University of Kentucky

2001 Annual Report 60 National Rankings

Unit Rank Category Ranking Organization College of Communications and Information Studies 1st External Grants National Communication Association Department of Communication Center for Rural Health 1st Outstanding Rural Health Program in the United States National Rural Health Association, 2000 College of Allied Health Professions 1st Clinical Laboratory Science Division Clinical Laboratory Science UK Libraries 1st Book Endowment Virginia Polytechnic Institute Survey/Public College of Medicine, Department of Physiology 2nd Public Medical School Department Funding National Institutes of Health College of Pharmacy 3rd Graduate Program U.S. News & World Report/"Best Graduate Schools" College of Medicine, Other Health Professions (Aging) 3rd Public Medical School Department Funding National Institutes of Health Patterson School of Diplomacy and International Commerce Top 4 Overall International Studies Association/ISA Review Martin School of Public Policy and Administration 5th Public Finance/Budget Program U.S. News & World Report/"Best Graduate Schools" Lexington Community College 6th Dental Lab Technology Scores Recognized Graduate Examination University of Kentucky 10th High-performance Academic Computer Center University of Tennessee and Mannheim University, Germany in the United States College of Medicine, Department of Anatomy and Neurobiology 10th Public Medical School Department Funding National Institutes of Health University of Kentucky (College of Medicine, 10th Funding for Public Institutions National Institutes of Health Department of Behavioral Science and College of with Department of Psychology Arts and Sciences, Department of Psychology) College of Communications and Information Studies 11th Ph.D. Program National Communication Association Gatton College of Business and Economics 11th Research Decisions Support Systems College of Medicine, Department of Molecular 11th Public Medical School Department Funding National Institutes of Health and Biomedical Pharmacology University of Kentucky 15th Licensing Income and Patents Land Grant Universities Association of University Technology Managers College of Medicine, Department of Microbiology and Immunology 18th Public Medical School Department Funding National Institutes of Health Markey Cancer Center 19th Cancer Care U.S. News & World Report 2001 Edition of “America’s Best Hospitals” Gatton College of Business and Economics 20th Center for Real Estate Studies University of Illinois (Chicago) and Louisiana State University College of Medicine, Public Health/Preventive Medicine 20th Public Medical School Department Funding National Institutes of Health Gatton College of Business and Economics Top 20 Value of MBA Program Business Week/"Best Buys" College of Arts and Sciences, Department of Geography Top 20 Research and Graduate Education National Research Council/Public College of Arts and Sciences, Department of Spanish Top 20 Research and Graduate Education National Research Council/Public College of Medicine, Department of Anatomy and Neurobiology Top 20 Research and Graduate Education National Research Council/Public College of Medicine, Department of Surgery Top 20 Research and Graduate Education National Institutes of Health/Public College of Medicine 24th Rural Medicine U.S. News & World Report/"Best Graduate Schools" University of Kentucky 25th Licensing Income/All Public Institutions Association of University Technology Managers College of Medicine, Department of Physiology Top 25 Research and Graduate Education National Institutes of Health/Public College of Medicine, Graduate Center for Toxicology Top 25 Research and Graduate Education National Research Council/Public College of Law Top 25 Friendliest to Women A Woman's Guide to Law Schools/Penguin Books College of Medicine 26th Public Medical School Funding National Institutes of Health UK Children's Hospital 28th Overall Child Magazine William T. Young Library 30th Public Research Library Association of Research Libraries/North America Gatton College of Business and Economics 30th Management Program Academy of Management News College of Medicine 30th NIH Research Funding National Institutes of Health Martin School of Public Policy and Administration 31st Public Affairs Graduate Program U.S. News & World Report/"Best Graduate Schools" University of Kentucky 32nd Research Expenditures/All Public Institutions National Science Foundation College of Education 34th Rehabilitation Counseling Program U.S. News & World Report/"Best Graduate Schools" Martin School of Public Policy and Administration 35th Health Policy and Management U.S. News & World Report/"Best Graduate Schools" College of Nursing 36th Master's Program U.S. News & World Report/"Best Graduate Schools" College of Engineering 36th Overall/Public National Science Foundation College of Allied Health Professions 38th Physical Therapy Master's Program U.S. News & World Report/"Best Graduate Schools" College of Engineering 46th Graduate Programs/Research Activity – National Science Foundation Public and Private College of Law 50th Overall U.S. News & World Report/”Best Graduate Schools,” 2002 University of Kentucky Top 50 Quality and Value U.S. News & World Report College of Medicine 53rd Medical School Funding National Institutes of Health Gatton College of Business and Economics 57th Department of Economics National Research Council College of Social Work 58th Master's Program U.S. News & World Report/"Best Graduate Schools" College of Arts and Sciences 62nd English Program U.S. News & World Report/"Best Graduate Schools" Gatton College of Business and Economics Top 66 Graduate Business Schools Arco Guidebook, Prentice-Hall College of Arts and Sciences 67th Clinical Psychology Doctoral Program U.S. News & World Report/"Best Graduate Schools" Gatton College of Business and Economics Top 69 Business Schools Business Week Gatton College of Business and Economics Top 70 Business Schools Princeton Review College of Allied Health Professions 73rd Speech Pathology Master's Program U.S. News & World Report/"Best Graduate Schools" College of Law Top 100 Overall U.S. News & World Report/"Best Graduate Schools" University of Kentucky Top 100 Value The Student Guide to America's 100 Best College Buys University of Kentucky Top 100 Overall 100 Best Colleges for African-American Students University of Kentucky Top 100 Technology PC Weekly "Innovators in Government and Education" As of August 31, 2001 University of Kentucky 200th High-performance Academic Computer Center in World University of Tennessee and Mannheim University, Germany Message from the President

It is with honor as the new President UK now boasts 60 national rankings placing it first among public libraries of the University of Kentucky that I - of which nearly half are in the that report book endowments. present to you the 2001 UK Annual Top 20. The Campaign for the The University also has a tremen- Report, which includes the consoli- University of Kentucky exceeded dous impact on the state’s economy dated financial statements of the $408 million, bringing it closer to its each year. During last fiscal year University and its affiliated corpora- $600 million goal, and resulted in alone, externally supported research tions, the independent auditor’s tens of millions of dollars being at UK resulted in a $274.6 million report, and a report on institutional matched by the state’s Research contribution to Kentucky’s economy, activities and achievements during Challenge Trust Fund (RCTF). including $84.5 million in personal the 2000-2001 fiscal year. This At the end of the fiscal year, the income, and 4,509 jobs, 3,183 of report also serves as the University’s state’s investment in the RCTF which are related to research. biennial report as required by state initiative had resulted in the creation statute. The consolidated financial of 54 new academic chairs, 123 new Enrollment at UK and Lexington statements, as presented, show professorships; 151 fellowships, Community College in 2000-2001 the University to be in sound finan- scholarships, visiting scholars, reached nearly 31,000 for the first cial condition. lecture series, and endowments time, and the number of undergradu- for research support; and numerous ate applications was the highest Our outstanding accomplishments since 1984 when the University over the past year show that the endowments for the library. Extramural funding for research implemented selective admissions University has made great strides standards. The freshman class toward meeting the Legislature’s climbed to $181 million for fiscal year 2001- a 16.7 percent increase over included 59 National Merit Scholars challenge that UK become a top-20 - the 13th highest number among public research institution by 2020. the previous year’s $155.2 million. That growth has led to the second the nation’s public universities - consecutive year that UK has one National Hispanic Scholar, been ranked 32nd among public 98 Kentucky Governor’s Scholars universities for research expendi- and 86 high school valedictorians. tures reported to the National Students at UK represented Science Foundation. The William T. 115 countries, all 50 states and Young Library Endowment tripled - every Kentucky county. Nearly growing from $21 million to nearly 600 students took advantage $66 million in gifts and pledges - of UK’s offer to enroll in a free graduate school course. The pilot program, dubbed GIFT (Graduate Incentive Free Tuition), is intended for first-time graduate students and introduces them to the broad array of UK’s course offerings. Record numbers weren’t the only hallmarks of the University’s accomplishments. Countless people affiliated with the University also brought pride to the institution.

