this  guidance and will adopt the  accounting in its first quarter of 2006.  6. RECONCILIATION OF FINANCIAL STATEMENT AND TAX INFORMATION:  The following is a reconciliation of net income for financial statement purposes to net income for federal  income tax purposes for the years ended  December 31, 2005, 2004 and 2003.                                                 2005                        2004                     2003                                      -------------               -------------           -------------  Financial Statement  net income                          $ 17,606,670                $ 13,923,694            $  3,891,633 Financial statement equity in  (income) loss of Trading Cove Associates over tax basis equity in (income) loss  of  Trading Cove Associates                   32,859                      16,064              (4,581,809) Other                                      (2,822)                     (1,981)                  6,124                                      -------------               -------------           ------------- Federal income tax basis  net income (loss)                   $ 17,636,707                $ 13,937,777            $   (684,052)                                      =============               =============           =============                                          F-14      The following is a reconciliation of member's deficiency for financial statement purposes to member's  deficiency  for federal income tax purposes as of December 31, 2005, 2004 and 2003.                                                         2005                    2004               2003                                           ----------------        ---------------    --------------- Financial statement member's  deficiency                               $   (99,423,755)        $ (109,998,382)    $ (120,906,772) Adjustment for cumulative  difference between tax basis  of Trading Cove Associates-  equity investment and GAAP  basis of Trading Cove  Associates-equity investment                     772,027                757,944            837,129 Current year financial  statement net income (over)  under federal income tax  basis net income (loss)                           30,037                 14,083         (4,575,685)                                           ----------------        ---------------    --------------- Federal income tax basis  member's deficiency                      $   (98,621,691)        $ (109,226,355)    $ (124,645,328)                                           ================        ===============    ===============     7. COMMITMENTS AND CONTINGENT LIABILITIES:  LEGAL PROCEEDINGS  On January 6, 1998,  Leisure Resort  Technology,  Inc. and defendants  Waterford Gaming,  L.L.C.,  Trading Cove  Associates,  LMW  Investments,  Inc., and Slavik Suites, Inc. settled a prior lawsuit brought by Leisure. In connection with this settlement, Leisure, TCA, the Company, LMW Investments, Inc., and Slavik Suites, Inc.  entered  into  a  settlement  and  release  agreement.  Pursuant  to  this settlement  and release  agreement,  the  Company  bought  Leisure's  beneficial interest in TCA.  By complaint dated January 7, 2000, as amended February 4, 2000, Leisure filed a four count complaint naming as defendants Waterford Gaming, L.L.C., Trading Cove Associates, LMW Investments, Inc., Slavik Suites, Inc., Waterford Group, L.L.C., Len Wolman and Mark Wolman (collectively, the "Defendants"). The matter has been transferred  to the  complex  litigation  docket and is  pending  in  Waterbury, Connecticut.  The  complaint  alleged  breach of  fiduciary  duties,  fraudulent non-disclosure,  violation of Connecticut  Statutes Section 42-110a, et seq. and unjust  enrichment  in  connection  with  the  negotiation  by  certain  of  the Defendants of the settlement and release agreement. The complaint also brought a claim for an accounting.  The complaint  seeks  unspecified  legal and equitable damages.  On  February  29,  2000,  Defendants  filed a Motion to Strike  and a Motion for Summary Judgment, each with respect to all claims. The Court granted Defendants' Motion to Strike in part and denied Defendants' Motion for Summary Judgment,  on October 13, 2000.  The Court's order  dismissed the claim for an accounting  and the claim under  Connecticut  Statutes Section  42-110a,  et seq. The Court also struck the alter ego allegations in the complaint against LMW Investments, Inc., Slavik Suites,  Inc., Len Wolman and Mark Wolman.  In a decision dated August 6, 2001,  the Court  dismissed all claims  against LMW  Investments,  Inc.,  Slavik Suites, Inc., Len Wolman and Mark Wolman.  On November 15, 2000, the Company and its co-defendants  answered the complaint. In addition,  the Company and Trading Cove Associates asserted counterclaims for breach of the  settlement  and  release  agreement  and  breach  of the  implied covenant  of good faith  against  Leisure  and its  president,  Lee Tyrol.  In a decision dated June 6, 2001, the Court dismissed the  counterclaims  against Lee Tyrol.  Leisure  moved for summary  judgment  seeking  dismissal  of the counter claims in full, which motion was denied on April 14, 2003.  Fact   discovery  is  completed.   On  April  15,  2004,  the  Company  and  its co-defendants filed a motion for summary judgment as to all of Leisure's claims. The Court heard arguments on this Motion on June 23, 2004. In an August 4, 2004, Memorandum of Decision, the Court granted summary judgment for the Defendants as to  each  of the  remaining  three  counts  of the  plaintiff's  complaint.  The plaintiff  has appealed  this  decision.  On May 9, 2005,  the Supreme  Court of Connecticut,  without  issuing any ruling on the  substantive  issues  raised by plaintiff's appeal, transferred the appeal to itself. Oral argument was heard on September  21, 2005. On January 23, 2006,  the Supreme Court  affirmed the trial court's decision granting summary judgement in favor of the Defendants on all of plaintiff's claims. Defendants' counterclaims against plaintiff remain pending.                                        F-15    8. CERTAIN RELATIONSHIPS and RELATED TRANSACTIONS:  DEVELOPMENT SERVICES AGREEMENT PHASE II AND RELATED AGREEMENTS AND PAYMENTS  On February 9, 1998,  TCA and KIML,  an  affiliate of Kerzner  Investments,  the Company's partner in TCA, entered into the Development  Services Agreement Phase II. Pursuant to the Development  Services  Agreement Phase II, TCA subcontracted with KIML who agreed to perform those services  assigned to KIML by TCA in order to facilitate  TCA's  fulfillment of its duties and obligations to the Authority under  the  Development  Agreement.   KIML  assigned  the  Development  Services Agreement Phase II to Kerzner Investments.  Pursuant to the  Development  Services  Agreement  Phase II, TCA pays to Kerzner Investments a fee, as subcontractor, equal to 3% of the development costs of the Project  Sunburst  expansion,  excluding  capitalized  interest,  less all costs incurred by TCA in connection with the Project Sunburst  expansion.  At December 31, 2005, all of TCA's costs associated with the Project Sunburst  expansion had not been paid, however reasonable estimates of those cost have been provided for in TCA's financial statements at December 31, 2005. The Development Services Fee Phase II is paid in  installments - on December 31, 1999,  December 31, 2000 and on the Completion Date, as defined in the Development Agreement - with the final payment  being made when the actual  development  costs of the Project  Sunburst expansion  are  known.  TCA  pays the  Development  Services  Fee  Phase II from available cash flow, if any, in accordance with the Amended and Restated Omnibus Termination Agreement.  Before KIML  assigned the  Development  Services  Agreement  Phase II to Kerzner Investments,  it entered into the Local  Construction  Services  Agreement  with Construction, an affiliate of the Company, pursuant to which Construction agreed to provide  certain of those  services  assigned to KIML by TCA  pursuant to the Development  Services  Agreement  Phase  II.  Kerzner  Investments  assumed  the obligation of KIML under the Local Construction Services Agreement.  Pursuant  to the Local  Construction  Services  Agreement,  Kerzner  Investments agreed to pay to Construction a fee equal to 20.83% of the Development  Services Fee Phase II as and when Kerzner Investments  receives payment from TCA pursuant to the Development Services Agreement Phase II.  Pursuant to a Letter Agreement,  Construction has subcontracted  with The Slavik Company,  an affiliate of the Company,  to provide  certain  services  under the Local Construction Services Agreement.  