california lottery

An Enterprise Fund of the

State of California

Comprehensive Annual Financial Reportfor the Fiscal Year Ended June 30, 2007

California Lottery

California State Lottery An Enterprise Fund of the State of California

Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2007

Prepared by theFinance Division of theCalifornia State Lottery

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TABLE OF CONTENTS

INTRODUCTORY SECTION

Letter of Transmittal............................................................................................................................................

2006 Certificate of Achievement for Excellence in Financial Reporting..........................................................

Organization Chart with Principal Officials........................................................................................................

FINANCIAL SECTION

Independent Auditors’ Report..............................................................................................................................

Management’s Discussion and Analysis.............................................................................................................

Financial Statements

Statement of Net Assets......................................................................................................................................

Statement of Revenues, Expenses, and Changes in Net Assets..........................................................................

Statement of Cash Flows....................................................................................................................................

Notes to Financial Statements............................................................................................................................

STATISTICAL SECTION

Net Assets By Component - Last Ten Fiscal Years.............................................................................................

Change in Net Assets - Last Ten Fiscal Years.....................................................................................................

Sales by Product - Last Ten Fiscal Years..............................................................................................................

Expenses by Type - Last Ten Fiscal Years..........................................................................................................

California Demographics and Economic Information........................................................................................

California Demographics for Population and Players........................................................................................

U.S. Lottery Data for Fiscal Years 2006 and 2007...................................................................... . ......................

Number of Employees - Last Ten Fiscal Years.....................................................................................................

Information about Operating Indicators................................................................................................................

Capital Assets, Net - Last Nine Fiscal Years.......................................................................................................

Contributions to Education - Last Ten Years.......................................................................................................

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California State Lottery Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2007

Introductory Section

2007 Comprehensive Annual Financial Report

California State Lottery600 North 10th StreetSacramento, California 95811

December 31, 2007

The California State Lottery (Lottery) is pleased to provide this Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2007. The Finance Department of the Lottery prepared this CAFR to present an overview of the California State Lottery. The CAFR includes the Lottery’s annual financial statements presented in accordance with accounting principles generally accepted in the United States of America and audited in accordance with auditing standards generally accepted in the United States of America.

The CAFR covers the financial activity of the Lottery, a single enterprise fund. The report follows formal standards of the Government Finance Officers Association of the United States and Canada (GFOA). Government organizations that publish this type of report can be compared to each other because similar types of information are included in the report.

This letter of transmittal is designed to complement the Management’s Discussion and Analysis that accompanies the financial statements and should be read in conjunction with it.

Lottery management is responsible for the accuracy and completeness of the presentation, including all disclosures in this report. To the best of our knowledge, the enclosed information is accurate in all material respects and is reported in a manner designed to present fairly the financial position, results of operations, and the cash flows of the Lottery. All disclosures necessary to gain an understanding of the Lottery’s financial activities have been included.

California statutes require an annual financial audit by an independent Certified Public Accountant (CPA). The independent auditors’ report on the Lottery’s financial statements is included in the financial section of this report.

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Profile of the Lottery

The Lottery was created by a 1984 ballot initiative that was approved by 58% of the voters. The Lottery was established as an independent state agency to market and sell lottery products to the California public. By law, the Lottery is required to return 50% of revenues to the public in the form of prizes, at least 34% to public education and allocate no more than 16% for administrative costs. The Lottery Act specifies that the Lottery is operated and administered by a five-member Commission appointed by the Governor. A Director, who is appointed by the Governor, serves as the chief administrator of the Lottery. The Legislature has the authority to amend the Lottery Act by a two-thirds majority, if by doing so, it furthers the purposes of the measure.

Lottery ticket sales began on October 3, 1985, with the sale of the first instant ticket game called “California Jackpot.” More than 21 million tickets were sold on the very first day and more than 1.7 billion tickets were sold in the first nine months.

Draw Game sales began on October 14, 1986, with Lotto 6/49®. Daily draw games were introduced in March 1990. The Lottery currently offers seven draw games. Players have 180 days from the date of the drawing to claim prizes.

Twenty-two years later, total Lottery sales have topped $53.3 billion and the Lottery offers a full range of products. Retailers pay prizes up to $599 and prizes over $599 are paid directly by the Lottery. A brief description of each game is provided below.

Scratchers® – Scratchers are instant ticket games that are played by scratching the latex covering off a play area and learning “instantly” whether the ticket is a winner. There are different ways to win a Scratchers game, such as matching two or three

like symbols, your score beats their score, or your symbol matches a key symbol. The Lottery started Scratchers game sales in October 1985 with a $1 game. Multiple Scratchers games were initially offered in October 1991. The Lottery’s first Scratchers game that retailed for more than $1 went on sale in October 1993.

SuperLOTTO Plus® – Players select five lotto numbers from a field of 1 through 47 and one mega number from a field of 1 through 27. There are nine prize categories in this game. To win the jackpot, players must match all five lotto numbers plus

the mega number. Jackpot prizes start at $7 million and have reached more than $190 million. The lowest prize is $1 for matching just the mega number. Winning numbers are drawn every Wednesday and Saturday at 7:57 p.m.

MEGA Millions® – Players select five lotto numbers from a field of 1 through 56 and one mega number from a field of 1 through 46. There are nine prize categories in this game. To win the jackpot, players must match all five lotto numbers plus the mega

number. Jackpot prizes start at $12 million and have reached as much as $390 million. Winning numbers are drawn every Tuesday and Friday at 8:00 p.m. MEGA Millions is the largest multi-state lottery game in North America.

Hot Spot® – This game was designed primarily for social trade styles like restaurants and bowling centers, but is available at all retailer locations. Players select numbers from a field of 1 through 80 and have a choice of playing five different “spots,”

including two, three, four, five, or eight spots. For example, a player who chooses to play a “three spot” would pick a set of three numbers. There are a total of 14 prize categories in this game. Draws are conducted daily every four minutes with the first draw at 6:04 a.m. and last draw at 2:00 a.m. Twenty winning numbers are selected for each draw. Draw results are “broadcast” by the gaming system to more than 5,000 monitors located in retail locations statewide.

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Daily 3 – This daily game was designed to provide very good odds of winning smaller prizes. Players select a set of three numbers from 0 through 9, as well as a play style where players try to match the three numbers drawn in the exact order

or in any other order. There are seven prize categories in this game. The top prizes averages over $500. Winning numbers are drawn twice a day.

Fantasy 5 – This daily lotto-style game was designed with better odds than Super LOTTO Plus®. Players select a set of five numbers from 1 through 39. Winning tickets are those that match any two, three, four, or all five of the five numbers

drawn. There are four prize categories in this game. Top prizes start at $50,000 and have reached more than $700,000 for matching all five numbers.

Daily Derby® – This daily game was designed with a horse racing theme, but is not associated with the results of any actual horse race. Players select three “horses” from a field of 12 and a “race time” which is a set

of three numbers (e.g. 0, 1, and 9) with each number selected from a field of 0 through 9. There are five prize categories in this game. Top prizes start at $50,000 and have reached more than $1 million for matching the race time and all three horses in exact order. The lowest prize is $2 for matching the 1st place horse.

Raffle - Players may win prizes by matching their raffle numbers to the numbers drawn by the Lottery. Raffle games are offered for a limited time at various times during the year. The prize structure for each Raffle game may vary; the top prize for

the two raffle games offered to date has been $1 million. From its inception in 1985 through June 30, 2007, the Lottery generated approximately $53.3 billion in sales. The retailers who sell lottery tickets have received more than $3.4 billion in compensation. Approximately $27.4 billion was won by lucky Lottery winners. Additionally, the Lottery exceeded its mandate, which requires that 34 percent of all Lottery sales revenues, plus interest income and unclaimed prizes, be given to public education. Since October 1985, the Lottery has contributed an additional $530 million to education through operational savings.

Distribution of Revenues(in billions)

October 3, 1985 - June 30, 2007

Prizes $27.4

Retailer Compensation

$3.4

Direct Costs $1.3

Operating Expenses

$2.5Contributions to

Education 1 $19.7

- 5 - (1) Includes interest income, unclaimed prizes, and other income of approximately $1 billion.

Relevant Financial Policies

Accounting System and PoliciesThe Lottery operates the California State Lottery Fund, an enterprise fund that, like a private business, utilizes the full accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.

Budgetary ControlsBudgetary control for the Lottery is addressed through its enabling legislation, which provides specific limitations on operating and administrative expenses. A comprehensive annual budget is prepared in conjunction with the Lottery’s Annual Business Plan. The budget is prepared on both a cash basis and a full accrual basis of accounting. It is also prepared in distinct, quarterly segments to facilitate comparison to the quarterly financial statements. The budget is based on sales forecasts, industry trends, program proposals, and approved action plans. While the Lottery does not have a legislatively appropriated budget, the operating budget is submitted to the Lottery Commission with the Annual Business Plan for approval. Actual costs are monitored throughout the year for compliance with the approved budget and appropriate adjustments are approved if necessary.

Internal ControlsAn internal control structure has been designed to ensure that assets are protected from loss, theft, or misuse, and to ensure that the accounting system allows compilation of accurate and timely financial information. The internal controls are designed to provide reasonable assurance that these objectives are met.

To enhance controls, Lottery management has separate responsibilities and provides approval and oversight for the following functions: personnel and payroll; purchasing and accounts payable; general ledger and accounts receivable; cash receipts and cash disbursements; retailer network management and retailer accounts receivable; and system data processing and system programming. Reviews of operations are achieved by the following procedures:

Draw verification: An independent CPA firm witnesses the draws of Lottery games (except for computer automated drawings of Hot Spot®), and inspects any equipment used in such draws, before and after each draw. An independent CPA firm and a Lottery security employee attend and witness each MEGA Millions® draw, regardless of draw location.Security evaluation: An independent firm experienced in security procedures conducts a comprehensive study and evaluation of all aspects of security in the operation of the Lottery on a biennial basis.State Administrative Manual (SAM) 20000 audit: The State Controller’s Office performs a study and evaluation of accounting and administrative controls every two years.

The following measures have been implemented to ensure the integrity of the Lottery:• Specialized security and law enforcement staff• Secured facilities and gaming equipment• Background checks on retailers, contractors and Lottery employees• Lottery tickets with special inks, dyes and security codes• Detailed and strict security procedures for game drawings• Lottery random number generators in stand-alone systems and certified by an independent CPA audit firm

prior to installation• Lottery draw balls weighed and measured once a month to ensure standard compliance set by the Weights and

Measures Division of the California Department of Agriculture

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EmployeesThe Lottery has 620 authorized positions at its headquarters located in Sacramento and at nine district offices located in Sacramento, San Francisco, Hayward, Fresno, Van Nuys, Santa Fe Springs, Santa Ana, San Bernardino, and San Diego.

Debt AdministrationThe Lottery’s long-term liabilities include payments owed to Lotto jackpot, Big Spin®, Weekly Grand, Decade of Dollars and Cash for 20 Years winners. The payments due to winners are funded by amounts invested in zero coupon U. S. Treasury bonds.

Cash ManagementCash due from approximately 19,500 retailers is collected on a weekly basis through an electronic funds transfer system and deposited into an account within the California State Treasurer’s Office. Idle cash is invested in the Surplus Money Investment Fund, and interest earnings are received quarterly. The fund is administered by the Pooled Money Investment Board which is composed of the State Treasurer, the State Controller, and the Director of the Department of Finance.

Risk ManagementThe Lottery has elected, with a few exceptions, to be self-insured against loss or liability. Losses are accrued when the related liabilities occur. Except for workers’ compensation costs initially paid by the State Compensation Insurance Fund for self-insured state agencies, the Lottery has purchased commercial insurance policies for protection from loss on certain assets. Additionally, major or critical contracts for the purchases of goods and services include requirements of vendors to maintain insurance coverage and/or financial security instruments, such as performance bonds or letters of credit.

Major Initiatives

In May 2006, the Lottery began a rigorous, year-long strategic planning process that began by consulting with industry leaders, marketing and advertising firms, vendors and consultants. In addition, research studies were conducted and industry trends, best practices and the history of the organization were reviewed to determine the Lottery’s strategic direction. As a result of the planning process, four major initiatives were identified: focus on long-range planning, improve brand image, shift the jackpot paradigm and modernize operations. The Lottery believes this strategic plan will increase Lottery contributions to education and set the stage for long-term growth and new business opportunities.