University of Kentucky President Lee T. Todd Jr. and first lady Patsy Todd Two UK alumni won Pulitzer Prizes. and public service, but also is fulfill- UK’s scholarly and educational Ten members of the UK family ing a higher purpose. We have a strengths and recommend initiatives. were involved in the 2000 Olympic higher purpose mission to have an • Appointing the Top 20 Task Force Games in Sydney, and a UK impact on Kentucky. We have a to define UK’s progress toward alumna won the first gold medal higher purpose mission to provide becoming a top-20 research institution. of the Games. leadership that will solve long-stand- • Working with Gov. Paul Patton ing problems in education, to establish an office in Washington, health care and economic D.C., and holding a summit with the development that are Kentucky Congressional delegation afflicting Kentuckians. to develop a strategy to attract We have a responsibility more federal research dollars. to this state. • Enhancing collaboration with Since taking office U of L and Kentucky’s independent July 1, I have taken colleges and universities. several steps to • Establishing full-tuition scholar- fulfill that higher ships for Kentucky Governor’s purpose mission, Scholars and Governor’s School including: for the Arts alumni who meet certain academic qualifications, as well as The UK College of Dentistry Mobile Dental • Reorganizing the University’s a new payment plan that will allow Unit travels throughout the Commonwealth administration, which reduced the providing free dental care to indigent UK students to pay a semester’s children, from preschool to sixth grade. number of officers reporting directly tuition and other fees in installments. to me from two chancellors and • Creating a corporate relations and UK also was recognized for its six vice presidents to a provost service, becoming the second economic outreach office to support and three vice presidents. The entrepreneurial research. largest land-grant university in organizational change will save the United States to partner with $1.25 million annually. As evidenced in the 2001 annual America’s Promise - The Alliance • Appointing the Commission report, UK has a strong base on for Youth, founded by retired on the Status of Women and the which to build. Focusing on our General Colin L. Powell. UK’s Commission on Diversity, which higher purpose mission not only initiatives are expected to reach will make recommendations to will help us become a top-20 public 150,000 youth through a variety improve the campus culture. university, but also will help improve of programs from car seat checkups • Appointing the UK Health the lives of Kentuckians. to clinics offering free medical and Insurance Task Force, which will Sincerely, dental care. make recommendations in response These accomplishments are to complaints from UK employees evidence that UK not only is about increases in health insurance Lee T. Todd Jr. meeting its mission to enhance rates approved before I took office. President, University of Kentucky its stature as one of the nation’s • Appointing the Task Force on great universities recognized for UK Futures: Faculty for the 21st its excellence in teaching, research Century to assess the status of

University of Kentucky President Lee T. Todd Jr. has asked a group of historic preservation experts to advise the University about restoration of the 119-year-old UK Administration Building, which was severely damaged by fire May 15. The group - consisting of architects and historic preservation experts from UK and the community - will suggest how best to restore the building, which is one of the oldest structures on campus. Restoration is expected to be complete in 2003. UK alumna and author Bobbie Ann Mason Powerful Thinking

• Thomas Dillehay, Anthropology, • Thomas Lester, Engineering, who discovered the earliest human received a national award from habitation of North America, the Society of Women Engineers received a fellowship from the John for recruiting and retaining women Simon Guggenheim Memorial faculty and for attracting more Foundation. female students to engineering • James Baker Hall, English, was and computer science. UK’s student named Kentucky Poet Laureate. chapter placed second in the Boeing Hall is the author of five volumes Team Tech competition this year. of poetry and two novels. His work • Kentucky alumna and author also has appeared in The New Yorker Bobbie Ann Mason By attracting and retaining the nation’s best scholars, and The Paris Review. accepted a faculty scientists and students, the University of Kentucky • Roberta M. Harding, Law, received position in Arts and has established itself among the nation’s leading the Kentucky Department of Public Sciences as UK’s first institutions of higher learning. UK faculty and staff Advocacy Public Advocate Award writer-in-residence. are active professionally, serving not only the UK for her work with the Kentucky • John Stempel, community, but also the world. Their scholarly and Innocence Project to ensure that Patterson School of professional contributions create an environment that challenges students, stimulates the search those who are wrongly convicted Diplomacy and International for knowledge and ultimately changes lives. are freed from prison. Commerce, led an inter- • Richard Labunski, Journalism national team of negotiators to India • Advertising student Shaneka Edwards and Telecommunications, published to help resolve civil unrest stemming was selected by the American the book The Second Constitutional from the construction of dams that Advertising Federation Foundation Convention that among other things provide needed irrigation, but have as one of 25 most promising proposed eliminating the electoral caused the relocation of millions minorities entering the job market. college system. Coming at a of people and the destruction of • Mechanical engineering senior time when the nation’s eyes were sensitive lands and species. Jeremy Smith studied Rupp Arena turned to the then-stalemated • Gail Robinson, Music, who basketball rims to improve the presidential election, Labunski directed the Metropolitan Opera safety and design of backyard garnered national attention. of New York young artists’ program, basketball goals. brought the Met’s district audition • James J. Varellas III, Arts and to UK for the first time. Next year, Sciences, became the ninth UK both district and regional auditions student to receive the Harry S. will be at UK. Truman Scholarship. UK also • After hearing a potentially harmful received the 2001 Harry S. Truman comment on a broadcast of Curtis Foundation Honor Institution Award. Court, social work student Mike Brown took on big TV and worked with Judge Jeffrey Curtis to create commercials speaking out against domestic violence.