In exchange for providing such services, Construction  agreed that The Slavik Company would be paid a fee equal to 14.30% of its fee under the Local Construction Services Agreement.  On April 26, 2000,  July 26,  2000,  January 26, 2001 and July 28, 2003 TCA paid $3,095,000,  $1,238,000,  $6,474,000 and  $9,157,000,  respectively,  as partial payment  of  the  Development  Services  Fee  Phase  II.  Construction  received $644,688, $257,875,  $1,348,534 and $1,907,403,  respectively,  and Construction paid The Slavik  Company  $92,190,  $36,876,  $192,840 and $259,121 on April 26, 2000, July 26, 2000, January 26, 2001 and July 28, 2003, respectively.  At  December  31, 2005 TCA has accrued a  liability  to Kerzner  Investments  of approximately $384,000, pursuant to the Development Services Agreement Phase II.   EMPLOYMENT AGREEMENT WITH MR. LEN WOLMAN  Len Wolman, the Company's Chairman of the Board of Directors and Chief Executive Officer,  is the  Company's  designated  representative  to TCA  under  the  TCA Partnership Agreement.  On September 28, 1998, the Company entered into an employment agreement with Len Wolman.  The employment  agreement provides for a base annual salary of $250,000 reduced by any amounts Mr. Wolman receives as a salary from TCA for such period. In addition,  pursuant to the employment agreement, the Company agreed to pay to Mr. Wolman an amount equal to 0.05% of the revenues of the Mohegan Sun including the Project  Sunburst  expansion to the extent Mr.  Wolman has not received such amounts from TCA. On and after January 1, 2004, the Company agreed to pay to Mr. Wolman  incentive  compensation  based  on  the  revenues  of the  Mohegan  Sun, including the Project Sunburst expansion, as a percentage (ranging from 0.00% to 0.10%) to be determined  using a formula  attached to the  employment  agreement which compares actual revenues to predetermined  revenue targets.  For the years ended  December  31,  2005,  2004  and  2003 the  Company  incurred  $1,417,431, $1,217,420 and $900,998,  respectively,  as an expense  pursuant to Len Wolman's employment agreement.                                         F-16     OTHER RELATED PARTY TRANSACTIONS  For each of the years ended  December  31,  2005,  2004 and 2003,  approximately $42,000 was incurred to the  principals and affiliates of the Company as part of TCA's  operating  expenses.  In  addition  in 2005,  2004 and 2003 TCA  incurred approximately $926,000, $935,000 and $920,000,  respectively,  to the principals of the Company in connection  with the first  priority  payments set forth under the section "Trading Cove Associates  Material Agreements - Amended and Restated Omnibus Termination Agreement".  In 1999, the Company  renovated Len Wolman's  office space at a cost of $32,413, of which  $30,000 was paid to Wolman  Homes Inc.,  an  affiliate of the Company. Cost of the improvement is being  depreciated  over five years.  Expense for the years  ended  December  31,  2005,  2004  and  2003  was  $0,  $553  and  $6,480 respectively.  Waterford  Group,  Slavik and the other  principals of the Company and Waterford Group have  interests  in and may acquire  interests  in hotels in  southeastern Connecticut  which have or may have arrangements with the Mohegan Sun to reserve and provide hotel rooms to patrons of the Mohegan Sun.                                         F-17                  Report of Independent Registered Public Accounting Firm    To the Partners of Trading Cove Associates    In our opinion,  the accompanying  balance sheets and the related  statements of operations, of changes in partners' capital and of cash flows present fairly, in all material  respects,  the financial  position of Trading Cove Associates (the "Partnership")  at December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the three years in the period ended  December 31, 2005, in conformity with accounting  principles generally accepted in the United States of America.  These  financial  statements are the  responsibility  of the Partnership's  management.  Our responsibility is to express an opinion on these financial  statements  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.        PricewaterhouseCoopers, LLP Hartford, CT February 28, 2006                                         F-18                                  Trading Cove Associates                                  Balance Sheets                            December 31, 2005 and 2004                            --------------------------                                                                        2005                    2004                                                                    ----                    ---- Assets Current assets      Cash and cash equivalents                                 $  1,031,290           $    732,886      Relinquishment fee receivable                               28,510,862             26,589,614      Other current assets                                             1,736                    151                                                                ------------           ------------         Total current assets                                     29,543,888             27,322,651  Deferred costs, net of accumulated amortization      of $3,504,069 and $3,282,551 at December 31, 2005      and 2004, respectively                                       1,994,872              2,216,390 Property and equipment, net of accumulated depreciation      of $2,750 and $14,951 at December 31, 2005      and 2004, respectively                                              84                    384                                                                ------------           ------------          Total assets                                           $ 31,538,844           $ 29,539,425                                                                ============           ============   Liabilities and Partners' Capital Current liabilities      Accounts payable and accrued expenses                     $     83,134           $     93,538      Subcontracted services payable                                 918,425                465,930      Estimated contract costs due related         party                                                       384,032                413,760                                                                ------------             ----------         Total current liabilities                                 1,385,591                973,228   Commitments and contingent liabilities  Partners' capital                                                30,153,253             28,566,197                                                                ------------           ------------          Total liabilities and partners' capital                $ 31,538,844           $ 29,539,425                                                                ============           ============     The accompanying notes are an integral part of these financial statements.                                         F-19                                   Trading Cove Associates                             Statements of Operations               For the Years Ended December 31, 2005, 2004 and 2003               ----------------------------------------------------                                                                          2005             2004            2003                                                                    ----             ----            ----  Revenue       Relinquishment fee                                       $ 72,964,466     $ 69,101,491    $ 65,099,553       Development services revenue                                   14,000           43,400       4,698,055                                                                ------------     ------------    ------------                Total revenues                                     72,978,466       69,144,891      69,797,608                                                                ------------     ------------    ------------   Expenses       Subcontract payments to partners and         their affiliates                                          1,851,397        1,869,157       1,840,346       Cost of development services revenue                           14,000           43,400       4,662,055       Amortization and depreciation                                 221,818          222,424         221,818       General and administrative                                    148,603          130,843         159,653                                                                ------------     ------------    ------------                Total expenses                                      2,235,818        2,265,824       6,883,872                                                                ------------     ------------    ------------        Interest and dividend income                                   21,244            8,252           6,041                                                                ------------     ------------    ------------                Net income                                       $ 70,763,892     $ 66,887,319    $ 62,919,777                                                                ============     ============    ============     The accompanying notes are an integral part of these financial statements.                                        