EXHIBIT 13


     Management's Discussion  and Analysis of Financial  Condition and Results
     of Operation

     KU Energy Corporation  (KU Energy  or the Company)  is an  investor-owned
     utility holding  company with  two wholly  owned subsidiaries.   Kentucky
     Utilities Company (KU  or the  Utility), the principal  subsidiary of  KU
     Energy, is an electric  utility, and KU Capital Corporation  (KU Capital)
     is a nonutility subsidiary.

     Material changes in  the consolidated financial condition  and results of
     operations of the Company are primarily attributable to the operations of
     KU.

     RESULTS OF OPERATIONS

     1995 Compared to 1994

     Earnings and Dividends

     KU Energy's earnings in 1995 were $2.01 per share and compare to earnings
     of $2.01  for 1994 (which  include a  one-time recovery of about $.05 per
     share associated with the  resolution of a coal contract dispute).  Refer
     to Note 1 of  the Notes to Consolidated  Financial Statements, "Operating
     Revenues and Fuel Costs."

     Common  stock dividends were increased  2.4% to $1.68  per share in 1995.
     In January 1996, KU Energy's Board increased the common dividend again to
     an indicated annual  rate of $1.72.   This increase  was the 21st in  the
     last 22 years.
<TABLE>

     Sales and Revenues
<CAPTION>

                                                               Increase (Decrease)
                                                                From Prior Years
                                                             1995                 1994
                                                      kWh      Revenues      kWh    Revenues
                                                      (%)       (000's)       (%)    (000's)

<S>                                                    <C>     <C>            <C>   <C>
            Residential                                 7      $ 19,186        -    $ 2,815
            Commercial                                  4         9,571        2      3,936
            Industrial                                  6        10,023        7      8,186
            Mine Power & Public
             Authorities                                1         3,870        3      3,248
                  Total Retail Sales                    5        42,650        3     18,185

            Wholesale                                   5         2,738        2      1,063
            Opportunity                               (42)      (16,463)     176     26,139
                  Total Other Electric Utilities      (23)      (13,725)      62     27,202

            Miscellaneous Revenues
             and Other                                  -         1,462        -        709
                  Total Before Refund                  (1)       30,387       11     46,096
            Provision for Refund -
              Litigation Settlement                     -        19,385        -    (16,076)
                  Total                                (1)     $ 49,772       11    $30,020


                                              -38-
<PAGE>

     Kilowatt-hour  (kWh) sales  in 1995  were 1%  below sales  in 1994.   The
     decrease was  largely due  to a  42% decline  in opportunity  sales which
     reflects a return to more normal levels from the unusually high levels of
     opportunity sales in 1994.

     Sales to residential   customers increased by 7% in  1995 as a result  of
     favorable weather  in the second  half of  1995, continued growth  in the
     number of residential customers and the impact of KU's marketing efforts.
     Industrial sales rose 6% as a result of continued economic growth in KU's
     service area.    About 29% of  the increase in industrial  sales for 1995
     was  due to  greater sales  to Toyota  Motor Manufacturing,  KU's largest
     customer.

     Operating revenues  for 1995  were $686.4 million, up  $30.4 million (5%)
     from  1994, excluding the impact  of the refunds  to customers associated
     with  the  above  mentioned  resolution  of  a   coal  contract  dispute.
     Operating  revenues in 1994 were reduced by about $19.4 million, and fuel
     expense was reduced by about $23.1 million as a result of the refunds.

     The increase in  1995 revenues was  largely due to  the growth in  retail
     sales described  above and to  amounts recovered  under an  environmental
     surcharge (about $17.9 million in 1995 compared to $3.5 million in 1994).
     Refer  to  Note 10 of  the  Notes to  Consolidated  Financial Statements,
     "Environmental Cost Recovery."

     1995 kWh Sales by Classification

     Year Ended December 31,                                         1995
     Residential                                                       29%
     Commercial                                                        20%
     Industrial                                                        22%
     Mine Power & Public Authorities                                   13%
     Opportunity                                                        7%
     Wholesale                                                          9%
        Total                                                         100%

     Operating Expenses

     Fuel expense  for 1995 was  $189.8 million, a $3.9 million  (2%) decrease
     from 1994, excluding the effect  of the 1994 refunds to customers.   This
     decrease was  due to  a 1% decline  in annual coal  consumption and  a 1%
     decrease in the average price per ton of coal consumed.

     Purchased  power  expense increased  $8.1 million  (13%) in  1995  due to
     increased  demand ($2.5 million)  and energy  costs ($5.6 million).   The
     increase in  energy costs reflects a 6% increase in kWh purchases as well
     as  higher  prices.     The  increase  in  kWh  purchases   is  primarily
     attributable  to the  significant  demand for  electricity  in the  third
     quarter of 1995 due to unusually warm weather.

     Other  operating expenses  increased  $9.5 million (8%)  in  1995 due  to
     increased generating plant  operations expenses  (primarily  attributable
     to costs  associated with  environmental compliance)   and administrative
     and general expenses.

                                        -39-
<PAGE>

     Maintenance expense  decreased $3.5 million (5%)  in 1995.    Maintenance
     expense for 1994 included additional costs for damage from two severe ice
     storms in the first quarter of 1994.

     Depreciation  expense increased  $9.8 million (15%).   This  increase was
     related to the  Ghent Unit 1 scrubber, which was placed into service late
     in 1994, and  two combustion  turbine peaking units  placed into  service
     late in 1994 and early in 1995.

     Interest and Other Charges

     Interest and other charges rose $5.8 million (16%) in 1995 reflecting the
     issuance of $54 million of long-term debt  in the fourth quarter of 1994,
     $50 million  of long-term  debt  in the  second quarter  of  1995 and  an
     increase  in the average amount of short-term debt outstanding during the
     first half of 1995.

     1994 Compared to 1993

     Earnings and Dividends

     Earnings in 1994 were $2.01 per share  as compared to $2.11 in 1993.  The
     decline  was largely due to  increased operating expenses which primarily
     related to purchased power.  The benefits of weather in the first half of
     1994 were offset by  the impact of milder weather in the third and fourth
     quarters  of the year.  Earnings for  1994 include a one-time recovery of
     about $.05 per  share associated  with the resolution  of a coal contract
     dispute.   Refer  to  Note 1  of  the  Notes  to  Consolidated  Financial
     Statements, "Operating Revenues and Fuel Costs."

     In 1994,  common stock dividends  were increased to $1.64  per share from
     $1.60 in 1993.

     Sales and Revenues

     Sales  in 1994  increased  11% from  sales  in 1993.    The increase  was
     primarily  due to  greater opportunity  sales and  to increased  sales to
     industrial  customers.    Opportunity sales  rose  176%  in  1994 due  to
     increased demand  for power from neighboring  utilities. Industrial sales
     rose  7%  in  1994  reflecting  a   continued  trend  of  growth  in  the
     manufacturing sector of KU's  service area.  About 42% of  the industrial
     sales increase  for  1994  was  due to  greater  sales  to  Toyota  Motor
     Manufacturing.  In March 1994, Toyota completed  an $800 million assembly
     plant expansion.  Residential sales were flat as compared to 1993.

     Excluding  the effect  of  the refunds  to  customers, revenues  in  1994
     increased  $46.1 million  (8%) over  1993 as  a  result of  increased kWh
     sales.

     Operating Expenses

     Fuel expense, excluding  the effect  of the above  referenced refunds  to
     customers, increased $10.7 million (6%) in 1994.  This increase  was  due

                                        -40-
<PAGE>
     to a 3%  increase in annual coal consumption  attributable to greater kWh
     generation  and to a  2% increase  in the average  price per ton  of coal
     consumed.

     Purchased  power expense  increased  $26.7 million (77%)  in 1994  due to
     higher  demand  costs  ($13.8 million)   and  increased  energy   charges
     ($12.9 million).  The higher demand costs are related to KU's decision to
     increase  purchased power commitments as  part of its  strategy to obtain
     the most  economical sources of energy  supply, which allows KU  to delay
     the need for additional baseload capacity.  Effective January 1, 1994, KU
     elected  to increase  from  5% to  20% its  entitlement to  the available
     capacity of a 1,000-megawatt generating station owned by Electric Energy,
     Inc. (EEI).  KU is  a 20% owner of EEI.  The increase  in power purchases
     was primarily from EEI.

     Maintenance  expense for  1994 was  $6.7 million (11%)  above 1993.   The
     increase was  primarily due to damage  from two severe ice  storms in the
     first quarter of  1994 and  to scheduled maintenance  at KU's  generating
     stations.