Courtney Byers and Justin Kearns were among six UK engineering students dubbed “Weightless Wildcats” who performed research during a reduced-gravity flight at NASA’s Johnson Space Center in Houston. The Nun Study – led by David Snowdon, Ph.D., professor of neurology in the UK College of Medicine – was the cover story on Time magazine as Gaining New Insight a result of Snowdon’s new book, Aging with Grace: What the Nun Study Teaches Us About Leading Longer, • UK faculty and staff continue to Healthier and More experience record success in attracting Meaningful Lives. research contracts, grants, and gifts. Extramural funding for research climbed Communication, studied the effectiveness strategies before patient procedures. to $181 million for fiscal year 2001- a of public service announcements designed Another new innovation involves hand-held 16.7 percent increase over the previous to deter teenagers from using marijuana. communications equipment that permits year. Research grants and contracts made • Researchers in UK’s Biosystems and surgeons to consult with colleagues up $173.6 million of the total. Another Agricultural Engineering and Mining from remote locations during surgeries. $7.4 million was given as gifts to be used Engineering programs were awarded • Hank Dietz, electrical engineering, and specifically for research. $2 million to study reforestation of mine spoils. his research team developed the KLAAT2 • A new way to Whether developing models for the federal government’s supercomputer, which links a series of anti-drug advertising campaign or developing new obtain natural phar- computers to form a relatively inexpensive methods of detecting and removing PCBs from the maceutical products supercomputer, making supercomputing environment before they cause disease, the University of from plants - particu- available to more scientists. The invention Kentucky’s research enterprise supplies crucial answers larly tobacco leaves - won the Computerworld Honors Medallion that impact lives. is progressing in UK’s as “2001 Computerworld Honors Laureate.” • The Nun Study, conducted at the UK Tobacco and Health Research Institute. Sanders-Brown Center on Aging, has • A drug is showing promise in treating received considerable national attention a rare form of cancer - anaplastic thyroid as a result of a book by David Snowdon, carcinoma or ATC - for which there are no Neurology, director of the study. The study effective therapies and little hope of sur- focuses on the medical histories of nearly vival. Studies by Kenneth B. Ain, UK researchers 700 American nuns - one of the world’s Endocrinology, showed half the patients determined cyanide produced by Eastern largest pools of donor brains - and their treated with paclitaxel responded, meaning tentworms feeding incidence of Alzheimer’s disease. their survival time increased. on wild cherry leaves • When an epidemic of foal deaths swept • Civil engineering researchers installed led to the deaths of across Kentucky’s horse industry, reinforcement bars made of carbon similar hundreds of Kentucky foals. researchers at the College of Agriculture to material used in the B-2 Stealth bomber and the Gluck Equine Research Center in a Kentucky bridge. Only five bridges in tracked down possible causes, finally the nation have used carbon-fiber bars as isolating the most likely culprit: cyanide deck reinforcement. The material resists produced by Eastern corrosion and is stronger than steel. tentworms feeding UK engineers lead the nation in research on wild cherry on fiber-reinforced polymers. leaves. • The College of Medicine received an • One year after $8.2 million National Institutes of Health an anti-marijuana grant to establish the Center of spot first aired on Biomedical Research Excellence in television stations, Women’s Health. Researchers will marijuana use among examine how estrogen affects women’s “high-sensation seek- neuroendocrine system, ovaries, central ing” youths dropped nervous system and behavior. 26 percent. A research • Medical Center researchers pioneered team led by Philip Palmgreen, virtual-reality equipment to map surgical Reaching Out

• UK became the second largest • Some 50 UK students land-grant university in the United affiliated with the Newman States to partner with America’s Center volunteered during Promise - The Alliance for Youth, spring break to serve the poor founded by retired General Colin L. in Washington, D.C.; build Powell. UK’s initiatives are expected Habitat for Humanity homes in to reach 150,000 youth. Florida; and perform home repair • College of Medicine students and community outreach at a operate the Salvation Army Clinic, Navajo reservation in Arizona. which offers free medical care to • This year the Economics America those who cannot afford care. The Center in the College of Education encouraging students to read Harold Lester, D.M.D., clinic received a four-year, $30,000 provided graduate fellowships in materials in their environment, associate professor and pediatric dentist “Caring for the Community” grant economic education and other pro- such as labels on canned food. in the UK College of to expand its services. fessional development opportunities • UK’s Young Women in Science Dentistry, conducts a • Named the nation’s most to 670 Central Kentucky teachers. Program selected its second group program on good oral of 26 Appalachian women to pursue hygiene for young outstanding rural health program The program also provides more students at Lancaster by the Rural Health Association, interaction among schools, busi- Elementary School. UK’s Center for Rural Health was nesses and universities through The awarded $800,000 by the federal partnerships in classrooms and University of Kentucky’s government for a pilot project in mentoring experiences in the Agriculture Extension Service two Southeastern Kentucky coun- business world. was founded in 1910, four years ties to improve health care for peo- • To celebrate National before the U.S. Congress enacted ple with little or no insurance. Children’s Dental Health funding for agriculture assistance programs. Today it is the nation’s third • Emerging Leaders Institute Month, the Lexington largest of its kind, responding to more than students brought smiles to faces Community College 6 million inquiries annually. UK’s long-held at Lexington’s Ronald chapter of the Student commitment to serving others is evident in this McDonald American Dental and many other initiatives. It is not enough House by Hygienists Association that an academic institution challenge young cooking and hosted its 25th annual minds in the classroom. UK has the respon- sibility to use that knowledge to reach cleaning for free children’s dental out and make a difference. Indeed, families stay- clinic. The three-day event there is no better laboratory ing there. provided free preventive for learning than the dental care and education real world. Retired General to more than 100 children. Colin L. Powell • UK’s Minority College Awareness scientific careers in drug abuse Program is improving the research. The program was devel- reading skills of minority oped by researchers at the Center second- and third- on Drug and Alcohol Research. graders in Fayette • A new loan program is designed County by specifically for physically challenged students. The Interdisciplinary Human Development Institute and Fifth-Third Bank help purchase hearing aids, computers, wheelchair ramps and van lifts that improve a disabled person’s independence and quality of life. New. Leadership,New Triumphs

UK alumna and rifle letterwinner Taryn Lewis of Flemington,N.J., was named second-team All-Mid American Rifle • Junior guard J.P. Blevins earned Simidele Adeagbo (triple jump) Conference in 1998 and his second consecutive and Chad Johnson, James Doaty, 2001, while leading her Academic All-SEC Hunter Spencer and Thomas team to a second- place finish at the award and sophomore Morgan (distance medley relay). 2001 NCAA Rifle Tayshaun Prince was named Chakouian won the shot put at Championships Southeastern Conference Player the SEC Indoor Championships. in April. of the Year and was second- • Clayton Moss became the third team All-American. Wildcat from the men’s swimming • Guy Morriss, who played for and diving team to win an SEC title the NFL’s New England Patriots (in the one-meter diving event). and Philadelphia Eagles, was named The men’s team recorded its best head coach of the UK football team. finishes at the SEC and NCAA He had been UK’s assistant head championship meets. Seven men coach and offensive line coach. were named All-Americans, and the • The UK cheerleading squad won men’s team set 10 school records. its seventh consecutive national • Several Wildcat football players championship and 11th overall. won individual awards. Tight end • Bettie Lou Evans, who had Derek Smith, offensive lineman been head women’s golf coach Omar Smith, and quarterback Jared since 1980, became UK’s first Lorenzen were named first-team director of Golf Operations. All-SEC. Lorenzen was named SEC Twenty-three national championships reflect a winning athletics Co-Freshman of the Year after tradition at the University of Kentucky. UK offers nearly breaking six national records for 500 student-athletes an intercollegiate program encompass- passing and total offense. ing 22 varsity sports - more than any other school in the • UK freshman defensive tackle Southeastern Conference. Wildcat student-athletes earned Jeremy Caudill was among four numerous All-SEC and All-America academic honors in recipients of the National High 2000-2001 and participated as volunteers helping youth in the community. On and off the field, UK is committed School Scholar-Athlete Award given to a first-class athletics program. by the National Football Foundation and Hall of Fame. • The torch of UK Athletics leader- • UK men’s soccer claimed its first ship was passed from C.M. Newton Mid-American Conference regular- to Larry Ivy. With a quarter-century season title, its second consecutive of athletic department experience MAC Tournament Championship already part of his more than and its second consecutive 30 years at UK, Ivy continues the trip to the NCAA Wildcats’ commitment to excel- Tournament. Junior lence. Ivy, the 1994 NCAA Business Ikka Jantti was Manager of the Year, is respected named first team as one of the top administrators in All-Great Lakes collegiate athletics. Region. • Facing the nation’s toughest • UK track and schedule with seven newcomers, field produced Tubby Smith’s basketball Wildcats six All-Americans won a share of their 41st during the out- Southeastern Conference door season: Championship as well as a league- Jeff Chakouian leading 23rd SEC Tournament title. (shot put),

Larry Ivy became director of UK Athletics on July 1, 2000. Answering the Challenge