F-20                                  Trading Cove Associates                    Statements  of Changes  in  Partners'  Capital  For the Years               Ended December 31, 2005, 2004 and 2003               ----------------------------------------------------                                                                      Kerzner Investments       Waterford                                                                  Connecticut Inc.      Gaming, L.L.C.        Total                                                                -------------------     --------------        -----  Partners' capital, January 1, 2003                                $  8,947,764          $  7,697,764     $ 16,645,528  Net income                                                          33,959,889            28,959,888       62,919,777  Contributions                                                          450,000               450,000          900,000  Distributions                                                      (28,976,711)          (23,976,710)     (52,953,421)                                                                   ------------          ------------     ------------  Partners' capital, December 31, 2003                                14,380,942            13,130,942       27,511,884  Net income                                                          35,943,660            30,943,659       66,887,319  Distributions                                                      (35,416,503)          (30,416,503)     (65,833,006)                                                                   ------------          ------------     ------------  Partners' capital, December 31, 2004                                14,908,099            13,658,098       28,566,197  Net income                                                          37,881,946            32,881,946       70,763,892  Distributions                                                      (37,088,418)          (32,088,418)     (69,176,836)                                                                   ------------          ------------     ------------  Partners' capital, December 31, 2005                              $ 15,701,627          $ 14,451,626     $ 30,153,253                                                                   ============          ============     ============    The accompanying notes are an integral part of these financial statements.                                        F-21                                  Trading Cove Associates                             Statements of Cash Flows               For the Years Ended December 31, 2005, 2004 and 2003               ----------------------------------------------------                                                                               2005                    2004               2003                                                                        ----                    ----               ----   Cash flows from operating activities     Net income                                                     $ 70,763,892            $  66,887,319      $ 62,919,777                                                                    ------------            -------------      ------------      Adjustments to reconcile net income        to net cash provided by operating activities          Amortization                                                   221,518                  222,124           221,518          Depreciation                                                       300                      300             3,303          Loss on disposal of property and equipment                         ---                      ---               743          Gain on sale of property and equipment                             ---                      ---            (1,750)          Change in operating assets and liabilities             Relinquishment fee receivable                            (1,921,248)              (1,250,342)       (1,669,449)             Development fee receivable                                      ---                      ---            84,000             Other current assets                                         (1,585)                   5,380            (1,531)             Accounts payable and accrued expenses                       (10,404)                   4,566           (25,884)             Subcontracted services payable                              452,495                   (8,837)          474,767             Estimated contract costs due related party                  (29,728)                 (93,220)       (9,899,359)                                                                    ------------            -------------      ------------                     Net cash provided by operating activities         69,475,240               65,767,290        52,106,135                                                                    ------------            -------------      ------------  Cash flows from investing activities     Proceeds from sale of property and equipment                            ---                      ---             1,750                                                                    ------------            -------------      ------------                    Net cash provided by investing activities                ---                      ---             1,750                                                                    ------------            -------------      ------------  Cash flows from financing activities     Distributions                                                   (69,176,836)             (65,833,006)      (52,953,421)     Partners' contributions                                                 ---                      ---           900,000                                                                    ------------            -------------      ------------                    Net cash used in financing activities            (69,176,836)             (65,833,006)      (52,053,421)                                                                    ------------            -------------      ------------                     Net change in cash and cash equivalents              298,404                  (65,716)           54,464  Cash and cash equivalents  Beginning of year                                                       732,886                  798,602           744,138                                                                    ------------            -------------      ------------ End of year                                                        $  1,031,290            $     732,886      $    798,602                                                                    ============            =============      ============     The accompanying notes are an integral part of these financial statements.                                        F-22                                    TRADING COVE ASSOCIATES                            NOTES TO FINANCIAL STATEMENTS  1. Organization, Partnership Agreement and Other Material Agreements       (a) Organization and Partnership Agreement            Trading Cove Associates  (the  "Partnership"),  a Connecticut  general           partnership,  was organized on July 23, 1993.  The primary  purpose of           the Partnership has been:            (i)  to assist  the  Mohegan  Tribe of  Indians  of  Connecticut  (the                "Tribe")   and  the  Mohegan   Tribal   Gaming   Authority   (the                "Authority") in obtaining federal recognition;            (ii) to  negotiate  the   tribal-state   compact  with  the  State  of                Connecticut on behalf of the Tribe;            (iii) to obtain  financing for the initial  development of the Mohegan                Sun Casino (the "Mohegan Sun");            (iv) to negotiate the Amended and Restated Gaming Facility  Management                Agreement, (the "Management Agreement");            (v)  to oversee all  operations  of the  Mohegan  Sun  pursuant to the                terms of the Management  Agreement  until  midnight  December 31,                1999, and            (vi) to participate in the design and development of the Mohegan Sun.            