SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C.   20549
                                     Form 10-K
         X      ANNUAL  REPORT PURSUANT TO SECTION 13 or 15(d)
                OF THE SECURITIES EXCHANGE ACT OF 1934
                For the fiscal year ended     December 31, 1997

                TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
                OF THE SECURITIES EXCHANGE ACT OF 1934
          For the transition period from            to


       Commission  Registrant; State of Incorporation;     IRS Employer
       File Number   Address; and Telephone Number        Identification No.

         1-10944           KU Energy Corporation              61-1141273
                         (A Kentucky Corporation)
                            One Quality Street
                        Lexington, Kentucky  40507-1428
                              (606) 255-2100

         1-3464          Kentucky Utilities Company           61-0247570
                     (A Kentucky and Virginia Corporation)
                             One Quality Street
                         Lexington, Kentucky  40507-1428
                               (606) 255-2100


    Indicate  by check mark whether the Registrants (1) have filed all reports
    required  to  be  filed by Section  13 or 15(d) of the Securities Exchange
    Act  of  1934  during  the preceding 12 months (or for such shorter period
    that  the  Registrants  were  required to file such reports), and (2) have
    been subject to such filing requirements for the past 90 days. Yes  X   No


    Indicate by check mark if disclosure of delinquent filers pursuant to Item
    405  of Regulation S-K is not contained herein, and will not be contained,
    to  the best of Registrants  knowledge, in definitive proxy or information
    statements  incorporated by reference in Part III of this Form 10-K or any
    amendment to this Form 10-K.  ( X )

    Securities registered pursuant to
      Section 12(b) of the Act:

    KU Energy Corporation
                                                     Name of Each Exchange
       Title of Each Class                            on Which Registered
    Common Stock, without par value                  New York Stock Exchange
                                                     Pacific Stock Exchange

    Kentucky Utilities Company
                                                     Name of Each Exchange
       Title of Each Class                            on Which Registered
     Preferred Stock, 4 3/4% cumulative,             Philadelphia  Stock
    Exchange
      stated value $100 Per Share



                                        -1-
<PAGE>


    Securities registered pursuant to
      Section 12(g) of the Act:

    KU Energy Corporation
    None

    Kentucky Utilities Company

    Preferred Stock, cumulative, stated value $100 per share
                     (Title of Class)



    KU Energy Corporation

    Aggregate  market  value  at  March 25,  1998 of the voting stock held by
    nonaffiliates of KU Energy Corporation (KU Energy): $1,602,517,283.

    Number   of  shares  of  Common  Stock  outstanding  at  March  25,  1998:
    37,817,517 shares.


    Kentucky Utilities Company

    Aggregate  market  value  of  the  voting  stock  held by nonaffiliates of
    Kentucky Utilities Company (KU):  None

    Number of shares of Common Stock outstanding at March 25, 1998: 37,817,878
    shares (owned by the parent - KU Energy).


    Documents Incorporated by Reference:

       A  portion  of  KU  Energy's  1997  Annual  Report  to Shareholders is
       incorporated by reference in Parts I, II and IV.

       A  portion  of KU Energy's Proxy Statement relating to the 1998 Annual
       Shareholders Meeting is incorporated by reference in Part III.








    Exhibit Index appears on page 42.







                                        -2-
<PAGE>
                                KU ENERGY CORPORATION
                                         AND
                             KENTUCKY UTILITIES COMPANY
                                      Form 10-K
               Annual Report to the Securities and Exchange Commission
                        For the Year Ended December 31, 1997*

                                  TABLE OF CONTENTS

     Item                                                              Page
                                       PART I

     1.Business   . . . . . . . . . . . . . . . . . . . . . . . . . . .  4

     2.Properties   . . . . . . . . . . . . . . . . . . . . . . . . . . 12

     3.Legal Proceedings  . . . . . . . . . . . . . . . . . . . . . . . 13

     4.Submission of Matters to a Vote of Security Holders  . . . . . . 13

       Executive Officers of the Registrants  . . . . . . . . . . . . . 14

                                       PART II

     5.Market for Registrants  Common Equity and Related

         Stockholder Matters  . . . . . . . . . . . . . . . . . . . . . 17

     6.Selected Financial Data  . . . . . . . . . . . . . . . . . . . . 18

     7.Management's Discussion and Analysis of Financial Condition
         and Results of Operations  . . . . . . . . . . . . . . . . . . 22

    7A.Quantitative and Qualitative Disclosures About Market Risk   . . 22

     8.Financial Statements and Supplementary Data  . . . . . . . . . . 22

     9.Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure   . . . . . . . . . . . . . . . . . . 40

                                      PART III

    10.Directors and Executive Officers of the Registrants  . . . . . . 40

    11.Executive Compensation   . . . . . . . . . . . . . . . . . . . . 40

    12.Security Ownership of Certain Beneficial Owners and Management   40

    13.Certain Relationships and Related Transactions   . . . . . . . . 40

                                       PART IV

    14.Exhibits, Financial Statement Schedules, and Reports on Form 8-K 41

       Exhibit Index  . . . . . . . . . . . . . . . . . . . . . . . . . 42

       Pro Forma Financial Statements   . . . . . . . . . . . . . . . . 50

       Signatures   . . . . . . . . . . . . . . . . . . . . . . . . . . 58


  *Information included herein which relates solely to KU Energy Corporation is
  provided solely by KU Energy Corporation and not by Kentucky Utilities Company
  and shall be deemed not included in the Annual Report on Form 10-K of Kentucky
  Utilities Company.

                                        -3-
<PAGE>

                                        PART I
     Item 1.  Business

     KU ENERGY CORPORATION

     KU Energy Corporation (KU Energy or the Company), an exempt utility holding
     company,  was  incorporated  in the state of Kentucky on June 23, 1988.  On
     December  1,  1991,  KU  Energy  became  the  holder of all common stock of
     Kentucky   Utilities  Company  (KU).    KU  Energy  has  two  wholly  owned
     subsidiaries,  KU,  an  electric  utility,  and  KU Capital Corporation (KU
     Capital), a nonutility subsidiary.  KU is KU Energy's principal subsidiary.

     The  Company  is  a public utility holding company as defined in the Public
     Utility  Holding  Company  Act  of  1935  (the  Holding  Company  Act).  On
     November  13,  1991,  the Company obtained an order from the Securities and
     Exchange  Commission  which granted an exemption from all provisions of the
     Holding  Company  Act,  except Section 9(a)(2) thereof which relates to the
     acquisition of securities of public utility companies.

     The  ability  of  the  Company  to  pay  dividends  on  its common stock is
     dependent upon distributions made to it by KU and KU Capital and on amounts
     that may be earned by the Company on investments.

     Merger

     On May 20, 1997, KU Energy and LG&E Energy Corp. (LG&E Energy) entered into
     an  Agreement  and  Plan of Merger (Merger) providing for a tax-free, stock
     for  stock merger of KU Energy and LG&E Energy.  As a result of the Merger,
     LG&E  Energy,  the surviving corporation, will become the parent company of
     KU  and  will  continue  as  parent of Louisville Gas and Electric Company.
     When  the  Merger is completed, shareholders of KU Energy common stock will
     receive 1.67 shares of LG&E Energy common stock for each share of KU Energy
     common stock held.

     The Merger has been approved by shareholders of KU Energy and LG&E Energy,
     by  the  Kentucky  Public  Service  Commission (PSC) and the Virginia State
     Corporation Commission (SCC). The Merger was approved by the Federal Energy
     Regulatory Commission (FERC) on March 25, 1998.  The Merger must still be
     approved by the the Securities and Exchange Commission and reviewed by the
     Federal Trade Commission.  Following receipt of  the  remaining  regulatory
     approvals,  the  Merger  is  expected to be effective as early as the first
     half of 1998.  See Management's Discussion and Analysis of Financial
     Condition and Results of Operations - The Merger in KU Energy's 1997 Annual
     Report to Shareholders (Exhibit 13), which is incorporated herein by
     reference  for further information related to the Merger.

     LG&E  Energy  serves  about  351,000  electric  customers  and  277,000 gas
     customers  in Louisville and adjacent areas in Kentucky through its utility
     subsidiary,  Louisville  Gas  and  Electric Company.  At December 31, 1997,
     LG&E Energy had assets of $3.4 billion.  For 1997, LG&E Energy had electric
     revenues  of  $615  million, gas revenues of $231 million and net income of
     $97.8  million.  Further information concerning LG&E Energy is contained in
     LG&E  Energy's  Annual Report on Form 10-K for the year ended December 31,
     1997.  See  Unaudited Pro Forma Combined Condensed Financial Information of
     KU  Energy  and  LG&E  Energy    contained under Item 14 of this report for
     selected  historical  and  unaudited pro forma combined condensed financial
     information of KU Energy and LG&E Energy.




                                         -4-
<PAGE>


     KU CAPITAL CORPORATION

     KU  Capital  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.

     KENTUCKY UTILITIES COMPANY

     General

     KU  is  a  wholly  owned  subsidiary  of KU Energy.  KU was incorporated in
     Kentucky  in  1912  and  incorporated  in Virginia in 1991.  KU is a public
     utility engaged in producing, transmitting and selling electric energy.  KU
     provides  electric  service  to  about  441,200  customers  in  over  600
     communities  and  adjacent  suburban  and  rural  areas  in  77 counties in
     central,  southeastern  and western Kentucky, and to about 29,000 customers
     in 5 counties in southwestern Virginia.  In Virginia, KU operates under the
     name  Old Dominion Power Company.  KU operates under appropriate franchises
     in  substantially  all  of  the  160  Kentucky  incorporated municipalities
     served.  No franchises are required in unincorporated Kentucky communities.
     Service  has  been  provided in Virginia without franchises for a number of
     years.    The lack of franchises is not expected to have a material adverse
     effect  on KU's operations.  KU also sells electric energy at wholesale for
     resale in 12 municipalities.

     The  territory  served by KU has an aggregate population estimated at about
     1,000,000.  The largest city served is Lexington, Kentucky.  The population
     of  the  metropolitan  Lexington  area  is estimated at about 225,000.  The
     populations of the next 10 largest cities served at retail range from about
     21,000  to  9,000.    The  territory  served includes most of the Bluegrass
     Region  of  central  Kentucky  and  parts  of  the  coal  mining  areas  in
     southeastern  and western Kentucky and southwestern Virginia.  Lexington is
     the  center  of  the  Bluegrass Region, in which thoroughbred horse, burley
     tobacco  and  bourbon whiskey distilling industries are located.  Among the
     principal  industries  in  the  territory served are automotive and related
     industries,  coal  mining,  the  manufacture  of  paper and paper products,
     rubber   and  miscellaneous  plastic  products  and  electrical  and  other
     machinery.

     Revenues

     KU's  sources  of electric revenues and the respective percentages of total
     revenues for the three years 1995-1997 were as follows:

<TABLE>

        Year Ended December 31,              1997               1996              1995
                                             Amount  %          Amount   %        Amount  %
<CAPTION>
                                                        (dollars in thousands)
<S>                                     <C>                <C>                 <C>
         Residential                    $ 231,824  32      $ 236,229    33     $ 232,760  34
         Commercial                       150,794  21        150,640    21       151,778  22
         Industrial                       146,801  21        136,856    19       130,066  19
         Mine Power                        34,541   5         34,014     5        36,076   5
         Public Authorities                56,243   8         56,023     8        54,161   8
         Sales for Resale                  87,330  12         89,208    13        75,940  11
         Miscellaneous Revenues             8,904   1          8,741     1         5,649   1

              Total                     $ 716,437 100      $ 711,711   100     $ 686,430 100

</TABLE>
                                                 -5-
<PAGE>

     The electric utility business is affected by seasonal weather patterns.  As
     a  result,  operating  revenues (and associated operating expenses) are not
     generated  evenly  throughout  the  year.   See Management's Discussion and
     Analysis  of  Financial  Condition  and  Results  of Operations - Sales and
     Revenues  in  KU  Energy's  1997 Annual Report to Shareholders (Exhibit 13)
     which  is  incorporated  herein  by  reference  for  information related to
     revenues.

     Operations

     KU's  net  generating  capability was 3,718 megawatts at December 31, 1997.
     The  net  generating  capability available for operation at any time may be
     lower  because  of  periodic outages of generating units due to inspection,
     maintenance,  fuel  restrictions,  or  modifications required by regulatory
     agencies.   KU obtains power from other utilities under bulk power purchase
     and  interchange  contracts.  At December 31, 1997, KU's system capability,
     including purchases from others, was 4,274 megawatts.  On July 28, 1997, an
     all-time  system  peak  demand,  on a one-hour integrated basis, was set at
     3,510  megawatts.   See Item 2, Properties-Construction for a discussion of
     KU's plans to add additional peaking capacity.