• The Campaign for the University of • The UK Fellows Society continued to Kentucky was bolstered by the greatest thrive. More than 5,000 individuals, organi- one-year fund-raising effort since the zations, corporations and foundations Office of Development was established in were recognized as UK Fellows. In addi- 1972. The University raised $55.4 million tion, the number of Fellows who increased in gifts and $24.4 million in pledges. their membership level rose significantly • The campaign also benefited from the this year. Individuals are The largest fund-raising effort in the history of state’s Research Challenge Trust Fund recognized for gifts of Kentucky, the $600 million Campaign for the (RCTF), which matches research-related $10,000 or more, and University of Kentucky, was unveiled last fall. endowed gifts and pledges. During the recognition for orga- Announced in September after nearly three fiscal year, UK qualified for $53 million nizations, corpora- years of quiet, pre-announcement fund raising from RCTF III. UK earlier qualified for tions and founda- and a spectacular year ending June 2001, the tions begins at campaign exceeded the $408 million mark. UK expects to reach the goal by June 2003. $50,000. • The Office of Development established a new recognition program this year with implementation of the Bequest Society. The Bequest Society, coordinated through Planned Giving, welcomed 24 members who have included the University in their estate plans. • The UK Phonathon continued to grow. For the first time, the program’s student callers raised more than $1 million from 14,500 donors. The $35.5 million $66.7 million from a previous state- College of Allied matching program. Health Professions Building, under • The number of endowed chairs and construction at the professorships rose significantly. Since intersection of Rose the beginning of the campaign, the and South Limestone streets, will be a University has created 54 new academic signature facility chairs and 123 new professorships, of the UK Chandler an increase of about 40 percent. Medical Center. The 210,000-square-foot • The William T. Young Library Endowment building will be rose to a national level of prominence. In completed in 2002. the spring of 2000, the library endowment In March 1998, the stood at about $21 million. Since then, Kentucky General Assembly earmarked it has grown to nearly $66 million in gifts $20 million in state and pledges, placing it first among public funds to help build libraries that report book endowments. the new facility. Part of the remaining fund- • The number of donors totaled 41,936, ing came from gifts which included 24,508 alumni donors. and private donations.

UK alumnus and Hall of Distinguished Alumni member James W. Stuckert, chairman of the UK Development Council Making an Impression

• School of Journalism and • Alumni were among 10 members of Journalism and the Animal Telecommunications alumni Dana of the UK family involved in the Sciences Department. Among Canedy, ‘88, and William Neikirk, 2000 Olympic Games in Sydney. those honored were noted historian ‘60, won Pulitzer Prizes. Canedy The first gold medal of the Games Thomas D. Clark; the highest contributed to The New York Times went to College of Agriculture ranking engineer in the U.S. Air series “How Race is Lived in alumna and former UK rifle team Force, Major General Earnest O. America,” which won in the National member Nancy Johnson in the air Robbins II; All Pro football player Reporting category. Neikirk shared rifle competition. Dermontti Dawson, starting center the prize in the Explanatory • College of Education alumnus for the Pittsburgh Steelers; Kentucky An education from the University of Kentucky Mark Schubert, Supreme Court Justice William S. has transformed thousands of people’s lives. a former UK swim Cooper; and the “father of the index Through time, those people transform the lives team member, fund,” William L. “Bill” Fouse. of others. Among UK’s 170,000 alumni, for was head coach example, is the Nobel prize-winner who first of the U.S. explained the role of chromosomes in heredi- men’s swim ty, and the scientist who discovered transmis- sion methods for television. team which amassed Journalism category for his work 17 medals including seven golds. on the Chicago Tribune series • Family Studies alumna Nicki “Gateway to Gridlock,” about Patton chaired the Kentucky task problems with the American air force that developed the Kids Now traffic system. initiative, a 20-year plan addressing • College of Agriculture graduate early childhood health, education Tom Hammond, now a sports and care. announcer, hosted NBC television’s • College of Social Work alumna coverage of the 2000 Olympic Kimberly Barnes-O’Connor serves Games and thoroughbred racing’s as Director of Children’s Policy for Triple Crown events. the U.S. Senate Committee on Health, Education, Labor and Pensions. Korean Ambassador to the • Patterson School of Diplomacy United States Sung Chul Yang alumnus Sung Chul Yang is Korean Ambassador to the United States. • The UK Alumni Association awarded 51 scholarships totaling more than $65,000 in 2001 - new records for numbers and dollars. • Thirty-four outstanding alumni were inducted into Halls of Fame or Halls of Distinction in 11 areas of the University including the Colleges of Engineering, Human Environmental Sciences, Social Work, Medicine, Education, Arts and Sciences, Law, Fine Arts, the Gatton College of Business and Economics, the School

Pulitzer Prize winner Dana Canedy Consolidated

Financial

Statements Independent Auditors’ Report

To the Board of Trustees of the University of Kentucky and the Secretary of Finance and Administration Cabinet of the Commonwealth of Kentucky

We have audited the accompanying consolidated balance sheet of the University of Kentucky (an agency of the Commonwealth of Kentucky) and affiliated corporations as of June 30, 2001, and the related consolidated statements of changes in fund balances and current funds revenues, expenditures and other changes for the year then ended. These financial statements are the responsibility of the University’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 and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the University of Kentucky and affiliated corporations as of June 30, 2001, and the changes in their fund balances and their current funds revenues, expenditures and other changes for the year then ended in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued our report dated August 31, 2001, on our consideration of the University’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit.

August 31, 2001 Louisville, Kentucky Consolidated Balance Sheet University of Kentucky and Affiliated Corporations June 30, 2001 with comparative totals at June 30, 2000 (in thousands) 2001 2000 Current Loan Endowment andPlant Assets Funds Funds Similar Funds Funds Total Total Cash and cash equivalents $ 89,849 $ 4,667 $ 9,114 $ 235,247 $ 338,877 $ 250,015 Notes, loans and accounts receivable (less bad debt allowances of $28,634 in 2001 and $20,582 in 2000) 155,958 22,334 1,916 3,534 183,742 189,905 Investments 159,162 428,804 31,797 619,763 554,879 Property, plant and equipment 1,456,159 1,456,159 1,352,780 Inventories and other 16,734 16,734 19,858

Total Assets $ 421,703 $ 27,001 $ 439,834 $1,726,737 $ 2,615,275 $ 2,367,437 Liabilities and Fund Balances Liabilities Accounts payable $ 31,610 $ 8,933 $ 40,543 $ 34,676 Accrued expense 30,373 1,842 32,215 30,249 Annuities payable $ 6,208 6,208 6,214 Employee withholdings and deposits 19,690 19,690 18,821 Other liabilities 10,005 2,255 12,260 12,614 Liability for self-insurance 48,524 48,524 49,915 Deferred income 17,452 8,885 26,337 14,675 Bonds payable 229,826 229,826 184,486 Capital lease obligations 45,773 45,773 52,636

Total Liabilities 157,654 6,208 297,514 461,376 404,286

Interfund Balances 4,216 12,788 (17,004 )

Fund Balances Current-Unrestricted Working capital 156,051 156,051 167,211 Future operations 26,790 26,790 24,749 Other 1,246 1,246 538 Current-Restricted 75,746 75,746 64,557 Loan Unrestricted $45 45 45 Restricted 7,372 7,372 7,213 U.S. Government 19,584 19,584 19,234 Endowment and Similar Funds True 340,592 340,592 280,152 Term 3,422 3,422 3,994 Quasi 75,197 75,197 85,226 Annuity and life income 1,627 1,627 2,001 Plant Unrestricted 164,511 164,511 122,656 Restricted 43,705 43,705 51,269 Net investment in plant 1,238,011 1,238,011 1,134,306