     LIQUIDITY AND CAPITAL RESOURCES

     Financial Condition

     The Company  continues to maintain a  strong financial position.   At the
     end  of   1995,   common  stock   equity  represented   51.8%  of   total
     capitalization, while long-term  debt was 44.9%  and preferred stock  was
     3.3%.   The  Company's financial  strength is  reflected in  high quality
     credit ratings.  KU's senior  debt securities have ratings of AA  (Duff &
     Phelps), Aa2 (Moody's) and AA- (Standard & Poor's).

</TABLE>
<TABLE>

<CAPTION>

      As of December 31,                 1995       1994        1993        1992         1991

<S>                                    <C>        <C>         <C>         <C>          <C>
      Capitalization (in millions)     $1,215     $1,152      $1,085      $1,067       $1,016

      Long-Term Debt                     44.9%      43.0%       40.8%       41.6%       40.2%
      Preferred Stock                     3.3%       3.5%        3.7%        3.7%        3.9%
      Common Stock Equity                51.8%      53.5%       55.5%       54.7%       55.9%

     Cash from  operations accounted for 78%  of cash requirements in  1995 as
     compared  to 54%  in 1994  and 69%  in 1993.   For  these purposes,  cash
     requirements  exclude  optional  debt  refinancings  and  redemptions and
     optional preferred stock redemptions.

     Financing

     Taking  advantage  of  lower interest  rates,  KU  issued $36 million  of
     Series S First Mortgage Bonds at a rate of 5.99% in January 1996 and used
     the proceeds to redeem the $35.5 million of Series K First Mortgage Bonds
     which carried a rate of 7 3/8%.

     In  June 1995,  KU issued  $50 million of  Series R First  Mortgage Bonds
     bearing interest at 7.55%.  The proceeds were used primarily to refinance
     short-term   indebtedness  incurred   to  finance   ongoing  construction

                                        -41-
<PAGE>
     expenditures and general corporate requirements.

     In 1994, $54 million of Variable Rate Collateralized Solid Waste Disposal
     Facility Revenue Bonds were issued on behalf of KU.  In 1993, $50 million
     of 5 3/4% Collateralized Solid Waste Disposal Facility Revenue Bonds were
     issued.  Proceeds from the sale  of these tax exempt issues were used  to
     fund  a  portion   of  the  costs  of  certain  environmental  compliance
     facilities at the Utility's Ghent Generating Station.

     In  1993,   KU  refinanced  $120 million  of  first   mortgage  bonds  at
     significantly lower interest rates.

     KU also issued  $20 million of  6.53% preferred stock  in December  1993.
     Proceeds from  the sale of this  issue were used to  redeem the Utility's
     7.84% preferred stock in February 1994.

     To provide  working capital for  operations, KU began  issuing commercial
     paper in  1994.  At  the end  of 1994, KU  had $76.3 million  outstanding
     under  its commercial paper program.   KU's commercial  paper balance was
     lowered to  $55.6 million by year-end 1995 through refinancing with long-
     term debt.

     The Company's financial strength is enhanced by its low cost of  capital.
     Shown  below are  the  Company's embedded  costs  of long-term  debt  and
     preferred stock at the end of 1995, 1994 and 1993.


     Embedded Cost                                   1995      1994      1993
     Long-Term Debt                                  7.15%     7.06%     7.23%
     Preferred Stock                                 5.64%     5.64%     6.37%

     Construction Requirements

     Construction expenditures  were $124.5 million  in 1995. Of  that amount,
     about  $23.1 million  related  to   construction  of  combustion  turbine
     generating  units (peaking  units),  $11.7 million related  to compliance
     with  the 1990  Clean  Air  Act  Amendments  and  $5.6 million  to  other
     environmental compliance measures.

     Projected  construction  expenditures  for   the  1996-2000  period   are
     $547.3 million.  Included in this amount is $120.4 million for additional
     peaking  units.  Also included  in  the 1996-2000  construction  total is
     $9.7 million for environmental compliance measures.

     KU  expects  to   provide  about  92%   of  its  1996-2000   construction
     requirements through internal sources of funds with the balance primarily
     from long-term debt.

</TABLE>
<TABLE>

     Construction Expenditures by Function - Actual 1995 and Estimated 1996-2000

<CAPTION>
                                             Actual                 Estimated
      (in millions of dollars)                1995    1996     1997     1998    1999     2000

<S>                                          <C>     <C>      <C>      <C>     <C>      <C>
      Total Construction Expenditures        $ 125   $ 108    $ 143    $ 115   $  97    $  84
      Generation                                42%     32%      48%      35%     33%      19%
      Distribution                              38%     43%      32%      42%     43%      53%
      Transmission & Other                      20%     25%      20%      23%     24%      28%
</TABLE>

                                                -42-
<PAGE>

     Nonutility Activities

     KU  Energy continues to pursue a core  energy strategy for its nonutility
     business  activities.   Under this  strategy, targeted  opportunities are
     energy-related  activities  that build  on  the  Company's knowledge  and
     expertise and have the appropriate risk/reward profile.

     KU Capital,  KU Energy's nonutility subsidiary,  has invested $22 million
     in  equity interests in eight combustion turbine generating units (all of
     which are leased to investment grade utility companies).

     KU  Capital also has limited  partnership interests in  the ownership and
     development  of  certain  domestic  independent  power  projects  through
     agreements with Tenaska, Inc. (a developer of gas-fired  cogeneration and
     independent power generation projects) and its affiliates.

     Under the agreements with  Tenaska, KU Capital, through its  wholly owned
     subsidiaries,  has  invested  about  $5 million  in  limited  partnership
     interests  in two  operating  cogeneration projects  and committed  about
     $12 million  for interests  in two  independent power projects  for which
     construction has not been completed.

     Construction  on   one  of  these  projects,   a  248-megawatt  gas-fired
     generation plant in Frederickson, Washington, was suspended in 1995 after
     the Bonneville Power  Administration (BPA) notified Tenaska of its intent
     to  cancel a  power  purchase agreement  that BPA  had  entered into  for
     electricity  that would be produced by the Frederickson project.  Tenaska
     has  filed a $1 billion claim against the  BPA in the United States Court
     of Federal Claims (Court of Claims).  The Court of Claims has ordered the
     case to arbitration  proceedings but  the arbitrators have  not yet  been
     selected.  KU  Capital's commitment related to this project  is less than
     $8 million.   The Company believes the possibility of any material impact
     on  results of  operations  or financial  position as  a result  of these
     proceedings is remote.

     KU  Capital has also agreed to participate  in funding the development of
     future Tenaska-sponsored independent power projects in North America.  KU
     Capital contributed about $5 million for development funding in 1994-1995
     and has committed to fund another $5 million between 1996 and 2000.

     UTILITY ISSUES

     Competition

     The  utility industry  continues to move  to a more  competitive and less
     regulated operating  environment. Competition at the  wholesale level was
     set in motion with the  National Energy Policy Act of 1992 (NEPA).  Under
     NEPA, the Federal Energy Regulatory Commission (FERC) was given authority
     to order utilities  to open  their transmission lines  to third  parties.
     NEPA  also  removed long-standing  constraints  on  the  development   of
     wholesale power  generation by  establishing a  new class of  independent
     power  producers  which are  generally  exempt  from traditional  utility
     regulation.


                                        -43-
<PAGE>

     In March of 1995, the FERC issued a Notice of  Proposed Rulemaking (NOPR)
     which  would require  electric utilities  to file  nondiscriminatory open
     access  transmission tariffs that would apply to all wholesale buyers and
     sellers of  electricity as well as  to the utility's own  wholesale sales
     and purchases.   A natural outgrowth  of NEPA, the NOPR  also proposes to
     allow,  in  certain circumstances,  the  collection  of  charges for  the
     recovery  of  stranded   costs  (fixed  costs   which  would  likely   be
     unrecoverable in a fully competitive  market) when customers change power
     suppliers.  The FERC expects to issue final rules in 1996.

     For KU,   the risks  associated with  stranded costs are  small.   A 1995
     study by Moody's Investors Service estimated that  stranded costs for the
     U.  S.  investor-owned  utility  industry  total some  $135 billion.    A
     significant  portion  of  these   costs  would  become  unrecoverable  at
     competitive market prices.  KU was identified in the Moody's study as one
     of the best-positioned companies with no stranded costs.

     KU placed a Transmission Services  (TS) Tariff into effect in 1994  and a
     Power Services  (PS) Tariff  into  effect   in 1995.    Both tariffs  are
     subject to  refund pending  final FERC  approval.   The TS  Tariff covers
     wholesale  transactions involving  the use  of KU's  transmission system,
     while  the PS  Tariff  allows KU  to  leverage its  low-cost position  by
     selling wholesale power at market-based rates.