The Mohegan Sun  commenced  operations  on October 12, 1996.  From the           opening of the Mohegan Sun, and until January 1, 2000, the Partnership           oversaw the Mohegan Sun's day-to-day operations.            The  Partnership  will terminate on December 31, 2040, or earlier,  in           accordance   with  the  terms  of  the   partnership   agreement  (the           "Partnership Agreement").            The original  partners of the Partnership  were RJH Development  Corp.           ("RJH"),  a New York  corporation,  Leisure  Resort  Technology,  Inc.           ("Leisure"),   a  Connecticut   corporation,   Slavik   Suites,   Inc.           ("Slavik"), a Michigan corporation, and LMW Investments, Inc. ("LMW"),           a  Connecticut  corporation.  On September 21, 1994,  the  Partnership           Agreement  was  amended  and  restated  to admit  Kerzner  Investments           Connecticut, Inc. ("Kerzner Investments"),  a Connecticut corporation,           formerly Sun Cove Limited, as a partner.            On February  3, 1995,  Leisure  entered  into an  acknowledgement  and           release agreement to withdraw as a partner of the Partnership and hold           its interest in the Partnership as a beneficial interest. On August 6,           1997,  Leisure  filed  a  lawsuit  against  the  Partnership,  Kerzner           Investments, RJH and Waterford Gaming, L.L.C. ("Waterford Gaming") and           its owners,  claiming breach of contract,  breach of fiduciary  duties           and other matters in connection  with the  development  of the Mohegan           Sun.  On January 6,  1998,  pursuant  to the  settlement  and  release           agreement described in Note 6 below,  Waterford Gaming paid $5,000,000           to  Leisure  and,  among  other  things,  Leisure  gave  up,  (a)  its           beneficial  interest of 5% of certain  fees and excess cash flows,  as           defined,  of the  Partnership and (b) any other claims it may have had           against the Partnership,  Kerzner  Investments,  RJH, Waterford Gaming           and its  owners.  In  connection  with the  settlement  of all matters           related  to  such  suit,   pursuant  to  the  settlement  and  release           agreement,  Waterford Gaming agreed to acquire Leisure's  interests in           the Partnership.  As a result of this  acquisition,  Leisure no longer           has the right to 5% of the Organizational  and Administrative  fee, as           defined in the Organizational and Administrative  Services  Agreement,           and 5% of the Partnership's  Excess Cash as defined in the Partnership           Agreement; instead Waterford Gaming is entitled to such fees and cash.           On March 18, 1999,  Waterford Gaming paid an additional  $2,000,000 to           Leisure pursuant to the settlement and release  agreement.  On January           7, 2000, Leisure filed a complaint against the Partnership and certain           other  defendants.  For a description of the complaint,  see Note 6 to           these financial statements.                                        F-23               On November 8, 1996, Slavik, LMW and RJH withdrew from the Partnership           and,  concurrently,  consented to the admission of Waterford Gaming to           the Partnership.  Waterford  Gaming,  simultaneously,  purchased RJH's           interest in the  Partnership.  Waterford  Gaming is owned by Waterford           Group, LLC. Waterford Group, LLC is owned by Slavik and LMW.            The partners' percentage interest in the Partnership as of November 8,           1996 was as follows:                                                             Percentage           Partner                                          Interest           -------                                         ----------           Kerzner Investments Connecticut, Inc.              50.0%           Waterford Gaming, L.L.C.                           50.0%         (b) Other Material Agreements            Relinquishment Agreement            On February 7, 1998, the  Partnership  and the Authority  entered into           the Relinquishment Agreement (the "Relinquishment  Agreement").  Under           the terms of the Relinquishment Agreement the Partnership continued to           manage the Mohegan Sun under the Management  Agreement  until midnight           December 31, 1999, and on January 1, 2000,  the  Management  Agreement           terminated and the Tribe assumed day-to-day  management of the Mohegan           Sun.            Under the Relinquishment  Agreement, to compensate the Partnership for           terminating  its  rights  under  the  Management   Agreement  and  the           Hotel/Resort Management Agreement,  the Authority agreed to pay to the           Partnership a fee (the "Relinquishment Fees") equal to 5% of Revenues,           as defined in the Relinquishment  Agreement,  generated by the Mohegan           Sun during the 15-year period commencing on January 1, 2000, including           revenue  generated by the Project  Sunburst  expansion  (the  "Project           Sunburst expansion").            The  Relinquishment  Fees  are  divided  into  senior   relinquishment           payments and junior relinquishment payments, each of which equals 2.5%           of "Revenues".  Revenues are defined as gross gaming  revenues  (other           than Class II gaming  revenue) and all other facility  revenues.  Such           revenue  includes hotel  revenues,  food and beverage  sales,  parking           revenues,  ticket  revenues  and  other  fees  or  receipts  from  the           convention/events  center in the Project  Sunburst  expansion  and all           rental or other receipts from lessees,  licensees and  concessionaires           operating in the facility, but not the gross receipts of such lessees,           licensees  and   concessionaires.   Such  revenues   exclude  revenues           generated  by  any  other   expansion  of  the  Mohegan  Sun.   Senior           relinquishment payments are payable quarterly in arrears commencing on           April 25,  2000,  for the quarter  ended March 31, 2000 and the junior           relinquishment   payments   are  payable   semi-annually   in  arrears           commencing  on July 25, 2000,  for the six months ended June 30, 2000,           assuming  sufficient  funds are available  after  satisfaction  of the           Authority's  senior  obligations,  as  defined  in the  Relinquishment           Agreement.  Development Agreement  On  February  7,  1998  the  Partnership  and the  Authority  entered  into  the Development  Services  Agreement (the "Development  Agreement"),  which made the Partnership the exclusive developer of the Project Sunburst expansion.  Pursuant to the Development  Agreement,  the Partnership  agreed to oversee the planning, design, construction, furnishing, equipping and staffing of the Project Sunburst expansion for a $14.0 million development fee (the "Development Fee").  The first phase of the Project Sunburst  expansion,  including the Casino of the Sky, The Shops at Mohegan Sun, and the  10,000-seat  Mohegan Sun Arena opened in September 2001. In April 2002, 734 of the approximately 1,200-hotel rooms in the 34-story  luxury  hotel as well as the  meeting  and  convention  space  and spa opened.  The balance of the  approximately  1,200-hotel rooms opened during June 2002.  The Project  Sunburst  expansion is complete in terms of the  Development Agreement.                                          F-24      Agreements with Partners and/or their Affiliates  Agreement Relating to Development Services  On February  9, 1998,  the  Partnership  and  Kerzner  International  Management Limited ("KIML"),  entered into the Agreement  Relating to Development  Services (the  "Development  Services  Agreement Phase II").  Pursuant to the Development Services Agreement Phase II, the Partnership  subcontracted with KIML who agreed to  perform  those  services  assigned  to KIML by the  Partnership  in order to facilitate the  Partnership's  fulfillment of its duties and  obligations to the Authority  under the  Development  Agreement.  KIML  subsequently  assigned  the Development Services Agreement Phase II to Kerzner Investments.  