Based on the strategic direction, the Lottery plans to focus on improving and streamlining business operations throughout the organization by fully utilizing current resources, modern/advanced technologies and communication channels, and by implementing innovative ideas and best business practices over the next several years.

The Lottery will work on improving its brand image by establishing a cohesive and credible message about what the Lottery represents. The communication and outreach plan will include incorporating winner proceeds awareness and the Lottery’s social responsibilities in the messaging.

In an effort to shift the jackpot paradigm, the Lottery plans on formulating a strategy to shift the focus away from large jackpot games to games that are conducive to more regular play and more winning experiences. The overall strategic focus is to give players a reason to play on a more regular basis and to reduce the vulnerability related to jackpot levels.

The Lottery will also work on improving the infrastructure, including the distribution network, to improve efficiency and reduce operating costs and to provide more flexibility so that opportunities can be acted upon in a timely manner.

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Lastly, in an effort to make Lottery products and services more accessible and readily available, a strategic retailer recruitment plan, based on consumer shopping trends and growing retail markets, will be developed in the near future.

Local Economy 1 The struggling housing sector will continue to weigh on the state and national economies during the rest of 2007 and to a lesser extent in 2008, but economic growth should steadily improve beginning in the third quarter of 2007. Personal income is projected to grow 5.3 percent in 2007, 5.5 percent in 2008 and 5.8 percent in 2009, as compared to 6.1 percent in 2006. Nonfarm payroll employment is forecasted to increase 1.3 percent in 2007, 1.5 percent in 2008 and 1.8 percent in 2009, as compared to 1.8 percent in 2006. The projected unemployment rate for 2007 and 2008 is 5.0%.

Awards and Acknowledgements The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Lottery for its comprehensive annual financial report for the fiscal year ended June 30, 2006. This was the fourth consecutive year that the Lottery has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements.

A Certificate of Achievement is valid for a period of one year. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate.

This report demonstrates the professionalism and dedicated team effort of Lottery employees. We appreciate their contribution to the success of this report. The Lottery is committed to providing thorough and relevant financial information to the public. This CAFR reflects our commitment to meet the highest standards of accountability and to maintain public trust through the highest ethics and integrity.

Respectfully submitted,

Patrick Meroney, Acting Deputy DirectorFinance Division

(1) Governor’s Budget May Revision 2007-08, pages 9 - 14

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Financial Section


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KPMG LLPSuite 800400 Capitol MallSacramento, CA 95814

Independent Auditors’ Report

The California State Lottery Commission Sacramento, California:

We have audited the accompanying financial statements of the California State Lottery Fund (the Lottery) as of and for the year ended June 30, 2007, as listed in the table of contents. These financial statements are the responsibility of the Lottery’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Lottery’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

As discussed in Note 1, the financial statements present only the California State Lottery Fund and do not purport to, and do not, present fairly the financial position of the State of California, as of June 30, 2007, and the changes in its financial position, or, where applicable, its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the California State Lottery Fund as of June 30, 2007, and the changes in its financial position and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The management’s discussion and analysis on pages 17 through 22 is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.

The California State Lottery CommissionPage 2

Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the California State Lottery Fund’s basic financial statements. The introductory and statistical sections are presented for purposes of additional analysis and are not a required part of the basic financial statements. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them.

October 9, 2007

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MANAGEMENT’S DISCUSSION AND ANALYSIS

The following discussion and analysis of the California State Lottery’s financial performance provides an overview of financial activities for the fiscal year ended June 30, 2007. Please read it in conjunction with the California State Lottery Financial Statements that follow this section.

FINANCIAL HIGHLIGHTS

The assets of the Lottery exceeded its liabilities at the close of the most recent fiscal year by $95.3 million, which is attributable to unrealized gains on investments the Lottery holds to fund future payments due on annuitized lottery prizes.

• The California Lottery had a record-breaking MEGA Millions® jackpot of $390 million in March, 2007. This jackpot became the highest jackpot ever offered in California Lottery history.

• With sales for the 2006/2007 fiscal year totaling over $3.3 billion, approximately $1.2 billion will be transferred to California’s public schools, making this the seventh consecutive year to transfer more than $1 billion to education.

• The Lottery introduced The Million Dollar Raffle in February, 2007. Tickets were available through March

17, 2007, when the final raffle drawing was held and multiple million-dollar prizes were awarded. The game generated more than $16 million in sales and more than $5.7 million in contributions to education. The Lottery plans on conducting more raffle-style games in the future.

OVERVIEW OF THE FINANCIAL STATEMENTS

These required statements offer short-term and long-term financial information about the California State Lottery. The Statement of Net Assets provides information about the nature and amounts of investments in resources (assets) and obligations (liabilities) at the close of the fiscal year. All of the current year’s revenues and expenses are accounted for in the Statement of Revenues, Expenses, and Changes in Net Assets. This statement measures the success of the Lottery’s operations over the past year. The final required financial statement is the Statement of Cash Flows. The primary purpose of this statement is to provide information about the Lottery’s cash receipts and cash payments during the reporting period. The statement reports cash receipts, cash payments, and net changes in cash resulting from operations, investing, and financing activities, and provides answers to such questions as where did cash come from, and what was cash used for. The financial statements are prepared on the accrual basis in accordance with accounting principles generally accepted in the United States of America. The California State Lottery is structured as a single enterprise fund with revenues recognized when earned, not when received.

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FINANCIAL ANALYSIS

NET ASSETS

A summary of the California State Lottery’s net assets is presented below:

June 30, 2006 June 30, 2007 Dollar ChangePercent Change

Current and other assets $ 2,651,217,843 $ 2,398,044,151 $ (253,173,692) (9.6%)Capital assets 42,926,882 50,203,022 7,276,140 17.0% Total assets 2,694,144,725 2,448,247,173 (245,897,552) (9.1%)

Current liabilities 1,030,615,757 970,328,300 (60,287,457) (5.9%)Long-term prize liability 1,559,297,951 1,382,603,473 (176,694,478) (11.3%) Total liabilities 2,589,913,708 2,352,931,773 (236,981,935) (9.2%)

Invested in capital assets 42,926,882 50,203,022 7,276,140 17.0%Restricted for unrealized gains on investments 104,231,017 95,315,400 (8,915,617) (8.6%)Unrestricted (deficit) (42,926,882) (50,203,022) (7,276,140) 17.0% Total net assets $ 104,231,017 $ 95,315,400 $ (8,915,617) (8.6%)

A summary of the California State Lottery’s change in net assets is presented below:


Operating revenues – Lottery sales $ 3,584,996,251 $ 3,318,346,505 $ (266,649,746) (7.4%)Prizes 1,932,721,443 1,765,643,368 (167,078,075) (8.6%) Sales after prizes 1,652,274,808 1,552,703,137 (99,571,671) (6.0%)

Game costs 310,964,629 289,337,829 (21,626,800) (7.0%) Income before operating expenses 1,341,310,179 1,263,365,308 (77,944,871) (5.8%)

Operating expenses 102,098,215 110,932,619 8,834,404 8.7% Operating income 1,239,211,964 1,152,432,689 (86,779,275) (7.0%)

Non-operating (expenses) revenues (1,410,887,577) (1,161,348,306) 249,539,271 (17.7%) Change in net assets (171,675,613) (8,915,617) 162,759,996 (94.8%)

Total net assets – beginning of year 275,906,630 104,231,017 (171,675,613) (62.2%)Total net assets – end of year $ 104,231,017 $ 95,315,400 $ (8,915,617) (8.6%)

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A summary of total revenues for the fiscal years ended June 30, 2006 and 2007, and the amount and percentage of change in relation to prior year amounts is as follows:


Operating revenues:Lotto games $ 1,187,725,049 $ 1,023,039,079 $ (164,685,970) (13.9%) Instant ticket games 1,929,632,771 1,824,355,512 (105,277,259) (5.5%)Hot Spot® 163,526,309 143,182,870 (20,343,439) (12.4%)Daily games 304,112,122 310,903,219 6,791,097 2.2%Raffle - 16,865,825 16,865,825 100% Total operating revenues 3,584,996,251 3,318,346,505 (266,649,746) (7.4%)

Non-operating revenues:Unrealized gains (losses) on investments (171,675,613) (8,915,617) 162,759,996 (94.8%)Interest on funds held by State Treasurer 18,442,836 23,296,899 4,854,063 26.3%Other income 853,117 1,199,529 346,412 40.6%

Total non-operating revenues (152,379,660)

15,580,811 167,960,471 (110.2%)

Total revenues $ 3,432,616,591 $ 3,333,927,316 $ (98,689,275) (2.9%)

Operating Revenues

Lotto Games 30.8%

Instant Ticket Games 55.0%

Hot Spot 4.3%

Daily Games 9.4%

REVENUES

The following chart shows the major sources and the percentages of operating revenues for the fiscal year ended June 30, 2007:

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Raffle 0.5%

The decrease in sales is mostly attributable to Lotto game sales. Generally, jackpots were won at lower levels in the 2006/2007 fiscal year and sales are usually lower for smaller jackpots. Overall instant ticket game sales were down about 5 percent from the previous year. One of the objectives of the 2006/2007 business plan was to increase sales of $1 and $2 games; this objective was met however the increase in sales for the $1 and $2 games did not compensate for the decrease in sales of the $3 and $5 games. Non-operating revenues were substantially higher because in the 2005/2006 fiscal year there was a large decrease in the fair value of our investments. Although there was an unrealized loss on our investments in the current year, the change in the fair value was minimal.

Prizes, Games Costs, Operating Expenses and Allocations as a Percent of Operating Revenues

Allocation of Operating Income to Education Fund

34.8%

Prizes 53.2%

Retailer Costs 7.0%

Draw/Instant Ticket Game

Costs 1.7%

Operating Expenses

3.3%

EXPENSES

The following chart shows prizes, game costs, operating expenses and allocations as a percentage of operating revenues for the fiscal year ended June 30, 2007.

A summary of expenses for the fiscal years ended June 30, 2006 and 2007 , and the amount and percentage change in relation to prior year amounts is as follows:


Prizes:Draw game prizes $ 807,354,209 $ 727,414,075 $ (79,940,134) (9.9%)Instant ticket game prizes 1,125,367,234 1,038,229,293 (87,137,941) (7.7%) Total prizes 1,932,721,443 1,765,643,368 (167,078,075) (8.6%)

Game costs:Retailer costs 252,543,062 233,792,642 (18,750,420) (7.4%)Draw/instant ticket game costs 58,421,567 55,545,187 (2,876,380) (4.9%) Total game costs 310,964,629 289,337,829 (21,626,800) (7.0%)

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Operating expenses:Salaries, wages, and benefits 41,201,111 42,224,625 1,023,514 2.5%Advertising 25,495,083 33,337,617 7,842,534 30.7%Promotion, public relations, and point of sale 9,307,150 8,894,469 (412,681) (4.4%)Other professional services 5,959,870 5,660,943 (298,927) (5.0%)Depreciation and amortization 8,745,427 9,099,711 354,284 4.1%Other general and administrative expenses 11,389,574 11,715,254 325,680 2.9% Total operating expenses 102,098,215 110,932,619 8,834,404 8.7%

Non-operating expenses:Allocations to Education Fund 1,258,507,917 1,176,929,117 (81,578,800) (6.5%)

Total expenses $ 3,604,292,204 $ 3,342,842,933 $ (261,449,271) (7.3%)

The decrease in prize expense and game costs are directly related to the decrease in sales as these are variable costs. Operating expenses increased primarily because we introduced a new draw game this fiscal year and an advertising campaign was launched to promote the new Raffle product. Allocations to the Education Fund decreased because of lower Lottery sales as well.