     The  percentage  of  KU's  system output which was internally generated and
     purchased for the periods indicated was as follows:

                                            1997       1996       1995
              Internally Generated           81%        84%        82%
              Purchased                      19%        16%        18%


     KU  is  one  of  18  full  members  of  the  East  Central Area Reliability
     Coordination  Agreement, the purpose of which is to augment the reliability
     of  the  members'  bulk  power  supply through coordination of planning and
     operation  of  generation  and  transmission  facilities.   The members are
     engaged  in  the  generation,  transmission  and sale of electric power and
     energy  in  the east central area of the United States, which covers all or
     portions of Michigan, Indiana, Ohio, Kentucky, Pennsylvania, Virginia, West
     Virginia  and  Maryland.    KU  also has interconnections and contractually
     established  operating  arrangements  with  neighboring  utilities  and
     cooperatives.

     Under a contract expiring 2020 with Owensboro Municipal Utilities (OMU), KU
     has  agreed to purchase from OMU the surplus output of the 150-megawatt and
     250-megawatt  generating  units  at  OMU's  Elmer Smith station.  Purchases
     under  the contract are made under a contractual formula which has resulted
     in  costs which were and are expected to be comparable to the cost of other
     power  purchased  or  generated  by KU. Such power constituted about 10% of
     KU's  net  system output during 1997.  See Note 4 of the Notes to Financial
     Statements,  Commitments and Contingencies  under Item 8.

     KU  owns 20% of the common stock of Electric Energy, Inc. (EEI), which owns
     and  operates  a  1,000-megawatt  generating  station in southern Illinois.
     KU's  entitlement  is  20%  of  the  available  capacity  of  the  station.
     Purchases  from EEI are made under a contractual formula which has resulted
     in  costs which were and are expected to be comparable to the cost of other
     power  purchased  or  generated  by KU.  Such power constituted about 8% of
     KU's  net  system  output  in  1997.   See Note 4 of the Notes to Financial
     Statements,  Commitments and Contingencies,  under Item 8.

     KU  had  approximately 2,060 employees at December 31, 1997, of which about
     300  are covered by union contracts expiring August 1, 1998.

                                         -6-
<PAGE>


     Fuel Matters

     Coal-fired  generating  units  provided more than 99% of KU's net kilowatt-
     hour  generation  for  1997.  The remainder of KU's net generation for 1997
     was  provided  by  oil  and/or  natural gas burning units and hydroelectric
     plants.    The  average  delivered  cost  of coal purchased per million BTU
     (MBTU)  and the percentage of spot coal purchases for the periods indicated
     were as follows:

                                               1997       1996       1995

     Per MBTU - all sources                $   1.15   $   1.14   $   1.16
     Per MBTU - spot purchases only        $   1.12   $   1.08   $   1.10
     Spot purchases as % of all sources          34%        33%        30%

     KU  maintains  its  fuel  inventory  at levels estimated to be necessary to
     avoid  operational  disruptions  at  its  coal-fired  generating  units.
     Reliability  of  coal  deliveries  can  be  affected from time to time by a
     number of factors, including fluctuations in demand, coal mine labor issues
     and other supplier or transporter operating difficulties.

     KU  believes  there  are adequate reserves available to supply its existing
     base-load  generating  units with the quantity and quality of coal required
     for  those  units  throughout  their  useful  lives.   KU intends to meet a
     substantial  portion  of  its  coal  requirements  with  3-year  or shorter
     contracts.    KU  anticipates  that coal supplied under such contracts will
     represent  about  one-half  to two-thirds of the requirements over the next
     several  years.    As  part of this strategy, KU will continue to negotiate
     replacement  contracts  as  contracts  expire.   KU does not anticipate any
     problems  negotiating  new contracts for future coal needs.  The balance of
     coal  requirements  will  be met through spot purchases.  See Note 4 of the
     Notes  to  Financial  Statements,    Commitments  and Contingencies,  under
     Item 8 for the estimated obligations under existing fuel contracts for each
     of the years 1998 through 2002.

     KU  has no long-term contracts in place for the purchase of natural gas for
     its  combustion  turbine  peaking  units.   KU has met its gas requirements
     through  spot  purchases.    KU  does  not  anticipate  encountering  any
     significant  problems  acquiring  an  adequate  supply of fuel necessary to
     operate  its  peaking  units.    See Item 2, Properties-Construction, for a
     discussion of KU's plans to add additional peaking capacity.

     Environmental Matters

     Federal  and state agencies have adopted environmental protection standards
     which  apply  to  the  electric  operations of KU.  Capital expenditures to
     comply  with  environmental  requirements  amounted  to  about $182 million
     during the 1993-1997 time period.

     KU's  generating units are operated in compliance with the Kentucky Natural
     Resources  and  Environmental  Protection  Cabinet's  (Cabinet)  State
     Implementation  Plan (KYSIP) and New Source Performance Standards developed
     under  the  Clean  Air Act.  The KYSIP is a federally approved plan for the
     attainment  of  the  national  ambient  air  quality  standards.  The KYSIP
     contains  standards relating to the emissions of various pollutants (sulfur
     dioxide,  particulates  and  nitrogen  oxides)  from KU's fossil-fuel fired
     steam  electric  generating units.  These emission standards are of varying


                                         -7-
<PAGE>

     stringencies  and  compliance  with  these  standards is attained through a
     variety  of  air  pollution  control technologies (scrubbers, electrostatic
     precipitators,  and  low  nitrogen oxide burners) and the use of low-sulfur
     coal.   KU's operations are in substantial compliance with current emission
     standards.    The  operating  permit  program  under the 1990 Clean Air Act
     Amendments required KU to make application to the Cabinet for new operating
     permits  for its six generating stations.  KU's existing permits to operate
     air contaminant sources continue in effect until new permits are issued.

     The  acid  rain  control  provisions  of the 1990 Clean Air Act Amendments,
     which  are  effective  in  two  phases,  require KU to further decrease the
     emissions  of sulfur dioxide and nitrogen oxides from its fossil-fuel fired
     steam  electric  generating  units.    Ghent Unit 1, E. W. Brown Units 1, 2
     and  3,  and  Green  River Unit 4 were designated as Phase I affected units
     which  were  required  to  comply  with  sulfur  dioxide emission reduction
     obligations  beginning  January  1,  1995.    In order to comply with these
     sulfur  dioxide  emission  limitations, KU installed a scrubber and related
     facilities  on Ghent Unit 1 and switched to lower sulfur coal on some other
     Phase I affected units.  In addition, these units were retrofitted with low
     nitrogen  oxide  burners  in order to comply with applicable nitrogen oxide
     limitations  under  United  States  Environmental  Protection  Agency (EPA)
     regulations.    The  EPA  issued  final  acid rain permits for each of KU's
     Phase  I  affected  units.  The EPA's approval of KU's acid rain compliance
     plan  was  accompanied  by bonus allowances awarded for the installation of
     the scrubber on Ghent Unit 1.  KU's current emission allowance strategy, in
     part,  includes  the  accumulation  of  unused  sulfur  dioxide  emission
     allowances.    These  unused  allowances  result  from the bonus allowances
     received  from  the  EPA  and the expected reduced sulfur dioxide emissions
     from  the  installation  of  the  Ghent  Unit  1 scrubber.  The accumulated
     allowances   are  expected  to  allow  KU  to  delay  capital  expenditures
     associated  with  KU's Phase II acid rain compliance obligations, which are
     effective  January 1, 2000.  KU's Phase II compliance strategy, in addition
     to  utilizing accumulated allowances, may include additional fuel switching
     or  the installation of additional scrubbers.  However, KU will continue to
     reassess  its  options  for  complying  with  Phase  II  emission reduction
     requirements to determine an overall least cost strategy.  See Management's
     Discussion  and Analysis of Financial Condition and Results of Operations -
     Environmental  Matters  in  KU  Energy's 1997 Annual Report to Shareholders
     (Exhibit 13) incorporated herein by reference for additional discussion.

     The  Environmental  Protection  Agency (EPA) issued final rules on July 18,
     1997  revising  the  National  Ambient Air Quality Standards for  ozone and
     particulate  matter.    The  revised  standards  would  require significant
     reductions  in  sulfur dioxide and nitrogen oxide emissions from coal-fired
     boilers  (including  those  at KU's generating stations) beginning in 2004.
     Certain implementation proposals, which are not yet finalized, would target
     coal-fired utilities in the Midwest and South, including Kentucky, for more
     substantial  reductions  than  other  areas and other sources of emissions.
     Implementation  methods  will  be  determined  by  the EPA as well as state
     regulatory  authorities.  KU believes that the costs relating to compliance
     with  the  new  standards,  including  capital costs, as well as associated
     increases  in  operating  costs,  are  likely  to  be  substantial  and are
     dependent  on the ultimate control program agreed to by the targeted states
     and the EPA.  KU further believes that such capital and operating costs are
     the  type  of costs that are eligible for recovery from customers under its
     environmental  surcharge  mechanism.    However,  approval  from the PSC is
     required.   See Note 9 of the Notes to Financial Statements,  Environmental
     Cost  Recovery    under  Item  8.    KU  will  continue  to closely monitor


                                         -8-
<PAGE>


     developments  in  this  area  and  anticipates that the exact nature of the
     impact  of  the  new standards on its operations will not be known for some
     time.

     During  1996, each of KU's five fossil-fuel fired steam electric generating
     stations  was  re-issued a wastewater discharge permit by the Cabinet under
     the  Clean  Water  Act's  National  Pollutant Discharge Elimination System.
     These  5-year permits place water quality-based effluent limitations (i.e.,
     thermal and chemical limits) on each of the power plant's discharges.  KU's
     operations  are  in  substantial  compliance  with  the  conditions  in the
     permits.

     Pursuant to the Resource Conservation and Recovery Act, utility wastes (fly
     ash,  bottom  ash  and  scrubber  sludge)  have been categorized as special
     wastes  (i.e.,  wastes of large volume, but low environmental hazard).  The
     EPA  has  concluded  that  the  disposal  of  coal combustion byproducts by
     practices  common to the utility industry is adequate for the protection of
     human  health  and  the  environment.    The Cabinet also regulates utility
     wastes as special wastes under its waste management program.

     Under  the  Toxic  Substances  Control  Act,  the  EPA  regulates  the use,
     servicing,  repair, storage and disposal of electrical equipment containing
     polychlorinated  biphenyls  (PCB).    KU  is in substantial compliance with
     applicable PCB regulations.

     Regulation

     KU is subject to the jurisdiction of the PSC and the SCC as to retail rates
     and  service,  accounts, issuance of securities and in other respects.  The
     FERC has jurisdiction under the Federal Power Act (FPA) over certain of the
     electric  utility  facilities  and  operations, wholesale sale of power and
     related  transactions  and accounting practices of KU, and in certain other
     respects  as  provided in the FPA.  The FERC has classified KU as a "public
     utility"  as defined in the FPA.  By reason of owning and operating a small
     amount  of  electric  utility property in one county in Tennessee (having a
     gross  book  value  of  about  $225,000),  KU  may  also  be subject to the
     jurisdiction  of  the  Tennessee  Regulatory  Authority as to retail rates,
     accounts,  issuance  of  securities  and  in  other  respects.  Since 1992,
     utilities  in  Kentucky have had the option to use either a historical test
     period or a forward-looking test period in base rate filings.

     KU's  fuel  adjustment  clause  for  Kentucky customers operates to reflect
     changes  in  the  cost of fuel in billings to customers, and is designed to
     conform  with  a  PSC  regulation  providing  for  a  uniform  monthly fuel
     adjustment  clause  for  all  electric utilities in Kentucky subject to the
     jurisdiction of the PSC.  The PSC regulation is based on a formula approved
     by  the  FERC  but  with  certain modifications, including the exclusion of
     excess  fuel  expense attributable to certain forced outages, the filing of
     fuel  procurement  documentation,  a procedure for billing over- and under-
     recoveries of fuel cost fluctuations from the base rate level and provision
     for  periodic public hearings to review past adjustments, to make allowance
     for  any  past  adjustments  found  not justified, to disallow any improper
     expenses  and  to  re-index  base rates to include current fuel costs.  The
     fuel  adjustment  clause  mechanism  for Virginia customers uses an average
     fuel  cost  factor  based primarily on projected fuel costs.  The fuel cost
     factor  may  be  adjusted  annually for over- or under- collections of fuel
     costs from the previous year.