     While  NEPA  prohibits  the  FERC  from  ordering  utilities  to  provide
     transmission access  to retail customers, several  states are considering
     proposals that would allow retail  wheeling.  Regulators and  legislators
     have  not pushed for retail  wheeling in KU's  service territory, largely
     because  rates in  the area  are  already among  the very  lowest in  the
     country.   There is  also some  concern that  retail  wheeling might  put
     upward pressure on rates for some customer classes.

     The  Company believes that competition and change will continue to impact
     the industry going forward.  With utility rates that are among the lowest
     in  the nation,  KU believes  it is  well-positioned for  an increasingly
     competitive environment.

     KU  has launched  a  series of  innovative  marketing programs  that  are
     increasing the Utility's  market share.   In addition,  KU has  developed
     strategic  initiatives to increase opportunity   sales and  to expand its
     market through economic development.

     Environmental Matters

     Clean Air Act

     The Clean  Air Act Amendments  of 1990  require a two-phase  reduction in
     emissions  of sulfur  dioxide  and nitrogen  oxide.  KU met  its  Phase I
     requirements (which were effective January 1, 1995) primarily through the
     addition of a flue gas desulfurization system (scrubber) on Unit 1 of the
     Utility's  Ghent  Generating  Station.   The  scrubber  began  commercial
     operation late in 1994.

     KU  estimates  capital  costs  for  the  scrubber  and  other   equipment

                                        -44-
<PAGE>
     modifications related  to Clean  Air  Act compliance  to be  $145 million
     through the year  1999.  Substantially all of this  amount had been spent
     through the end of 1995.

     KU's current strategy for Phase II requirements (which will  be effective
     January 1, 2000)  is  to use  accumulated  emission allowances  to  delay
     additional  capital expenditures. These  allowances will  accumulate from
     saved  emission allowances  as a  result of   reduced emissions  from the
     Ghent Unit 1  scrubber and allowances received  through the Environmental
     Protection Agency's Phase I Extension Plan Program.

     KU's future compliance  plans are contingent upon  many factors including
     developments in the emission allowance market and the fuel market as well
     as  regulatory  and  legislative  actions  and  advances  in   clean  air
     technology.  KU will continue to  review and revise  its compliance plans
     accordingly to ensure that  its environmental obligations are met  in the
     most efficient and cost-effective manner.

     Environmental Cost Recovery

     In August 1994,  KU implemented an environmental  cost recovery mechanism
     (surcharge).   Authorized by a  1992 state  statute and  approved by  the
     Kentucky Public  Service Commission (PSC),  the surcharge is  designed to
     recover  certain  environmental compliance  costs,    including costs  to
     comply with the Federal Clean Air Act as amended, through  a surcharge on
     customers' bills.

     The  constitutionality of the surcharge  was challenged in  a state court
     action brought against KU and the PSC by the Attorney General of Kentucky
     and  joined by  representatives of  consumer groups.   In July  1995, the
     state  court  upheld the  constitutionality of the  surcharge statute but
     disallowed   recovery  of expenditures  incurred before  January 1, 1993.
     All  parties  (including  KU) have  appealed  to  the  Kentucky Court  of
     Appeals.    Refer  to Note 10  of  the  Notes  to Consolidated  Financial
     Statements,  "Environmental Cost Recovery."

     Other

     In  1990, the Company received a letter from the Environmental Protection
     Agency (EPA) identifying KU and others as potentially responsible parties
     under the Comprehensive Environmental Response Compensation and Liability
     Act of 1980 for a disposal site in Daviess County, Kentucky.  The EPA has
     turned over responsibility  for investigation of the site and development
     of a remediation  plan to a group (not including  KU) originally named as
     potentially responsible parties.   KU has entered into an  agreement with
     the group as to the portion of the investigation and development costs to
     be borne by the Utility in connection with the site.  A remediation  plan
     is  before  the EPA  awaiting  approval.  Even  when  the final  plan  is
     approved, KU does not believe that any liability with respect to the site
     will have  a material  impact  on its  financial position  or results  of
     operations.


                                        -45-
<PAGE>

     Meeting Future Power Needs

     The Company's energy supply  strategy is designed to provide  an adequate
     and reliable supply of electricity in  an environmentally responsible and
     cost-effective  manner.  KU  projects an annual growth  in sales and peak
     demand  of  2.8% and  3.0%, respectively,  over the  next  5 years.   The
     Utility  plans to  provide for  the future power  needs of  its customers
     primarily through purchased power and  the addition of combustion turbine
     peaking units.  Three 110-megawatt gas/oil-fired peaking  units have been
     installed  over  the past  two  years.   An additional  485  megawatts of
     peaking unit  capacity is planned  through 2000 including  a 110-megawatt
     unit scheduled  for commercial operation in 1996.  There are no plans for
     additional coal-fired baseload capacity before 2010.

     Inflation

     KU's  rates  are  designed  to recover  operating  and  historical  plant
     investment costs.  Financial statements, which are prepared in accordance
     with generally accepted  accounting principles, report operating  results
     in terms of  historic costs and do not evaluate  the impact of inflation.
     Inflation  affects the Utility's  construction costs,  operating expenses
     and  interest  charges.    Inflation  can   also  impact  KU's  financial
     performance if rate relief is not granted on a timely basis for increased
     operating costs.











                                        -46-
<PAGE>
<TABLE>

      Consolidated Statements
      of Income and
      Retained Earnings

                                         KU Energy Corporation
                                            & Subsidiaries
<CAPTION>


      Year Ended December 31,                                        1995       1994      1993
      (in thousands of dollars, except for per share amounts)
<S>                                                             <C>        <C>       <C>
      Operating Revenues (See Note 1)                           $  686,400 $ 636,628 $  606,608
      Operating Expenses:
          Fuel, principally coal, used in generation
           (See Note 1)                                            189,845   170,654    178,910
          Electric power purchased                                  69,579    61,442     34,711
          Other operating expenses                                 124,044   114,551    106,124
          Maintenance                                               62,599    66,141     59,458
          Depreciation                                              75,268    65,441     60,811
          Federal and state income taxes                            43,426    43,904     47,752
          Other taxes                                               15,038    14,789     14,357
            Total Operating Expenses                               579,799   536,922    502,123
      Net Operating Income                                         106,601    99,706    104,485
      Other Income and Deductions:
          Interest and dividend income                               4,115     5,914      4,737
          Other income and deductions - net                          7,610     6,709      6,033
            Total Other Income and Deductions                       11,725    12,623     10,770
      Income Before Interest and Other Charges                     118,326   112,329    115,255

      Interest and Other Charges:
          Interest on long-term debt                                36,095    32,147     31,650
          Preferred stock dividend requirements of Subsidiary        2,256     2,384      2,558
          Other interest charges                                     3,922     1,922      1,064
            Total Interest and Other Charges                        42,273    36,453     35,272

      Net Income                                                $   76,053 $  75,876 $   79,983
      Earnings per Average Common Share, based on average
            shares outstanding of 37,817,878                    $     2.01 $    2.01 $     2.11


      Retained Earnings Beginning of Year                       $  308,547 $ 294,949 $  275,475
      Add Net Income                                                76,053    75,876     79,983
                                                                   384,600   370,825    355,458
      Deduct:
          Dividends on common stock, $1.68, $1.64 and $1.60 per
            share during 1995, 1994 and 1993, respectively          63,534    62,021     60,509
          Preferred stock redemption expense                             -       257          -
                                                                    63,534    62,278     60,509
      Retained Earnings End of Year                             $  321,066 $ 308,547 $  294,949

     The accompanying Notes to Consolidated Financial Statements are an integral
     part of these statements.