CAPITAL ASSETS

A summary of capital assets as of June 30, 2006 and 2007, and the amount and percentage of change in relation to prior year amounts is as follows:


Non-depreciable capital assets:Land $ 4,922,805 $ 4,922,805 $ - -

Depreciable capital assets:Gaming terminals 277,443 14,341,143 14,063,700 5069.0%Vending machines 34,243,343 34,243,343 - - Buildings 27,324,210 27,557,340 233,130 .9%Data processing equipment 8,043,778 8,355,543 311,765 3.9%Office furniture and equipment 5,782,078 6,170,568 388,490 6.7%Leasehold improvements 603,768 1,075,698 471,930 78.2%Other 5,959,135 6,654,020 694,885 11.7% Subtotal 82,233,755 98,397,655 16,163,900 19.7%Less accumulated depreciation (44,229,678) (53,117,438) (8,887,760) 20.1% Total depreciable capital assets 38,004,077 45,280,217 7,276,140 19.2%

Capital assets, net $ 42,926,882 $ 50,203,022 $ 7,276,140 17.0%

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During the 2007 fiscal year, net capital assets increased by approximately $7.3 million or 17.0% The net change can be attributed to the purchase of new gaming equipment and depreciation expense for the year. Additional detailed information on capital assets may be found in Note 5 of the accompanying financial statements.

LONG - TERM DEBT

At June 30, 2007, the California State Lottery had $1.38 billion in outstanding long-term prize liability versus $1.56 billion last year, a decrease of 11.5%. Most of the change is attributable to lotto game prize liability as the majority of SuperLOTTO Plus® and MEGA Millions® jackpot winners now choose the cash option rather than annuitized payments. Additional detailed information on long-term prize liability may be found in Note 6 of the accompanying financial statements.

CONTACTING THE LOTTERY’S FINANCIAL MANAGER

This financial report is designed to provide a general overview of the California State Lottery’s finances and to demonstrate the accountability for the money the Lottery earns. If you have questions about this report or need additional financial information, contact the California State Lottery, Finance Department, 600 N. 10th Street, Sacramento, CA 95811.

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ASSETSCurrent assets: Cash and cash equivalents (Note 2) $ 350,835,595 Investments, current portion (Note 2) 314,702,349 Accounts receivable, net of allowances (Note 3) 225,278,253 Due from state funds (Note 4) 6,298,205 Ticket inventories 6,313,910 Other 8,630,085

Total current assets 912,058,397

Non-current assets: Investments, less current portion (Note 2) 1,472,958,345 Capital assets, net (Note 5) 50,203,022 Deferred charges, net 13,027,409

Total non-current assets 1,536,188,776

TOTAL ASSETS $ 2,448,247,173

LIABILITIES

Current liabilities: Accounts payable $ 38,346,634 Current prize liability (Note 6) 630,374,247 Due to state funds (Note 7) 292,466,237 Accrued liabilities 6,571,662 Unearned revenue 2,569,520

Total current liabilities 970,328,300

Non-current liabilities: Prize liability, less current portion (Note 6) 1,382,603,473

TOTAL LIABILITIES $ 2,352,931,773

Commitments and contingencies (Notes 8 and 12)

NET ASSETS

Invested in capital assets $ 50,203,022Restricted for unrealized gains on investments (Note 2) 95,315,400Unrestricted (deficit) (50,203,022) TOTAL NET ASSETS $ 95,315,400

CALIFORNIA STATE LOTTERY FUND STATEMENT OF NET ASSETS

JUNE 30, 2007

See accompanying notes to the financial statements.

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Operating revenues: Lottery sales $ 3,318,346,505 Prizes 1,765,643,368

Sales after prizes 1,552,703,137

Less game costs: Retailer costs 233,792,642 Draw game costs 37,820,168 Instant ticket game costs 17,725,019

Total game costs 289,337,829

Income before operating expenses 1,263,365,308

Operating expenses: Salaries, wages, and benefits 42,224,625 Advertising 33,337,617 Promotion, public relations, and point of sale 8,894,469 Other professional services 5,660,943 Depreciation and amortization 9,099,711 Other general and administrative expenses 11,715,254

Total operating expenses 110,932,619

Operating income 1,152,432,689

Non-operating (expenses) revenues: Investment earnings (Note 9) 14,381,282 Other income 1,199,529 Allocation to Education Fund (Note 7) (1,176,929,117)

Total non-operating (expenses) revenues (1,161,348,306)

Change in net assets

(8,915,617)Total net assets - beginning balance 104,231,017Total net assets - ending balance $ 95,315,400

CALIFORNIA STATE LOTTERY FUND STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS

YEAR ENDED JUNE 30, 2007


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Cash flows from operating activities:Receipts from customers $ 3,335,784,893Payments for prizes (2,119,822,891)Payments to retailers (233,770,727)Payments to suppliers for goods and services (131,240,105)Payments to employees (37,758,073)Internal activity-payments to state funds (9,417,796)Receipts from other states 56,455,774Other receipts 2,107,893

Net cash flows provided by operating activities 862,338,968

Cash flows from non-capital financing activities:Distributions to Education Fund (1,236,996,053)

Net cash flows used in non-capital financing activities (1,236,996,053)

Cash flows from capital and related financing activities: Proceeds from disposal of capital assets 7,793 Payments for capital assets (2,339,403)

Net cash flows used in capital and related financing activities (2,331,610)

Cash flows from investing activities: Purchase of securities (287,421,386) Proceeds from matured securities 348,612,000 Proceeds from sale of securities 277,329,752 Surplus Money Investment Fund interest 22,642,331

Net cash flows provided by investing activities 361,162,697

Decrease in cash and cash equivalents (15,825,998)

Cash and cash equivalents at July 1, 2006 366,661,593

Cash and cash equivalents at June 30, 2007 $ 350,835,595

CALIFORNIA STATE LOTTERY FUND STATEMENT OF CASH FLOWS



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Cash flows from operating activities: Operating income $ 1,152,432,689 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization 16,508,097 Provision for doubtful accounts 627,794 Provision for returned tickets (482,855) Provision for free ticket redemptions (1,940,527) Net loss on retirement or disposal of capital assets 19,460 Other income 1,199,529 Changes in assets and liabilities: Decrease in accounts receivable 5,361,556 Decrease in due from state funds 3,122 Decrease in ticket inventories 2,689,472 Increase in other assets (1,358,039) Increase in deferred charges (2,886,772) Decrease in accounts payable (11,499,515) Decrease in prize liability (297,723,749) Increase in due to state funds 44,865 Decrease in accrued liabilities (291,578) Decrease in deferred revenues (364,581)

(290,093,721) Net cash flows provided by operating activities $ 862,338,968

Supplemental disclosure of non-cash activities:

Interest accreted on annuitized prizes $ 118,855,859

Unclaimed prizes directly allocated to the Education Fund $ 29,217,965

Unrealized loss on investments $ (8,915,617)

Acquisition of equipment accrued in accounts payable $ 14,063,700

CALIFORNIA STATE LOTTERY FUND STATEMENT OF CASH FLOWS



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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The California State Lottery Fund (the Lottery) was created with the passage of the California State Lottery Act of 1984 (the Act). The Lottery is a part of the primary government of the State of California and is reported as a proprietary fund and business-type activity within the State of California’s financial statements. The purpose of the Act is to support the preservation of the rights, liberties, and welfare of the people by providing additional monies to benefit education without the imposition of additional or increased taxes. The operations of the Lottery are separate and distinct from other operations of the State of California.

The Act mandates that, as nearly as practical, 50 percent of the total annual revenues from Lottery sales be returned to the public in the form of prizes and that at least 34 percent be allocated to benefit public education. No more than 16 percent of the total annual revenues from sales of tickets or shares shall be allocated for payment of operating expenses of the Lottery (Note 11).

Basis of Presentation

The Lottery is accounted for as an enterprise fund. The financial statements are prepared on the accrual basis of accounting and the economic resources measurement focus in accordance with accounting principles generally accepted in the United States of America. Operating revenue and expenses are those that result from providing services and producing and delivering goods and/or services.

Revenue Recognition – Instant Ticket Games

Sales of lottery tickets are made to the public through contracted retailers. Revenue is recognized upon the sale of tickets to the retailers. An allowance is recognized for the retailers’ right to return unsold tickets after each game end. Operating revenue is reduced for free tickets. Retailers receive a commission of six percent which is recognized when tickets are sold to the retailers.

Revenue Recognition - Draw Games

Lottery sales are made to the public through gaming terminals at contracted retailers. Revenue is recognized upon the sale to the public. With the exception of MEGA Millions®, the public has the right to cancel a sale on the same day before pool closure. All MEGA Millions sales are final. The applicable retailers’ commission of four and one-half to six percent is recognized when sales are made to the public.

Recognition of the revenue from sales for future draws is deferred until those draws become current. The retailers’ commission related to the deferred revenue is reflected as a prepaid expense until the related deferred revenue is recognized.

Prizes – Instant Ticket Games

Prize expense for instant ticket games is recognized based on the predetermined prize structure for each game in the period revenue is recognized. Prizes that are not claimed are recognized as unclaimed prizes 180 days after the end of each game. Unclaimed prizes not directly payable by the Lottery Commission are recognized as a reduction of prize expense and included in the Lottery’s operating income that is allocated to the Education Fund. Unclaimed prizes directly payable by the commission are allocated directly to the Education Fund. Prize expense relative to the Lottery’s weekly Big Spin® Show is recorded based on the estimated prize structure for each game as revenue is recognized. Periodically, prize expense is adjusted to reflect amounts actually won.

CALIFORNIA STATE LOTTERY FUND NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2007

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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Prizes – Instant Ticket Games (continued)

Prizes of $1 million or more are generally paid in twenty equal annual installments. The Weekly Grand, the Extravaganza 2000, the Twice as Grand, and the Weekly $2,000 Payday top prizes are paid in weekly installments for twenty years. The Decade of Dollars top prizes are paid in annual installments for ten years. The top prizes for the Cash for 20 Years game are paid in annual, graduated payments over a twenty year period. Prize expense for these prizes is based on the present value of the annuity using an interest rate equal to the interest yield on the zero coupon U.S. Treasury bonds which the Lottery acquires to fund the annuity payments. Interest earned is imputed on the annuity using the same interest rate. The Next Millionaire top prizes of $1 million dollars were each paid in a single payment.

Prizes - Draw Games

SuperLOTTO Plus® and MEGA Millions® - Prize expenses for the twice-weekly draw games are recognized on the basis of the predetermined prize structure when the revenue is recognized. Nine distinct prize categories are established which are dependent upon the amount of money wagered and the quantity of numbers to be matched. In the event that no winning share for a specific prize category in SuperLOTTO Plus is selected, all monies allocated for that prize are carried forward to the following drawing and added to the Five of Five plus MEGA number category (grand prize). In the event that no winning share for a specific prize category in MEGA Millions is selected, all monies allocated for that prize are carried forward to the following drawing and remain in the pool for that same prize category.

The total Grand/Jackpot prize liability for each multi-state MEGA Millions drawing shall be shared by each participating state lottery (Party Lottery) as follows: each Party Lottery shall be responsible for an amount equal to a percentage of that Party Lottery’s MEGA Millions sales, said percentage being the proportion of the total Grand/Jackpot prize liability to total MEGA Millions sales. The California State Lottery is prohibited by state law from paying fixed prizes and participating in the liability calculation for prize levels two (2) through nine (9). The California State Lottery shall be solely responsible for its own prize liability for prize levels two (2) through nine (9).

All SuperLOTTO Plus prizes won but not claimed within the specified period are allocated directly to the Education Fund. In the event that a MEGA Millions grand/jackpot prize won in California is unclaimed, the prize monies will be returned to the Party Lotteries in the same ratio that each Party Lottery contributed to such prize plus interest and the amount contributed for the grand/jackpot prize by the California State Lottery will be allocated directly to the Education Fund. The unclaimed prize monies for all other MEGA Millions prizes categories won in California but not claimed within the specified period are allocated directly to the Education Fund.

Super LOTTO grand/jackpot prizes won prior to April 1, 1998, of $1 million or more are paid in twenty equal annual installments. Effective April 1, 1998, grand/jackpot prizes of $1 million or more are paid either in twenty-six graduated annual payments or in a single payment equal to the cash value of the twenty-six-payment annuity, in accordance with the rules and regulations of the Lottery. Beginning September 21, 2005, claimants have up to 60 days after the date they became entitled to the prize to irrevocably elect to receive the cash value or the annuitized payments. Payments for all other prize categories are made in a single payment.

MEGA Millions grand/jackpot prizes won in California are paid in 26 equal annual installments, however, claimants have up to 60 days after the date they became entitled to the prize to irrevocably elect to receive the cash value of the prize instead of 26 annual payments. Payments for all other prize categories are made in a single payment.