Pursuant to the Development Services Agreement Phase II, the Partnership pays to Kerzner Investments a fee, as subcontractor (the "Development Services Fee Phase II"), equal to 3% of the development  costs of the Project  Sunburst  expansion, excluding  capitalized  interest,  less all costs incurred by the Partnership in connection with the Project  Sunburst  expansion.  The Development  Services Fee Phase II shall be paid in installments  due on December 31, 1999 and 2000 and on the  Completion  Date,  as defined in the  Development  Agreement,  with a final payment  being made when the actual  development  costs of the Project  Sunburst expansion are known. The Partnership pays the Development Services Fee Phase II, from  available  cash flow, if any, in accordance  with the Amended and Restated Omnibus Termination  Agreement.  At December 31, 2005 and 2004, the total of the Development  Services Fee Phase II and the  Partnership's  costs  related to the development of the Project Sunburst expansion exceeded the development  services revenue from the Authority by approximately  $15,964,000.  This cost overrun has previously been recorded by the Partnership in its statement of operations.  Before KIML  assigned the  Development  Services  Agreement  Phase II to Kerzner Investments,  it entered into the Local  Construction  Services  Agreement  (the "Local  Construction   Services  Agreement")  with  Wolman   Construction,   LLC ("Construction")  pursuant to which  Construction  agreed to provide  certain of those services  assigned to KIML by the Partnership  pursuant to the Development Services Agreement Phase II. Kerzner Investments assumed the obligations of KIML under  the  Local  Construction  Services  Agreement.   Pursuant  to  the  Local Construction   Services   Agreement,   Kerzner  Investments  agreed  to  pay  to Construction a fee equal to 20.83% of the  Development  Services Fee Phase II as and when Kerzner Investments receives payment from the Partnership in accordance with the Development Services Agreement Phase II.  Construction  has  subcontracted  with The Slavik  Company  to  provide  certain services under the Local  Construction  Services  Agreement.  In connection with this,  Construction  agreed that The Slavik Company would be paid a fee equal to 14.30% of its fee under the Local Construction Services Agreement.   Amended and Restated Omnibus Termination Agreement  Effective March 18, 1999, the Amended and Restated Omnibus Termination Agreement (the "Amended and Restated Omnibus  Termination  Agreement") was entered into by the  Partnership,   Kerzner  International  Limited  ("Kerzner  International"), Waterford Gaming, KIML, LMW, Kerzner Investments,  Slavik and Construction.  The Amended and Restated Omnibus Termination Agreement (i) terminated the memorandum of  understanding  dated February 7, 1998;  and (ii) effective  January 1, 2000, terminated  a) the Amended and  Restated  Omnibus  Financing  Agreement;  b) the Completion  Guarantee  and  Investment  Banking and  Financing  Arrangement  Fee Agreement (the "Financing  Arrangement  Agreement");  c) the Management Services Agreement;  d) the Organizational and Administrative  Services Agreement; e) the Marketing  Services  Agreement;  and f) a Letter Agreement  relating to expenses dated October 19, 1996.                                         F-25    In consideration  for the termination of such  agreements,  the Partnership will use its cash to pay the following obligations in the priority set forth below:            (i)  First,  to pay all  unpaid  amounts  which  may be due  under the                terminated  Letter Agreement and to pay to certain  affiliates of                Waterford  Gaming and to Kerzner  Investments  a percentage of an                annual fee of $2.0 million less the actual  expenses  incurred by                the  Partnership  during  such  year.  Such  annual  fee shall be                payable in equal quarterly  installments beginning March 31, 2000                and ending  December 31, 2014.  For the years ended  December 31,                2005,  2004 and 2003,  $1,851,397,  $1,869,157,  and  $1,840,346,                respectively,  had been incurred by the  Partnership  in terms of                the first priority;            (ii) Second, to return all capital  contributions made by the partners                of the  Partnership  after September 29, 1995. As of December 31,                2005, no capital contributions remained outstanding;            (iii) Third,  to pay any  accrued  amounts for  obligations  performed                prior  to  January  1,  2000  under  the  Financing   Arrangement                Agreement. All such required payments were made during 2000;            (iv) Fourth, to make the payments set forth in the agreements relating                to the  Development  Services  Agreement  Phase II and the  Local                Construction  Services  Agreement as detailed under the Agreement                Relating to  Development  Services  above.  No such  payments are                required or due at December  31, 2005.  The accrued  liability to                Kerzner Investments with respect to such fee at December 31, 2005                was approximately $384,000;            (v)  Fifth, to pay Kerzner Investments an annual fee (in the form of a                priority distribution) of $5.0 million payable in equal quarterly                installments of $1.25 million beginning March 31, 2000 and ending                December 31, 2006;            (vi) Sixth, to pay any accrued amounts for obligations  performed with                respect to periods prior to January 1, 2000 under the  Management                Services   Agreement,   the   Organizational  and  Administrative                Services  Agreement and the  Marketing  Services  Agreement.  The                final  required  payments  under this  priority  were made during                2001;            (vii) Seventh,  for the  period  beginning  March 31,  2000 and ending                December  31,  2014,  to pay  each  of  Kerzner  Investments  and                Waterford Gaming twenty-five  percent (25%) of the relinquishment                payments as distributions; and            (viii) Eighth, to distribute all excess cash.  On January 26, 2006, the Partnership made  distributions of $1,250,000  pursuant to the fifth  priority,  $14,262,503  ($7,131,252  to  Kerzner  Investments  and $7,131,251 to Waterford Gaming) pursuant to the seventh priority and $12,064,928 ($6,032,464 to each of Kerzner Investments and Waterford Gaming) pursuant to the eighth  priority.  Such  distributions  will  be  recorded  in the  fiscal  2006 financial statements.  In addition,  the Partnership shall not make any  distributions  pursuant to the Amended  and  Restated  Omnibus  Termination  Agreement  until  it has  annually distributed to its partners,  pro rata, the amounts  related to the partners tax obligations as described in Section  3.03a(1) of the Partnership  Agreement less twice the amount of all other  funds paid or  distributed  to  Waterford  Gaming during  such year  pursuant  to the Amended  and  Restated  Omnibus  Termination Agreement.  To the extent the  Partnership  does not have adequate cash to make the payments pursuant to the Amended and Restated Omnibus Termination Agreement, such amounts due shall be deferred  without the accrual of interest until the Partnership has sufficient cash to pay them.                                        F-26     2. Significant Accounting Policies  Cash  and  Cash  Equivalents  Cash  and  cash  equivalents  represent  cash  and  short-term,   highly  liquid investments with maturities of three months or less at the date of purchase.  Relinquishment Fees  Revenue  is  generated  in  accordance  with  the  terms  of the  Relinquishment Agreement and recognized quarterly based upon the Revenues of the Authority,  as reported by the Authority to the Partnership.  Development Services Revenue and Cost Recognition  Revenue  generated from services  performed in accordance  with the terms of the Development  Agreement  are  recognized on the  percentage-of-completion  basis, determined by the percentage of costs incurred to date to estimated  total costs for the contract. This method is used because management considers cost incurred to be the best available measure of progress on the contract.  Costs of development  services revenue  performed include all direct labor costs and  those   indirect   costs  related  to  services  such  as   subcontractors, consultants,  supplies,  depreciation  and other costs.  