Office of the President
                                                December 13, 1994




                  REPORT ON ATHLETIC ASSOCIATION FUNDS

Currently, the Athletic Association supports from non-public entity
monies general University programs and activities as follows:

                                                       (Millions)

      General Operations                                $1.6
      Scholarship Programs                                .6
      Facilities Maintenance and Operations/             1.0
            Safety, Security and Parking
            Operations

Beginning in 1994-95, the Athletic Association will pay approximately
$3.2 million to the bond trustee on behalf of the UK Alumni Association.
All programs currently being supported by Athletic Association funds as
noted above will be supported by the University. This funding will be
achieved by reallocating the following:

      Bond Issue Retirement                            $ 1.7
      President's Reserve and Contingency Accounts       1.5

Background: The Athletic Association has for quite some time supported
several general university programs and activities; specifically, the
Athletic Association has provided approximately $1.6 million for general
operations of the University through grants to the University; $.6
million for scholarship programs; and $1.0 million for facilities
maintenance and operations and safety, security and parking operations.
Pursuant to actions of the Athletic Association Board of Directors, the
Athletic Association commencing in fiscal year 1994-95 will pay $3.2
million in support of bond indebtedness to facilitate the construction
of a library by the University of Kentucky Alumni Association. The
Athletic Association will cease to support the programs and activities
noted above.

      The University will continue to support all the programs currently
supported by the Athletic Association. The funds will be replaced by
$1.7 million made available due to the retirement of an equipment bond
issue and $1.5 million from the President's reserve and contingency
accounts. The University has historically maintained a program reserve
and operating contingency to ensure some flexibility in the event of
budget reductions or emergencies. During the last several years, the
University has been able to increase those funds through restructuring
and cost containment. Approximately $1.5 million of the funds which
could have been used for capital or nonrecurring programmatic needs and
kept in a recurring reserve for contingencies will be shifted to support
the programs previously supported by athletics funds.

      Therefore, no existing programs will be cut in order to deal with
the shift in athletics funding. There will be adjustments in the amount
available for nonrecurring priorities established by the President.
However, with additional cost containment measures and careful
management of University resources, the operating contingency can be
restored to its current level within the next few years.