                                         -9-
<PAGE>

     Rate  regulation  in  Kentucky  allows  each  electric utility, with a PSC-
     approved  environmental  compliance  plan  and  environmental surcharge, to
     recover  on  a  current  basis the cost of complying with federal, state or
     local  environmental  requirements,  including the Federal Clean Air Act as
     amended,  applicable  to  coal  combustion  wastes  and  byproducts  from
     facilities  utilized  for the production of energy from coal.  In 1994, the
     PSC approved KU's environmental surcharge, which is designed to allow KU to
     recover compliance related operating expenses and to earn a return on those
     compliance-related  capital  expenditures  not already included in existing
     rates  through  the  application  of the surcharge each month to customers'
     bills.   Surcharge billings are subject to periodic PSC review of the level
     of  environmental  expenditures  and  reconciliation  of previous surcharge
     billings  with  actual  costs.    For  additional information regarding the
     environmental  surcharge,  including  information  concerning pending legal
     proceedings,   see  Management's  Discussion  and  Analysis  of  Financial
     Condition  and  Results  of  Operations - Environmental Cost Recovery in KU
     Energy's  1997  Annual  Report  to  Shareholders (Exhibit 13) incorporated
     herein  by  reference  and  Note  9  of  the Notes to Financial Statements,
     Environmental Cost Recovery,  under Item 8.

     Integrated  resource  planning  regulations  in Kentucky require KU and the
     other  major  utilities  to make triennial filings with the PSC, of various
     historical and forecasted information relating to forecasted load, capacity
     margins and demand-side management techniques.

     Pursuant  to  Kentucky  law,  the PSC has established the boundaries of the
     service  territory  or  area  of  each retail electric supplier in Kentucky
     (including  KU),  other than municipal corporations, within which each such
     supplier has the exclusive right to render retail electric service.

     The  SCC  requires each Virginia utility to make annual filings of either a
     base  rate  change or an Annual Informational Filing consisting of a set of
     standard  financial  schedules.  These filings are subject to review by the
     SCC  Staff  (Staff).    The Staff issues a Staff Report, which includes any
     findings or recommendations to the SCC relating to the individual utility's
     financial  performance  during  the  historic  12-month  period,  including
     previously  accepted  adjustments.    The  Staff  Report  may  lead  to  an
     adjustment in rates.

     KU  is  presently  exempt  from  all  the  provisions of the Public Utility
     Holding  Company Act of 1935, except Section 9(a)(2) thereof (which relates
     to the acquisition of securities of public utility companies), by virtue of
     the exemption granted by an order of the Securities and Exchange Commission
     dated  April  19,  1949  and,  absent  further action by the Commission, by
     virtue  of  annual  exemption  statements  filed  by KU with the Commission
     pursuant to Rule 2 prescribed under the Act.

     For  information  regarding  regulatory  matters related to the Merger, see
     Management's Discussion and Analysis of Financial Condition and Results of
     Operations  -  The Merger in KU Energy's 1997 Annual Report to Shareholders
     (Exhibit 13) incorporated herein by reference.

     Competition

     The  electric  utility industry has been rapidly moving to a less regulated
     and  more  competitive environment since the passage of the National Energy
     Policy  Act  of  1992  (NEPA).    NEPA gave the FERC the authority to order
     electric  utilities to provide wholesale transmission access to independent
     power  producers  and other utilities.  It also reduced restrictions on the
     ownership  and  operation of independent power producers.  See Management's


                                        -10-
<PAGE>


     Discussion  and  Analysis of Financial Condition and Results of Operation -
     Utility  Issues  -    Competition  in  KU  Energy's  1997  Annual Report to
     Shareholders  (Exhibit  13)  incorporated  herein  by reference for further
     discussion of competition.

     In April 1996, the FERC issued two final rules and a new Notice of Proposed
     Rulemaking  (NOPR) to promote competition and deregulation in the wholesale
     electric  market. FERC Order No. 888 (Order 888) addressed both open access
     transmission  service  and stranded cost issues.  FERC Order No. 889 (Order
     889)  required  utilities  to establish an electronic Open Access Same-Time
     Information  System  (OASIS)  to  share  information  about  available
     transmission  capacity  and also required the establishment by each utility
     of  standards  of  conduct for its transmission system operation.  The 1996
     NOPR  proposes  to establish a new system for utilities to use in reserving
     capacity  on  their  own  and other s transmission lines.  See Management's
     Discussion  and  Analysis of Financial Condition and Results of Operation -
     Competition  -  Wholesale in KU Energy's 1997 Annual Report to Shareholders
     (Exhibit 13) incorporated herein by reference for further discussion of the
     FERC orders.

     In  1998,  KU  announced  that  it will join the Midwest Independent System
     Operator  (MISO).    KU is among nine transmission system owners, including
     Louisville  Gas  and Electric Company, which filed a proposal with the FERC
     in  January 1998 seeking approval to form the MISO.  The MISO is a regional
     entity  that  would  manage and operate the transmission owners  collective
     transmission   systems in an eight-state region.  The primary objectives of
     the MISO are to advance wholesale competition by ensuring nondiscriminatory
     open  transmission  access  to  all  wholesale  customers  and  to  enhance
     transmission reliability.

     Cautionary Factors

     See Management's Discussion and Analysis for information concerning forward
     looking  statements.  Forward looking statements have been and will be made
     in  written  documents  and  oral presentations of the Company and KU.  All
     statements  made herein which are not based on historical facts are forward
     looking  and, accordingly, involve risks and uncertainties that could cause
     actual  results  to differ materially from those discussed.  In addition to
     those  forward  looking  statements  and  cautionary factors referred to in
     Management's  Discussion  and Analysis, forward looking statements in this
     Form 10-K include those relating to:

      1. The need for franchise agreements.
      2. The  future  comparability of OMU and EEI power costs to generation and
         other available power.
      3. The percent of future total kWh requirements provided by OMU and EEI.
      4. Maintaining necessary levels of fuel inventory and adequate supplies of
         coal and gas to avoid operational disruptions.
      5. Availability  of coal reserves to supply baseload generating units over
         their useful lives.
      6. The amount of coal supplied by contract versus spot purchase.
      7. Negotiations of new coal contracts for future coal needs.
      8. The impact of revisions to the National Ambient Air Quality Standards.
      9. The availability of an adequate supply of natural gas.
     10. Estimates of future construction expenditures discussed under
         Item 2 - Properties--Construction.
     11. The expected timing of regulatory approvals of the Merger.


                                       -11-
<PAGE>
     All  such statements are and will be based on management's belief, judgment
     and  analysis  as  well as assumptions made by and information available to
     management at the time the statements are made.  When used in the Company's
     or   KU's  documents  or  oral  presentations,  the  words    anticipate,
       estimate,      expect,   believe  and similar expressions are intended to
     identify  forward  looking  statements.  In addition to any assumptions and
     other  factors  referred  to  specifically  in connection with such forward
     looking  statements,  factors that could cause the Company's or KU's actual
     results to differ materially from those contemplated in any forward looking
     statements include, among others, those identified in Exhibit 99.04 hereto,
     which is incorporated herein by reference.



     Item 2.  Properties

     Currently,  KU Energy and KU Capital have no significant physical property.
     KU owns and operates the following electric generating stations:
<TABLE>
<CAPTION>

                                                            Nameplate     Effective
                                                            Rating (KW) Capability (KW)
<S>                                                            <C>               <C>
      Steam:           Ghent           Ghent, Ky              2,226,060        1,997,000
                       Green River     South Carrollton, Ky     263,636          239,000
                       E. W. Brown     Burgin, Ky               739,534          717,000
                       Tyrone          Tyrone, Ky               137,500          136,000
                       Pineville       Four Mile, Ky             37,500           34,000
      Hydro:           Dix Dam &
                       Lock #7         Burgin, Ky                30,297           24,000
      Gas/Oil Peaking: Haefling        Lexington, Ky             62,100           59,000
                       E.W. Brown      Burgin, Ky               504,000          512,000
                                                              4,000,627        3,718,000
</TABLE>

     Substantially  all  properties  are  subject  to  the lien of KU's Mortgage
     Indenture.

     Construction

     Four  126-MW  combustion turbine peaking units have been installed over the
     past  four  years.    The  first  peaking  unit  was placed into commercial
     operation  in  late  1994.    The  second  and third units were placed into
     commercial operation in February 1995 and December 1995, respectively.  The
     fourth  unit  was  placed  into  commercial  operation  in May 1996.  Total
     construction  expenditures for the years 1998 through 2002 are estimated at
     $549  million.    Such  expenditures  include an estimated $183 million for
     generating  facilities,  $76  million  for  transmission  facilities  and
     $290  million  for  distribution and general facilities.  Included in total
     construction  expenditures  for  the  1998-2002 period are $105 million for
     480  MW of peak generating capacity to be added during 1998-2002. KU has no
     plans  to  install  baseload generating capacity before 2010.  Construction
     expenditures for the years 1993 through 1997 aggregated about $695 million.
     See  Note  4  of  the  Notes  to  Financial  Statements,    Commitments and
     Contingencies,    under  Item  8, for the estimated amounts of construction
     expenditures for each of the years 1998 through 2002.

     KU    frequently  reviews  its  construction  program  and  construction
     expenditures,   which  may  be  affected  by  numerous  factors,  including
     competition   and  deregulation,  the  rate  of  load  growth,  changes  in
     construction  costs,  changes  in  environmental  regulations,  least  cost
     planning,  the  adequacy of rate relief and KU's ability to raise necessary


                                       -12-

<PAGE>

     capital.    See Management's Discussion and Analysis of Financial Condition
     and  Results  of  Operations  -  Liquidity  &  Capital  Resources - Capital
     Requirements in KU Energy's 1997 Annual Report to Shareholders (Exhibit 13)
     incorporated  herein  by reference.  KU's planned additions to its electric
     generating  capacity  are  based on future load projections using estimated
     load  growth  rates.    Consideration  is  also  given  to  projections  by
     neighboring  utilities  of  their  future  loads  and  capacity.   However,
     forecasts  of future loads are subject to numerous uncertainties, including
     economic  conditions  and  effectiveness  of  energy conservation measures.
     Following  consumation of the Merger, the Company and LG&E Energy will each
     re-examine  the  timing  of  potential  additional  electric  generation
     resources.  See Management's Discussion and Analysis of Financial Condition
     and Results of Operations - The Merger in KU Energy's 1997 Annual Report to
     Shareholders (Exhibit 13) incorporated herein by reference.

     Item 3.  Legal Proceedings

     KU Energy and KU Capital are involved in no material legal proceedings.

     See  Management's  Discussion  and  Analysis  -  Environmental  Matters  -
     Environmental   Cost  Recovery  in  KU  Energy's  1997  Annual  Report  to
     Shareholders    Exhibit  13) incorporated herein by reference and Note 9 of
     the  Notes  to  Financial  Statements, "Environmental Cost Recovery," under
     Item 8 for a discussion of KU's environmental surcharge legal proceedings.


     Item 4.  Submission of Matters to a Vote of Security Holders

     At  the  October  14,  1997  Special Meeting of Shareholders, the following
     proposal  was  acted  on  and  approved  by the holders of KU Energy Common
     Stock.

        (a)  To  consider  and  vote  upon  the  adoption  and  approval  of the
             Agreement and Plan of Merger, dated as of May 20, 1997 between LG&E
             Energy and KU Energy.

             Affirming          Negative                              Broker
               Votes              Votes         Abstentions         Non-Votes

             29,113,099           441,062            943,712              0

     The  Merger was approved by 77% of the outstanding common shares and by 95%
     of those shares represented at the meeting.











                                        -13-
<PAGE>

     Executive Officers of KU Energy

                             Current      Positions Held During at
     Name and Age         Positions Held  Least the Last 5 Years


     Michael R. Whitley   Chairman and    Chairman of the Board of KU Energy
     Age 54               President*      since August 1995 and President of
                                          KU Energy since November 1994.
                                          Director of KU Energy since March
                                          1992.  Senior Vice President from
                                          1988 to November 1994.

     O. M. Goodlett       Senior Vice-    Senior Vice-President of KU Energy
     Age 50               President*      since November 1994.

     James W. Tipton      Senior Vice-    Senior Vice-President of KU Energy
     Age 54               President       since November 1994.  Senior Vice-
                                          President of Kentucky Utilities
                                          from November 1986 to November
                                          1994.

     George S. Brooks II  General         Corporate Secretary of KU Energy
     Age 47               Counsel and     since November 1992, and General
                          Corporate       Counsel since 1988.
                          Secretary*

     William N. English   Treasurer*      Treasurer of KU Energy since 1988.
     Age 47

     Michael D. Robinson  Controller*     Controller of KU Energy since June
     Age 42                               1990.