JUNE 30, 2007

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Prizes – Draw Games (continued)

Fantasy 5 - Prize expense for the seven-draws-per-week game is recognized on the basis of the predetermined prize structure when the revenue is recognized. Distinct prize categories are established dependent upon the amount of money wagered and the quantity of numbers to be matched. In the event that no winning share for a specific prize category is selected, all monies allocated for that prize category are carried forward to the following drawing and added to the 5 of 5 prize category. All Fantasy 5 prizes won but not claimed within the specified period are allocated directly to the Education Fund.

Daily 3 - Prize expense for the two-draws-per-day game is recognized on the basis of the predetermined prize structure when the revenue is recognized. Distinct prize categories are established which are dependent upon the amount of money wagered, the quantity of numbers to be matched, and the order of numbers chosen. All Daily 3 prizes won but not claimed within the specified period are allocated directly to the Education Fund.

Daily Derby® - Prize expense for the seven-draws-per-week game is recognized on the basis of the predetermined prize structure when the revenue is recognized. Distinct prize categories are established which are dependent upon the amount of money wagered, the quantity of numbers to be matched, and the order of numbers chosen. In the event that no winning share for a specific prize category is selected, all monies allocated for that prize category are carried forward to the following drawing and added to the Grand Prize category. All Daily Derby prizes won but not claimed within the specified period are allocated directly to the Education Fund.

Hot Spot® - Prize expense for the multiple-draws-per-day game is recognized on the basis of the predetermined prize structure when the revenue is recognized. On November 27, 2006, the Lottery established a Typical Prize Allocation (allocation) for the 8 Spot Match 8 of 8 category and Typical Prize Amounts (amounts) for all spots other than the 8 Spot Match 8 of 8 prize. On that date, the Lottery also made an irrevocable transfer to a Hot Spot Wagered Prize Fund (fund) to pay these allocations and amounts. In addition to the initial transfer, the fund balance is adjusted daily based upon daily sales contributions and prizes won. In the event the balance in the fund is not sufficient to pay the allocations and amounts of a particular draw, prizes will be systematically reduced until the fund is sufficient to pay the reduced amounts. The Director will authorize promotional prize augmentations to ensure that the fund balance at the end of any given fiscal year is liquidated. All Hot Spot prizes won but not claimed within the specified period are allocated directly to the Education Fund.

Prior to the change made on November 27, 2006, distinct prize categories were established which were dependent upon the amount of money wagered and the quantity of numbers to be matched. In the event that no winning share for a specific Hot Spot prize category was selected, all monies allocated for that prize category were carried forward to the following drawing and added to its respective prize category.

Raffle - The Lottery may periodically conduct raffle games. Players may win prizes by matching their raffle numbers to the numbers drawn by the Lottery. Prize expense for the game is recognized on the basis of a pre-determined prize structure when the revenue is recognized. All Raffle prizes won but not claimed within the specified period are allocated directly to the Education Fund.

Cash Equivalents

Cash equivalents represent cash deposited in the Surplus Money Investment Fund (SMIF).

Investments

The Lottery applies Statement No. 31 of the Governmental Accounting Standards Board (GASB 31), Accounting and Financial Reporting for Certain Investments and for External Investment Pools. This statement establishes accounting and financial reporting standards for all investments held by governmental external investment pools


JUNE 30, 2007

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Investments (continued)

and establishes fair value standards for other governmental entities. In accordance with GASB 31, the Lottery has stated investments, which consist of zero coupon U.S. Treasury bonds, at fair value. The difference between the carrying value and the fair value of the investment is reported as a component of total net assets on the Statement of Net Assets. Allowances for Doubtful Accounts, Ticket Returns, and Free Ticket Redemptions

The allowance for doubtful accounts is based on an analysis of collectibility of accounts receivable which considers the age of the accounts and current economic conditions. An allowance for ticket returns for instant ticket games is estimated using sales revenue and historical return data for the games in progress at the end of the reporting period. An allowance for free ticket redemptions for instant ticket games is estimated using sales revenue and free ticket redemption data for games in progress at the end of the reporting period.

Ticket Inventories

Inventories are carried at cost and consist of tickets for games in progress not yet sold to retailers and tickets for future games. The cost of tickets is charged to operations when the tickets are sold to retailers. The cost of unissued and returned tickets are written off at the end of each game.

Capital Assets

The Lottery has adopted a policy of capitalizing assets with an acquisition cost or established value of $5,000 or greater. Capital assets are carried at cost. Depreciation on property and equipment is computed using the straight-line method over estimated lives ranging from three to seven years. Depreciation on buildings, improvements, and land improvements is computed using the straight-line method over estimated lives of five to forty years. When assets are retired or otherwise disposed of, the costs and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations in the period of disposal. Amortization of leasehold improvements is computed using the straight-line method over the remaining lease terms.

Deferred Charges

The Lottery incurs costs in connection with certain contracts which extend beyond a one-year period. These costs are deferred and amortized over the life of the contracts. As more fully discussed in Note 12, a prepayment of $35 million was made on the GTECH contract in the 2003/2004 fiscal year.

Advertising

Advertising costs are expensed when the related liability is incurred. Advertising expense totaled $33,337,617 for the year ended June 30, 2007.

Investment Earnings

Investment earnings are composed of both unrealized gains or losses associated with the change in fair value of investments and interest income. Unrealized gains and losses are generally not realized as the investments are held to maturity; however, the investments must be stated at fair value thus creating investment earnings or losses in the interim. Generally, all cash is held on deposit with the California State Treasurer and is invested by that office in the Surplus Money Investment Fund. Interest on funds held by the State Treasurer is distributed quarterly.


JUNE 30, 2007

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Compensated Absences Payable

Vested vacation balances are accrued as a liability and adjusted quarterly.

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 and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Government Accounting Standards Board Statement No. 20 (GASB 20)

As required under GASB 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, the Lottery will continue to apply all applicable GASB pronouncements as well as Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principles Board (APB) Opinions, and Accounting Research Bulletins (ARBS) of the Committee on Accounting Procedure issued on or before November 30, 1989, unless those pronouncements conflict or contradict GASB pronouncements. The Lottery has elected under GASB 20 to not apply all FASB Statements and Interpretations issued after November 30, 1989, due to the governmental nature of the Lottery operations.

Government Accounting Standards Board Statement No. 40 (GASB 40)

The Lottery applies GASB Statement No. 40, Deposit and Investment Risk Disclosures – An Amendment of GASB Statement No. 3. This statement addresses common deposit and investment risks related to credit risk, concentration of credit risk, interest rate risk, and foreign currency risk. As an element of interest rate risk, this statement requires certain disclosures of investments that have fair values that are highly sensitive to changes in interest rates. Deposit and investment policies related to the risks identified in this statement also are required to be disclosed.

2. DEPOSITS AND INVESTMENTS

The Lottery presents its deposits and investments in accordance with GASB Statement No. 40, Deposit and Investment Risk Disclosures – An Amendment of GASB Statement No. 3. This statement requires the disclosure of the following risks to the extent that they exist at the date of the statement of net assets:

Interest Rate RiskInterest rate risk is the risk that the value of fixed income securities will decline because of changing interest rates. The prices of fixed income securities with longer time to maturity tend to be more sensitive to changes in interest rates than those with shorter durations.

Credit RiskCredit risk is the risk that a debt issuer will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make these payments will cause security prices to decline.

Custodial Credit RiskCustodial credit risk is the risk that, in the event a financial institution or counterparty fails, the investor will not be able to recover the value of its deposits, investments, or collateral.


JUNE 30, 2007

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2. DEPOSITS AND INVESTMENTS (continued)

Concentration of Credit RiskConcentration of credit risk is the risk of loss attributed to the magnitude of an investor’s holdings in a single issuer.

Investments

Investments consist of zero coupon U.S. Treasury bonds with yields ranging from 2.35 percent to 9.75 percent as follows:

Face Amount Cost Fair ValueCurrent portion:

For instant ticket games $ 16,181,000 $ 7,480,347 $ 15,791,560For draw games 305,805,000 116,916,365 298,910,789Total current portion 321,986,000 124,396,712 314,702,349

Long-term portion:For instant ticket games 99,994,000 47,848,899 73,213,793For draw games 1,934,975,000 712,212,390 1,399,744,552Total long-term portion 2,034,969,000 760,061,289 1,472,958,345

Total investments $ 2,356,955,000 $ 884,458,001 $ 1,787,660,694

As discussed in Note 1, the Lottery applies the provisions of GASB 31. In accordance with GASB 31, the Lottery carries its investments at fair value. The fair value of investments is based on published market prices and quotations from a major investment firm. The following represents the changes in fair value of investments for the year ended June 30, 2007, in accordance with the requirements of GASB 31.

Changes in fair value of investments: Unrealized investment gains at July 1, 2006 $ 104,231,017 Unrealized investment loss, current period (8,915,617) Total unrealized investment gains $ 95,315,400

Unrealized investment gains represent the excess of fair value over the original purchase cost plus interest accreted on investments at June 30, 2007. The deposit and investment policies of the Lottery are determined by the Lottery Commission and state statute. Prize investments consist of zero coupon U.S. Treasury bonds, which are carried at fair value and are adjusted for the accretion of interest based on the purchased yield and maturity date. Interest Rate Risk – Investments

The Lottery does not have a specific policy to manage interest rate risk, as investments are purchased to mirror the payment stream of recorded prize liability. The Lottery’s investments have a weighted average maturity of 4.9 years, which is based on the final maturity dates of all investments.


JUNE 30, 2007

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Investments (continued)

Credit Risk and Concentration of Credit Risk - Investments

The U.S. Treasury bonds are backed by the full faith and credit of the United States government. Therefore, the investments are not considered to have credit risk or a concentration of credit risk, as defined by the Governmental Accounting Standards Board.

Custodial Credit Risk – Investments

The Lottery does not have a formal investment policy for custodial credit risk for investments. As of June 30, 2007, all the prize investments are uninsured and unregistered investments held in book-entry form at the Federal Reserve Bank of New York.

Deposits

The following deposits, included in cash and cash equivalents, are in pools managed by other State of California government units and are not evidenced by securities. Interest income earned on outstanding cash balances is allocated among pool participants based on average daily cash balances. As of June 30, 2007, the carrying value of deposits in the Surplus Money Investment Fund approximated fair value.

State Treasury $ 10,047,047Surplus Money Investment Fund 340,780,000

$ 350,827,047

The SMIF consists of available cash of all special funds of the State of California which do not have investment authority of their own. Cash balances in excess of needs in any of these participating funds are invested by the State Treasurer. The Pooled Money Investment Board (PMIB) provides regulatory oversight over the State Treasurer’spooled investment program and is responsible for determining whether any cash balances of the participating funds are in excess of current needs and available for investment, or whether it is necessary to liquidate previous investments to meet current requirements. The PMIB is composed of the State Treasurer, as chairman; the State Controller; and the Director of Finance for the State of California.

All of the resources of the SMIF are invested through the Pooled Money Investment Account (PMIA). The State Treasurer is restricted by state code as to the types of investments that can be made in the following categories: U.S. Government securities; securities of federally-sponsored agencies; domestic corporate bonds; interest-bearing time deposits in California banks, savings and loan associations, and credit unions; prime-rated commercial paper; repurchase and reverse repurchase agreements; security loans; banker’s acceptances; negotiable certificates of deposit; and loans to various bond funds.


JUNE 30, 2007

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Deposits (continued)

At June 30, 2007, the allocation of the deposits held by the Lottery in the SMIF was estimated as follows:

Lottery’s Shareof SMIF

U.S. Treasury Securities $ 17,269,803

Federal Agency Debt 76,397,809 Bank Notes 6,748,788 Certificates of Deposit 80,956,720 Commercial Paper 74,630,164 Corporate Bonds 1,998,939 Time Deposits 45,375,192 AB 55 and General Fund Loans 37,402,585 Total $ 340,780,000

The value of the deposits in the State Treasurer’s pooled investment program, including the SMIF, is equal to the dollars deposited in the program. The fair value of the position in the program may be greater or less than the value of the deposits, with the difference representing the unrealized gain or loss. As of June 30, 2007, this difference was immaterial to the valuation of the deposits held by the Lottery in the SMIF. The Lottery’s share in the interest earnings of the PMIA is based on the ratio that their dollar-day contributions bear to the total dollar-day investments of the PMIA. The overall return on investment for the PMIA was 5.121% for the year ended June 30, 2007.