</TABLE>

                                                 -47-
<PAGE>
<TABLE>

      Consolidated Statements
      of Cash Flows

                                         KU Energy Corporation
                                            & Subsidiaries

<CAPTION>

      Year Ended December 31, (in thousands of dollars)               1995      1994      1993

      Cash Flows from Operating Activities:
<S>                                                               <C>       <C>         <C>
          Net income                                              $ 76,053  $ 75,876  $ 79,983
          Items not requiring (providing) cash currently:
            Depreciation                                            75,268    65,441    60,811
            Deferred income taxes                                   16,919      (612)    6,064
            Investment tax credit deferred                          (4,095)   (4,110)   (4,131)
            Changes in current assets and liabilities:
             Change in fuel inventory                                6,214    (4,579)    7,694
             Change in accounts receivable                          (7,945)     (138)   (9,243)
             Change in accounts payable                            (10,774)    4,815    22,660
             Change in liability to ratepayers                        (310)  (29,958)   36,867
             Change in escrow funds                                    312    30,841   (37,752)
            Other - net                                             (4,779)    1,823     2,023

      Net Cash Provided by Operating Activities                    146,863   139,399   164,976

      Cash Flows from Investing Activities:

          Construction expenditures - utility                     (124,515) (193,344) (177,069)
          Proceeds from sale of long-term investments                    -    15,440         -
          Investment in leveraged leases                                 -    (6,609)   (9,924)
          Investment in independent power projects                  (3,204)   (6,742)        -
          Other                                                      1,288       927      (412)

      Net Cash Used by Investing Activities                       (126,431) (190,328) (187,405)

      Cash Flows from Financing Activities:

          Short-term borrowings - net                              (20,700)   76,300         -
          Issuance of long-term debt                                49,288    53,305   171,581
          Funds deposited with trustee - net                        15,100        95   (18,268)
          Retirement of long-term debt, including premiums             (21)      (21) (180,677)
          Retirement of preferred stock, including premiums              -   (20,302)        -
          Issuance of preferred stock                                    -         -    20,000
          Payment of common stock dividends                        (63,534)  (62,021)  (60,509)

      Net Cash Provided (Used) by Financing Activities             (19,867)   47,356   (67,873)

      Net Increase (Decrease) in Cash and Cash Equivalents             565    (3,573)  (90,302)

      Cash and Cash Equivalents Beginning of Year                   28,927    32,500   122,802

      Cash and Cash Equivalents End of Year                       $ 29,492  $ 28,927  $ 32,500

      Supplemental Disclosures

      Cash paid for:
          Interest on short- and long-term debt                   $ 37,961  $ 31,864  $ 33,860
          Federal and state income taxes                          $ 31,507  $ 44,343  $ 42,190

     The accompanying Notes to Consolidated Financial Statements are an integral
     part of these statements.
</TABLE>


                                                 -48-
<PAGE>
<TABLE>

      Consolidated
      Balance Sheets

                                         KU Energy Corporation
                                            & Subsidiaries

<CAPTION>

      As of December 31, (in thousands of dollars)                             1995       1994
      Assets
      Utility Plant:
<S>                                                                      <C>        <C>
        Plant in service, at cost                                        $2,394,018 $2,238,926
        Less:  Accumulated depreciation                                     997,366    933,394
                                                                          1,396,652  1,305,532

        Construction work in progress                                        61,410    104,385
           Total Utility Plant                                            1,458,062  1,409,917

      Current Assets:
        Cash and cash equivalents                                            29,492     28,927
        Escrow funds - coal contract litigation                               6,599      6,911
        Construction funds held by trustee                                    3,743     18,553
        Accounts receivable, net of allowance for doubtful accounts          49,529     41,584
        Accrued utility revenues                                             27,900     24,227
        Fuel, principally coal, at average cost                              29,438     35,652
        Plant materials and operating supplies, at average cost              23,064     20,081
        Other                                                                 8,121     10,619
           Total Current Assets                                             177,886    186,554

      Investments, Deferred Charges and Other Assets:
        Investment in leveraged leases                                       21,509     18,675
        Unamortized loss on reacquired debt                                  11,304     12,324
        Other                                                                46,213     41,824
           Total Investments, Deferred Charges and Other Assets              79,026     72,823
           Total Assets                                                  $1,714,974 $1,669,294

      Capitalization and Liabilities
      Capitalization: (See Consolidated Statements of Capitalization)
        Common stock equity                                              $  628,611 $  616,092
        Preferred stock                                                      40,000     40,000
        Long-term debt                                                      545,980    496,012
           Total Capitalization                                           1,214,591  1,152,104

      Current Liabilities:
        Long-term debt due within one year                                       21         21
        Short-term borrowings                                                55,600     76,300
        Accounts payable                                                     37,935     48,709
        Accrued interest                                                      7,556      7,328
        Accrued taxes                                                         4,960      9,188
        Customers' deposits                                                   6,876      6,423
        Accrued payroll and vacations                                         8,759      8,222
        Liability to ratepayers - coal contract litigation                    6,599      6,909
        Other                                                                 6,992      6,471
           Total Current Liabilities                                        135,298    169,571

      Deferred Credits and Other Liabilities:
        Accumulated deferred income taxes                                   233,707    215,466
        Accumulated deferred investment tax credits                          34,180     38,275
        Regulatory tax liability                                             57,726     60,788
        Other                                                                39,472     33,090
           Total Deferred Credits and Other Liabilities                     365,085    347,619
           Total Capitalization and Liabilities                          $1,714,974 $1,669,294

     The accompanying Notes to Consolidated Financial Statements are an integral
     part of these statements.
</TABLE>

                                                 -49-
<PAGE>
<TABLE>

      Consolidated
      Statements of
      Capitalization                     KU Energy Corporation
                                            & Subsidiaries

<CAPTION>

      As of December 31, (in thousands of dollars)                             1995       1994
      Common Stock Equity:
        Common stock, without par value, authorized 160,000,000
<S>                                                                      <C>        <C>
          shares, outstanding 37,817,878 shares                          $  308,140 $   308,140
        Capital stock expense and other                                        (595)       (595)

        Retained earnings                                                   321,066     308,547
          Total Common Stock Equity                                         628,611     616,092

      Preferred Stock:
        Kentucky Utilities cumulative, without par value,
             $100 stated value
        4 3/4%, outstanding 200,000 shares                                   20,000      20,000
        6.53%,  outstanding 200,000 shares                                   20,000      20,000
          Total Preferred Stock                                              40,000      40,000

      Long-Term Debt:
        First Mortgage Bonds:
          5.95%  Series Q, due June 15, 2000                                 61,500      61,500
          7 3/8% Series K, due December 1, 2002                              35,500      35,500
          6.32%  Series Q, due June 15, 2003                                 62,000      62,000
          7.92%  Series P, due May 15, 2007                                  53,000      53,000
          7.55%  Series R, due June 1, 2025                                  50,000           -
          8.55%  Series P, due May 15, 2027                                  33,000      33,000
                                                                            295,000     245,000
        First Mortgage Bonds, Pollution Control Series:
          7 3/8% Pollution Control Series 7, due May 1, 2010                  4,000       4,000
          7.45%  Pollution Control Series 8, due September 15, 2016          96,000      96,000
          6 1/4% Pollution Control Series 1B, due February 1, 2018           20,930      20,930
          6 1/4% Pollution Control Series 2B, due February 1, 2018            2,400       2,400
          6 1/4% Pollution Control Series 3B, due February 1, 2018            7,200       7,200
          6 1/4% Pollution Control Series 4B, due February 1, 2018            7,400       7,400
          7.60%  Pollution Control Series 7, due May 1, 2020                  8,900       8,900
          5 3/4% Pollution Control Series 9, due December 1, 2023            50,000      50,000
          Variable Rate Pollution Control Series 10, due November 1, 2024    50,800      35,700
          Variable Rate County of Carroll, Kentucky, Collateralized Solid
             Waste Disposal Facility Revenue Bonds, due November 1, 2024      3,200      18,300
                                                                            250,830     250,830
            Total First Mortgage Bonds                                      545,830     495,830
        Unamortized premium                                                      86          96
        8% secured note, due January 5, 1999 (net of current maturity)           64          86

          Total Long-Term Debt                                              545,980     496,012
          Total Capitalization                                           $1,214,591 $ 1,152,104

     The accompanying Notes to Consolidated Financial Statements are an integral
     part of these statements.

</TABLE>

                                         -50-
<PAGE>

     Notes to Consolidated
     Financial Statements

                               KU Energy Corporation
                                   & Subsidiaries


      1. Summary of Significant Accounting Policies

     General

     The consolidated  financial statements include the  accounts of KU Energy
     Corporation (KU Energy or the Company), a holding company, and its wholly
     owned  subsidiaries,  Kentucky  Utilities  Company  (KU)  and  KU Capital
     Corporation  (KU Capital).   The preparation  of financial  statements in
     conformity  with  generally   accepted  accounting  principles   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.   All significant intercompany
     balances  and transactions  have  been eliminated  from the  consolidated
     financial  statements.   Certain  amounts from  prior  periods have  been
     reclassified to conform with the current year presentation.

     KU is a public utility engaged in producing and selling electric  energy.
     KU  provides  electric service  to about  425,500  customers in  over 600
     communities  and  adjacent suburban  and rural  areas  in 77  counties in
     central, southeastern and western Kentucky  and to about 28,600 customers
     in 5 counties in southwestern Virginia.