     Note:    Officers are elected annually by the Board of Directors.  There is
     no  family  relationship  between  any  executive  officer  and  any  other
     executive officer or any director.  Certain executive officers of KU may be
     considered  "executive  officers" of KU Energy for certain purposes.  Refer
     to  KU's listing of executive officers for information concerning positions
     held  during  the  last  five years and information concerning KU executive
     officers.

     * Identified persons hold positions with the same titles at KU.












                                        -14-
<PAGE>




     Executive Officers of KU
                              Current          Positions Held During at
     Name and Age          Positions Held      Least the Last 5 Years


     Michael R. Whitley    Chairman and        Chairman of the Board of KU
     Age 54                President and       since August 1995 and
                           Chief Executive     President from November 1994.
                           Officer*            Director of KU since March
                                               1992.  Senior Vice-President
                                               of KU from March 1987 to
                                               November 1994.

     O. M. Goodlett        Senior Vice-        Senior Vice-President of KU
     Age 50                President           since November 1992.
                           Finance and
                           Administration and
                           Chief Financial
                           Officer*


     Robert M. Hewett      Senior Vice-        Senior Vice-President of KU
     Age 50                President           since May 1997.  Vice-
                           Customer Service    President of KU since January
                           and Marketing       1982.


     Wayne T. Lucas        Senior Vice-        Senior Vice-President of KU
     Age 50                President           since November 1994.  Vice
                           Energy Supply       President of KU from November
                                               1986 to November 1994.

     George S. Brooks II   General Counsel     Corporate Secretary of KU
     Age 47                and Corporate       since November 1992, and
                           Secretary*          General Counsel since January
                                               1988.


     Gary E. Blake         Vice-President      Vice-President of KU since
     Age 44                Retail Marketing    November 1992.

     William E. Casebier   Vice-President      Vice-President of KU since
     Age 55                Information         May 1988.
                           Technology and
                           Administrative
                           Services


     Linda M. DiMascio     Vice-President      Vice-President of KU since
     Age 43                Human Resources     February 1995. Director of
                                               Human Resources of Tucker
                                               Housewares from September
                                               1994 to February 1995.
                                               Senior Area Coordinator for
                                               U.S. Manufacturing Department
                                               of Mobil Oil Corporation from
                                               April 1992 to September 1994.


                                        -15-
<PAGE>

                              Current          Positions Held During at
     Name and Age          Positions Held      Least the Last 5 Years


     Gary L. Hawley        Vice-President      Vice President of KU since
     Age 49                Bulk Power          January 1996.  Director of
                           Engineering         Bulk Power Planning from
                                               November 1986 to January
                                               1996.

     Henry C. A. List      Vice-President      Vice-President of KU since
     Age 48                Governmental        May 1997.  Director of
                           Affairs             Governmental Affairs from
                                               July 1979 to May 1997.


     Ronald L. Willhite    Vice-President      Vice-President of KU since
     Age 50                Regulation and      May 1997.  Director of
                           Economic Planning   Regulation from December 1992
                                               to May 1997.


     William N. English    Treasurer*          Treasurer of KU since April
     Age 47                                    1982.

     Michael D. Robinson   Controller*         Controller of KU since August
     Age 42                                    1990.


     John J. Maloy, Jr.    Assistant           Assistant Treasurer of KU
     Age 43                Treasurer           since August 1984.
                                               (Not an Executive Officer)









     Note:    Officers are elected annually by the Board of Directors.  There is
     no  family  relationship  between  any  executive  officer  and  any  other
     executive officer or any director.  Certain executive officers of KU may be
     considered "executive officers" of KU Energy for certain purposes.

     *  Identified persons hold positions with the same titles at KU Energy.












                                        -16-
<PAGE>

                                       PART II


     Item 5. Market  for  Registrant's  Common  Equity  and  Related Stockholder
             Matters

     KU Energy

     KU  Energy's  common  stock  is  listed  on  the New York and Pacific stock
     exchanges  under the ticker symbol "KU."  Quotes in daily newspapers can be
     found under  the listing  KU Engy.

     The  table below sets forth the high and low sales prices and the dividends
     paid for the Company's common stock for the periods shown.



                               1997                           1996
                  Dividend           Price         Dividend            Price
     Quarter        Paid        High       Low       Paid       High       Low
       First        $.44       31-1/8     29-3/8     $.43       30-5/8    28-5/8
       Second       $.44       35-5/8     29-3/4     $.43       30        28-3/8
       Third        $.44       36-1/8     32-9/16    $.43       30        27
       Fourth       $.44       39-13/16   32-7/8     $.43       30-1/2    28-1/8

     KU  Energy's  Board has declared a common stock dividend of $.45 per share
     payable March 13, 1998, to shareholders of record on February 25, 1998.

     As  of  December  31,  1997,  KU  Energy  had  approximately  29,300 common
     shareholders of record.

     The  Company  (or  its predecessor, KU) has paid cash dividends since 1939.
     Future dividends are dependent on future earnings, capital requirements and
     financial conditions.  Future dividend policy will also be dependent on the
     Company's pending Merger with LG&E Energy.  See Management's Discussion and
     Analysis of Finacial Condition and Results of Operations - The Merger in KU
     Energy's  1997  Annual  Report  to  Shareholders (Exhibit 13) incorporated
     herein  by  reference.    The  dividend  payout  ratio (cash dividends as a
     percentage of net income) was 78% for 1997 and 79% for 1996.  See Note 5 of
     the  Notes  to  Consolidated  Financial  Statements,  Common Stock,   in KU
     Energy's  1997  Annual  Report  to  Shareholders  (Exhibit 13) incorporated
     herein by reference for information regarding dividend restrictions.

     KU

     All of the outstanding common stock of KU is held by KU Energy.

     The  following  table  sets  forth  the cash distributions (in thousands of
     dollars) on common stock paid by KU for the periods indicated:

                                      1997          1996
              First Quarter         $16,639       $16,261
              Second Quarter        $16,640       $16,262
              Third Quarter         $16,640       $16,262
              Fourth Quarter        $16,640       $16,262


     See  Note  5  of  the  Notes to Financial Statements,  Common Stock,  under
     Item 8 for information regarding dividend restrictions.


                                        -17-
<PAGE>

     Item 6.  Selected Financial Data - KU Energy
<TABLE>
<CAPTION>


     Year ended December 31,                  1997      1996       1995      1994       1993
                                                                        (dollars in thousands)
      Operating Revenues:
<S>                                        <C>       <C>        <C>       <C>        <C>
       Residential                         $ 231,824 $ 236,229  $ 232,760 $ 213,574  $ 210,759
       Commercial                            150,794   150,640    151,778   142,207    138,271
       Industrial                            146,801   136,856    130,066   120,043    111,857
       Mine power                             34,541    34,014     36,076    36,498     34,977
       Public authorities                     56,243    56,023     54,161    49,869     48,142
         Total retail revenues               620,203   613,762    604,841   562,191    544,006
       Sales for resale                       87,330    89,208     75,940    89,665     62,463
       Miscellaneous revenues and other        8,877     8,716      5,619     4,157      3,448
       Provision for refund - litigation
         settlement                                -         -          -   (19,385)    (3,309)
         Total operating revenues            716,410   711,686    686,400   636,628    606,608
      Operating Expenses:
       Fuel used in generation (1)           188,439   198,198    189,845   170,654    178,910
       Electric power purchased               72,542    62,490     69,579    61,442     34,711
       Other operating expenses              123,537   125,351    124,044   114,551    106,124
       Maintenance                            65,004    64,170     62,599    66,141     59,458
       Depreciation                           84,297    80,612     75,268    65,441     60,811
       Federal and state income taxes         50,501    50,247     43,426    43,904     47,752
       Other taxes                            15,459    15,049     15,038    14,789     14,357
         Total operating expenses            599,779   596,117    579,799   536,922    502,123
      Net Operating Income                   116,631   115,569    106,601    99,706    104,485
      Other Income and Deductions             10,458     8,203     11,655    11,530     10,362
      Income Before Interest and
       Other Charges and AFUDC               127,089   123,772    118,256   111,236    114,847
      Interest and Other Charges:
       Interest on long-term debt             37,405    37,584     36,095    32,147     31,650
       Preferred stock dividend
         requirements of Subsidiary            2,256     2,256      2,256     2,384      2,558
       Other interest                          2,329     2,120      4,031     2,414      1,249
         Total interest and other charges     41,990    41,960     42,382    36,945     35,457
      AFUDC                                       80       137        179     1,585        593
      Net Income                           $  85,179 $  81,949  $  76,053 $  75,876  $  79,983

      Basic Earnings per Average
       Common Share                        $    2.25 $    2.17  $    2.01 $    2.01  $    2.11
      Common Stock Data:
       Shares Outstanding - average and
         year-end                             37,818    37,818     37,818    37,818     37,818
      Dividends per Share of
        Common Stock                       $    1.76 $    1.72  $    1.68 $    1.64  $    1.60

      (1)   Amounts  for  1994  and  1993  reflect  reductions  of  $23 million and $4 million,
            respectively,  associated  with  refunds  to  customers  related  to  a  litigation
            settlement with a former coal supplier.
</TABLE>


                                                -18-
<PAGE>
    Item 6.  Selected Financial Data - KU Energy
            (continued)
<TABLE>
<CAPTION>

                                            1997        1996       1995        1994        1993
<S>                                  <C>          <C>        <C>         <C>         <C>
    Assets (in thousands)            $1,737,262   $1,726,948 $1,714,974  $1,669,294  $1,573,194
    Capitalization: (in thousands)
       Bonds                         $  546,330   $  546,330 $  545,830  $  495,830  $  441,830
       Notes                                 21           43         64          86         107
       Unamortized premium on
         long-term debt                       -            -         86          96         108
       Preferred stock                   40,000       40,000     40,000      40,000      40,000
       Common stock equity              664,122      645,513    628,611     616,092     602,503
            Total capitalization     $1,250,473   $1,231,886 $1,214,591  $1,152,104  $1,084,548
    % Total Capitalization
       Represented by:
       Long-term debt                      43.7         44.4       44.9        43.0        40.8
       Preferred stock                      3.2          3.2        3.3         3.5         3.7
       Common stock equity                 53.1         52.4       51.8        53.5        55.5
    Kilowatt-hours Generated,
       Purchased and Sold:
       (in thousands)
       Power generated               15,845,089   16,510,347 15,223,851  15,524,844  14,934,839
       Power purchased                3,767,458    3,165,589  3,254,861   3,066,917   1,926,299
       Power interchanged - net            (831)      12,450     (6,569)      2,638       1,556
            Total                    19,611,716   19,688,386 18,472,143  18,594,399  16,862,694
       Less - losses and company use    986,347    1,057,808  1,054,589     998,010   1,066,251
       Kilowatt-hours sold           18,625,369   18,630,578 17,417,554  17,596,389  15,796,443
       Sales classified:
         Residential                  5,060,935    5,148,364  5,016,012   4,706,058   4,702,697
         Commercial                   3,422,167    3,410,710  3,403,054   3,272,370   3,217,504
         Industrial                   4,464,332    4,107,537  3,850,647   3,641,469   3,409,213
         Mine power                     925,882      893,650    926,873     974,233     933,317
         Public authorities           1,354,630    1,349,948  1,297,913   1,225,668   1,199,893
            Total retail sales       15,227,946   14,910,209 14,494,499  13,819,798  13,462,624
         Sales for resale             3,397,423    3,720,369  2,923,055   3,776,591   2,333,819
            Total                    18,625,369   18,630,578 17,417,554  17,596,389  15,796,443

    Average Number of Customers         464,165      456,167    449,144     440,590     432,636
    Residential Sales (per customer):
       Average kilowatt-hours            13,083       13,531     13,377      12,781      12,995
       Average revenue               $   599.30   $   620.87 $   620.75  $   580.05  $   582.41
    System Capability - Megawatts:
       KU's plants                        3,718        3,639      3,509       3,265       3,164
       Purchased contracts                  556          393        394         540         365
         Total system capability          4,274        4,032      3,903       3,805       3,529
    Net System Maximum Demand -
       Megawatts                          3,510        3,391      3,341       3,127       3,176
    Load Factor (%)                        58.2         59.3       58.7        59.8        57.7
    Heat Rate (BTU per KWH) (1)          10,335       10,351     10,377      10,306      10,367
    Fuel - Average Cost per Ton (1)  $    27.96   $    27.68 $    28.49  $    28.84  $    28.31
    Average Cost per Million BTU (1) $     1.14   $     1.14 $     1.18  $     1.19  $     1.17