Changes in performance, requirements  and estimated  profitability  may result in revisions to costs and income  and  will be  recognized  in the  period  in  which  the  revisions  are determined. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.  Deferred Costs  Costs  associated  with acquiring the  Management  Agreement were amortized on a straight-line basis over the 84-month period of the Management Agreement through March 3, 1999. As a result of the Relinquishment  Agreement becoming  effective, the remaining  balance is being  amortized  over 189 months  beginning  March 4, 1999.  Property and Equipment  Office  equipment,  computer  equipment and furniture and fixtures are stated at cost.  Depreciation  expense is recognized  over a 3-year  estimated life of the office and computer  equipment and over a 5-year estimated life of furniture and fixtures.  Depreciation  expense for the years ended December 31, 2005, 2004 and 2003  amounted  to $300,  $300 and $3,303 of which  $-0-,  $-0- and $3,003  were included in cost of development services revenue, respectively.  Income Taxes  No income tax provision or benefit is recorded on the books of the  Partnership, as the respective  share of taxable income or loss is reportable by the partners on their individual tax returns.  Concentration of Credit Risk  The  Partnership's  principal source of revenues and cash flows are the payments received  and to be  received  pursuant  to the  Relinquishment  Agreement.  The Partnership  anticipates  regular payments of the  Relinquishment  Fees from the Authority based upon the operating results of the Authority.  Financial   instruments,   which  potentially   subject  the  Partnership  to  a concentration  of  credit  risk,  principally  consist  of cash in excess of the financial institutions' insurance limits. The Partnership invests available cash with high credit quality institutions.  Use of Estimates  The preparation of financial statements in conformity with accounting principles generally  accepted in the United States of America requires  management to make estimates  and  assumptions  that  affect  the  reported  amounts  of assets and liabilities  and disclosure of contingent  assets and liabilities at the date of the  financial  statements,  as well as the  reported  amounts of  revenues  and expenses  during the reporting  period.  Actual  results could differ from those estimates.  Payments to Partners and their Affiliates  Payments are made to the partners and/or their affiliates in accordance with the terms of the Amended and  Restated  Omnibus  Termination  Agreement  for certain subcontracted  services  rendered  and  are  accounted  for as  expenses  of the Partnership.                                           F-27    3. Deferred Costs  Certain  costs  borne  by the  Partnership  in  connection  with  obtaining  the Management Agreement and the opening of the Mohegan Sun totaling $5,498,941 were capitalized.  Amortization  commenced  upon  the  opening  of the  Mohegan  Sun. Amortization expense, which is being recorded over 189 months on a straight line basis,  for the years  ended  December  31,  2005,  2004 and 2003 was  $221,518, $222,124, and $221,518, respectively.  The  Partnership's  estimate of amortization  expense for each of the succeeding five years and thereafter is as follows:                    Year Ending December 31,                          2006                              $  221,518                         2007                                 221,518                         2008                                 222,124                         2009                                 221,518                         2010                                 221,518                         Thereafter                           886,676                                                           -----------                                                           $1,994,872                                                           ===========   4. Relinquishment Fees  The  Partnership  entered into a  Relinquishment  Agreement  with the Authority, which  entitles the  Partnership  to receive a  relinquishment  fee of 5% of the Revenues generated by the Mohegan Sun including revenue generated by the Project Sunburst Expansion.  For the years ended December 31, 2005, 2004 and 2003, Relinquishment Fees earned were  $72,964,466,  $69,101,491  and  $65,099,553,  respectively.  The amount of Relinquishment  Fees  reported  in these  financial  statements  are based  upon Revenues  reported to the Partnership by the Authority.  These amounts were paid by the Authority as follows:        Date received by the Partnership                              Amount       --------------------------------                             --------        April 25, 2005                                            $   8,330,592        July 25, 2005                                                26,539,416        October 25, 2005                                              9,583,596        January 25, 2006                                             28,510,862                                                                 -------------        Relinquishment Fees earned 2005                           $  72,964,466                                                                 =============          April 26, 2004                                            $   8,196,363        July 26, 2004                                                25,150,422        October 25, 2004                                              9,165,092        January 25, 2005                                             26,589,614                                                                 -------------        Relinquishment Fees earned 2004                           $  69,101,491                                                                 =============         April 25, 2003                                            $   7,433,160        July 25, 2003                                                23,635,310        October 27, 2003                                              8,691,811        January 26, 2004                                             25,339,272                                                                 -------------        Relinquishment Fees earned 2003                           $  65,099,553                                                                 =============                                       F-28    5. Reconciliation of Financial Statements and Tax Information                                                                     2005              2004              2003                                                               ----              ----              ----              Financial statement net income                $ 70,763,892       $ 66,887,319     $ 62,919,777              Guaranteed payments to partners                (41,482,232)       (39,550,748)     (39,941,567)              Financial statement depreciation and             amortization (greater than) less than tax             basis depreciation and amortization                   (141)               305           (3,028)              Percentage of completion accounting             difference                                         (15,783)           (49,505)      (9,236,479)              Other                                                  885                572           (4,865)                                                           ------------       ------------     ------------              Federal income tax basis net income           $ 29,266,621       $ 27,287,943     $ 13,733,838                                                           ============       ============     ============      6. Commitments and Contingent Liabilities  Litigation  On January 6,  1998,  Leisure Resort Technology,  Inc. and defendants  Waterford Gaming, the Partnership, LMW Investments, Inc. and Slavik Suites, Inc. settled a prior lawsuit brought by Leisure.  In connection with this settlement,  Leisure, the Partnership, Waterford Gaming, LMW Investments, Inc. and Slavik Suites, Inc. entered into a settlement and release agreement. Pursuant to this settlement and release agreement,  Waterford Gaming bought out Leisure's beneficial interest in the Partnership.  By complaint dated January 7, 2000, as amended February 4, 2000, Leisure filed a four count complaint naming as defendants Waterford Gaming, the Partnership, LMW Investments,  Inc.,  Slavik Suites,  Inc.,  Waterford Group, LLC, Len Wolman and Mark Wolman (collectively, the "Defendants"). The matter has been transferred to the complex  litigation  docket and is pending in  Waterbury,  Connecticut.  