     KU Capital  has adopted a  core energy investment  strategy.  Under  this
     strategy, energy-related  investments that utilize  KU Energy's knowledge
     and expertise  are targeted.  In  particular, KU Capital is  focusing its
     attention  on independent power projects (including qualifying facilities
     and exempt wholesale generators) and equipment leased to other utilities.

     Regulation

     KU is subject  to regulation  by the Kentucky  Public Service  Commission
     (PSC), the  Virginia State Corporation  Commission (SCC) and  the Federal
     Energy Regulatory Commission (FERC).  With respect to accounting matters,
     KU  maintains its  accounts  in accordance  with  the Uniform  System  of
     Accounts  as defined by these agencies.  KU's accounting policies conform
     to generally accepted accounting  principles applicable to rate regulated
     enterprises and reflect  the effects  of the ratemaking  process.   Other
     than  the unamortized loss on reacquired debt, KU's regulatory assets are
     insignificant.

     Utility Plant

     Utility  plant is stated at the original  cost of construction.  The cost
     of  repairs and  minor  renewals is  charged  to maintenance  expense  as
     incurred.     Property   unit  replacements   are  capitalized   and  the
     depreciation reserve is charged with the cost, less net salvage, of units
     retired.




                                        -51-
<PAGE>
     Notes to Consolidated
     Financial Statements

                               KU Energy Corporation
                                   & Subsidiaries


     Depreciation

     Provision for  depreciation of  utility plant  is based  on straight-line
     composite rates applied  to the cost of depreciable property.   The rates
     approximated 3.5% in 1995, 3.4% in 1994, and 3.3% in 1993.

     Cash and Cash Equivalents

     For purposes of reporting cash flows, the Company considers highly liquid
     investments with  a maturity of  three months  or less from  the date  of
     purchase to be cash equivalents.

     The  Company utilizes a cash management mechanism that funds certain bank
     accounts for  checks as they are  presented to those banks.   The Company
     classified  checks written  but  not  presented  to  those  banks,  which
     amounted  to $10.5 million  and $11.5 million  at December  31, 1995  and
     1994, respectively, in accounts payable.

     Financial Instruments

     The  Company's  temporary cash  investments  are  classified as  held-to-
     maturity and are reported  under the caption "Cash and  cash equivalents"
     on the Consolidated Balance Sheet.

     Unamortized Loss on Reacquired Debt

     KU defers costs (primarily call premiums) arising from  the reacquisition
     or retirement  of long-term debt.   Costs related to  refinanced debt are
     amortized over  the lives  of  the new  debt issues.    Costs related  to
     retired  debt not  refinanced  are  amortized  over  the  period  to  the
     scheduled maturity of the retired debt.

     Operating Revenues and Fuel Costs

     Revenues  are recorded  based  on services  rendered  to customers.    KU
     accrues an estimate of  revenues for electric service furnished  from the
     meter reading  dates to the end  of each accounting period.  Cost of fuel
     used  in  electric  generation is  charged  to  expense  as  the fuel  is
     consumed.  Fuel adjustment clauses  adjust operating revenues for changes
     in  the  level of  fuel  costs  charged  to expense.    An  environmental
     surcharge  for Kentucky  retail  customers, implemented  in August  1994,
     permits the  utility to  recover certain  ongoing  operating and  capital
     costs  of   compliance  with   federal,  state  or   local  environmental
     requirements  associated  with  the   production  of  energy  from  coal,
     including the Federal Clean Air Act as amended.  See Note 10 of the Notes
     to Consolidated Financial Statements, "Environmental Cost Recovery,"  for
     an update of environmental surcharge legal proceedings.

     Pursuant  to regulatory orders, KU  has been refunding  fuel cost savings
     related to the resolution of a coal contract dispute.   Refunds were made
     to Virginia retail customers  during the period August 1993  through June

                                        -52-
<PAGE>
     Notes to Consolidated
     Financial Statements

                               KU Energy Corporation
                                   & Subsidiaries


     1994.  Refunds were made to wholesale customers under the jurisdiction of
     the FERC in  lump sum payments  in September 1993.   Refunds to  Kentucky
     retail customers  commenced  in  July 1994.    A portion  remains  to  be
     refunded to Kentucky  customers who have not  filed claims.   Any amounts
     not claimed within seven years of the initial refunds will escheat to the
     state.

     Operating   revenues  and  fuel   expense  for   1994  were   reduced  by
     $19.4 million and $23.1 million, respectively, resulting from the  above-
     mentioned refunds.   Operating revenues and fuel expense  were reduced by
     $3.3 million and $4.1 million, respectively, in  1993.  The refunding had
     no impact on operating revenues or fuel expense for 1995.  The difference
     between the  reduction in  operating revenues and  the reduction  in fuel
     expense is  attributed to  incurred litigation costs,  fuel cost  savings
     related to opportunity sales and  costs incurred to administer the refund
     plan.   These  amounts were  allowed  to be  retained by  KU pursuant  to
     regulatory orders.

     Income Taxes

     The  Company   establishes  deferred  tax  assets   and  liabilities,  as
     appropriate,  for all  temporary  differences, and  adjusts deferred  tax
     balances to  reflect changes in tax rates expected to be in effect during
     the periods the  temporary differences reverse.   Investment tax  credits
     resulted  from provisions of the  tax law which  permitted a reduction of
     the Company's  tax liability based on  certain construction expenditures.
     Such credits have  been deferred in the accounts and  are being amortized
     as  reductions  in  income tax  expense  over  the  life  of the  related
     property. Because of  rate regulation, changes in tax  rates are deferred
     and amortized as the temporary differences reverse.


      2.  Income Taxes
<TABLE>

     The accumulated  deferred income taxes  as set forth in  the Consolidated
     Balance Sheets arise from the following temporary differences:
<CAPTION>

      As of December 31, (in thousands of dollars)                        1995           1994


      Deferred Tax Assets:
        Unamortized investment tax credit and other property
<S>                                                                  <C>            <C>
          related differences                                        $  31,667      $  31,805

        Other                                                           16,728         18,080
        Less: Amounts included in current assets                         4,985          6,726
                                                                        43,410         43,159

      Deferred Tax Liabilities:
        Accelerated depreciation and other property
          related differences                                          268,203        251,282
        Other                                                            8,914          7,343
                                                                       277,117        258,625

      Net accumulated deferred income tax liability                  $ 233,707      $ 215,466
</TABLE>

                                                -53-
<PAGE>
     Notes to Consolidated
     Financial Statements

                               KU Energy Corporation
                                   & Subsidiaries

<TABLE>

     The components of income tax expense are as follows:
<CAPTION>

      Year Ended December 31, (in thousands of dollars)              1995      1994       1993
      Income taxes charged to Operating Income:
<S>                                                            <C>        <C>        <C>
      Current    - federal                                     $   22,011 $  36,332  $  35,579
                 - state                                            4,734     8,623      9,403
                                                                   26,745    44,955     44,982
      Deferred   - federal                                         12,809      (997)     2,812
                 - state                                            3,943        32         65
                                                                   16,752      (965)     2,877
      Deferred investment tax credit                                  (71)      (86)      (107)
                                                                   43,426    43,904     47,752
      Income taxes charged to Other Income
      and Deductions:
      Current    - federal                                          1,868     1,507     (2,060)
                 - state                                              384       266       (577)
                                                                    2,252     1,773     (2,637)
      Deferred   - federal                                            176       325      2,591
                 - state                                               (9)       28        596
                                                                      167       353      3,187
      Amortization of deferred investment tax credit               (4,024)   (4,024)    (4,024)
                                                                   (1,605)   (1,898)    (3,474)

      Total income tax expense                                 $   41,821 $  42,006  $  44,278
</TABLE>

     The Company's  effective  income tax  rate, determined  by dividing  income
     taxes by the  sum of such taxes and net income, was 35.5% in 1995 and 35.6%
     in  1994 and  1993.   The  difference between  the effective  rate and  the
     statutory federal income tax rate is attributable to the following factors:
<TABLE>
<CAPTION>

     Year Ended December 31,  (in thousands of dollars)             1995      1994       1993

<S>                                                            <C>        <C>        <C>
      Federal income tax computed at 35%                       $   41,256 $  41,259  $  43,491
      Add (Deduct):
      State income taxes, net of federal income tax benefit         5,884     5,817      6,167
      Amortization of deferred investment tax credit               (4,095)   (4,110)    (4,131)
      Other, net                                                   (1,224)     (960)    (1,249)
      Total income tax expense                                 $   41,821 $  42,006  $  44,278
</TABLE>

       3.  Retirement Benefits

     Pensions

     The Company  has a noncontributory defined benefit  pension plan covering
     substantially all  of its employees.  Benefits  under this plan are based
     on  years of service, final average base pay  and age at retirement.  The
     Company's funding policy  is to make such contributions  as are necessary
     to  finance  the  benefits  provided  under  the  plan.    The  Company's
     contributions  meet  the funding  standards  set  forth  in the  Employee
     Retirement  Income  Security  Act  of  1974.   The  plan  assets  consist

                                        -54-
<PAGE>
     Notes to Consolidated
     Financial Statements

                               KU Energy Corporation
                                   & Subsidiaries


     primarily  of   common  stocks,  corporate  bonds   and  U.S.  Government
     Securities.