    (1) Based on coal consumed

</TABLE>



                                                -19-
<PAGE>

     Item 6.  Selected Financial Data - KU
<TABLE>
<CAPTION>

     Year ended December 31,                   1997       1996       1995       1994       1993

                                                                                 (in thousands)
     Operating Revenues:
<S>                                        <C>       <C>        <C>       <C>        <C>
       Residential                         $ 231,824 $ 236,229  $ 232,760 $ 213,574  $ 210,759
       Commercial                            150,794   150,640    151,778   142,207    138,271
       Industrial                            146,801   136,856    130,066   120,043    111,857
       Mine power                             34,541    34,014     36,076    36,498     34,977
       Public authorities                     56,243    56,023     54,161    49,869     48,142
         Total retail revenues               620,203   613,762    604,841   562,191    544,006
       Sales for resale                       87,330    89,208     75,940    89,665     62,463
       Miscellaneous revenues and other        8,904     8,741      5,649     4,181      3,428
       Provision for refund -
         litigation settlement                     -         -          -   (19,385)    (3,309)
         Total operating revenues            716,437   711,711    686,430   636,652    606,588
     Operating Expenses:
       Fuel used in generation (1)           188,439   198,198    189,845   170,654    178,910
       Electric power purchased               72,542    62,490     69,579    61,442     34,711
       Other operating expenses              120,951   122,872    121,426   112,712    104,930
       Maintenance                            64,990    64,161     62,592    66,134     59,451
       Depreciation                           84,111    80,424     75,080    65,259     60,800
       Federal and state income taxes         51,690    51,452     44,670    44,683     48,178
       Other taxes                            15,306    14,777     14,694    14,582     14,347
         Total operating expenses            598,029   594,374    577,886   535,466    501,327
     Net Operating Income                    118,408   117,337    108,544   101,186    105,261
     Other Income and Deductions               6,954     8,377      8,235     9,299      8,331
     Income Before Interest Charges
       and AFUDC                             125,362   125,714    116,779   110,485    113,592
     Interest Charges:
       Interest on long-term debt             37,405    37,584     36,095    32,147     31,650
       Other interest                          2,324     2,104      4,021     2,411      1,249
         Total interest charges               39,729    39,688     40,116    34,558     32,899
     AFUDC                                        80       137        179     1,585        593
     Net Income                            $  85,713 $  86,163  $  76,842 $  77,512  $  81,286
     Preferred Stock Dividend
       Requirements                            2,256     2,256      2,256     2,384      2,558
     Net Income Applicable to Common
       Stock                               $  83,457 $  83,907  $  74,586 $  75,128  $  78,728
     Common Dividends                      $  66,559 $  65,047  $  63,250 $  61,644  $  60,509




     (1) Amounts  for  1994  and  1993  reflect  reductions  of  $23  million  and $4 million,
         respectively, associated with refunds to customers related to a litigation settlement
         with a former coal supplier.
</TABLE>


                                                -20-
<PAGE>

    Item 6.  Selected Financial Data - KU
            (continued)
<TABLE>
<CAPTION>


                                           1997        1996        1995        1994        1993
<S>                                  <C>          <C>        <C>         <C>         <C>
    Assets (in thousands)            $1,679,880   $1,673,055 $1,659,988  $1,618,100  $1,523,274
    Capitalization: (in thousands)
       Bonds                         $  546,330   $  546,330 $  545,830  $  495,830  $  441,830
       Notes                                 21           43         64          86         107
       Unamortized premium on
         long-term debt                       -            -         86          96         108
       Preferred stock                   40,000       40,000     40,000      40,000      40,000
       Common stock equity              612,295      595,397    576,537     565,201     552,106
            Total capitalization     $1,198,646   $1,181,770 $1,162,517  $1,101,213  $1,034,151
    % Total Capitalization
       Represented by:
       Long-term debt                      45.6         46.2       47.0        45.1        42.7
       Preferred stock                      3.3          3.4        3.4         3.6         3.9
       Common stock equity                 51.1         50.4       49.6        51.3        53.4
    Kilowatt-hours Generated,
       Purchased and Sold:
       (in thousands)
       Power generated               15,845,089   16,510,347 15,223,851  15,524,844  14,934,839
       Power purchased                3,767,458    3,165,589  3,254,861   3,066,917   1,926,299
       Power interchanged - net            (831)      12,450     (6,569)      2,638       1,556
            Total                    19,611,716   19,688,386 18,472,143  18,594,399  16,862,694
       Less - losses and company use    986,347    1,057,808  1,054,589     998,010   1,066,251
       Kilowatt-hours sold           18,625,369   18,630,578 17,417,554  17,596,389  15,796,443
       Sales classified:
         Residential                  5,060,935    5,148,364  5,016,012   4,706,058   4,702,697
         Commercial                   3,422,167    3,410,710  3,403,054   3,272,370   3,217,504
         Industrial                   4,464,332    4,107,537  3,850,647   3,641,469   3,409,213
         Mine power                     925,882      893,650    926,873     974,233     933,317
         Public authorities           1,354,630    1,349,948  1,297,913   1,225,668   1,199,893
            Total retail sales       15,227,946   14,910,209 14,494,499  13,819,798  13,462,624
         Sales for resale             3,397,423    3,720,369  2,923,055   3,776,591   2,333,819
            Total                    18,625,369   18,630,578 17,417,554  17,596,389  15,796,443

    Average Number of Customers         464,165      456,167    449,144     440,590     432,636
    Residential Sales (per customer):
       Average kilowatt-hours            13,083       13,531     13,377      12,781      12,995
       Average revenue               $   599.30   $   620.87 $   620.75  $   580.05  $   582.41
    System Capability - Megawatts:
       KU's plants                        3,718        3,639      3,509       3,265       3,164
       Purchased contracts                  556          393        394         540         365
         Total system capability          4,274        4,032      3,903       3,805       3,529
    Net System Maximum Demand -
       Megawatts                          3,510        3,391      3,341       3,127       3,176
    Load Factor (%)                        58.2         59.3       58.7        59.8        57.7
    Heat Rate (BTU per KWH) (1)          10,335       10,351     10,377      10,306      10,367
    Fuel - Average Cost per Ton(1)   $    27.96   $    27.68 $    28.49  $    28.84  $    28.31
    Average Cost per Million BTU(1)  $     1.14   $     1.14 $     1.18  $     1.19  $     1.17

    (1) Based on coal consumed

</TABLE>

                                                -21-
<PAGE>

    Item  7.    Management's  Discussion and Analysis of Financial Condition and
   Results of Operations

   The  information  under  the heading Management's Discussion and Analysis of
   Financial  Condition  and Results of Operation is combined for KU Energy and
   KU  on pages 16 through 21 of KU Energy's 1997 Annual Report to Shareholders
   (Exhibit 13) and is incorporated herein by reference.


   Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

   The information required by this item is not applicable to KU Energy or KU.


   Item 8.  Financial Statements and Supplementary Data

                                     KU ENERGY

   The financial statements and supplementary data on pages 22 through 35 of KU
   Energy's  1997  Annual  Report to Shareholders (Exhibit 13) are incorporated
   herein by reference.



                                        KU

                                                                        Page(s)

   Index to Financial Statements and Supplementary Data:

        Report of Independent Public Accountants                            23
        Statements of Income and Retained Earnings                          24
        Statements of Cash Flows                                            25
        Balance Sheets                                                      26
        Statements of Capitalization                                        27
        Notes to Financial Statements                                    28-38
        Supplemental Quarterly Financial Information                        39
















                                        -22-
<PAGE>


                     REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

   To Kentucky Utilities Company:

   We   have  audited  the  accompanying  balance  sheets  and  statements  of
   capitalization  of  Kentucky  Utilities  Company  (a  Kentucky  and Virginia
   corporation) as of December 31, 1997 and 1996, and the related statements of
   income  and retained earnings, and cash flows for each of the three years in
   the  period  ended  December  31,  1997.  These financial statements are the
   responsibility  of  the  management  of  Kentucky  Utilities  Company.   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 Kentucky Utilities
   Company  as of December 31, 1997 and 1996, and the results of its operations
   and  its  cash  flows  for  each  of  the  three  years  in the period ended
   December   31,  1997,  in  conformity  with  generally  accepted  accounting
   principles.



                                        /s/Arthur Andersen LLP
                                        Arthur Andersen LLP

   Chicago, Illinois
   January 26, 1998















                                        -23-
<PAGE>

    Statements of
    Income and
    Retained
    Earnings
<TABLE>
<CAPTION>

                                    Kentucky Utilities Company

    Year Ended December 31, (in thousands of dollars)       1997          1996          1995
<S>                                                    <C>          <C>          <C>
    Operating Revenues                                 $  716,437   $  711,711   $   686,430
    Operating Expenses:
       Fuel, principally coal, used in generation         188,439      198,198       189,845
       Electric power purchased                            72,542       62,490        69,579
       Other operating expenses                           120,951      122,872       121,426
       Maintenance                                         64,990       64,161        62,592
       Depreciation                                        84,111       80,424        75,080
       Federal and state income taxes                      51,690       51,452        44,670
       Other taxes                                         15,306       14,777        14,694
         Total Operating Expenses                         598,029      594,374       577,886
    Net Operating Income                                  118,408      117,337       108,544
    Other Income and Deductions:
       Interest and dividend income                         1,673        1,733         2,838
       Other income and deductions - net                    5,330        6,710         5,467
         Total Other Income and Deductions                  7,003        8,443         8,305
    Income Before Interest Charges                        125,411      125,780       116,849

    Interest Charges:
       Interest on long-term debt                          37,405       37,584        36,095
       Other interest charges                               2,293        2,033         3,912
         Total Interest Charges                            39,698       39,617        40,007

    Net Income                                             85,713       86,163        76,842
    Preferred Stock Dividend Requirements                   2,256        2,256         2,256
    Net Income Applicable to Common Stock              $   83,457   $   83,907   $    74,586



    Retained Earnings Beginning of Year                $  287,852   $  268,992   $   257,656
    Add Net Income                                         85,713       86,163        76,842
                                                          373,565      355,155       334,498
    Deduct:
       Dividends on preferred stock                         2,256        2,256         2,256
       Dividends on common stock                           66,559       65,047        63,250
                                                           68,815       67,303        65,506
    Retained Earnings End of Year                      $  304,750   $  287,852   $   268,992



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

                                                -24-
<PAGE>

     Statements of
     Cash Flows
<TABLE>
<CAPTION>

                                      Kentucky Utilities Company

     Year Ended December 31, (in thousands of dollars)         1997         1996          1995

     Cash Flows from Operating Activities:

<S>                                                     <C>           <C>          <C>
       Net income                                       $    85,713   $    86,163  $    76,842
       Items not requiring (providing) cash currently:
         Depreciation                                        84,111        80,424       75,080
         Deferred income taxes                                4,606         3,750       15,502
         Investment tax credit deferred                      (4,036)       (4,013)      (4,095)
         Deferred merger-related costs                       (4,062)            -            -
         Changes in current assets and liabilities:
            Change in accounts receivable                     5,726        (1,111)      (7,759)
            Change in accounts payable                        4,426        (9,040)     (11,517)
            Change in other current assets and liabilities    1,785         6,923         (509)
         Other - net                                            637         8,701        5,515

     Net Cash Provided by Operating Activities              178,906       171,797      149,059

     Cash Flows from Investing Activities:

       Construction expenditures - utility                  (94,006)     (106,503)    (124,515)
       Proceeds from insurance reimbursements                 4,270           257          152
       Other                                                      -           (79)        (271)

     Net Cash Used by Investing Activities                  (89,736)     (106,325)    (124,634)

     Cash Flows from Financing Activities:

       Short-term borrowings - net                          (20,600)       (1,400)     (20,700)
       Issuance of long-term debt                                 -        35,666       49,288
       Funds deposited with trustee - net                         -         3,779       15,100
       Retirement of long-term debt, including premiums         (21)      (36,192)         (21)
       Payment of dividends                                 (68,815)      (67,303)     (65,506)

     Net Cash Used by Financing Activities                  (89,436)      (65,450)     (21,839)

     Net Increase (Decrease) in Cash and Cash Equivalents      (266)           22        2,586

     Cash and Cash Equivalents Beginning of Year              5,719         5,697        3,111

     Cash and Cash Equivalents End of Year              $     5,453   $     5,719  $     5,697

     Supplemental Disclosures
     Cash paid for:
       Interest                                         $    37,053   $    36,729  $    37,961
       Income Taxes                                     $    44,857   $    47,539  $    31,974



