12. Contingencies



    The University is defendant in several lawsuits. However, University officials are of the opinion,
    based on advice of in-house legal counsel, that the effect of the ultimate outcome of all litigation will
    not be material to the future operations or financial position of the University.

13. Pledges

     Pledges totaling approximately $31,010,000 are expected to be collected over the next ten years.
     Deferred gifts through insurance, known bequests and irrevocable trusts in which the University has
     a remainder interest are estimated to be approximately $46,800,000.

     The University records contributions as revenue when the cash is received.

14. Grants and Contracts Awarded

    At June 30, 1997, grants and contracts of approximately $88,000,000 had been awarded to the
    University and the University of Kentucky Research Foundation but not expended. These amounts
    will be recognized in future periods as revenues and expenditures as the funds are expended.

15. Reclassifications

    Certain reclassifications to fiscal 1996 comparative amounts have been made to conform with the
    fiscal 1997 classifications.

16. Kentucky Postsecondary Education Improvement Act of 1997

    The General Assembly of the Commonwealth of Kentucky during the 1997 Extraordinary Session
    enacted House Bill 1, the Kentucky Postsecondary Education Improvement Act of 1997. One of the
    objectives of this legislation is to enhance the status of the University of Kentucky, a major
    comprehensive research institution, to a national ranking among the top 20 public universities by the
    year 2020. Also, under the new law, the University of Kentucky Community College System, with
    the exception of Lexington Community College, will become a part of a newly-created Kentucky
    Community and Technical College System (KCTCS), although ownership of the Community College
    System will be retained by the University of Kentucky. Management responsibility for the Community
    College System will be delegated to the KCTCS Board of Regents effective no later than July 1,
    1998. The effect of the change of management responsibility of the University of Kentucky
    Community College System on the consolidated financial statements of the University of Kentucky
    is not presently known.



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