Total Fund Balances 259,833 27,001 420,838 1,446,227 2,153,899 1,963,151

Total Liabilities and Fund Balances $ 421,703 $ 27,001 $ 439,834 $1,726,737 $ 2,615,275 $ 2,367,437

See notes to consolidated financial statements. Consolidated Statement of Changes in Fund Balances University of Kentucky and Affiliated Corporations For the Year Ended June 30, 2001 (in thousands) 2001 Current Loan Endowment and Plant Revenues and Funds Funds Similar Funds Funds Total Other Additions Unrestricted current fund revenues $1,005,190 $1,005,190 Gifts 25,705 $ 67 $ 25,514 $ 944 52,230 Research Challenge Trust Fund grant 52,972 52,972 Endowment and investment income/(loss) 12,603 182 (17,475) 9,349 4,659 Interest on loans receivable 429 429 Grants and contracts 150,793 500 917 152,210 Expended for plant facilities, including $47,784 charged to current expenditures 139,954 139,954 State appropriations for capital construction 48,115 48,115 Retirement of indebtedness 16,595 16,595 Proceeds from refunding bonds 18,795 18,795 Other sources 912 46 2,501 3,459

Total Revenues and Other Additions 1,195,203 1,224 61,011 237,170 1,494,608 Expenditures and Other Deductions Unrestricted current fund expenditures 914,075 914,075 Restricted current fund expenditures 175,564 175,564 Expended for plant facilities 92,170 92,170 Payments to refunded bond escrow agents 19,566 19,566 Noncapitalized expenditures 44,245 44,245 Retirement of indebtedness 16,595 16,595 Interest on indebtedness 12,230 12,230 Disposal of plant facilities 27,142 27,142 Other deductions 784 621 868 2,273

Total Expenditures and Other Deductions 1,089,639 784 621 212,816 1,303,860 Transfers Among Funds - Additions/(Deductions) Mandatory Debt Service Educational and general (14,682) 14,682 Hospital and clinics (1,999) 1,999 Auxiliary enterprises (6,240) 6,240 Lease payments (1,479) 1,479 Matching grants (99) 99 Total Mandatory Transfers (24,499) 99 24,400

Net Increase Before Nonmandatory Transfers 81,065 539 60,390 48,754 190,748

Nonmandatory Plant Educational and general (26,314) 26,314 Hospital and clinics (55,288) 55,288 Auxiliary enterprises (4,308) 4,308 Endowment and other 7,623 (30) (10,925) 3,332

Total Nonmandatory Transfers (78,287) (30) (10,925) 89,242 Net Increase for the Year 2,778 509 49,465 137,996 190,748 Fund Balances, July 1,2000 257,055 26,492 371,373 1,308,231 1,963,151 Fund Balances,June 30,2001 $ 259,833 $ 27,001 $ 420,838 $1,446,227 $2,153,899

See notes to consolidated financial statements. Consolidated Statement of Current Funds Revenues, Expenditures and Other Changes University of Kentucky and Affiliated Corporations For the Year Ended June 30, 2001 with comparative totals for the year ended June 30, 2000 (in thousands) 2001 2000 Unrestricted Restricted Total Total Revenues Educational and general Student tuition and fees $ 123,967 $ 123,967 $118,013 Government appropriations Federal 15,095 15,095 16,222 State 307,821 307,821 290,817 County 7,960 7,960 7,176 Government grants and contracts Federal 745 $ 89,140 89,885 79,904 State 2,887 40,876 43,763 37,866 Private gifts and grants 46,717 43,982 90,699 85,098 Indirect cost reimbursement 26,693 26,693 22,181 Endowment income 867 11,088 11,955 9,312 Investment income 15,972 1,509 17,481 14,072 Sales and services 72,225 72,225 69,628 Other 912 912 866 Total educational and general 620,949 187,507 808,456 751,155 Hospital and clinics 313,879 313,879 307,452 Auxiliary enterprises 70,362 6 70,368 67,545 Total Revenues 1,005,190 187,513 1,192,703 1,126,152 Expenditures and Mandatory Transfers Educational and general Instruction 221,007 12,677 233,684 223,982 Research 54,452 96,765 151,217 138,682 Public service 121,750 28,058 149,808 145,240 Libraries 21,019 757 21,776 21,746 Academic support 43,230 4,244 47,474 44,595 Student services 20,799 591 21,390 20,716 Institutional support 46,294 709 47,003 44,928 Operation and maintenance of plant 33,572 69 33,641 32,844 Student financial aid 22,208 26,651 48,859 42,482 Other 585 585 545 Total educational and general 584,331 171,106 755,437 715,760 Hospital and clinics 272,166 272,166 258,459 Auxiliary enterprises 57,578 4,458 62,036 58,952 Total Expenditures 914,075 175,564 1,089,639 1,033,171 Mandatory Transfers Debt service Educational and general 13,192 1,490 14,682 13,321 Hospital and clinics 1,999 1,999 2,029 Auxiliary enterprises 6,240 6,240 4,846 Lease payments 1,479 1,479 1,511 Expired term endowments (143) Matching grants (272) 371 99 98 Total Expenditures and Mandatory Transfers 936,713 177,425 1,114,138 1,054,833 Other Transfers and Additions/(Deductions) Nonmandatory Transfers Plant fund Educational and general (19,659) (6,655) (26,314) (28,237) Hospital and clinics (55,288) (55,288) (38,872) Auxiliary enterprises (4,308) (4,308) (8,820) Endowment and other 2,367 5,256 7,623 1,734 Excess restricted receipts over transfer to revenues 2,500 2,500 1,989 Total Other Transfers and Additions/(Deductions) (76,888) 1,101 (75,787) (72,206) Net Increase/(Decrease) for theYear $ (8,411) $ 11,189 $ 2,778 $ (887)