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

                                                 -25-
<PAGE>
     Balance
     Sheets
<TABLE>
<CAPTION>
                                Kentucky Utilities Company

     As of December 31, (in thousands of dollars)                         1997           1996
     Assets
     Utility Plant:
<S>                                                                <C>           <C>
        Plant in service, at cost                                  $  2,552,695  $  2,482,812
        Less:  Accumulated depreciation                               1,128,282     1,067,911
                                                                      1,424,413     1,414,901
        Construction work in progress                                    58,939        63,435
             Total Utility Plant                                      1,483,352     1,478,336

     Current Assets:
        Cash and cash equivalents                                         5,453         5,719
        Accounts receivable, net of allowance
             for doubtful accounts                                       44,856        50,582
        Accrued utility revenues                                         29,668        24,239
        Fuel, principally coal, at average cost                          27,799        30,895
        Plant materials and operating supplies, at average cost          23,648        21,656
        Other                                                             5,769         7,486
             Total Current Assets                                       137,193       140,577

     Other Assets:
        Regulatory assets                                                14,773        11,531
        Other                                                            44,562        42,611
             Total Other Assets                                          59,335        54,142
             Total Assets                                          $  1,679,880  $  1,673,055

     Capitalization and Liabilities
     Capitalization: (See Statements of Capitalization)
        Common stock equity                                        $    612,295  $    595,397
        Preferred stock                                                  40,000        40,000
        Long-term debt                                                  546,351       546,373
             Total Capitalization                                     1,198,646     1,181,770

     Current Liabilities:
        Long-term debt due within one year                                   21            21
        Short-term borrowings                                            33,600        54,200
        Accounts payable                                                 33,386        28,960
        Accrued interest                                                  8,283         8,048
        Accrued taxes                                                     7,473         5,383
        Customer deposits                                                 9,841         8,746
        Accrued payroll and vacations                                    10,348         9,862
        Other                                                             6,215         5,728
             Total Current Liabilities                                  109,167       120,948

     Other Liabilities:
        Accumulated deferred income taxes                               245,150       238,542
        Accumulated deferred investment tax credits                      26,131        30,167
        Regulatory tax liability - net                                   50,904        54,388
        Other                                                            49,882        47,240
             Total Other Liabilities                                    372,067       370,337
             Total Capitalization and Liabilities                  $  1,679,880  $  1,673,055



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

                                                 -26-
<PAGE>
     Statements of
     Capitalization
<TABLE>
<CAPTION>

                                      Kentucky Utilities Company

     As of December 31, (in thousands of dollars)                           1997           1996

     Common Stock Equity:
         Common stock, without par value, outstanding 37,817,878
<S>                                                                    <C>           <C>
            shares and 37,817,878 shares, respectively                 $   308,140   $  308,140
         Capital stock expense and other                                      (595)        (595)
         Retained earnings                                                 304,750      287,852
            Total Common Stock Equity                                      612,295      595,397

     Preferred Stock, 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
            6.32%  Series Q, due June 15, 2003                              62,000       62,000
            5.99%  Series S, due January 15, 2006                           36,000       36,000
            7.92%  Series P, due May 15, 2007                               53,000       53,000
            7.55%  Series R, due June 1, 2025                               50,000       50,000
            8.55%  Series P, due May 15, 2027                               33,000       33,000
                                                                           295,500      295,500
         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                                               54,000       54,000
                                                                           250,830      250,830
              Total First Mortgage Bonds                                   546,330      546,330

         8% secured note, due January 5, 1999 (net of current maturity)         21           43
            Total Long-Term Debt                                           546,351      546,373
            Total Capitalization                                       $ 1,198,646   $1,181,770




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

                                                 -27-
<PAGE>
    Notes to
    Financial
    Statements
                            Kentucky Utilities Company

    1.  Summary of Significant Accounting Policies

    General

    Kentucky  Utilities Company (KU) is the principal subsidiary of KU Energy
    Corporation  (KU  Energy).     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.  Certain amounts from prior
    periods   have  been  reclassified  to  conform  with  the  current  year
    presentation.

    KU  is  a  public  utility engaged in producing, transmitting and selling
    electric energy.  KU provides electric service to about 441,200 customers
    in  over  600  communities  and  adjacent  suburban and rural areas in 77
    counties  in  central,  southeastern  and  western  Kentucky and to about
    29,000 customers in 5 counties in southwestern Virginia.

    Regulation

    KU  is  exempt  from regulation as a registered holding company under the
    Public  Utility Holding Company Act of 1935.  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.

    The following is a summary of the components of regulatory assets:

    As of December 31, (in thousands of dollars)          1997          1996

    Unamortized loss on reacquired debt               $  9,756      $ 10,838
    Merger costs                                         4,062             -
    Other                                                  955           693
    Regulatory Assets                                 $ 14,773      $ 11,531

    KU is currently not earning a return on these regulatory assets.

    Utility Plant

    Utility  plant  is stated at the original cost of construction.  The cost
    of  repairs  of property units and replacements of minor items 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.



                                         -28-
<PAGE>



    Notes to
    Financial
    Statements
                            Kentucky Utilities Company


    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 1997, 1996 and 1995.

    Cash and Cash Equivalents

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

    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 9 of the Notes
    to  Financial  Statements, "Environmental Cost Recovery," for information
    about environmental surcharge legal proceedings.

    Income Taxes

    KU  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 KU'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.

    New Accounting Pronouncements

    In  June  1997,  the  Financial  Accounting Standards Board (FASB) issued
    Statements   of  Financial  Accounting  Standards  No.  130,    Reporting

                                       -29-
<PAGE>

    Notes to
    Financial
    Statements
                            Kentucky Utilities Company

    Comprehensive  Income,    and  No. 131,  Disclosures about Segments of an
    Enterprise  and  Related  Information,    effective for periods beginning
    after  December  15, 1997.  These statements do not affect the accounting
    recognition  or  measurement of transactions, but rather require expanded
    disclosures  regarding  financial results.  KU will adopt these standards
    in 1998 as required by the FASB.

    Stock-Based Compensation

    KU   adopted  Statement  of  Financial  Accounting  Standards  No.  123,
    Accounting  for  Stock-Based  Compensation,    in 1996 by continuing to
    account  for  stock compensation in accordance with Accounting Principles
    Board  Opinion No. 25,  Accounting for Stock Issued to Employees.   If KU
    had  recognized  compensation  expense  for  awards under its stock-based
    compensation  plan  according  to  the  new  standard, net income and net
    income applicable to common stock for the years ended 1997, 1996 and 1995
    would not have been materially different from amounts recorded.

    2.  Income Taxes

    KU  is  included  in  the  consolidated  federal tax return of its parent
    company,  KU  Energy.    Income  taxes  are  allocated  to the individual
    companies,  including  KU,  based  on  their respective taxable income or
    loss.

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


    As of December 31, (in thousands of dollars)                        1997         1996

     Deferred Tax Assets:
       Unamortized investment tax credit and other property
<S>                                                                  <C>          <C>
         related differences                                         $ 48,364     $ 50,629

       Other                                                           20,577       20,583
       Less:  Amounts included in current assets                        3,242        4,723
                                                                       65,699       66,489

     Deferred Tax Liabilities:
       Accelerated depreciation and other property
         related differences                                          305,461      299,371
       Other                                                            5,388        5,660
                                                                      310,849      305,031

     Net Accumulated Deferred Income Tax Liability                   $245,150     $238,542

</TABLE>



                                              -30-
<PAGE>

    Notes to
    Financial
    Statements
                            Kentucky Utilities Company

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

     Year Ended December 31, (in thousands of dollars)         1997          1996         1995

     Income Taxes Charged to Operating Income:
<S>                                                        <C>           <C>          <C>
     Current   - federal                                   $ 39,353      $ 35,656     $ 23,597
               - state                                        8,964         7,387        5,134
                                                             48,317        43,043       28,731
     Deferred  - federal                                      1,996         5,510       12,165
               - state                                        1,377         2,899        3,845
                                                              3,373         8,409       16,010
     Deferred investment tax credit                               -             -          (71)
                                                             51,690        51,452       44,670

     Income Taxes Charged to Other Income and Deductions:
     Current   - federal                                       (853)        3,565          854
               - state                                         (246)          861          190
                                                             (1,099)        4,426        1,044
     Deferred  - federal                                        975        (3,665)        (406)
               - state                                          258          (994)        (102)
                                                              1,233        (4,659)        (508)
     Amortization of deferred investment tax credit          (4,036)       (4,013)      (4,024)
                                                             (3,902)       (4,246)      (3,488)
     Total Income Tax Expense                              $ 47,788      $ 47,206     $ 41,182
</TABLE>


    KU's  effective  income  tax rate, determined by dividing income taxes by
    the  sum  of  such taxes and net income, was 35.8% in 1997, 35.4% in 1996
    and  34.9%  in  1995.   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)        1997          1996          1995

<S>                                                     <C>           <C>          <C>
     Federal Income Tax Computed at 35%                 $    46,726   $    46,679  $    41,308
     Add (Deduct):
     State income taxes, net of federal
       income tax benefit                                     6,729         6,599        5,894
     Amortization of deferred investment tax credit          (4,036)       (4,013)      (4,095)
     Other, net                                              (1,631)       (2,059)      (1,925)
     Total Income Tax Expense                           $    47,788   $    47,206  $    41,182


     3.  Retirement Benefits

    Pensions

    KU    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.  KU's
    funding  policy is to make such contributions as are necessary to finance
    the  benefits  provided  under  the  plan.    KU's contributions meet the
    funding  standards  set  forth in the Employee Retirement Income Security
    Act  of  1974.    The  plan  assets  consist  primarily of common stocks,
    corporate bonds and U.S. Government Securities.

                                       -31-
<PAGE>

    Notes to
    Financial
    Statements
                            Kentucky Utilities Company


    KU   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 KU.

    On  May  20,  1997, KU Energy and LG&E Energy Corp. (LG&E Energy) entered
    into  a  Merger  Agreement. For information concerning the agreement, see
    Management's  Discussion  and  Analysis - The Merger in KU Energy's 1997
    Annual  Report  to  Shareholders  (Exhibit  13)  incorporated  herein  by
    reference.    Under the provisions of the Supplemental Security Plan, the
    Merger  Agreement  constituted  a change-in-control which required that a
    lump  sum  present value payment be made to retired employees entitled to
    retirement  benefits  on  the  date  of the Merger Agreement.  On May 30,
    1997,  lump  sum  payments  totalling  $4.7  million were made to retired
    employees.

    The  reconciliation  of the funded status of the retirement plans and the
    pension liability recorded by KU is as follows:

    As of December 31, (in thousands of dollars)                         1997           1996

     Fair value of plan assets                                      $  217,424     $   191,778
     Projected benefit obligation                                     (214,657)       (194,874)
     Plan assets more (less) than projected benefit obligation           2,767          (3,096)
     Unrecognized net (gain)/loss from past
        experience different than that assumed                         (19,775)        (12,448)
     Unrecognized prior service cost                                     3,635           3,990
     Unrecognized net asset                                             (1,350)         (1,500)
     Regulatory effect recorded                                            462             201
     Pension liability                                              $  (14,261)    $   (12,853)

     Accumulated benefit obligation (including vested benefits
        of $164,498 and $147,103, respectively)                     $  168,810     $   149,814


     Components of Net Pension Cost:

     Year Ended December 31, (in thousands of dollars)       1997          1996          1995

     Service cost (benefits earned during the period)    $   6,728     $   6,399    $   6,060
     Interest cost on projected benefit obligation          14,680        13,856       13,560
     Actual return on plan assets                          (34,211)      (20,798)     (27,064)
     Net amortization and deferral                          19,320         6,568       14,608
     Regulatory effect recorded                               (261)       (1,835)      (1,595)
     Net pension cost                                    $   6,256     $   4,190    $   5,569



                                                -32-
<PAGE>
    Notes to
    Financial
    Statements
                            Kentucky Utilities Company


</TABLE>
<TABLE>
<CAPTION>
    Assumptions Used in Determining Actuarial Valuations:
                                                           1997           1996          1995
<S>                                                        <C>             <C>           <C>
     Weighted average discount rate used to
       determine the projected benefit obligation          7.00%          7.75%         7.75%

     Rate of increase for compensation levels              4.00%          4.75%         4.75%

     Weighted average expected long-term rate
       of return on assets                                 8.25%          8.25%         8.25%