The complaint  alleged  breach  of  fiduciary  duties,  fraudulent   non-disclosure, violation of Connecticut Statutes Section 42-110a, et seq. and unjust enrichment in  connection  with  the  negotiation  by  certain  of  the  Defendants  of the settlement  and release  agreement.  The  complaint  also brought a claim for an accounting. The complaint seeks unspecified legal and equitable damages.  On  February  29,  2000,  Defendants  filed a Motion to Strike  and a Motion for Summary Judgment, each with respect to all claims. The Court granted Defendants' Motion to Strike in part and denied Defendants' Motion for Summary Judgment,  on October 13, 2000.  The Court's order  dismissed the claim for an accounting  and the claim under  Connecticut  Statutes Section  42-110a,  et seq. The Court also struck the alter ego allegations in the complaint against LMW Investments, Inc., Slavik Suites,  Inc., Len Wolman and Mark Wolman.  In a decision dated August 6, 2001, the Court  dismissed all claims against LMW,  Slavik,  Len Wolman and Mark Wolman.  On November  15,  2000,  the  Partnership  and its  co-defendants  answered  the complaint.   In  addition,   the  Partnership  and  Waterford   Gaming  asserted counterclaims  for breach of the settlement and release  agreement and breach of the implied covenant of good faith against Leisure and its president, Lee Tyrol. In a decision dated June 6, 2001, the Court dismissed the counterclaims  against Lee  Tyrol.  Leisure  moved  for  summary  judgment  seeking  dismissal  of  the counterclaims  in full. This motion for the summary judgment was denied on April 14, 2003.  Fact  discovery  is  completed.  On April  15,  2004,  the  Partnership  and its co-defendants filed a motion for summary judgment as to all of Leisure's claims. The Court heard  argument on this motion on June 23, 2004.  In an August 4, 2004 Memorandum of Decision, the Court granted summary judgment for the Defendants as to  each  of the  remaining  three  counts  of the  plaintiff's  compliant.  The plaintiff  has appealed  this  decision.  On May 9, 2005,  the Supreme  Court of Connecticut,  without  issuing any ruling on the  substantive  issues  raised by plaintiff's  appeals,  transferred the appeal to itself. Oral argument was heard on September 21, 2005. On January 23, 2006, the Supreme Court affirmed the trial court's decision  granting summary judgment in favor of the Defendants on all of plaintiff's claims. Defendant's counterclaims against plaintiff remain pending.                                          F-29      c) REPORTS ON FORM 8-K   (i) Form 8-K filed on November 16, 2005       Item 8.01            On  November  15,  2005,  the Mohegan  Tribal  Gaming  Authority  (the           "Authority")  filed a copy of a press release on Form 8-K,  announcing           its operating  results for the quarter and fiscal year ended September           30,  2005, a copy of which has been filed as an exhibit to this report           and is incorporated by reference to the Authority's  electronic filing           of such report on Form 8-K,  Securities and Exchange  Commission  file           reference no. 033-80655.        Date of Report: November 15, 2005    (ii) Form 8-K filed on December 2, 2005       Item 8.01            On  December  2,  2005,  the  Mohegan  Tribal  Gaming  Authority  (the           "Authority")  filed Form 8-K/A to supplement the  Authority's  Current           Report on Form 8-K,  dated  August  28,  2005 and filed on August  30,           2005,  a copy of which has been filed as an exhibit to this report and           is incorporated by reference to the Authority's  electronic  filing of           such report on Form 8-K/A,  Securities  and Exchange  Commission  file           reference no. 033-80655.        Date of Report: December 2, 2005    (iii)Form 8-K filed on December 12, 2005       Item 8.01            On  December  9,  2005,  the  Mohegan  Tribal  Gaming  Authority  (the           "Authority")  filed its annual report on Form 10-K, for the year ended           September  30,  2005,  a copy of which has been filed as an exhibit to           this  report  and is  incorporated  by  reference  to the  Authority's           electronic filing of such report on Form 10-K, Securities and Exchange           Commission file reference no. 033-80655.       Date of Report: December 9, 2005    (iv) Form 8-K filed on January 18, 2006       Item 8.01            On  January  17,  2006,  the  Mohegan  Tribal  Gaming  Authority  (the           "Authority")  filed Form 8-K,  relating  to the posting on January 17,           2006, on its website of its Slot Machine Statistical Report containing           statistics  relating to slot handle,  gross slot win,  gross slot hold           percentage, slot win contributions and weighted average number of slot           machines at Mohegan Sun, on a monthly basis for the three months ended           December 31, 2005 and the fiscal year ended September 30, 2005, a copy           of  which  has  been  filed  as an  exhibit  to  this  report  and  is           incorporated by reference to the Authority's electronic filing of such           report on Form 8-K,  Securities and Exchange Commission file reference           no. 033-80655.        Date of Report: January 17, 2006                                         36    (v) Form 8-K filed on January 25, 2006      Item 8.01            On January 6, 1998, Leisure Resort Technology, Inc. ("Leisure Resort")           and defendants  Waterford  Gaming,  LLC, Trading Cove Associates,  LMW           Investments,  Inc.,  and Slavik Suites,  Inc.  settled a prior lawsuit           brought  by  Leisure  Resort.  Leisure  Resort is a former  beneficial           interest holder in Trading Cove Associates,  a general  partnership of           which  Waterford  Gaming,  LLC is a partner.  In connection  with this           settlement,  Leisure  Resort and Trading  Cove  Associates,  Waterford           Gaming LLC, LMW  Investments,  Inc., and Slavik Suites,  Inc.  entered           into a  Settlement  and  Release.  Pursuant  to  this  Settlement  and           Release,  Waterford Gaming, LLC bought out Leisure Resort's beneficial           interest in Trading Cove  Associates.  In its current  lawsuit,  filed           January 7, 2000,  Leisure Resort claims in an Amended  Complaint dated           February 4, 2000,  that in  connection  with the  negotiation  of this           Settlement and Release it was not properly informed of and involved in           certain  negotiations  between  Waterford  Gaming,  LLC,  Trading Cove           Associates,  LMW Investments,  Inc.,  Slavik Suites,  Inc.,  Waterford           Group,   LLC,   Len  Wolman  and  Mark   Wolman   (collectively,   the           "Defendants")  and the Mohegan  Tribe of Indians of  Connecticut  (the           "Tribe") regarding a possible  extension to the business  relationship           between Trading Cove Associates and the Tribe.  Leisure Resort further           alleges that as a result of Defendants' alleged acts, Leisure Resort's           assessment of the value of its beneficial interest was affected and it           was not able to make a fully-informed decision regarding the execution           of the Settlement and Release.  Leisure Resort has asserted claims for           breach of  fiduciary  duty,  fraudulent  non-disclosure,  unfair trade           practices under Connecticut  General Statutes ss. 42-110a et seq., and           unjust enrichment.            By  Memorandum of Decision  dated  October 13, 2000,  the Court struck           Leisure's cause of action for unfair trade  practices,  struck Leisure           Resort's claim for an accounting, and struck the alter ego allegations           in the Complaint against LMW Investments,  Inc., Slavik Suites,  Inc.,           Len Wolman, and Mark Wolman.            On November 15,  2000,  the  Defendants  answered  the  Complaint.  In           addition,  Waterford Gaming, LLC and Trading Cove Associates  asserted           counterclaims  for breach of the  Settlement and Release and Breach of           the Implied  Covenant  of Good Faith  against  Leisure  Resort and its           president,  Lee Tyrol (the "Counterclaim").  Tyrol was served with the           summons and Counterclaim on January 2, 2001.            By Memorandum of Decision dated June 13, 2001, the Court dismissed the           counterclaims  against Tyrol.  By Memorandum of Decision dated August,           6, 2001, the Court struck the first and second counts of the Complaint           against LMW Investments,  Inc., Slavik Suites,  Inc., Len Wolman,  and           Mark Wolman.            