     The  Company also has a Supplemental Security Plan for certain management
     personnel.   Retirement benefits under this   plan are based  on years of
     service,  earnings  and age  at  retirement.   The  plan  has  no advance
     funding.    Benefit  payments are  made  to  retired  employees or  their
     beneficiaries from the general assets of the Company.
<TABLE>
     The  reconciliation of the funded status of  the retirement plans and the
     pension liability recorded by the Company is as follows:
<CAPTION>

      As of December 31, (in thousands of dollars)                           1995         1994

<S>                                                                      <C>         <C>
      Fair value of plan assets                                          $ 179,203   $ 154,314
      Projected benefit obligation                                        (183,795)   (169,599)
      Plan assets less than projected benefit obligation                    (4,592)    (15,285)
      Unrecognized net (gain)/loss from past
       experience different than that assumed                               (5,907)      5,246
      Unrecognized prior service cost                                        4,344       4,705
      Unrecognized net asset                                                (1,649)     (1,799)
      Regulatory effect recorded                                            (1,634)     (3,229)
      Pension liability                                                  $  (9,438)  $ (10,362)

      Accumulated benefit obligation (including vested benefits
          of $139,250 and $124,094, respectively)                        $ 141,531   $ 126,146
</TABLE>


<TABLE>
<CAPTION>

      Components of Net Pension Cost:
      Year Ended December 31, (in thousands of dollars)           1995       1994         1993

<S>                                                          <C>         <C>         <C>
      Service cost (benefits earned during the period)       $  6,060    $   6,017   $   5,036
      Interest cost on projected benefit obligation            13,560       12,366      12,311
      Actual return on plan assets                            (27,064)      (3,723)    (13,229)
      Net amortization and deferral                            14,608       (8,765)      1,785
      Regulatory effect recorded                               (1,595)      (1,916)         56
      Net pension cost                                       $  5,569    $   3,979   $   5,959
</TABLE>
<TABLE>
<CAPTION>

      Assumptions Used in Determining Actuarial Valuations:
                                                                 1995         1994        1993
<S>                                                            <C>          <C>         <C>
      Weighted average discount rate used to
       determine the projected benefit obligation              7 3/4%       8 1/4%      7 1/2%

      Rate of increase for compensation levels (1)             4 3/4%       5 1/2%      4 3/4%

      Weighted average expected long-term rate
       of return on assets                                     8 1/4%       8 1/4%      8 1/4%

      (1) 4  3/4%,  6% and  5  1/4%, respectively,  used for  the Supplemental  Security Plan valuation.
</TABLE>

                                                 -55-
<PAGE>
     Notes to Consolidated
     Financial Statements

                               KU Energy Corporation
                                   & Subsidiaries

     Other Postretirement Benefits

     The Company provides certain  health care and life insurance  benefits to
     eligible retired  employees and their  dependents.  The  Company accrues,
     during the years that the employee  renders service, the expected cost of
     providing these  benefits for retired employees,  their beneficiaries and
     covered dependents.   The postretirement health care plan is contributory
     for  employees   who  retired  after  December 31,   1992,  with  retiree
     contributions  indexed  annually based  upon  the  experience of  retiree
     medical  expenses  for the  preceding year.    Pre-1993 retirees  are not
     required  to  contribute to  the plan.    The Company's  employees become
     eligible  for  retiree medical  benefits after  15  years of  service and
     attainment of age 55.  The life insurance plan is noncontributory  and is
     based on compensation levels prior to retirement.

     In 1993, the Company  began funding, in addition to  current requirements
     for  benefit payments,  the  maximum tax-favored  amount allowed  through
     certain tax deductible funding vehicles.   The Company anticipates making
     similar funding decisions  in future  years, but will  consider and  make
     such funding decisions on the basis of tax, regulatory and other relevant
     conditions in effect at such times.  The plan assets consist primarily of
     equity investments.

     The   reconciliation  of  the  funded   status  of  the   plans  and  the
     postretirement benefit liability recorded by the Company is as follows:
<TABLE>
<CAPTION>

     As of December 31, (in thousands of dollars)                   1995                  1994

      Accumulated postretirement benefit obligation:
<S>                                                             <C>                    <C>
        Retirees                                                $ (28,575)             $ (31,992)
        Fully eligible active plan participants                    (8,250)                (8,287)
        Other active plan participants                            (26,831)               (25,578)
                                                                  (63,656)               (65,857)
      Plan assets at fair value                                    10,427                  5,341
      Accumulated postretirement benefit obligation
        in excess of plan assets                                  (53,229)               (60,516)
      Unrecognized net (gain)/loss from past
        experience different from that assumed                    (18,773)               (11,353)
      Unrecognized transition obligation                           56,801                 60,142
      Accrued postretirement benefit liability                  $ (15,201)             $ (11,727)
</TABLE>


                                                 -56-
<PAGE>
     Notes to Consolidated
     Financial Statements

                               KU Energy Corporation
                                   & Subsidiaries

<TABLE>
     Components of the net periodic postretirement benefit cost are as follows:
<CAPTION>

     Year Ended December 31, (in thousands of dollars)              1995       1994       1993
      Service cost (benefits attributed to
<S>                                                              <C>        <C>        <C>
        service during the period)                               $  1,918   $  2,105   $  2,048
      Interest cost on accumulated postretirement
        benefit obligation                                          4,926      4,926      5,730
      Actual return on plan assets                                 (1,722)       (80)         -
      Net amortization and deferral                                   792       (118)         -
      Amortization of transition obligation                         3,341      3,341      3,341
      Regulatory effect recorded                                        -        689       (689)
      Net periodic postretirement benefit cost                   $  9,255   $ 10,863   $ 10,430


      Assumptions Used in Determining Actuarial Valuations:          1995       1994       1993
      Weighted average discount rate used to
        determine the projected benefit obligation                 7 3/4%     8 1/4%     7 1/2%

      Rate of increase for compensation levels                     4 3/4%     5 1/2%     4 3/4%

      Weighted average expected long-term rate of
        return on assets                                           8    %     8 1/4%          -
</TABLE>

     For  measurement purposes,  a 7.5%  annual rate  of  increase in  the per
     capita cost of  covered health care  benefits is assumed  for 1996.   The
     health care  cost trend rate  is assumed  to decrease gradually  to 4.75%
     through  2003  and remain  at that  level  thereafter over  the projected
     payout period  of the benefits.  Increasing  the assumed health care cost
     trend  rates  by one percentage  point in  each  year would  increase the
     accumulated postretirement benefit obligation as of December 31, 1995, by
     $10.6 million  (17%) and the aggregate  of the service  and interest cost
     components of the net  periodic postretirement benefit cost for  the year
     by $1.4 million (20%).


     4.  Commitments and Contingencies
<TABLE>

     The  effects of  certain commitments  made by  the Company  are estimated
     below:
<CAPTION>

     (in thousands of dollars)       1996      1997      1998      1999      2000 1996-2000
      Estimated Construction
<S>                              <C>       <C>       <C>        <C>       <C>       <C>
        Expenditures             $ 108,000 $ 143,500 $ 114,700  $ 97,200  $ 83,900  $547,300
      Estimated Contract
        Obligations:
           Fuel                    152,500   114,800    77,000    39,800     4,600   388,700
           Purchased power          27,700    28,900    27,400    26,300    25,600   135,900
           Operating leases          2,800     2,800     2,800     2,700     2,700    13,800
      Independent Power Project
        Commitments                 13,780     1,760     1,965         -         -    17,505
      Sinking Fund Requirements:
           First mortgage bonds  $     376 $     376 $     376  $    376  $    355  $  1,859
</TABLE>


                                        -57-
<PAGE>

     Notes to Consolidated
     Financial Statements

                               KU Energy Corporation
                                   & Subsidiaries

     Construction Program

     KU  frequently reviews  its  construction  program  and  may  revise  its
     projections  of related expenditures based on  revisions to its estimated
     load growth and projections of its future load.