3. ACCOUNTS RECEIVABLE

Accounts receivable consists of the following: Amounts due, primarily from retailers $ 269,165,246Less: Allowance for free ticket redemption (35,292,577) Allowance for doubtful accounts (4,053,572) Allowance for ticket returns (4,540,844)Accounts receivable, net $ 225,278,253

4. DUE FROM STATE FUNDS

Due from state funds consists primarily of interest income due on cash deposited with the State Treasurer in the Surplus Money Investment Fund.


JUNE 30, 2007

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5. CAPITAL ASSETS

Capital assets consist of the following:

BeginningBalance

Increase

Decrease

Ending Balance

Non-depreciable capital assets: Land $ 4,922,805 - - $ 4,922,805 Depreciable capital assets:Gaming terminals 277,443 14,063,700 - 14,341,143Vending machines 34,243,343 - - 34,243,343Buildings 27,324,210 233,130 - 27,557,340Data processing equipment 8,043,778 384,319 (72,554) 8,355,543Office furniture and equipment 5,782,078 555,139 (166,649) 6,170,568Leasehold improvements 603,768 471,930 - 1,075,698Other 5,959,135 694,885 - 6,654,020

87,156,560 16,403,103 (239,203) 103,320,460

Less accumulated depreciation and amortization:Gaming terminals (156,835) (30,152) - (186,987)Vending machines (17,418,541) (6,019,073) - (23,437,614)Buildings (10,788,643) (1,152,418) - (11,941,061)Data processing equipment (5,924,830) (1,148,022) 63,797 (7,009,055)Office furniture and equipment (4,589,519) (404,490) 148,154 (4,845,855)Leasehold improvements (443,965) (40,649) - (484,614)Other (4,907,345) (304,907) - (5,212,252)

(44,229,678) (9,099,711) 211,951 (53,117,438)

Capital assets, net $ 42,926,882 $ 7,303,392 $ (27,252) $ 50,203,022

Depreciation and amortization charged to income on capital assets was $9,099,711 for the year ended June 30, 2007.


JUNE 30, 2007

- 36 - - 37 -

6. PRIZE LIABILITY

Prize liability consists of the following:

Instant

Ticket Games Draw Games Total Current: Annuitized prizes $ 20,189,677 $ 396,897,395 $ 417,087,072 Other prizes 170,698,773 42,588,402 213,287,175

Total current prize liability 190,888,450 439,485,797 630,374,247

Long-term annuitized prizes 101,814,000 1,934,975,000 2,036,789,000 Less imputed interest (30,147,243) (624,038,284) (654,185,527)

Net present value of long-term prizes 71,666,757 1,310,936,716 1,382,603,473

Total prize liability $ 262,555,207 $ 1,750,422,513 $ 2,012,977,720

The amount of prizes due within one year is $630,374,247.

Long-term prize liability as of June 30, 2007, for each of the next five years and for subsequent years is as follows:

Principal Interest TotalFor the year ending June 30, 2009 $ 109,321,219 $ 144,622,012 $ 253,943,231

2010 95,334,412 111,339,406 206,673,8182011 83,452,711 85,897,592 169,350,3032012 73,781,560 69,200,292 142,981,8522013 64,104,918 54,696,315 118,801,233

2014-2018 182,076,872 110,217,219 292,294,0912019-2023 90,497,045 30,631,973 121,129,0182024-2028 53,763,235 13,988,366 67,751,6012029-2033 8,829,148 849,178 9,678,326

Total long-term prize liability $ 761,161,120 $ 621,442,353 $ 1,382,603,473

Activity in the prize liability accounts consists of:

Balance, July 1, 2006 $ 2,221,063,575

Prize expense 1,765,643,368 Prize payments (2,119,822,891) Grand/Jackpot prize contributions from other Party Lotteries 56,455,774 Interest imputed on annuities 118,855,859 Unclaimed prizes (29,217,965)

Balance, June 30, 2007 $ 2,012,977,720


JUNE 30, 2007

- 36 - - 37 -

7. DUE TO STATE FUNDS

Due to state funds consists of the following:

Due to Education Fund $ 292,060,789 Due to other state funds 405,448

Total due to state funds $ 292,466,237

Activity in the Due to Education Fund account consists of:

Balance, July 1, 2006 $ 322,909,760 Allocation to Education Fund, earned by the California State Lottery Fund $ 1,176,929,117 Unclaimed prizes directly allocated to the Education Fund 29,217,965

1,206,147,082

Distribution to the Education Fund (1,236,996,053)

Balance, June 30, 2007 $ 292,060,789

8. LEASES

The Lottery leases office, warehouse, and parking lot facilities under operating leases. These leases expire in various years through May 31, 2015. Most operating leases have a provision for early termination. These leases could be terminated between September 2007 and May 2015.

The future minimum lease payments under operating leases as of June 30, 2007, are as follows:

Operating Leases

For the year ending June 30, 2008 $ 1,598,7332009 923,4782010 893,2462011 732,1692012 602,909

Thereafter 1,064,184

Total minimum payments $ 5,814,719

Rental expense for all operating leases totaled $1,569,383 for the year ended June 30, 2007.


JUNE 30, 2007

- 38 - - 39 -

9. INVESTMENT EARNINGS

Investment earnings consist of: Interest on funds held by State Treasurer $ 23,296,899 Unrealized loss on investments (8,915,617) Interest accreted on investments 118,855,859

133,237,141

Less interest expense imputed on annuity liability (118,855,859)

Investment earnings, net $ 14,381,282

10. RETIREMENT PLAN

The Lottery contributes to the Public Employees’ Retirement Fund administered by the Public Employees’ Retirement System of the State of California (PERS), an agent multiple-employer public employee defined benefit pension plan. PERS provides retirement benefits to plan members and beneficiaries. In addition, post-retirement health care benefits are provided by the primary government. PERS acts as a common investment and administrative agent for participating public entities within the State of California and uses the accrual basis of accounting. Benefit provisions and all other requirements are established by state statute. Since all state agencies are considered collectively to be a single employer, the actuarial present value of vested and non-vested accumulated plan benefits attributable to the Lottery’s employees cannot be determined. Similarly, the net assets available for benefits of Lottery employees cannot be determined. PERS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. The PERS’ annual financial report may be obtained from their executive office: 400 Q Street, Sacramento, CA 95814.

Generally, full-time employees are eligible to participate as members of PERS and are eligible to retire at age 50 with at least five years of service or age 55 with at least ten years of service depending on the plan selected by the employee. Annual retirement benefits are determined based on age at retirement, the length of membership service, and the amount of earnings based on the highest or last 12 consecutive months’ average. Health care and dental benefits may be provided to members depending on the date hired and the years of credited service of a member. If members are not fully vested, the health care and dental contributions will be prorated based on the years of service.

Active plan members are required to contribute a percentage of their salary depending on their plan selection and employment classification. Employees’ required contributions vary from 0.0% to 8.0%. The Lottery is required to contribute at an actuarially determined rate. The Lottery’s contributions are based on a percentage of annual covered payroll depending on the plan selected and member status. For the year ended June 30, 2007, the Lottery’s payroll for employees covered by PERS was approximately $28.9 million and the total payroll for the period was approximately $29.3 million. The contribution requirements of plan members and the Lottery are established and may be amended by PERS. Required employer contribution rates (expressed as a percentage of compensation) for the 2006/2007 fiscal year are as follows: State Miscellaneous Member First Tier 16.997% State Miscellaneous Member Second Tier 16.778% State Safety Member 19.294% Peace Officer 24.505%


JUNE 30, 2007

- 38 - - 39 -

10. RETIREMENT PLAN (continued)

The Lottery’s pension cost for the year ended June 30, 2007, for PERS was equal to the Lottery’s required contributions which were determined as part of the most recent actuarial valuation of PERS dated June 30, 2005.

Three year trend information for the Lottery:

Fiscal YearEnding

Annual Pension Cost (APC)

Percentage Of APCContributed

Net PensionObligation

6/30/05 $4,719,856 100% $06/30/06 $4,444,112 100% $06/30/07 $4,758,129 100% $0

In addition to the required pension contributions, the California Lottery expended $2.3 million in fiscal year 2006/2007 for health and dental benefits for retired members. The health and dental benefits of retired members are financed on a pay-as-you-go basis.

11. STATUTORY COMPLIANCE

Lottery prize payments and other operating expenses are shown below as a percentage of operating revenue for the year ended June 30, 2007.

Lottery Sales $ 3,318,346,505 100.00%

Prizes 1,765,643,368 53.21%

Expenses of the Lottery

Retailer costs 233,792,642 7.05% Game costs 55,545,187 1.67% Operating expenses 110,932,619 3.34% Less bartered operating expenses (29,300) 0.00%

Total expenses of the Lottery $ 400,241,148 12.06%

Revenues to Education Allocation of sales $ 1,152,461,989 34.73% Unclaimed prizes directly allocated to the Education Fund 29,217,965 Interest Income 23,296,899 Other income 1,199,529 Less bartered income (29,300)

Total declared for allocation to the Education Fund $ 1,206,147,082

The Act mandates that, as nearly as practical, 50 percent of the total annual revenues from Lottery sales be returned to the public in the form of prizes and that at least 34 percent be allocated to benefit public education. No more than 16 percent of the total annual revenues from Lottery sales shall be allocated for payment of expenses of the Lottery. In addition, unclaimed prizes not directly payable by the commission, which amounted to $28,995,596 for the year ended June 30, 2007, are recognized as a reduction of prize expense and included in the Lottery’s net income that is distributed to the Education Fund.


JUNE 30, 2007

- 40 -


JUNE 30, 2007

11. STATUTORY COMPLIANCE (continued)

Unclaimed prizes directly payable by the commission are allocated directly to the Education Fund. Finally, all of the interest earned on funds held in the State Lottery Fund shall be allocated for the benefit of public education. This interest is not to be considered part of the 34 percent of the total annual revenues from sales that is otherwise required to be allocated for public education.

12. COMMITMENTS AND CONTINGENCIES

A contract has been awarded to GTECH that includes both gaming and telecommunication systems and services. The Lottery pays a fee of 1.36 percent of sales during the contract term ending on October 13, 2009. The total estimated amount of the contract is $300 million. Approximately $188.9 million in fees have been incurred under the contract as of June 30, 2007.

In addition to the fees incurred, a prepayment of $35 million was made to GTECH by the Lottery. GTECH will repay the full amount plus interest via weekly payments equal to 0.2% of sales. The prepayment bears interest at a rate equal to the Surplus Money Investment Fund rate plus one-half of one percent. GTECH may repay the outstanding amount after one year of full system operations and any remaining balance must be paid in full at the end of the contract term. The balance outstanding at June 30, 2007, approximated $16.0 million. Approximately $5.8 million has been recorded as an other current asset as it is expected to be settled within one year.

In July of 2005 the Lottery was served with an action seeking to prohibit the Lottery from continued participation in the MEGA Millions multi-state lottery game. The Court concluded that the Lottery was authorized to participate in the MEGA Millions game, but did request the Lottery to eliminate, within one year, a conflict between the MEGA Millions prize claim period of one-year and the Lottery’s statutory prize claim period of 180 days. Lottery management has not been successful in eliminating the conflict through statutory amendment with the Legislature. On September 12, 2007, the Court entered a new order extending the time to eliminate the conflict for another eight months. Management continues to pursue a legislative remedy to resolve the prize claim period conflict, but is currently unable to determine whether they will be successful in achieving a legislative remedy. To the extent that management is not successful in achieving legislative relief, the Lottery could be enjoined from selling MEGA Millions game tickets. Although this action could reduce Lottery revenues it would not impact the continued operation of the Lottery based on its varied revenue base.

The Lottery has been named as a defendant in various other lawsuits and claims. While the ultimate monetary outcome of these claims cannot be estimated at this time, it is the opinion of management, after consulting with legal counsel, that the disposition of any litigation in which the Lottery is involved will not have a material adverse effect on the financial condition or on the results of operations of the Lottery.

13. RISK MANAGEMENT

Since its inception, the Lottery has been primarily self-insured for risks such as flood, business interruption, theft, employee errors and omissions, and other potential liabilities. Losses are recognized when conditions for accrual are met. Liabilities for workers’ compensation costs are accrued based on estimates derived from the State Compensation Insurance Fund. This estimate is based on actuarial reviews of the employee workers’ compensation program and includes indemnity payments, compensation benefits, and leave benefits.