</TABLE>

    Other Postretirement Benefits

    KU  provides  certain health care and life insurance benefits to eligible
    retired  employees  and  their  dependents.  KU accrues, during the years
    that  employees  render  service,  the  expected  cost of providing these
    benefits  upon  retirement  to  such  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.  KU'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,  KU  began  funding,  in  addition  to current requirements for
    benefit  payments, the maximum tax-favored amount allowed through certain
    tax  deductible  funding vehicles.  KU 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 KU is as follows:
<TABLE>
<CAPTION>

    As of December 31, (in thousands of dollars)                   1997                  1996
     Accumulated postretirement benefit obligation:
<S>                                                          <C>                   <C>
       Retirees                                              $   (30,777)          $   (29,313)
       Fully eligible active plan participants                    (9,777)               (8,678)
       Other active plan participants                            (31,585)              (28,528)
                                                                 (72,139)              (66,519)
     Plan assets at fair value                                    17,763                13,322
     Accumulated postretirement benefit obligation
       in excess of plan assets                                  (54,376)              (53,197)
     Unrecognized net (gain)/loss from past
       experience different from that assumed                    (19,697)              (20,029)
     Unrecognized transition obligation                           50,118                53,460
     Accrued postretirement benefit liability                $   (23,955)          $   (19,766)


</TABLE>

                                                -33-
<PAGE>
    Notes to
    Financial
    Statements
                            Kentucky Utilities Company

<TABLE>

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

    Year Ended December 31, (in thousands of dollars)       1997          1996           1995
     Service cost (benefits attributed to service
<S>                                                    <C>           <C>           <C>
       during the period)                              $    1,853    $    1,859    $     1,918
     Interest cost on accumulated postretirement
       benefit obligation                                   4,895         4,751          4,926
     Actual return on plan assets                          (3,569)       (1,633)        (1,722)
     Net amortization and deferral                          1,706           103            792
     Amortization of transition obligation                  3,341         3,341          3,341
     Net periodic postretirement benefit cost          $    8,226    $    8,421    $     9,255

     Assumptions Used in Determining Actuarial Valuations:   1997          1996           1995
     Weighted average discount rate used to
       determine the projected benefit obligation           7.00%         7.75%          7.75%

     Rate of increase for compensation levels               4.00%         4.75%          4.75%

     Weighted average expected long-term rate of
       return on assets                                     7.90%         8.00%          8.00%
</TABLE>

    For  measurement  purposes,  a  7.0%  annual  rate of increase in the per
    capita  cost  of  covered  health care benefits is assumed for 1998.  The
    health  care  cost  trend  rate is assumed to decrease gradually to 4.25%
    through  2004  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, 1997, by
    $11.5  million  (16%)  and the aggregate of the service and interest cost
    components  of  the net periodic postretirement benefit cost for the year
    by $1.2 million (18%).


    4.  Commitments and Contingencies
<TABLE>
<CAPTION>

    The effects of certain commitments made by KU are estimated below:

    (in thousands of dollars)   1998       1999        2000       2001      2002    1998-2002
     Estimated Construction
<S>                          <C>        <C>        <C>        <C>        <C>        <C>
      Expenditures           $ 97,200   $103,200   $ 120,000  $ 115,600  $112,700   $  548,700
     Estimated Contract
      Obligations:
       Fuel                   157,800     50,400       9,000          -         -      217,200
       Purchased power         31,300     30,200      29,500     32,300    32,300      155,600
       Operating leases         2,900      2,800       2,800      2,800     2,700       14,000
     First Mortgage Bond
      Maturities:
       Series Q              $      -   $      -   $  61,500  $       -  $      -   $   61,500

</TABLE>

    Construction Program

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

                                       -34-
<PAGE>
    Notes to
    Financial
    Statements
                            Kentucky Utilities Company

    load growth and projections of its future load.

    See  Management's  Discussion  and  Analysis - Capital Requirements in KU
    Energy's  1997  Annual  Report  to Shareholders (Exhibit 13) incorporated
    herein  by reference for a discussion of future construction expenditures
    including those relating to construction of peaking units.

    Coal Supply

    Obligations  under  KU's  coal  purchase  contracts  are stated at prices
    effective  January  1, 1998, and are subject to changes as defined by the
    terms of the contracts.

    Purchased Power

    KU  has  purchase  power  arrangements with Owensboro Municipal Utilities
    (OMU),    Electric  Energy, Inc. (EEI), and other parties.  Under the OMU
    agreement,  which  expires  on  January  1, 2020, KU purchases all of the
    output of a 400-MW generating station not required by OMU.  The amount of
    purchased power available to KU during 1998-2002, 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 $186.6 million
    of  OMU  bonds  outstanding  at  December  31, 1997.  The debt service is
    allocated  to  KU  based on its annual allocated share of capacity, which
    averaged approximately 50% in 1997.

    KU  has  a  20%  equity  ownership  in EEI, which is accounted for on the
    equity  method  of  accounting.  KU's entitlement 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  several  other contracts for purchased power during 1998-2002 of
    various  MW capacities and for varying periods with a maximum entitlement
    at any time of 282 MW.

    Credit Arrangements

    KU  has  aggregate  bank  lines  of  credit  of $60 million, all of which
    remained  unused  at December 31, 1997.  All of these credit lines expire
    in  December  1999.   In support of these lines of credit, KU compensates
    the banks by paying a commitment fee.

    5.  Common Stock

    KU  is  subject  to  restrictions  applicable  to  all corporations under
    Kentucky  and  Virginia  law  on  the  use  of retained earnings for cash
    dividends  on  common  stock,  as well as those contained in its Mortgage
    Indenture  and  Articles  of  Incorporation.  At December 31, 1997, there

                                       -35-
<PAGE>



    Notes to
    Financial
    Statements
                            Kentucky Utilities Company

    were no restricted retained earnings.

    6.  Preferred and Preference Stock

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


                         Redemption Price per Share
     Series              (plus accrued and unpaid dividends, if any)
     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.


    As  of  December  31, 1997, there were 5.3 million shares of KU preferred
    stock,   having  a  maximum  aggregate  stated  value  of  $200  million,
    authorized for issuance, of which 400,000 shares were outstanding.

    As  of  December  31,  1997, there were 2 million shares of KU preference
    stock, without par value, 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 6.79% for 1997 and 6.17% for 1996.

    Under  the  provisions  for the variable rate Pollution Control Series 10
    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 1997 and 1996 was 3.77% and 3.53%,
    respectively.  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, KU
    has available lines of credit which may be used to repurchase the bonds.

    In  January  1996, KU issued $36 million of Series S First Mortgage Bonds
    which  bear  interest  at  5.99%  and  will mature January 15, 2006.  The
    proceeds  were  used  to  redeem $35.5 million of Series K First Mortgage
    Bonds which carried a rate of 7-3/8%.

    Substantially  all  of  KU's utility plant is pledged as security for the
    first mortgage bonds.



                                       -36-
<PAGE>



    Notes to
    Financial
    Statements
                            Kentucky Utilities Company

    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:

    The  carrying  values  of cash and cash equivalents, escrow funds, short-
    term  borrowings, commercial paper and customer deposits approximate fair
    value  because  of  the  short maturity of these amounts.  KU's temporary
    cash  investments  are  classified  as  held-to-maturity and are reported
    under the caption  Cash and Cash Equivalents  on the Balance Sheet.

    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.  The carrying value of long-term debt on December 31, 1997 and 1996
    was    $546  million,  and  the estimated fair value was $579 million and
    $587 million, respectively.

    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 (based on the current regulatory environment) would
    allow  recovery  of these amounts in rates over a prescribed amortization
    period.   Accordingly, any settlement would not have a material impact on
    KU's financial position or results of operations.

    9. 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  Kentucky Public Service
    Commission  (PSC)  in  July 1994 and was implemented in August 1994.  The
    total surcharge collections from August 1, 1994 through December 31, 1997
    were approximately $60 million.

    The  PSC's order approving the surcharge and the constitutionality of the
    surcharge  statute  were  challenged  in  the  Franklin County (Kentucky)
    Circuit Court (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 surcharge statute, but vacating
    that part of the PSC's July 1994 order which the Circuit Court's judgment
    described  as  retroactively applying the surcharge statute.  The Circuit
    Court further ordered the case remanded to the PSC for a determination in
    accordance  with the judgment.  KU and the PSC argued that the PSC's July
    1994 order did not retroactively apply the statute.


                                       -37-
<PAGE>



    Notes to
    Financial
    Statements
                            Kentucky Utilities Company

    The Kentucky Attorney General and other consumer representatives appealed
    to  the  Kentucky  Court  of  Appeals (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 concerning
    the  retroactive  application  of  the  surcharge  statute.   The PSC has
    ordered  all  surcharge  revenues  collected by KU from February 1, 1995,
    subject  to refund pending final determination of all appeals.  The total
    surcharge  collections  from  February  1, 1995 through December 31, 1997
    were approximately $56 million.

    In  December 1997, the Court of Appeals rendered an opinion upholding the
    portion  of  the Circuit Court's judgment regarding the constitutionality
    of  the  surcharge  statute  but  reversing  that  portion of the Circuit
    Court's  judgment concerning the claim of retroactive application of the
    statute.

    The  Kentucky  Attorney  General  and other consumer representatives have
    filed  motions  for  discretionary review with the Kentucky Supreme Court
    (Supreme  Court).   The Supreme Court has the discretion to grant or deny
    the  motions.    KU  and the PSC have asked the Supreme Court to deny the
    motions.    KU cannot predict whether the Supreme Court will grant review
    of the case or when it will act on the matter.

    KU  continues  to  believe  that  the  constitutionality of the surcharge
    statute  will  be  upheld.  Although KU cannot predict the outcome of the
    claim of retroactive application of the statute, it is the position of KU
    and  the PSC that the July 1994 PSC order did not retroactively apply the
    statute.   If the Court of Appeals  opinion reversing the Circuit Court's
    judgment  on  the  claim  of  retroactivity is overturned and the Circuit
    Court's judgment, as entered, is upheld, KU estimates that the amount it
    could  be  required  to refund for surcharge collections through December
    31, 1997, from the implementation of the surcharge would be approximately
    $15   million  and  from  February  1,  1995,  would  be  approximately
    $13 million.  At this time, KU has not recorded any reserve for refund.


    10.  Merger Agreement With LG&E Energy

    KU  Energy  and LG&E Energy entered into a Merger Agreement dated May 20,
    1997.     For  information  concerning  the  agreement,  see  Management's
    Discussion  and Analysis of Financial Condition and Results of Operations
    -  The  Merger  in  KU  Energy's  1997  Annual  Report  to  Shareholders
    (Exhibit 13) incorporated herein by reference.






                                       -38-
<PAGE>

    Supplementary
    Quarterly
    Financial
    Information
    (Unaudited)
                            Kentucky Utilities Company

    Quarterly  financial  results  for  1997  and  1996 are summarized below.
    Generally,  quarterly  results  may fluctuate due to seasonal variations,
    changes in fuel costs and other factors.
<TABLE>
<CAPTION>

    Quarter                                    4th           3rd          2nd           1st
                                                                   (in thousands of dollars)
     1997
<S>                                      <C>          <C>          <C>           <C>
     Operating Revenues                  $  182,553   $   192,102  $   162,868   $   178,914
     Net Operating Income                    29,899        35,343       19,742        33,424
     Net Income                              21,740        26,924       12,088        24,961
     Net Income Applicable
            to Common Stock                  21,176        26,360        11,524        24,397

     1996
     Operating Revenues                  $  174,924   $   178,275  $   167,516   $   190,996
     Net Operating Income                    28,029        30,457        23,863       34,988
     Net Income                              19,746        22,724       16,190        27,503
     Net Income Applicable
            to Common Stock                  19,182        22,160       15,626        26,939

</TABLE>

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














                                       -39-
<PAGE>

    Item 9. Changes  in  and  Disagreements  with Accountants on Accounting and
            Financial Disclosure

    None for KU Energy or KU.


                                      PART III


    Item 10. Directors and Executive Officers of the Registrants

    The information required by Item 10 for the Company and KU relating to each
    director  and  each nominee for election as a director at the Company's and
    KU's  1998  Annual  Shareholders  Meetings  is  set forth in the Company's
    definitive  proxy statement (the Proxy Statement) filed with the Securities
    and  Exchange  Commission  pursuant  to Regulation 14A under the Securities
    Exchange  Act  of  1934  in  connection  with  the  Company's  1998  Annual
    Shareholders Meeting.  Such information is incorporated herein by reference
    to  the  material  appearing  in  the  Proxy  Statement  under  the caption
    "Election  of  Directors--General"  and  is  also  filed  herewith  as
    Exhibit  99.03.    Information  required by this item relating to executive
    officers  of  the  Company  and KU is set forth under a separate caption in
    Part I hereof.