Leisure Resort also moved for summary  judgment  seeking  dismissal of           the counterclaims in full. This motion for summary judgment was denied           on April 14, 2003.            The  Defendants  then moved for summary  judgment  on April 15,  2004,           seeking dismissal of Leisure Resort's  remaining claims for fraudulent           non-disclosure,  breach of fiduciary duty, and unjust  enrichment.  By           Memorandum of Decision dated August 4, 2004 ("Order  Granting  Summary           Judgment"), the Court granted the Defendants' motion and dismissed the           clams against the  Defendants.  Leisure  Resort filed an appeal of the           Court's Order Granting  Summary  Judgment and the Defendants  filed an           opposition to that appeal.            On May 9, 2005,  the  Connecticut  Supreme Court  transferred  Leisure           Resort's  appeal of the trial  court's  grant of summary  judgment  in           favor of the  Defendants,  to itself.  The  Connecticut  Supreme Court           heard oral argument on Leisure  Resort's appeal on September 21, 2005.           On January 23, 2006,  the Supreme  Court  affirmed  the trial  court's           decision  granting  summary judgment in favor of the defendants on all           of  plaintiff's  claims.  Defendants'  counterclaims  against  Leisure           Resort remain pending.       Date of Report: January 23, 2006                                          37    (vi)Form 8-K filed on January 31, 2006       Item 8.01            On  January  31,  2006,  the  Mohegan  Tribal  Gaming  Authority  (the           "Authority")  filed a copy of a press release on Form 8-K,  announcing           its operating  results for the quarter ended December 31, 2005, a copy           of  which  has  been  filed  as an  exhibit  to  this  report  and  is           incorporated by reference to the Authority's electronic filing of such           report on Form 8-K,  Securities and Exchange Commission file reference           no. 033-80655.        Date of Report: January 31, 2006    (vii)Form 8-K filed on February 15, 2006       Item 8.01            On  February  14,  2006,  the Mohegan  Tribal  Gaming  Authority  (the           "Authority")  filed its quarterly  report on Form 10-Q for the quarter           ended  December 31, 2005, a copy of which has been filed as an exhibit           to this report and is  incorporated  by reference  to the  Authority's           electronic filing of such report on Form 10-Q, Securities and Exchange           Commission file reference no. 033-80655.        Date of Report: February  14,  2006                                         38      Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities  and Exchange Act of 1934, as amended,  the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.                                WATERFORD GAMING, L.L.C.     Date:  March 27, 2006                       By: /s/ Len Wolman                                             ------------------------------------                                             Len Wolman, Chairman of the Board of                                             Directors, Chief Executive Officer   Date:  March 27, 2006                       By: /s/ Alan Angel                                             ------------------------------------                                             Alan Angel, Chief Financial Officer    Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on March 27, 2006.     SIGNATURE                                    TITLE   /s/ Len Wolman                               Chairman of the Board of Directors, - --------------------------- Len Wolman                                   Chief Executive Officer   /s/Del J. Lauria                             Member of the Board of Directors, - --------------------------- Del J. Lauria                                Secretary   /s/ Mark Wolman                              Member of the Board of Directors - --------------------------- Mark Wolman   /s/ Stephen F. Slavik                        Member of the Board of Directors - --------------------------- Stephen F. Slavik                                          39    EX-31 2 finalexhibit31_123105.txt WATERFORD GAMING, LLC  EXHIBIT - 31                                       CERTIFICATION    I, Len Wolman, certify that:  1. I have reviewed this annual report on Form 10-K of Waterford Gaming, L.L.C.;  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;  3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;  4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:       a)   designed such disclosure controls and procedures, or caused such           disclosure controls and procedures to be designed under our           supervision, to ensure that material information relating to the           registrant, including its consolidated subsidiaries, is made known to           us by others within those entities, particularly during the period in           which this report is being prepared;       b)   evaluated the effectiveness of the registrant's disclosure controls           and procedures and presented in this report our conclusions about the           effectiveness of the disclosure controls and procedures as of the end           of the period covered by this report based on such evaluation; and       c)   disclosed in this report any change in the registrant's internal           controls over financial reporting that occurred during the           registrant's most recent fiscal quarter that has materially affected,           or is reasonably likely to materially affect the registrant's internal           controls over financial reporting;  5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting to the registrant's auditors and the registrant's board of directors (or persons performing the equivalent function):       a)   all significant deficiencies in the design or operation of internal           controls over financial reporting which are reasonably likely to           affect the registrant's ability to record, process, summarize and           report financial information; and       b)   any fraud, whether or not material, that involves management or other           employees who have a significant role in the registrant's internal           controls over financial reporting.     Date: March 27, 2006                    By: /s/ Len Wolman                                         Len Wolman, Chief Executive Officer         EXHIBIT - 31                                      CERTIFICATION    I, Alan Angel, certify that:  1. I have reviewed this annual report on Form 10-K of Waterford Gaming, L.L.C.;  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;  3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;  4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:       a)   designed such disclosure controls and procedures, or caused such           disclosure controls and procedures to be designed under our           supervision, to ensure that material information relating to the           registrant, including its consolidated subsidiaries, is made known to           us by others within those entities, particularly during the period in           which this report is being prepared;       b)   evaluated the effectiveness of the registrant's disclosure controls           and procedures and presented in this report our conclusions about the           effectiveness of the disclosure controls and procedures as of the end           of the period covered by this report based on such evaluation; and       c)   disclosed in this report any change in the registrant's internal           controls over financial reporting that occurred during the           registrant's most recent fiscal quarter that has materially affected,           or is reasonably likely to materially affect the registrant's internal           controls over financial reporting;  5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting to the registrant's auditors and the registrant's board of directors (or persons performing the equivalent function):       a)   all significant deficiencies in the design or operation of internal           controls which are reasonably likely to affect the registrant's           ability to record, process, summarize and report financial           information; and       b)   any fraud, whether or not material, that involves management or other           employees who have a significant role in the registrant's internal           controls over financial reporting.     Date: March 27, 2006                     By: /s/ Alan Angel                                          Alan Angel, Chief Financial Officer    -----END PRIVACY-ENHANCED MESSAGE-----