Statistical Section


STATISTICAL SECTION

This part of the California State Lottery’s comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements and note disclosures says about the Lottery’s overall financial health.

Contents

Financial Trends/Revenue Capacity…………………………………………………….............................These schedules contain trend information to help the reader understand how the financial performance and well-being have changed over time and how to assess the Lottery’s most significant revenue sources, lotto and instant ticket games.

Demographic and Economic Information………………..........................................…………………...…These schedules offer demographic and economic indicators to help the reader understand the environment within which the Lottery’s financial activities take place.

Operating Information…………………………………….......………......................................…………..These schedules contain data to help the reader understand how the information in the Lottery’s financial report relates to the products the Lottery provides and the activities it performs.

46

Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports or the audited financial statements for the relevant year.

- 45 -

50

56

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007Operating revenuesLotto games 1,090,360,363 1,036,908,074 955,716,932 1,272,355,983 1,275,714,605 1,110,682,365 1,166,953,613 1,109,931,087 1,187,725,049 1,023,039,079Instant ticket games 677,102,459 955,178,058 1,188,192,294 1,188,927,861 1,184,119,073 1,211,719,532 1,338,975,654 1,736,788,110 1,929,632,771 1,824,355,512Hot Spot® 277,779,288 255,995,569 204,405,640 184,903,440 184,432,561 180,160,160 167,989,890 174,296,572 163,526,309 143,182,870Daily games 249,181,712 250,216,787 250,064,125 248,654,239 252,106,294 279,007,799 300,056,560 312,604,900 304,112,122 310,903,219Raffle - - - - - - - - - 16,865,825 Total operating revenues 2,294,423,822 2,498,298,488 2,598,378,991 2,894,841,523 2,896,372,533 2,781,569,856 2,973,975,717 3,333,620,669 3,584,996,251 3,318,346,505Prizes 1,182,038,207 1,307,442,871 1,369,435,482 1,503,768,458 1,502,966,618 1,451,804,079 1,566,027,494 1,795,254,439 1,932,721,443 1,765,643,368Game costsRetailer costs 151,222,059 169,791,259 179,241,747 196,793,920 198,064,491 189,814,979 205,744,975 233,447,844 252,543,062 233,792,642Draw game costs 54,619,242 48,061,384 42,841,644 52,094,272 47,250,757 45,914,606 37,369,964 35,702,574 37,277,061 37,820,168Instant ticket game costs 19,257,314 27,568,625 32,008,802 33,514,259 32,878,258 32,317,240 20,940,277 21,042,547 21,144,506 17,725,019 Total game costs 225,098,615 245,421,268 254,092,193 282,402,451 278,193,506 268,046,825 264,055,216 290,192,965 310,964,629 289,337,829Operating expensesSalaries, wages and benefits 41,411,656 33,646,827 36,975,998 35,905,740 36,902,774 36,652,764 40,759,704 41,913,096 41,201,111 42,224,625Advertising 24,046,817 26,637,902 24,479,926 32,901,965 30,421,150 26,385,118 30,972,632 36,797,516 25,495,083 33,337,617Promotion, public relations and point of sale 6,499,368 8,871,295 8,459,014 9,682,927 11,234,301 7,234,777 9,066,450 10,406,811 9,307,150 8,894,469Other professional services 6,419,297 6,811,501 4,848,038 7,585,856 8,110,006 6,771,068 7,568,645 5,380,499 5,959,870 5,660,943Depreciation and amortization 13,368,247 7,176,904 7,545,680 7,633,798 7,972,377 8,069,014 8,396,577 7,202,654 8,745,427 9,099,711Other general and administrative expenses 9,729,515 12,510,024 6,780,813 9,361,195 10,063,631 9,182,707 10,002,122 8,546,322 11,389,574 11,715,254 Total operating expenses 101,474,900 95,654,453 89,089,469 103,071,481 104,704,239 94,295,448 106,766,130 110,246,898 102,098,215 110,932,619Operating income 785,812,100 849,779,896 885,761,847 1,005,599,133 1,010,508,170 967,423,504 1,037,126,877 1,137,926,367 1,239,211,964 1,152,432,689Non-operating (expenses) revenuesUnrealized gains (losses) on investments 326,748,610 (123,412,114) (24,391,596) 84,951,152 53,219,438 144,885,599 (204,236,024) 18,141,565 (171,675,613) (8,915,617)Interest income 17,565,606 18,127,677 21,390,129 26,209,722 16,221,680 9,365,650 6,688,602 9,877,245 18,442,836 23,296,899Other income 147,143 176,431 152,875 177,104 455,493 208,850 246,224 971,475 853,117 1,199,529Allocation to Education Fund (803,524,849) (868,084,004) (907,304,851) (1,031,985,959) (1,027,185,343) (976,998,004) (1,044,061,703) (1,148,775,087) (1,258,507,917) (1,176,929,117) Total non-operating revenues (expenses) (459,063,490) (973,192,010) (910,153,443) (920,647,981) (957,288,732) (822,537,905) (1,241,362,901) (1,119,784,802) (1,410,887,577) (1,161,348,306)

Total change in net assets 326,748,610 (123,412,114) (24,391,596) 84,951,152 53,219,438 144,885,599 (204,236,024) 18,141,565 (171,675,613) (8,915,617)

CALIFORNIA STATE LOTTERy Change in Net AssetsLast Ten Fiscal years

Note: Individual wagers for all Lotto games, Hot Spot and all daily games, with the exception of Daily Derby®, are $1 each. Daily Derby wagers are $2 each. During fiscal year 2006/2007 raffle numbers were $5 each, or $4 each for tickets with 5 or more raffle numbers. Future Raffle games may have different price points. Instant ticket games have price points of $1, $2, $3 and $5.

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007Invested in capital assets 44,549,009 41,573,398 37,390,430 33,870,755 35,352,134 43,863,510 38,071,794 40,968,035 42,926,882 50,203,022Restricted unrealized gains on investments 326,748,610 203,336,496 178,944,900 263,896,052 317,115,490 462,001,089 257,765,065 275,906,630 104,231,017 95,315,400Unrestricted (deficit) (44,549,009) (41,573,398) (37,390,430) (33,870,755) (35,352,134) (43,863,510) (38,071,794) (40,968,035) (42,926,882) (50,203,022) Total net assets 326,748,610 203,336,496 178,944,900 263,896,052 317,115,490 462,001,089 257,765,065 275,906,630 104,231,017 95,315,400

CALIFORNIA STATE LOTTERy Net Assets by Component

Last Ten Fiscal years

- 46 -

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007Operating revenuesLotto games 1,090,360,363 1,036,908,074 955,716,932 1,272,355,983 1,275,714,605 1,110,682,365 1,166,953,613 1,109,931,087 1,187,725,049 1,023,039,079Instant ticket games 677,102,459 955,178,058 1,188,192,294 1,188,927,861 1,184,119,073 1,211,719,532 1,338,975,654 1,736,788,110 1,929,632,771 1,824,355,512Hot Spot® 277,779,288 255,995,569 204,405,640 184,903,440 184,432,561 180,160,160 167,989,890 174,296,572 163,526,309 143,182,870Daily games 249,181,712 250,216,787 250,064,125 248,654,239 252,106,294 279,007,799 300,056,560 312,604,900 304,112,122 310,903,219Raffle - - - - - - - - - 16,865,825 Total operating revenues 2,294,423,822 2,498,298,488 2,598,378,991 2,894,841,523 2,896,372,533 2,781,569,856 2,973,975,717 3,333,620,669 3,584,996,251 3,318,346,505Prizes 1,182,038,207 1,307,442,871 1,369,435,482 1,503,768,458 1,502,966,618 1,451,804,079 1,566,027,494 1,795,254,439 1,932,721,443 1,765,643,368Game costsRetailer costs 151,222,059 169,791,259 179,241,747 196,793,920 198,064,491 189,814,979 205,744,975 233,447,844 252,543,062 233,792,642Draw game costs 54,619,242 48,061,384 42,841,644 52,094,272 47,250,757 45,914,606 37,369,964 35,702,574 37,277,061 37,820,168Instant ticket game costs 19,257,314 27,568,625 32,008,802 33,514,259 32,878,258 32,317,240 20,940,277 21,042,547 21,144,506 17,725,019 Total game costs 225,098,615 245,421,268 254,092,193 282,402,451 278,193,506 268,046,825 264,055,216 290,192,965 310,964,629 289,337,829Operating expensesSalaries, wages and benefits 41,411,656 33,646,827 36,975,998 35,905,740 36,902,774 36,652,764 40,759,704 41,913,096 41,201,111 42,224,625Advertising 24,046,817 26,637,902 24,479,926 32,901,965 30,421,150 26,385,118 30,972,632 36,797,516 25,495,083 33,337,617Promotion, public relations and point of sale 6,499,368 8,871,295 8,459,014 9,682,927 11,234,301 7,234,777 9,066,450 10,406,811 9,307,150 8,894,469Other professional services 6,419,297 6,811,501 4,848,038 7,585,856 8,110,006 6,771,068 7,568,645 5,380,499 5,959,870 5,660,943Depreciation and amortization 13,368,247 7,176,904 7,545,680 7,633,798 7,972,377 8,069,014 8,396,577 7,202,654 8,745,427 9,099,711Other general and administrative expenses 9,729,515 12,510,024 6,780,813 9,361,195 10,063,631 9,182,707 10,002,122 8,546,322 11,389,574 11,715,254 Total operating expenses 101,474,900 95,654,453 89,089,469 103,071,481 104,704,239 94,295,448 106,766,130 110,246,898 102,098,215 110,932,619Operating income 785,812,100 849,779,896 885,761,847 1,005,599,133 1,010,508,170 967,423,504 1,037,126,877 1,137,926,367 1,239,211,964 1,152,432,689Non-operating (expenses) revenuesUnrealized gains (losses) on investments 326,748,610 (123,412,114) (24,391,596) 84,951,152 53,219,438 144,885,599 (204,236,024) 18,141,565 (171,675,613) (8,915,617)Interest income 17,565,606 18,127,677 21,390,129 26,209,722 16,221,680 9,365,650 6,688,602 9,877,245 18,442,836 23,296,899Other income 147,143 176,431 152,875 177,104 455,493 208,850 246,224 971,475 853,117 1,199,529Allocation to Education Fund (803,524,849) (868,084,004) (907,304,851) (1,031,985,959) (1,027,185,343) (976,998,004) (1,044,061,703) (1,148,775,087) (1,258,507,917) (1,176,929,117) Total non-operating revenues (expenses) (459,063,490) (973,192,010) (910,153,443) (920,647,981) (957,288,732) (822,537,905) (1,241,362,901) (1,119,784,802) (1,410,887,577) (1,161,348,306)

Total change in net assets 326,748,610 (123,412,114) (24,391,596) 84,951,152 53,219,438 144,885,599 (204,236,024) 18,141,565 (171,675,613) (8,915,617)

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007Invested in capital assets 44,549,009 41,573,398 37,390,430 33,870,755 35,352,134 43,863,510 38,071,794 40,968,035 42,926,882 50,203,022Restricted unrealized gains on investments 326,748,610 203,336,496 178,944,900 263,896,052 317,115,490 462,001,089 257,765,065 275,906,630 104,231,017 95,315,400Unrestricted (deficit) (44,549,009) (41,573,398) (37,390,430) (33,870,755) (35,352,134) (43,863,510) (38,071,794) (40,968,035) (42,926,882) (50,203,022) Total net assets 326,748,610 203,336,496 178,944,900 263,896,052 317,115,490 462,001,089 257,765,065 275,906,630 104,231,017 95,315,400