See notes to consolidated financial statements. University of Kentucky Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies Reporting Entity The University of Kentucky (the University) is a component unit of the Commonwealth of Kentucky. The consolidated financial statements of the University include the operations of the University, its for-profit subsidiary (Kentucky Healthcare Enterprise, Inc.) and its affiliated non-profit corporations (entities for which the University is financially accountable as defined by Statement No. 14 of the Governmental Accounting Standards Board) as follows: The University of Kentucky Research Foundation and its for-profit subsidiary (Kentucky Technology, Inc.); The Fund for Advancement of Education and Research in the University of Kentucky Medical Center; University of Kentucky Athletic Association; Health Care Collection Service, Inc.; University of Kentucky Mining Engineering Foundation, Inc.; University of Kentucky Business Partnership Foundation, Inc.; University of Kentucky Equine Research Foundation, Inc.; University of Kentucky Humanities Foundation, Inc.; and the University of Kentucky Center on Aging Foundation, Inc. The accompanying consolidated financial statements have been prepared in accordance with the AICPA Industry Audit Guide “Audits of Colleges and Universities.” All significant balances and transactions among the above entities have been eliminated. Fund Accounting The University maintains its accounts and reports its financial transactions in accordance with the principles of fund accounting. This is the procedure by which resources for various purposes are classified for accounting and reporting purposes into funds that are in accordance with activities or objectives specified. Funds that have similar characteristics are combined for reporting purposes into fund groups. Within each fund group, fund balances restricted by outside sources are so indicated and are distinguished from unrestricted funds allocated to specific purposes by action of the Board of Trustees. The Board retains full control over allocated fund balances to use in achieving its institutional purposes. Restricted gifts, grants, appropriations, endowment income and other restricted resources are accounted for in the appropriate restricted funds. Restricted current funds received from non-exchange transactions are reported as revenues and expenditures in the period received provided all recognition criteria is met. Restricted current funds received from exchange transactions are reported as revenues and expenditures when expended for current operating purposes. True endowment funds are subject to the restrictions of gift instruments requiring in perpetuity that the principal be invested and the income only be utilized. Term endowment funds are similar to true endowment funds except that upon the passage of a stated period of time or the occurrence of a particular event, all or part of the principal may be expended as well. Quasi-endowment funds are established by the Board for the same general purposes as other endowment funds, and any portion may be expended. All income from true and term endowment funds is restricted. Annuity and life income funds are funds received under deferred-giving agreements and provide that income be paid to the donor, the donor’s designee, or a combination thereof for the lifetime of the recipient(s) or for a fixed period of time. Ordinary income derived from investments, notes receivable, and the like, is recognized in the fund owning the assets, except that income derived from investments of endowments and similar funds and the majority of current restricted funds is recognized in the fund to which the income is designated. All unrestricted revenue is recognized in the unrestricted fund. Current Funds The statement of current funds revenues, expenditures, and other changes is a summary of financial activities of current funds related to the current reporting period. To the extent that current funds are used to finance plant asset acquisitions, the amounts are recognized as: (1) expenditures, in the case of replacement of movable equipment and library books; (2) mandatory transfers in the case of required provisions for debt amortization and interest; and (3) nonmandatory transfers for all other cases. The Board allocates unrestricted current funds fund balances for specific purposes. These purposes include: (a) working capital needs of the University (including the hospital, the housing and dining system, and auxiliary enterprises); (b) budget appropriations for future operating purposes; and (c) specific uses of certain unrestricted income from private sources. Cash and Cash Equivalents Cash and cash equivalents are deposited in local banks ($2,759,000), invested in U.S. Government/agency repurchase agreements ($80,106,000) and held on deposit with the Commonwealth of Kentucky ($256,012,000). Deposits with local banks and investment in repurchase agreements are covered by federal depository insurance or collateralized by securities held in the University’s name by its agents. Deposits with the Commonwealth are covered by federal depository insurance or collateralized by securities held by the Commonwealth in the Commonwealth’s name. Investments Investments are stated at fair value. Pooled Endowment Funds The University employs the total return concept of investment management for setting investment objectives and determining investment performance. This concept recognizes dividends and interest, plus or minus realized and unrealized gains or losses, in determining the total return earned during any particular period. The market value method of accounting for pooled endowment funds is employed to ensure proper distribution of market price changes, realized gain/loss on sales, accrued income earned, and distribution of investment earnings for expenditure by participating funds. Spendable return from the endowment is determined using the total return philosophy. This philosophy recognizes a prudent amount of realized gains as spendable return in addition to traditional yield. Distribution of investment earnings for expenditure by participating funds is supported first by traditional yield earned and, if necessary, a transfer from endowment of any prior years’ accumulated earnings (unexpended traditional yield) or net realized gain on sales. For the year ended June 30, 2001, approximately $5,449,000 was transferred from endowment realized gains on sales to current funds to support spending. Inventories Inventories are stated principally at the lower of average cost or market. Property, Plant and Equipment Land, land improvements, buildings, equipment and library books are stated at cost at date of acquisition or, in the case of gifts, at fair market value at date of gift except for the following: (1) the University has title to certain tracts of land which were either donated or purchased at a nominal price with no book value assigned to these properties; and (2) buildings acquired prior to June 30, 1958, were recorded at appraised value of $33,000,000 at that date. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to use estimates and assumptions. The accompanying financial statements include estimates for items such as bad debt allowances, accrued expenses and other liability accounts. Actual results could differ from those estimates. Recent Accounting Pronouncements In November 1999, the Governmental Accounting Standards Board (GASB) issued Statement No. 35, “Basic Financial Statements - and Management’s Discussion and Analysis - for Public Colleges and Universities.” This statement establishes accounting and financial reporting standards for public colleges and universities within the financial reporting guidelines of GASB Statement No. 34, “Basic Financial Statements - and Management’s Discussion and Analysis - for State and Local Governments.” GASB No. 35 has the effect of changing the financial reporting requirements for basic financial statements for public colleges and universities under accounting principles generally accepted in the United States of America. This statement is effective for financial statements for fiscal years beginning after June 15, 2001. It is expected that the adoption of Statement No. 35 will have a material effect on the University’s consolidated financial statements. Among other things, net assets (currently referred to as fund balances) will be reduced due to the requirement of this Statement to recognize depreciation on all capital assets. Additionally, the content and presentation of the basic consolidated financial statements will be significantly revised under this Statement, including the addition of management’s discussion and analysis as required supplementary information. 2. Research Challenge Trust Fund The Research Challenge Trust Fund (RCTF) endowment fund was created by the Kentucky General Assembly with the passage of the Postsecondary Education Improvement Act of 1997 (House Bill 1). The objectives of the Trust Fund, as stated in the Bill, include support of efforts by the University of Kentucky to attain status as a top 20 public research university. RCTF endowment funds are provided with provision that the University match them on a dollar-for-dollar basis. RCTF funds are available to support Endowed Chairs, Professorships, Endowed Graduate Fellowships and to support the research and graduate mission of the University. In each of the 1998 and 2000 sessions of the Kentucky General Assembly, a $100 million endowment was appropriated for the RCTF. The University is eligible for $66.7 million of the $100 million from each biennium’s funding. During fiscal year 2000-01, the University requested, received and recognized funds from the RCTF endowment program totaling approximately $53.0 million from its share of the 2000 biennium funding. The University anticipates requesting the remaining $13.7 million in 2000 biennium funding by June 30, 2002. The University previously received its full $66.7 million share of the 1998 biennium funding. Included in the amounts submitted by the University for the 2000 and 1998 RCTF match are approximately $29.7 and $16.6 million, respectively, in pledges outstanding at June 30, 2001. Although the University expects to fully realize all outstanding pledges, it is obligated to return any matching funds related to pledges not fulfilled within five years. (See Note 14). 3. Notes, Loans and Accounts Receivable Notes, loans and accounts receivable as of June 30, 2001, net of allowances, are as follows: Current funds: (in thousands) Hospital Third-party payor receivables; Medicare, Medicaid and other $ 86,615 Private pay and other receivables 5,203 Estimated settlements with third-party payors 2,875 Total hospital receivables 94,693 Reimbursable costs - grants and contracts 19,569 Accrued interest, pledges and other general receivables 41,696 Total current funds receivables 155,958 Loan funds: Student notes receivable 22,334 Endowment funds: Accrued interest receivable 1,916 Plant funds: Accrued interest and other receivables 3,534 Total notes, loans and accounts receivable $ 183,742 4. Investments A comparison of the fair value and cost as of June 30, 2001 of the University’s investments is shown below: (in thousands) Fair Value Cost Type of investment United States government securities $ 195,256 $ 194,284 Common stocks 150,721 142,426 Pooled equity funds 105,299 87,517 Corporate bonds and notes 107,656 109,842 Repurchase agreements 30,566 30,566 Equity in health care corporations 21,690 21,690 Cash and cash equivalents 8,430 8,578 Other 145 145 $ 619,763 $ 595,048 (in thousands) Fair Value Cost Fund group Unrestricted current $ 28,144 $ 27,979 Restricted current 131,018 129,886 Endowment 428,804 405,389 Plant 31,797 31,794 $ 619,763 $ 595,048 All investments of the University are registered in the name of the University of Kentucky or held in the University’s name by its agents and trustees. The University has a 80% interest in CHA Service Company (CHA), a Kentucky for-profit corporation, established to provide an integrated health care delivery system throughout the Commonwealth of Kentucky. The University accounts for its investment in CHA by the equity method since, under the provisions of CHA’s by-laws, the University cannot exercise control over the day-to-day operations of CHA. A summary of the University’s investment is as follows: (in thousands) June 30, 2000 FY2000-01 June 30, 2001 Investment $ 40,555 $ (2,375) $ 38,180 Equity in losses through December 31, 2000 (CHA’s fiscal year end) (27,322) 8,992 (18,330) Carrying value $ 13,233 $ 6,617 $ 19,850 The University’s equity in net income of CHA for the six months ended June 30, 2001 was approximately $2,408,000 (unaudited). This income is not reflected in the University’s consolidated financial statements as of June 30, 2001. 5. Investment in Plant The major components of property, plant and equipment as of June 30, 2001 are as follows: (in thousands) Land and improvements $ 71,237 Buildings and structures 866,389 Equipment and library books 436,350 Construction in progress 82,183 $ 1,456,159 The estimated cost to complete construction under contract at June 30, 2001 is approximately $92,204,000. Such construction is principally financed by Commonwealth of Kentucky appropriations and proceeds from long-term bonds payable. 6. Risk Management The University is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. These risks are covered by (1) the State Fire and Tornado Insurance Fund (the Fund), (2) Sovereign Immunity and the State Board of Claims or, (3) in the case of risks not covered by the Fund and Sovereign Immunity, commercial insurance, participation in insurance risk retention groups or self-insurance. The Fund covers losses to property from fire, wind, earthquake, flood and other named perils between $250 and $300,000 per occurrence. Losses in excess of $300,000 are insured by commercial carriers up to $500 million per occurrence principally on an actual cash value basis. As a state agency, the University is vested with Sovereign Immunity and is subject to the provisions of the Board of Claims Act, under which the University’s liability for certain negligence claims is limited to $200,000 for any one person and $350,000 for multiple claims resulting from a single act of negligence. Claims against educators’ errors and omissions and wrongful acts are insured through a risk retention group. There have been no significant reductions in insurance coverage from 2000 to 2001. Settlements have not exceeded insurance coverage during the past three years. The University and its agents are insured against medical malpractice by a combination of self-insurance, commercial liability insurance, and an excess coverage fund established by the Commonwealth of Kentucky. The malpractice liability at June 30, 2001 is based on the requirements of Governmental Accounting Standards Board Statement No. 10, which requires that a liability for claims be recorded if it is probable that a liability has occurred and the amount of loss can be reasonably estimated. The liability includes an estimate for claims that have been incurred but not reported at June 30, 2001. The University is self-insured for the long-term disability income program and has established a 501(c)(9) trust for purposes of paying claims and establishing necessary reserves. The estimated long-term disability payments for known claims at June 30, 2001 are reported at their present value assuming an investment yield of 7.0%. The University also self-insures certain employee benefits, including health insurance, worker’s compensation, unemployment claims, and a long-term disability supplemental reserve, to the extent not covered by insurance. The University has recorded an estimate for asserted claims at June 30, 2001. Changes in the liability for self-insurance for the year ended June 30, 2001 are as follows: (in thousands) Long-Term Malpractice Health Disability Other Total Liabilities at July 1, 2000 $ 32,478 $ 3,505 $ 10,183 $ 3,749 $ 49,915 Accruals for current claims/changes in estimates 1,000 24,236 2,308 3,085 30,629 Investment income 222 355 577 Claims paid (3,275) (24,505) (2,048) (2,769) (32,597) Liabilities at June 30, 2001 $ 30,425 $ 3,236 $ 10,798 $ 4,065 $ 48,524 7. Bonds Payable Bonds payable at June 30, 2001, consist of the following: (in thousands) Current Maturities Lexington Campus and Medical Center: Outstanding 2001-02 Consolidated Educational Buildings Revenue Bonds, issued 1991 to 2001, maturities to 2021, interest rates 4.0% to 6.6%. $ 140,100 $ 13,720 Consolidated Housing and Dining System Revenue Bonds, issued 1965 to 2000, maturities to 2024, interest rates 2.80% to 5.875%. 33,336 2,315 Hospital Revenue Bonds, issued 1993, maturities to 2006, interest rates 2.5% to 5.5%. 10,920 1,600 Lexington-Fayette Urban County Government Governmental Project Revenue Bonds Series 1994 (University of Kentucky Alumni Association, Inc. Commonwealth Library Project), issued 1994, and Lexington-Fayette Urban County Government Governmental Project Revenue Refunding Bonds Series 1998 (University of Kentucky Alumni Association, Inc. Commonwealth Library Project), issued 1998, maturities to 2024, interest rates 4.0% to 6.5%. 45,470 925 Total $ 229,826 18,560 Interest 10,890 Total debt service for 2001-02 $ 29,450