     See Management's Discussion and  Analysis - Construction Requirements for
     a discussion of future construction expenditures including those relating
     to  construction of peaking units  and compliance with  the Federal Clean
     Air Act as amended.

     Coal Supply

     Obligations under  KU's  coal purchase  contracts  are stated  at  prices
     effective January 1, 1996, and are  subject to changes as defined by  the
     terms of the contracts.

     Purchased Power Agreements

     KU  has purchase  power arrangements  with Owensboro  Municipal Utilities
     (OMU),  Electric  Energy, Inc. (EEI),  and  Virginia  Electric and  Power
     Company  (Virginia Power).   Under  the OMU  agreement, which  expires on
     January 1, 2020, KU purchases, on an economic basis, all of the output of
     a 400-MW generating station not required by OMU.  The amount of purchased
     power  available  to  KU  during  1996-2000,  which  is  expected  to  be
     approximately  8% of  KU's total  kWh requirements,  is dependent  upon a
     number   of  factors  including   the  units'  availability,  maintenance
     schedules,  fuel costs and OMU  requirements.  Payments  are based on the
     total  costs of  the station  allocated per  terms of the  OMU agreement,
     which generally  follows delivered kWh.   Included in the total  costs is
     KU's proportionate  share of debt service  requirements on $198.8 million
     of  OMU bonds  outstanding  at December 31,  1995.   The debt  service is
     allocated to KU based  on its annual  allocated share of capacity,  which
     averaged approximately 49% in 1995.

     KU  has a  20% equity  ownership in  EEI, which is  accounted for  on the
     equity  method of  accounting.   KU's  entitlement, beginning  January 1,
     1994, is 20% of the  available capacity of a 1,000-MW station.   Payments
     are based  on the total costs  of the station  allocated per terms  of an
     agreement among the owners, which generally follows delivered kWh.

     KU has contracted to purchase 110-MW of  capacity from Virginia Power for
     the periods of June 1997 through September 1997 and  January 1998 through
     February 1998.

     Sinking Fund Requirements

     Annual sinking fund requirements for KU's first mortgage bonds may be met
     with  cash or  expenditures  for bondable  property  as provided  in  the
     Mortgage  Indenture.    KU   intends  to  meet  the  1996   sinking  fund
     requirements with expenditures for bondable property.


                                        -58-
<PAGE>



     Notes to Consolidated
     Financial Statements

                               KU Energy Corporation
                                   & Subsidiaries


     Independent Power Project Commitments

     During  1994, the Company entered  into agreements with  Tenaska, Inc. (a
     developer  of  gas-fired cogeneration  and  independent  power generation
     projects), and  its affiliates to purchase  limited partnership interests
     in the ownership  and development of  certain domestic independent  power
     projects.   Under the agreements,  the Company (through  its wholly owned
     subsidiaries) has become a limited partner in  two operating cogeneration
     projects.    The  Company  has  also  become a  limited  partner  in  two
     independent power  projects under the  sponsorship of Tenaska,  for which
     construction has  not been completed  (see Credit Arrangements  below and
     Management's Discussion and Analysis-Nonutility Activities).  The Company
     also  has  agreed to  participate in  funding  the development  of future
     Tenaska-sponsored  independent  power projects  in  North  America.   The
     Company paid $3.1 million and $1.5 million for development funding during
     1995 and 1994, respectively.

     Credit Arrangements

     KU  has  aggregate bank  lines  of credit  of $80 million,  all  of which
     remained unused  at December 31, 1995.   A portion of  these credit lines
     ($20 million) expires  in September 1996,  and the balance  ($60 million)
     expires  in  December 1997.   In  support of  these  lines of  credit, KU
     compensates the banks by paying a commitment fee.

     KU Capital has standby  letters of credit totalling about  $12 million in
     support of  future  commitments to  independent  power projects.    These
     letters of  credit are  effective  for one  year.   In  support of  these
     letters of credit, KU Capital compensates the bank by paying a commitment
     fee.


      5.  Common Stock

     KU Energy is subject to restrictions applicable to all corporations under
     Kentucky law on the use of retained earnings for cash dividends on common
     stock.  KU is subject to the same restrictions as well as those contained
     in Virginia  law, its Mortgage  Indenture and Articles  of Incorporation.
     At December 31, 1995, there were no restricted retained earnings.







                                        -59-
<PAGE>

     Notes to Consolidated
     Financial Statements

                               KU Energy Corporation
                                   & Subsidiaries


     The  Company has a shareholder rights plan designed to provide protection
     to shareholders in  the event of  an unsolicited  attempt to acquire  the
     Company.  Under  the shareholder rights  plan, in certain  circumstances,
     KU Energy  shareholders will  receive as  a dividend  one right  for each
     share  of KU Energy  common  stock.   Should  certain events  occur  (for
     instance,  an acquirer becomes the beneficial owner of 20 percent or more
     of  the  Company's  outstanding  voting stock  without  approval  by  the
     Company, or certain transactions occur following an acquirer becoming the
     beneficial  owner  of 10 percent  or more  of  such voting  stock without
     Company  approval), each right would  entitle the holder,  other than the
     acquirer, to purchase common shares of KU Energy or shares of any company
     that acquires KU Energy at a discount from the market value.   In certain
     circumstances, the Company  may redeem the rights at a  price of $.01 per
     right.  The rights expire in February 2002.


     6.  Preferred Stock

     KU Energy

     As  of December 31,  1995,  there were  20 million  shares of  KU  Energy
     preferred stock, without par value, authorized for issuance.

     Kentucky Utilities
<TABLE>

     Each series of preferred stock is redeemable at the option of  KU upon 30
     days' written notice as follows:

<CAPTION>

                                   Redemption Price per Share
      Series                       (plus accrued and unpaid dividends, if any)
<S>                                           <C>
      4 3/4%                                  $101.00

      6.53%                                   (Not redeemable prior to December 1, 2003.)
                                              $103.265 through November 30, 2004, decreasing
                                              approximately  $.33  each twelve months thereafter
                                              to $100 on or after December 1, 2013.
</TABLE>

                                          -60-

<PAGE>

     Notes to Consolidated
     Financial Statements

                               KU Energy Corporation
                                   & Subsidiaries


     As  of December 31, 1995, there  were 5.3 million shares  of KU preferred
     stock,  having   a  maximum  aggregate  stated   value  of  $200 million,
     authorized for issuance.


      7.  Short-Term and Long-Term Debt

     KU's short-term financing requirements are  satisfied through the sale of
     commercial paper.   The weighted  average interest rate  on the  year-end
     balance was 5.83% for 1995 and 6.07% for 1994.

     In 1994, KU  entered into a  loan agreement with  the County of  Carroll,
     Kentucky to finance the construction  of solid waste disposal facilities.
     The  County of Carroll issued $54 million of variable rate revenue bonds,
     with the proceeds held in a construction fund.  In 1994 and 1995, KU drew
     down  $35.7 million and  $15.1 million, respectively,  relating  to these
     bonds.  Kentucky  Utilities Pollution Control Series 10  Bonds are issued
     under KU's Mortgage Indenture.

     Under the provisions for the  variable rate revenue bonds, KU  can choose
     between various  interest rate  options.   Currently, the daily  interest
     rate option is  being utilized.  The average annual  interest rate on the
     bonds during 1995 was  3.95% and was 4.10%  for 1994.  The variable  rate
     bonds are subject to tender for purchase at the  option of the holder and
     to mandatory tender for  purchase upon the occurrence of  certain events.
     If tendered bonds  are not remarketed, the Company has available lines of
     credit which may be used to repurchase the bonds.

     In June 1995,  KU issued  $50 million of Series R  First Mortgage  Bonds.
     The  proceeds were  used primarily  to refinance  short-term indebtedness
     incurred  to  finance  ongoing  construction  expenditures   and  general
     corporate requirements.

     Substantially  all of KU's  utility plant is pledged  as security for the
     First Mortgage Bonds.


      8.  Financial Instruments

     The  following methods  and assumptions  were used  to estimate  the fair
     value of each class of financial instruments for which it is  practicable
     to estimate that value:

     Cash and  cash equivalents, escrow funds,  construction funds, short-term
     borrowings, commercial  paper  and customers'  deposits  carrying  values
     approximate fair value because of the short maturity of these amounts.

     Long-term debt  fair values  are based on  quoted market prices  for KU's
     first mortgage bonds and on current rates available to KU for debt of the
     same remaining maturities for KU's pollution control bonds and promissory
     note.