- 47 -

0.0

400000025.6

800000051.2

1200000076.8

1600000102.4

2000000128.0Instant ticket games

0.00.20.40.60.81.0

CALIFORNIA STATE LOTTERySales by Product


Mill

ions

Lotto games

$250

$0

$500

$750

$1,000

$1,500

Mill

ions

Instant ticket games

$0

$400

$800

$1,600

$2,000

2007

2005

2006

0

50000000

100000000

150000000

200000000

250000000

300000000Hot Spot

HotSpot

Mill

ions

$50

$0

$100

$150

$200

$250

$300

Mill

ions

Daily games

$50

$0

$100

$150

$200

$250

$300$350

0

50000000

100000000

150000000

200000000

250000000

300000000

350000000Daily games

0.000000

250000021.333333

500000042.666667

750000064.000000

1000000085.333333

1250000106.666667

1500000128.000000Lotto games

2007200620052004200320022001200019991998

$3,500

$3,000

$2,500

$2,000

$1,500

$1,000

$500

$0

Mill

ions

2007

1998

1999

2000

2001

2002

2003

2004

2005

Daily gamesHotSpot®Instant ticket gamesLotto games

$4,000

2006

Raffle

0

500000000

1000000000

1500000000

2000000000

2500000000

3000000000

3500000000

4000000000Lotto games


Hot Spot

Daily games

Ra�e

$1,250

$1,200

- 48 -

2000

2001

2002

2003

2004

1999

1998

2007

2005

2006

2000

2001

2002

2003

2004

1999

1998

2007

2005

2006

2000

2001

2002

2003

2004

1999

1998

2007

2005

2006

2000

2001

2002

2003

2004

1999

1998

Note: The first “Million Dollar Raffle” game was held in fiscal year 2006/2007. Raffle tickets were available for sale between February 5, 2007 and March 17, 2007

CALIFORNIA STATE LOTTERyExpenses by Type


0

500000000

1000000000

1500000000

2000000000

2500000000Prizes

Retailer costs

Draw game costs

Instant ticket game costs

Total operating expenses

2005

2004

2003

2002

2001

2000

2007

Mill

ions

0

500000000

1000000000

1500000000

2000000000

2500000000

3000000000

3500000000

4000000000Lotto games


Hot Spot

Daily games

Ra�e

Retailer costs

Instant ticket game costsDraw games costs

Prizes$2000

$1500

$1000

$500

$0

$2,500

1998

1999

Operating expenses

2006

0

50000000

100000000

150000000

200000000

250000000

300000000Retailer costs

0

250000016

500000032

750000048

1000000064

1250000080

1500000096

1750000112

2000000128Prizes

Mill

ions

$50$0

$100$150$200$250

Retailer costs

Mill

ions

Prizes

$0

$500

$1,000

$1,500

$2,000

2007

1998

1999

2001

2002

2003

2004

2005

2006

2000

$300

Mill

ions

Draw game costs

0

10000000

20000000

30000000

40000000

50000000

60000000Draw game costs

$10$0

$20$30

$50$60

$40

Operating expenses

Mill

ions

$20$0

$40$60$80

$100$120

Mill

ions

Instant ticket game costs

$5$0

$10$15$20

$30$35

$25

0

5000000

10000000

15000000

20000000

25000000

30000000

35000000Instant ticket game costs

0

20000000

40000000

60000000

80000000

100000000

120000000 Total operating expenses

$250

$750

$1,250

$1,750

- 49 -

2007

1998

1999

2001

2002

2003

2004

2005

2006

2000

2007

1998

1999

2001

2002

2003

2004

2005

2006

2000

2007

1998

1999

2001

2002

2003

2004

2005

2006

2000

2007

1998

1999

2001

2002

2003

2004

2005

2006

2000

Population1

(in thousands)Personal Income2

(in thousands)Per Capita

Personal Income3Unemployment

Rate4

1997 32,453 $ 860,545 $26,517 6.4%1998 32,863 $ 936,009 $28,482 6.0%1999 33,419 $ 999,228 $29,900 5.3%2000 34,099 $1,103,842 $32,372 4.9%2001 34,784 $1,135,304 $32,639 5.4%2002 35,393 $1,147,716 $32,428 6.7%2003 35,990 $1,187,040 $32,982 6.8%2004 36,522 $1,265,657 $34,655 6.2%2005 36,982 $1,347,943 $36,449 5.4%2006 37,444 $1,434,910 $38,321 4.9%

CALIFORNIA STATE LOTTERy California Demographics and Economic Information

1997 - 2006

Source: (1) California Department of Finance, Demographic Research Unit(2) Bureau of Economic Analysis, United States Department of Commerce (3) Calculated by Dividing total personal income by population(4) Labor Market Information Division, California Employment Development DepartmentNote: 2007 information is not available and therefore not presented

- 50 -

NOTE: All data are from Communications Effectiveness Tracking Study commissioned by the Lottery and provided by an external vendor for fiscal year 2006/2007. Percentages based on only those responding.

Age of Adult Population Age of Lottery Players

25-34 18%

35-44 19%

45-54 18%

55-64 14%

65 or older 17%

18-24 11%

25-34 18%

35-44 20%45-54

20%

55-64 16%

65 or older 15%

18-24 14%

Gender of Adult Population Gender of Lottery Players

Female 50%

Male 50%

Female 47%

Male 53%

CALIFORNIA STATE LOTTERyCalifornia Demographics for Population and Players

- 51 -

Ethnicity of Adult Population

Education of Adult Population


Education of Lottery Players

College graduate or more

37%

Less than high school 15%

High school graduate

25%

Some college 23%

Less than high school 14%

High school graduate

25%

Some college 26%

College graduate or more

35%

Ethnicity of Lottery Players

Other 5%Asian

12%African-

American 6%

White 46%

Hispanic 31%

Other 4%

White 44%

Asian 12%

African- American

7%

Hispanic 33%


- 52 -



Household Income of Lottery PlayersHousehold Income of Adult Population

Over $75,000 30%

Over $75,000 31%

Under $20,000 23%

Under $20,000 19%

$20,000 to $34,999

19%

$20,000 to $34,999

20%

$35,000 to $49,999

14%

$35,000 to $49,999

15%

$50,000 to $74,999

14%$50,000 to

$74,999 15%

Employment Status of Adult Population Employment Status of Lottery Players

Not employed* 9%Students

5%Homemakers

9%

Retired 20%

Blue collar 18%

White collar 39%

Not employed* 9%

White collar 43%

Students 3%

Homemakers 8%

Retired 17%

Blue collar 20%

* Includes looking for job, disabled, welfare, etc.

- 53 -

U.S. Lottery Data For Fiscal year 2006Excludes VLT sales

(in millions)

(5) Fiscal year ends June 30 except New york (March 31), Texas (August 31) and District of Columbia and Michigan (Sept. 30)

2006 data source: La Fleur’s Magazine/September 2006 and La Fleur’s Magazine/September 2007

(1) Sales as of 6/30/06(2) Estimated sales

Sales Prizes Profit Population Sales/Capita Sales Prizes Profit Population Sales/Capita Arizona $468.7 $262.0 $141.1 5.9 $79 Arizona $462.2 $257.9 $139.9 6.2 $75California ++ $3,585.0 $1,932.7 $1,288.0 37.4 $96 California $3,318.4 $1,765.6 $1,206.1 36.5 $91Colorado $468.8 $281.6 $125.5 4.7 $100 Colorado $455.9 $276.9 N/A 4.8 $96Connecticut $970.3 $587.4 $284.9 3.5 $276 Connecticut $957.0 $579.9 $279.0 3.5 $273Delaware $124.6 N/A N/A 0.8 $148 Delaware $118.3 N/A N/A 0.9 $139District of Columbia1,5 $258.6 N/A N/A 0.6 $470 District of Columbia1,5 $255.6 N/A N/A 0.6 $440Florida $4,030.1 N/A N/A 17.8 $227 Florida $4,195.4 N/A N/A 18.1 $232Georgia $3,177.6 $1,815.6 $822.4 9.1 $350 Georgia $3,421.7 N/A $853.6 9.4 $365Idaho $131.3 $63.0 $33.0 1.4 $92 Idaho $130.5 N/A N/A 1.5 $89Illinois $1,989.2 $1,158.2 $670.5 12.8 $156 Illinois $2,021.3 $1,156.4 $622.4 12.8 $158Indiana $816.4 $495.3 $216.5 6.3 $130 Indiana $788.0 $482.9 $212.4 6.3 $125Iowa N/A N/A N/A N/A N/A Iowa $235.0 N/A $58.2 N/A N/AKansas $243.9 N/A $67.0 2.7 $89 Kansas $252.1 N/A N/A 2.8 $91Kentucky $742.3 $444.9 $204.3 4.2 $178 Kentucky $744.2 $456.4 $196.3 4.2 $177Louisiana $332.1 $168.2 $119.4 4.5 $73 Louisiana $354.2 N/A N/A 4.3 $83Maine $229.7 $144.2 $51.6 1.3 $174 Maine $230.0 $145.5 $51.4 1.3 $174Maryland $1,560.9 $902.6 $501.0 5.6 $279 Maryland $1,577.3 $919.2 $494.1 5.6 $281Massachusetts $4,501.2 $3,234.4 $945.5 6.4 $703 Massachusetts $4,436.5 $3,225.1 N/A 6.4 $689Michigan2,5 $2,212.4 $1,262.0 $687.0 10.1 $219 Michigan2,5 $2,343.2 $1,352.0 $745.0 10.1 $232Minnesota $449.7 $267.8 $121.3 5.1 $88 Minnesota $422.6 $250.1 $112.4 5.2 $82Missouri $915.7 $575.0 $260.0 5.8 $158 Missouri $935.0 N/A N/A 5.8 $160Montana $39.9 $20.7 $9.1 0.9 $43 Montana $41.6 $21.4 $11.4 0.9 $44Nebraska $113.1 $65.8 $27.6 1.8 $64 Nebraska $114.5 $65.4 $29.3 1.8 $65New Hampshire $262.3 $152.9 $79.5 1.3 $200 New Hampshire $262.7 $156.8 $77.7 1.3 $200New Jersey $2,406.6 $1,374.2 $831.7 8.7 $276 New Jersey $2,351.3 $1,357.1 $801.7 8.7 $269New Mexico $150.0 N/A $36.9 1.9 $78 New Mexico $148.0 $85.1 $34.8 2.0 $76New york.3,4,5 $6,487.1 $3,853.4 $2,318.4 19.3 $337 New york3,4,5 $6,652.4 $3,970.7 $2,358.4 19.3 $345North Carolina $229.5 $120.5 $50.0 8.7 $26 North Carolina $889.3 $408.8 $313.1 8.9 $100North Dakota $22.4 N/A N/A 0.6 $35 North Dakota $22.6 N/A N/A 0.6 $35Ohio $2,220.9 N/A N/A 11.5 $194 Ohio $2,260.9 N/A N/A 11.5 $197Oklahoma $204.8 N/A $65.0 3.5 $58 Oklahoma $215.1 $116.0 $76.6 3.6 $60Oregon3,4 $363.2 N/A N/A 3.6 $100 Oregon3,4 $354.6 $233.6 $604.0 3.7 $96Pennsylvania $3,070.3 N/A $976.0 12.4 $247 Pennsylvania $3,076.3 $1,832.6 $949.1 12.4 $247Rhode Island3,4 $261.3 $157.9 $67.3 1.1 $243 Rhode Island3,4 $244.5 $147.4 $320.7 1.1 $229South Carolina $1,144.6 $702.2 $319.4 4.3 $269 South Carolina $988.2 N/A N/A 4.3 $229South Dakota3 $39.2 $22.2 N/A 0.8 $51 South Dakota3,4 $39.7 $22.3 $119.9 0.8 $51Tennessee $996.3 $545.7 $277.7 6.0 $167 Tennessee $1,058.1 N/A $284.3 6.0 $175Texas2,5 $3,774.7 $2,317.7 $1,025.9 22.5 $168 Texas5 $3,774.2 $2,311.4 $1,024.0 23.5 $161Vermont $105.3 $61.6 $22.9 0.6 $169 Vermont $103.0 $66.3 $23.3 0.6 $165Virginia $1,365.3 $773.6 $454.00 7.6 $180 Virginia $1,362.3 $791.8 $437.2 7.6 $178Washington $477.9 $291.8 $123.3 6.3 $76 Washington $492.6 $305.2 $187.4 6.4 $77West Virginia3,4 $218.1 $130.7 $505.9 1.8 $120 West Virginia3,4 $192.7 $114.8 $560.5 1.8 $106Wisconsin $508.9 N/A N/A 5.5 $92 Wisconsin $492.6 N/A N/A 5.6 $89

(3) Prizes do not include VLT prizes paid (4) Includes traditional and VLT profit