The aggregate amount of principal maturities for the next five years is as follows: (in thousands) 2002 $18,560 2003 $17,515 2004 $15,460 2005 $16,160 2006 $15,795 All bonds are callable by the University at various rates ranging from 100% to 103% of face value after ten years from issuance. Revenues from student housing and dining facilities, certain other auxiliary enterprises, hospital and student fees are pledged for the retirement of the bonds related to those activities. All bonds, with the exception of the Hospital Revenue Bonds, are collateralized by land and buildings. Trust account assets and a total liability for all defeased bonds of $56,820,000 at June 30, 2001 are not included in the financial statements. On May 23, 2001, $18,795,000 Consolidated Educational Building Refunding Revenue Bonds (CEBRB) Series N (Second Series) were issued at a net interest cost of 4.525%, representing a full refunding of the original $25,430,000 CEBRB Series N bonds, dated June 1, 1992. The refunding will defease $17,690,000 Series N bonds outstanding as of June 30, 2001. The refunding will decrease the University’s total debt service payments over the next eleven years by $827,685, representing an economic gain (difference between the present value of the debt service payments on the old and new debt) of $637,379. 8. Capital Lease Obligations The University has utilized capital leases to acquire various items of equipment costing approximately $17,075,000 and financing/lease arrangements with the Kentucky Asset/Liability Commission to (a) finance renovations to Commonwealth Stadium and (b) provide financing for various construction projects. The future minimum lease payments under these capital lease obligations and financing/lease arrangements are as follows (in thousands): Commonwealth Capital Equipment Stadium Construction Leases Financing Lease Lease Total 2002 $ 4,353 $ 2,294 $ 872 $ 7,519 2003 3,853 2,256 828 6,937 2004 1,997 2,272 825 5,094 2005 1,013 2,270 827 4,110 2006 127 2,270 828 3,225 Thereafter 27,275 12,407 39,682 Total 11,343 38,637 16,587 66,567 Less: Amounts representing interest (945) (13,882) (5,967) (20,794) Present value of net minimum lease payments $10,398 $24,755 $10,620 $45,773