                                        -61-
<PAGE>

     Notes to Consolidated
     Financial Statements

                               KU Energy Corporation
                                   & Subsidiaries


     KU  has  an  interest  rate swap  agreement  with  a  notional  amount of
     $70 million.   Fair value of this instrument  is the estimated amount the
     counter-party would  pay to  KU  to terminate  the swap  at  the date  of
     measurement.  This  agreement expires in early 1996.   KU has no downside
     interest rate risk associated with this agreement.
<TABLE>

     The  estimated fair  values  of the  Company's  financial instruments  at
     December 31 are as follows:
<CAPTION>

                                                1995                     1994
                                                Carrying   Estimated       Carrying  Estimated
      (in thousands of dollars)                  Amount    Fair Value       Amount   Fair Value
<S>                                            <C>         <C>           <C>          <C>
      Interest rate swap                       $       -   $    600      $       -    $   1,550
      Long-term debt                           $ 546,001   $594,395      $ 496,033    $ 475,976
</TABLE>

     If the difference between fair value and carrying value of KU's long-term
     debt were settled  at amounts approximating those  above, the anticipated
     regulatory treatment would require  return of or allow recovery  of these
     amounts in rates over a prescribed amortization period.  Accordingly, any
     settlement would not have a significant impact on the Company's financial
     position or results of operations.


      9. Leveraged Leases

     KU  Capital  owns  equity  interests  in  several  leveraged  leases  for
     combustion  turbine units leased to utility companies.  The leases expire
     in 1999.  KU Capital's equity investment  represents 75% of the aggregate
     purchase  price  of  the  leases.    The  remaining  25%  represents  the
     nonrecourse debt provided by  lenders at the  inception of the leases  in
     1974.   The lenders have been granted, as  their sole remedy in the event
     of default  by the lessees, an assignment of rentals due under the leases
     and a security interest in the leased properties.
<TABLE>

     The  following is  a  summary  of  the  components  of  KU Capital's  net
     investment in leveraged leases:
<CAPTION>

     As of December 31, (in thousands of dollars)                            1995         1994
<S>                                                                      <C>          <C>
      Rentals receivable (net of nonrecourse debt)                       $   3,983    $   4,455
      Estimated residual value of leased property                           32,707       32,707
      Less:  Unearned and deferred income                                   15,181       18,487
      Investment in leveraged leases                                        21,509       18,675
      Less:  Accumulated deferred income taxes                               2,407        1,170
      Net investment in leveraged leases                                 $  19,102    $  17,505
</TABLE>

<TABLE>

     The following  is a  summary of  the  components of  income from  leveraged
     leases:
<CAPTION>

      Year Ended December 31, (in thousands of dollars)              1995      1994       1993
<S>                                                            <C>        <C>        <C>
      Income before income taxes                               $    3,306 $   2,140  $     565
      Income tax expense                                            1,286       829        228
      Income from leveraged leases                             $    2,020 $   1,311  $     337

                                                 -62-
<PAGE>

     Notes to Consolidated
     Financial Statements

                               KU Energy Corporation
                                   & Subsidiaries


     10. Environmental Cost Recovery

     Since August 1994, KU has been collecting an environmental surcharge from
     its Kentucky retail  customers under a Kentucky  statute which authorizes
     electric  utilities (including  KU)  to implement,  beginning  January 1,
     1993, an environmental surcharge.   The surcharge is designed  to recover
     certain  operating and capital costs of compliance with federal, state or
     local environmental requirements associated with the production of energy
     from  coal,  including  the  Federal Clean  Air  Act  as  amended.   KU's
     environmental surcharge  was approved  by the  PSC in  July 1994 and  was
     implemented in August 1994.

     The constitutionality  of the  surcharge was  challenged in  the Franklin
     County (Kentucky) Circuit Court  in an action brought against  KU and the
     PSC by the  Attorney General of Kentucky and joined by representatives of
     consumer groups.   In  July 1995,  the Circuit  Court entered  a judgment
     upholding the constitutionality of the statute, but vacating that part of
     the PSC's July 1994 order which the judgment describes as  allowing KU to
     recover, under the surcharge, environmental expenditures incurred  before
     January 1,   1993,  and  ordering  the  case  remanded  to  the  PSC  for
     determination in accordance with the Circuit Court judgment.

     The Attorney General and other  consumer representatives appealed to  the
     Kentucky  Court  of  Appeals that  part  of  the  Circuit Court  judgment
     upholding the constitutionality of the surcharge statute.  The PSC and KU
     appealed  that part  of the  judgment denying  recovery of  environmental
     expenditures incurred before  January 1, 1993.   On August 22, 1995,  the
     PSC ordered all surcharge revenues collected by KU from that date subject
     to  refund pending  final  determination  of  all  appeals.    The  total
     collections under the surcharge from August 22, 1995 through December 31,
     1995 were approximately $7 million.

     KU  believes the  constitutionality  of  the  surcharge statute  will  be
     upheld, but  it cannot predict  the outcome of  that part of  the Circuit
     Court   judgment  disallowing  recovery   of  environmental  expenditures
     incurred  before January 1,  1993.   If  the  Circuit Court  judgment  is
     ultimately upheld as  entered, KU estimates that  the amount it  would be
     required  to refund  (which  is based  solely  on costs  associated  with
     environmental expenditures incurred before January 1, 1993) for surcharge
     collections  through  December 31,  1995,   from  the  inception  of  the
     surcharge  would be  approximately $6 million,  and from  August 22, 1995
     would be approximately $2 million.  At this time, KU has not recorded any
     reserve for refund.



                                        -63-
<PAGE>
     Financial
     Information
     (Unaudited)

                               KU Energy Corporation
                                   & Subsidiaries

     Quarterly  financial results  for  1995 and  1994  are summarized  below.
     Generally, quarterly  results may  fluctuate due to  seasonal variations,
     changes  in fuel  costs and  other factors.   Operating revenues  for the
     third quarter of 1994 were reduced by $17.5 million related to refunds to
     customers of fuel  cost savings associated with the resolution  of a coal
     contract dispute.   Operating revenues  for other quarters  in 1994  were
     insignificantly impacted by the refunds.  The refunding had  no impact on
     operating  revenues  for  1995.    Refer  to  Note 1  of  the  Notes   to
     Consolidated Financial Statements for additional information.

</TABLE>
<TABLE>

     Quarter                                      4th          3rd            2nd          1st
<CAPTION>
                                        (in thousands of dollars, except for per share amounts)
      1995
<S>                                          <C>          <C>           <C>           <C>
      Operating Revenues                     $ 170,144    $ 194,367     $  154,749    $ 167,140
      Net Operating Income                      30,161       32,536         17,893       26,011
      Net Income                                22,245       24,579         10,422       18,807
      Earnings per Average
             Common Share                          .59          .65            .27          .50
      1994
      Operating Revenues                     $ 159,579    $ 156,506     $  154,020    $ 166,523
      Net Operating Income                      20,127       29,444         19,811       30,324
      Net Income                                13,921       22,651         14,285       25,019
      Earnings per Average
             Common Share                          .37          .60            .38          .66
</TABLE>

     These quarterly amounts reflect, in  the Company's opinion, all adjustments
     (including  only  normal  recurring   adjustments)  necessary  for  a  fair
     presentation.




                                         -64-
<PAGE>
     Report of
     Independent
     Public
     Accountants

                               KU Energy Corporation
                                   & Subsidiaries

     To the Shareholders of
     KU Energy Corporation:

     We  have  audited  the   accompanying  consolidated  balance  sheets  and
     statements  of  capitalization  of  KU  Energy  Corporation  (a  Kentucky
     corporation)  and Subsidiaries as of December 31,  1995 and 1994, and the
     related consolidated statements of income and retained earnings, and cash
     flows for each of the three years in the period  ended December 31, 1995.
     These  consolidated financial  statements are  the responsibility  of the
     Company's management.   Our responsibility  is to  express an opinion  on
     these financial statements based on our audits.

     We  conducted our audits  in accordance with  generally accepted auditing
     standards.  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 audits
     provide a reasonable basis for our opinion.

     In our  opinion,  the  financial statements  referred  to  above  present
     fairly, in  all material respects,  the financial  position of KU  Energy
     Corporation and Subsidiaries  as of December 31, 1995  and 1994, and  the
     results of  their operations and their  cash flows for each  of the three
     years in the period ended December 31, 1995, in conformity with generally
     accepted accounting principles.


                                         /s/ Arthur Andersen LLP
                                         Arthur Andersen LLP



     Chicago, Illinois
     January 29, 1996



                                        -65-