- 54 -

U.S. Lottery Data For Fiscal year 2007

2007 data source: La Fleur’s Magazine/September 2007

Sales Prizes Profit Population Sales/Capita Sales Prizes Profit Population Sales/Capita Arizona $468.7 $262.0 $141.1 5.9 $79 Arizona $462.2 $257.9 $139.9 6.2 $75California ++ $3,585.0 $1,932.7 $1,288.0 37.4 $96 California $3,318.4 $1,765.6 $1,206.1 36.5 $91Colorado $468.8 $281.6 $125.5 4.7 $100 Colorado $455.9 $276.9 N/A 4.8 $96Connecticut $970.3 $587.4 $284.9 3.5 $276 Connecticut $957.0 $579.9 $279.0 3.5 $273Delaware $124.6 N/A N/A 0.8 $148 Delaware $118.3 N/A N/A 0.9 $139District of Columbia1,5 $258.6 N/A N/A 0.6 $470 District of Columbia1,5 $255.6 N/A N/A 0.6 $440Florida $4,030.1 N/A N/A 17.8 $227 Florida $4,195.4 N/A N/A 18.1 $232Georgia $3,177.6 $1,815.6 $822.4 9.1 $350 Georgia $3,421.7 N/A $853.6 9.4 $365Idaho $131.3 $63.0 $33.0 1.4 $92 Idaho $130.5 N/A N/A 1.5 $89Illinois $1,989.2 $1,158.2 $670.5 12.8 $156 Illinois $2,021.3 $1,156.4 $622.4 12.8 $158Indiana $816.4 $495.3 $216.5 6.3 $130 Indiana $788.0 $482.9 $212.4 6.3 $125Iowa N/A N/A N/A N/A N/A Iowa $235.0 N/A $58.2 N/A N/AKansas $243.9 N/A $67.0 2.7 $89 Kansas $252.1 N/A N/A 2.8 $91Kentucky $742.3 $444.9 $204.3 4.2 $178 Kentucky $744.2 $456.4 $196.3 4.2 $177Louisiana $332.1 $168.2 $119.4 4.5 $73 Louisiana $354.2 N/A N/A 4.3 $83Maine $229.7 $144.2 $51.6 1.3 $174 Maine $230.0 $145.5 $51.4 1.3 $174Maryland $1,560.9 $902.6 $501.0 5.6 $279 Maryland $1,577.3 $919.2 $494.1 5.6 $281Massachusetts $4,501.2 $3,234.4 $945.5 6.4 $703 Massachusetts $4,436.5 $3,225.1 N/A 6.4 $689Michigan2,5 $2,212.4 $1,262.0 $687.0 10.1 $219 Michigan2,5 $2,343.2 $1,352.0 $745.0 10.1 $232Minnesota $449.7 $267.8 $121.3 5.1 $88 Minnesota $422.6 $250.1 $112.4 5.2 $82Missouri $915.7 $575.0 $260.0 5.8 $158 Missouri $935.0 N/A N/A 5.8 $160Montana $39.9 $20.7 $9.1 0.9 $43 Montana $41.6 $21.4 $11.4 0.9 $44Nebraska $113.1 $65.8 $27.6 1.8 $64 Nebraska $114.5 $65.4 $29.3 1.8 $65New Hampshire $262.3 $152.9 $79.5 1.3 $200 New Hampshire $262.7 $156.8 $77.7 1.3 $200New Jersey $2,406.6 $1,374.2 $831.7 8.7 $276 New Jersey $2,351.3 $1,357.1 $801.7 8.7 $269New Mexico $150.0 N/A $36.9 1.9 $78 New Mexico $148.0 $85.1 $34.8 2.0 $76New york.3,4,5 $6,487.1 $3,853.4 $2,318.4 19.3 $337 New york3,4,5 $6,652.4 $3,970.7 $2,358.4 19.3 $345North Carolina $229.5 $120.5 $50.0 8.7 $26 North Carolina $889.3 $408.8 $313.1 8.9 $100North Dakota $22.4 N/A N/A 0.6 $35 North Dakota $22.6 N/A N/A 0.6 $35Ohio $2,220.9 N/A N/A 11.5 $194 Ohio $2,260.9 N/A N/A 11.5 $197Oklahoma $204.8 N/A $65.0 3.5 $58 Oklahoma $215.1 $116.0 $76.6 3.6 $60Oregon3,4 $363.2 N/A N/A 3.6 $100 Oregon3,4 $354.6 $233.6 $604.0 3.7 $96Pennsylvania $3,070.3 N/A $976.0 12.4 $247 Pennsylvania $3,076.3 $1,832.6 $949.1 12.4 $247Rhode Island3,4 $261.3 $157.9 $67.3 1.1 $243 Rhode Island3,4 $244.5 $147.4 $320.7 1.1 $229South Carolina $1,144.6 $702.2 $319.4 4.3 $269 South Carolina $988.2 N/A N/A 4.3 $229South Dakota3 $39.2 $22.2 N/A 0.8 $51 South Dakota3,4 $39.7 $22.3 $119.9 0.8 $51Tennessee $996.3 $545.7 $277.7 6.0 $167 Tennessee $1,058.1 N/A $284.3 6.0 $175Texas2,5 $3,774.7 $2,317.7 $1,025.9 22.5 $168 Texas5 $3,774.2 $2,311.4 $1,024.0 23.5 $161Vermont $105.3 $61.6 $22.9 0.6 $169 Vermont $103.0 $66.3 $23.3 0.6 $165Virginia $1,365.3 $773.6 $454.00 7.6 $180 Virginia $1,362.3 $791.8 $437.2 7.6 $178Washington $477.9 $291.8 $123.3 6.3 $76 Washington $492.6 $305.2 $187.4 6.4 $77West Virginia3,4 $218.1 $130.7 $505.9 1.8 $120 West Virginia3,4 $192.7 $114.8 $560.5 1.8 $106Wisconsin $508.9 N/A N/A 5.5 $92 Wisconsin $492.6 N/A N/A 5.6 $89

++ Audited figures with the exception of population

Excludes VLT sales (in millions)

- 55 -

CALIFORNIA STATE LOTTERy Number of Employees Last Ten Fiscal years

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007Executive 59 36 37 42 43 45 44 42 34 27Finance & Administration 1 150.5 125 123 125 118 118 118 119 139 127Communications - - - - - - - - - 23Operations/Customer Service 1 36 30 30 30 30 34 30 30 - -Security/Law Enforcement 62 40 41 43 43 37 37 43 42 44Information Technology Services 161 125 123 126 124 119 124 125 94 93Marketing 33 24 24 24 29 35 35 29 29 34Sales 351.5 254 256 256 263 262 262 262 256 272Vacant 2 - - - - - - - - 56 -Total 853 634 634 646 650 650 650 650 650 620

Source: California State Lottery, Annual Budget for each relevant year(1) In fiscal year 2005/2006, the Customer Services Division was renamed to Claims and Player Services Department and redirected to the Finance and Administration Division as a part of a reorganization.(2) In fiscal year 2005/2006, 56 vacant positions were identified to remain vacant. As a result of an organizational efficiency review, 30 of those vacant positions were eliminated and the remaining 26 vacant positions were reallocated among various divisions in fiscal year 2006/2007.

- 56 -

There are many factors that impact the level of demand for Lottery products. For our draw games, the size of the jackpot drives the sales level. Historically the higher the jackpot, the higher the sales. For example, a SuperLOTTO Plus® jackpot of $90 million will generate more sales than a jackpot of $7 million. The public reacts to higher jackpots and therefore more people play and the public tends to place additional wagers to improve their chances of winning the jackpot prize. For our instant ticket games, the level of demand is im-pacted by many factors. Game themes, play-styles, price points and prize payouts impact the sales of instant ticket games. The number of retailer locations and the number and variety of games available in a retailer location impact sales as well.

The California State Lottery measures much of its success by the amount of annual contributions to Educa-tion. In fiscal year 2006/2007, the Lottery provided almost $1.21 billion to Education. This is the seventh year in a row that over $1 billion has been contributed. By providing creative and entertaining lottery prod-ucts and by operating under our guiding principles, the California State Lottery believes that the vision to enrich public education can be fulfilled even further.

CALIFORNIA STATE LOTTERy Information about Operating Indicators

- 57 -

1999 2000 2001 2002 2003 2004 2005 2006 2007Land 4,922,805 4,922,805 4,922,805 4,922,805 4,922,805 4,922,805 4,922,805 4,922,805 4,922,805Gaming Terminals 9,429,285 8,050,112 5,696,905 3,293,125 1,260,096 22,640 154,651 120,608 14,154,156Common carrier public network 1,578,304 1,107,460 695,547 313,737 77,821 - - - -Vending Machines 100,083 3,783 - 3,990,365 14,656,142 11,390,305 14,860,156 16,824,801 10,805,729Buildings 16,858,923 16,247,191 15,653,578 15,059,966 15,427,027 14,700,813 15,859,317 16,522,310 15,616,279Data processing equipment 6,105,989 4,723,092 4,197,818 3,455,075 3,604,517 3,727,470 2,752,714 2,175,973 1,346,488Office furniture and equipment 1,057,760 922,790 728,205 893,072 813,845 964,074 714,270 1,135,533 1,324,713Leasehold improvements 34,463 13,294 12,204 52,754 103,149 132,716 98,614 173,060 591,084Other 1,485,785 1,399,904 1,963,693 3,371,236 2,998,107 2,210,971 1,605,508 1,051,792 1,441,768Total capital assets 41,573,398 37,390,430 33,870,755 35,352,134 43,863,510 38,071,794 40,968,035 42,926,882 50,203,022

CALIFORNIA STATE LOTTERy Capital Assets, Net

Last Nine Fiscal years*

*Information for fiscal year 1998 is not readily available and therefore not presented

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007Allocations to Education Fund 803,524,849 868,084,004 907,304,850 1,031,985,959 1,027,185,343 976,998,004 1,044,061,703 1,148,775,087 1,258,507,917 1,176,929,117Unclaimed prizes 31,223,604 31,265,943 40,731,810 79,649,148 36,878,803 42,818,968 50,195,285 27,019,168 29,490,162 29,217,965

Total Contributions to Education 834,748,454 899,349,947 948,036,660 1,111,635,107 1,064,064,146 1,019,816,972 1,094,256,988 1,175,794,255 1,287,998,079 1,206,147,082

CALIFORNIA STATE LOTTERy Contributions to Education


- 58 -

1999 2000 2001 2002 2003 2004 2005 2006 2007Land 4,922,805 4,922,805 4,922,805 4,922,805 4,922,805 4,922,805 4,922,805 4,922,805 4,922,805Gaming Terminals 9,429,285 8,050,112 5,696,905 3,293,125 1,260,096 22,640 154,651 120,608 14,154,156Common carrier public network 1,578,304 1,107,460 695,547 313,737 77,821 - - - -Vending Machines 100,083 3,783 - 3,990,365 14,656,142 11,390,305 14,860,156 16,824,801 10,805,729Buildings 16,858,923 16,247,191 15,653,578 15,059,966 15,427,027 14,700,813 15,859,317 16,522,310 15,616,279Data processing equipment 6,105,989 4,723,092 4,197,818 3,455,075 3,604,517 3,727,470 2,752,714 2,175,973 1,346,488Office furniture and equipment 1,057,760 922,790 728,205 893,072 813,845 964,074 714,270 1,135,533 1,324,713Leasehold improvements 34,463 13,294 12,204 52,754 103,149 132,716 98,614 173,060 591,084Other 1,485,785 1,399,904 1,963,693 3,371,236 2,998,107 2,210,971 1,605,508 1,051,792 1,441,768Total capital assets 41,573,398 37,390,430 33,870,755 35,352,134 43,863,510 38,071,794 40,968,035 42,926,882 50,203,022

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007Allocations to Education Fund 803,524,849 868,084,004 907,304,850 1,031,985,959 1,027,185,343 976,998,004 1,044,061,703 1,148,775,087 1,258,507,917 1,176,929,117Unclaimed prizes 31,223,604 31,265,943 40,731,810 79,649,148 36,878,803 42,818,968 50,195,285 27,019,168 29,490,162 29,217,965

Total Contributions to Education 834,748,454 899,349,947 948,036,660 1,111,635,107 1,064,064,146 1,019,816,972 1,094,256,988 1,175,794,255 1,287,998,079 1,206,147,082

- 59 -

600 North 10th Street Sacramento, CA 95811

916-324-9639

www.calottery.com

california lottery

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