9. Funds Held in Trust by Others The University is the income beneficiary of various trusts which are held and controlled by independent trustees. For the year ended June 30, 2001, the University received income from these trusts of approximately $1,231,000. The University has no equity interest in the principal of the trusts which, accordingly, is recorded at a nominal value of $1 each. The 2001 income received from these trusts is recorded as endowment income in the current unrestricted fund ($452,000) and in the current restricted fund ($779,000). 10. Pension Plans Regular full-time employees, including faculty, are participants in the University of Kentucky Retirement Plan, a defined contribution plan. The University of Kentucky Retirement Plan consists of five groups as follows: Group I Established July 1, 1964, for faculty and certain administrative officials. Group II Established July 1, 1971, for staff members in the clerical, technical and service categories. Group III Established July 1, 1972, for staff members in the managerial, professional and scientific categories. Group IV Established January 1, 1973, for staff members having U.S. Civil Service retirement entitlement. Group V Established July 1, 1987, for staff members covered under the Federal Employees Retirement System that replaced Civil Service (those whose employment began during the period from January 1, 1984 to March 31, 1987). Staff members whose employment began after March 31, 1987 are under one of the above University of Kentucky Retirement Plans. Participation in the University of Kentucky Retirement Plan in groups I, II, and III is mandatory for all faculty and staff members, age 30 and older, who have completed one year of service. Participation is voluntary to age 30 after completion of one year of service. Participation in groups IV and V is voluntary. The University contributes 10% of eligible compensation to groups I, II and III. Employees contribute 5% of eligible compensation to groups I, II and III. The University has authorized three retirement plan carriers, effective July 1, 1988, as follows: Teachers Insurance and Annuity Association/College Retirement Equities Fund (TIAA/CREF) Fidelity Institutional Services Company American Century Investments Under the fully funded University of Kentucky Retirement Plan, the University and plan participants make contributions to provide fully vested retirement benefits to employees in individually owned contracts. The University’s contributions and costs for 2001 were approximately $40,182,000 and the employees contributed approximately $19,979,000. The University’s total payroll costs were approximately $615,729,000. The payroll for employees covered by the retirement plan was approximately $401,822,000. In addition to retirement benefits provided from the group retirement plan, the University provides supplemental retirement income benefits to certain eligible employees in each of the retirement groups (see Note 11). 11. Minimum Annual Retirement Benefits and Supplemental Retirement Income Employees in retirement groups I, II and III, referred to in Note 10, who were age 40 or older prior to the date of establishment of each group plan, and who were employed by the University prior to that date, qualify for the minimum annual retirement benefit provisions of the retirement plan. Benefits for these eligible employees are based upon a percentage, determined through years of service, of the participant’s annual salary in the last year of employment prior to retirement. Retirement benefits as determined are funded by each individual retiree’s accumulation in the group retirement plan, with the balance, if necessary, provided by the University as supplemental retirement income. The Legislature of the Commonwealth of Kentucky has appropriated funds to the University for the payment of supplemental retirement income benefits since adoption of the group retirement plans, and is expected to continue this practice. However the Constitution of the Commonwealth of Kentucky prohibits the commitment of future revenues beyond the end of the current biennium. Accordingly, the University does not recognize the liability for supplemental retirement income benefits during the service life of covered employees, but recognizes its costs when funds are appropriated by the Legislature and payments are made. The University intends to continue paying supplemental retirement income benefits contingent upon the Legislature continuing to appropriate funds required to make these payments. Supplemental retirement benefit payments were approximately $4,053,000 for 2001. The latest actuarial valuation was prepared as of June 30, 2000 by TIAA. The actuarial present value of accumulated supplemental retirement income benefits as determined by this valuation, utilizing an assumed rate of return of 7.0%, was $28,458,000. 12. Health Insurance Benefits for Retirees The University provides health care benefits to retirees who have a minimum of fifteen years service. The University recognizes the cost of providing those benefits by expensing the insurance premiums in the year paid. These premiums were approximately $3,682,000 for the year ended June 30, 2001. At June 30, 2001, 2,016 retirees met the service requirement and were receiving benefits. 13. Contingencies The University is defendant in various 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. 14. Pledges and Deferred Gifts Pledges totaling approximately $62,687,000 are expected to be collected primarily over the next five years, as follows (in thousands): Operating purposes $ 5,951 Capital contruction 6,469 Endowment principal 50,267 Total $ 62,687 In accordance with GASB Statement No. 33, “Accounting and Financial Reporting for Nonexchange Transactions,” the University is required to record operating and capital pledges as revenue when all eligibility requirements have been met. Endowment pledges are not recognized as revenue until the gifts are actually received. Accordingly, for the year ended June 30, 2001, the University recorded the discounted value of operating and capital pledges of approximately $11,071,000. Deferred gifts through insurance, known bequests and irrevocable trusts in which the University has a remainder interest are estimated to be approximately $44,770,000. The University records these amounts as revenue when the cash is received. 15. Grants and Contracts Awarded At June 30, 2001, grants and contracts of approximately $114,000,000 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 when the funds are expended. 16. Reclassifications Certain reclassifications to fiscal 2000 comparative amounts have been made to conform with the 2001 classifications. Other Financial Information University of Kentucky Consolidated Revenue and Expenditures For the Year Ended June 30, 2001

Hospital & Clinics $313,879 - 26%

Federal/County Appropriations $23,055 - 2%

Federal & State Grants Private Gifts & Grants $133,648 - 11% $90,699 - 8% Current Funds Revenues (in thousands) Total: Student Fees $1,192,703 $123,967 Other Sources $129,266 - 11% - 10%

Housing, Dining, Other Auxilliary $70,368 - 6% State Appropriations $307,821 - 26%

Hospital & Clinics $272,166 - 22% Housing, Dining, Other Auxilliary $62,036 - 5%

Transfers-Debt Service, etc. Student Financial Aid $48,859 - 4% $100,871 - 9%

Operation & Maintenance of Plant $33,641 - 3% Current Funds Expenditures, Transfers & Institutional Support $47,003 - 4% Other Changes (in thousands) Total: $21,390 Student Services - 2% $1,189,925 Instruction $233,684 - 20%

Libraries & Academic Support $69,250 - 6%

Public Service $149,808 - 12% Research $151,217 - 13% Board of Trustees

and Administration

Officers of the Board as of June 30, 2001

Billy Joe Miles, Chair Administrative Steven S. Reed, Vice Chair Executive Officers as of July 1, 2001 Daniel R. Reedy, Secretary Lee T. Todd Jr., President Board of Trustees Michael T. Nietzel, Acting Provost Edward T. Breathitt, Lexington Jack C. Blanton, Acting Senior Paul W. Chellgren, Covington Vice President for Administration Marianne Smith Edge, Alumni Member James W. Holsinger Jr., Senior James H. Glenn III, Student Member Vice President and Chancellor for the Medical Center Merwin Grayson Jr., Covington James A. Boling, Acting Vice President John R. Guthrie, Alumni Member for Research Loys L. Mather, Faculty Member Ben Carr, Acting Vice President for Robert P. Meriwether, Paducah Auxiliary and Campus Services Billy Joe Miles, Owensboro Joseph L. Fink III, Acting Vice President of Corporate Relations and Economic Elissa Plattner, Camp Springs Outreach Steven S. Reed, Louisville Eugene R. Williams, Acting Vice Daniel R. Reedy, Faculty Member President for Fiscal Affairs and Information Technology C. Frank Shoop, Lexington Marian Moore Sims, Alumni Member Terry B. Mobley, Chief Development Officer Alice Stevens Sparks, Crescent Springs Larry Ivy, Director of Athletics W. Grady Stumbo, Hindman Henry Clay Owen, Controller JoEtta Wickliffe, Harrodsburg and Treasurer Billy B. Wilcoxson, Lexington Richard E. Plymale, General Counsel Russ Williams, Staff Member Elaine A. Wilson, Somerset

University of Kentucky 2001 Annual Report is a cooperative effort of the Office of the Controller and Treasurer and UK Public Relations. Office of the President University of Kentucky Lexington, Kentucky 40506 (859) 257-9000

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The University of Kentucky is committed to a policy of providing educational opportunities to all qualified students regardless of economic or social status and will not discriminate on the basis of race, color, religion, sex, marital status, beliefs, age, national origin, sexual orientation or physical or mental disability.