    Item 11. Executive Compensation

    The  information required by Item 11 for the Company and KU is incorporated
    herein  by reference to the material appearing in the Proxy Statement under
    the  caption  "Election  of  Directors  --  Directors' Compensation, and --
    Executive  Compensation"  and  is also filed herewith as Exhibit 99.03 (but
    excluding  any  information  contained  under the subheadings -- "Report of
    Compensation Committee on Executive Compensation," -- "Performance Graph").


    Item 12. Security Ownership of Certain Beneficial Owners and Management

    The  information required by Item 12 for the Company and KU is incorporated
    herein  by reference to the material appearing in the Proxy Statement under
    the caption "Election of Directors--Voting Securities Beneficially Owned by
    Directors,  Nominees  and Executive Officers" and is also filed herewith as
    Exhibit 99.03.


    Item 13. Certain Relationships and Related Transactions

    None for KU Energy or KU.







                                        -40-
<PAGE>

                                       PART IV

                                  KU ENERGY AND KU

    Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K

                                                          Page of this Report
                                                             on Form 10-K
                                                       KU Energy  KU  Pro Forma

    (a) (1)  Financial Statements**

               Report of Independent Public
                 Accountants                              *       23      N/A
               Statements of Income and Retained
                 Earnings for the years ended
                 December 31, 1997, 1996 and 1995         *       24      N/A
               Statements of Cash Flows for the years
                 ended December 31, 1997, 1996 and 1995   *       25      N/A
               Balance Sheets as of December 31,
                 1997 and 1996                            *       26      N/A
               Statements of Capitalization as of
                 December 31, 1997, and 1996              *       27      N/A
               Notes to Financial Statements              *     28-38     N/A


    (a)  (2)   All financial statement schedules for
                 KU Energy and KU are omitted as not
                 applicable or not required under
                 Regulation S-X.                          N/A     N/A     N/A


    (a)  (3)   Unaudited Pro Forma Combined Condensed
                 Financial Information of KU Energy and
                 LG&E Energy.

                 Balance Sheet - December 31, 1997        N/A     N/A     51-52
                 Statements of Income for the years ended
                   December 31, 1997, 1996 and 1995       N/A     N/A     53-55
                 Notes to Unaudited Pro Forma Combined
                    Condensed Financial Statements        N/A     N/A     56-57







    *  Incorporated  by  reference  from  KU  Energy's  1997  Annual  Report to
    Shareholders which is Exhibit 13.

    ** The KU Energy consolidated financial statements, including notes, and the
    Unaudited  Pro Forma Information are not included in the KU Annual Report on
    Form 10-K.








                                        -41-
<PAGE>



   (a) (4) Exhibits - KU Energy and KU

                                                          Applicable to Form
                                                                10-K of
                                                           KU
    No.                     Description                  Energy   KU  Page(s)


    2.01   Agreement and Plan of Merger, dated as of
           May 20, 1997, by and between KU Energy and
           LG&E Energy (Exhibit 2 to Form 8-K Current
           Report of KU Energy and Kentucky Utilities
           dated May 30, 1997).  Incorporated by
           reference.                                       x      x

    3.01   Amended and Restated Articles of
           Incorporation of KU Energy Corporation
           (Exhibit 3A to Form 10-K Annual Report of KU
           Energy for the year ended December 31,
           1992).  Incorporated by reference.               x

    3.02   Amended and Restated Articles of
           Incorporation of Kentucky Utilities Company
           (Exhibits 4.03 and 4.04 to Form 8-K Current
           Report of KU, dated December 10, 1993).
           Incorporated by reference.                              x

    3.03   By-laws of KU Energy Corporation dated
           July 29, 1996 (Exhibit 4.01 to Form 10-Q
           Quarterly Report for the quarter ended
           June 30, 1996 of KU Energy and KU).
           Incorporated by reference.                       x

    3.04   By-laws of Kentucky Utilities Company dated
           July 29, 1996 (Exhibit 4.02 to Form 10-Q
           Quarterly Report for the quarter ended
           June 30, 1996 of KU Energy and KU).
           Incorporated by reference.                              x

    4.01   Rights Agreement, dated as of January 27,
           1992, by and between KU Energy Corporation
           and Illinois Stock Transfer Company
           (Exhibit 4.1 to Form 8-K Current Report of
           KU Energy dated January 27, 1992).
           Incorporated by reference.                       x

    4.02   Indenture of Mortgage or Deed of Trust dated
           May 1, 1947, between Kentucky Utilities
           Company and First Trust National Association
           (successor Trustee) and a successor
           individual co-trustee, as Trustees (the
           Trustees) (Amended Exhibit 7(a) in File No.
           2-7061), and Supplemental Indentures thereto
           dated, respectively, January 1, 1949 (Second
           Amended Exhibit 7.02 in File No. 2-7802),
           July 1, 1950 (Amended Exhibit 7.02 in File
           No. 2-8499), June 15, 1951 (Exhibit 7.02(a)






                                       -42-
<PAGE>

                                                          Applicable to Form
                                                                10-K of
                                                           KU
    No.                     Description                  Energy   KU  Page(s)


    4.02   in File No. 2-8499), June 1, 1952 (Amended
    Cont.  Exhibit 4.02 in File No. 2-9658), April 1,
           1953 (Amended Exhibit 4.02 in File
           No. 2-10120), April 1, 1955  (Amended
           Exhibit 4.02 in File No. 2-11476), April 1,
           1956 (Amended Exhibit 2.02 in File
           No. 2-12322), May 1, 1969 (Amended
           Exhibit 2.02 in File No. 2-32602), April 1,
           1970 (Amended Exhibit 2.02 in File No.
           2-36410), September 1, 1971 (Amended
           Exhibit 2.02 in File No. 2-41467),
           December 1, 1972 (Amended Exhibit 2.02 in
           File No. 2-46161), April 1, 1974 (Amended
           Exhibit 2.02 in File No. 2-50344),
           September 1, 1974 (Exhibit 2.04 in File
           No. 2-59328), July 1, 1975 (Exhibit 2.05 in
           File No. 2-59328), May 15, 1976 (Amended
           Exhibit 2.02 in File No. 2-56126), April 15,
           1977 (Exhibit 2.06 in File No. 2-59328),
           August 1, 1979 (Exhibit 2.04 in File
           No. 2-64969), May 1, 1980 (Exhibit 2 to
           Form 10-Q Quarterly Report of KU for the
           quarter ended June 30, 1980), September 15,
           1982 (Exhibit 4.04 in File No. 2-79891),
           August 1, 1984 (Exhibit 4B to Form 10-K
           Annual Report of KU for the year ended
           December 31, 1984), June 1, 1985 (Exhibit 4
           to Form 10-Q Quarterly Report of KU for the
           quarter ended June 30, 1985), May 1, 1990
           (Exhibit 4 to Form 10-Q Quarterly Report of
           KU for the quarter ended June 30, 1990),
           May 1, 1991 (Exhibit 4 to Form 10-Q
           Quarterly Report of KU for the quarter ended
           June 30, 1991), May 15, 1992 (Exhibit 4.02
           to Form 8-K of KU dated May 14, 1992),
           August 1, 1992 (Exhibit 4 to Form 10-Q
           Quarterly Report of KU for the quarter ended
           September 30, 1992), June 15, 1993
           (Exhibit 4.02 to Form 8-K of KU dated
           June 15, 1993) and December 1, 1993
           (Exhibit 4.01 to Form 8-K of KU dated
           December 10, 1993), November 1, 1994
           (Exhibit 4.C to Form 10-K Annual Report of
           KU for the year ended December 31, 1994),
           June 1, 1995 (Exhibit 4 to Form 10-Q
           Quarterly Report of KU for the quarter ended
           June 30, 1995) and January 15, 1996
           (Exhibit 4.E to Form 10-K Annual Report of
           KU for the year ended December 31, 1995).
           Incorporated by reference.                       x      x



                                       -43-
<PAGE>
                                                          Applicable to Form
                                                                10-K of
                                                           KU
    No.                     Description                  Energy   KU  Page(s)


    4.03   Supplemental Indenture dated March 1, 1992
           between Kentucky Utilities Company and the
           Trustees, providing for the conveyance of
           properties formerly held by Old Dominion
           Power Company (Exhibit 4B to Form 10-K
           Annual Report of KU for the year ended
           December 31, 1992).  Incorporated by
           reference.                                       x      x

    4.04   Amendment No. 1, dated as of May 20, 1997,
           to the Rights Agreement, dated as of
           January 27, 1992, between KU Energy
           Corporation and Illinois Stock Transfer
           Company (Exhibit 99.1 to Form 8-A/A dated
           May 21, 1997). Incorporated by reference.        x

    10.01  KU's Amended and Restated Performance Share
           Plan (Exhibit 10.A to Form 10-Q Quarterly
           Report of KU for the quarter ended June 30,
           1993).  Incorporated by reference.               x      x

    10.02  KU's Annual Performance Incentive Plan
           (Exhibit 10B to Form 10-K Annual Report of
           KU for the year ended December 31, 1990).
           Incorporated by reference.                       x      x

    10.03  Amendment No. 1 to KU's Performance Share
           Plan (Exhibit 10.03 to Form 10-K Annual
           Report for KU for the year ended
           December 31, 1996).  Incorporated by
           reference.                                       x      x

    10.04  Amendment No. 1 to KU's Annual Performance
           Incentive Plan (Exhibit 10D to Form 10-K
           Annual Report of KU for the year ended
           December 31, 1991).  Incorporated by
           reference.                                       x      x

    10.05  Amendment No. 2 to KU's Annual Performance
           Incentive Plan (Exhibit 10.H to Form 10-K
           Annual Report of KU for the year ended
           December 31, 1993).  Incorporated by
           reference.                                       x      x

    10.06  Amendment No. 3 to KU's Annual Performance
           Incentive Plan (Exhibit 10.I to Form 10-K
           Annual Report of KU for the year ended
           December 31, 1993).  Incorporated by
           reference.                                       x      x

    10.07  Amendment No. 4 to KU's Annual Performance
           Incentive Plan (Exhibit 10.07 to Form 10-K
           Annual Report for KU for the year ended
           December 31, 1996).  Incorporated by
           reference.                                       x      x

                                       -44-
<PAGE>


                                                          Applicable to Form
                                                                10-K of
                                                           KU
    No.                     Description                  Energy   KU  Page(s)


    10.08  KU's Executive Optional Deferred
           Compensation Plan (Exhibit 10.08 to
           Form 10-K Annual Report for KU for the year
           ended December 31, 1996).  Incorporated by
           reference.                                       x      x

    10.09  KU's Director Retirement Retainer Program,
           and Amendment No. 1 (Exhibit 10G to
           Form 10-K Annual Report of KU for the year
           ended December 31, 1991).  Incorporated by
           reference.                                       x      x

    10.10  Amendment No. 2 to KU's Director Retirement
           Retainer Program (Exhibit 10.10 to Form 10-K
           Annual Report for KU for the year ended
           December 31, 1996).  Incorporated by
           reference.                                       x      x

    10.11  Amendment No. 3 to KU's Director Retirement
           Retainer Program (Exhibit 10.11 to Form 10-K
           Annual Report for KU for the year ended
           December 31, 1996).  Incorporated by
           reference.                                       x      x

    10.12  KU's Supplemental Security Plan (Exhibit 10I
           to Form 10-K Annual Report of KU for the
           year ended December 31, 1991).  Incorporated
           by reference.                                    x      x

    10.13  Amendment No. 1 to KU's Supplemental
           Security Plan (Exhibit 10.J to Form 10-K
           Annual Report of KU for the year ended
           December 31, 1994).  Incorporated by
           reference.                                       x      x

    10.14  Amendment No. 2 to KU's Supplemental
           Security Plan (Exhibit 10.K to Form 10-K
           Annual Report of KU for the year ended
           December 31, 1994).  Incorporated by
           reference.                                       x      x

    10.15  Amendment No. 3 to KU's Supplemental
           Security Plan (Exhibit 10.15 to Form 10-K
           Annual Report for KU for the year ended
           December 31, 1996).  Incorporated by
           reference.                                       x      x

    10.16  KU's Amended and Restated Director Deferred
           Compensation Plan (Exhibit 10.16 to Form
           10-K Annual Report for KU for the year ended
           December 31, 1996).  Incorporated by
           reference.                                       x      x




                                       -45-
<PAGE>

                                                          Applicable to Form
                                                                10-K of

                                                           KU
    No.                     Description                  Energy   KU  Page(s)

    10.17  KU Energy's Performance Share Plan
           (Exhibit 10A to Form 10-Q Quarterly Report
           of KU Energy for the quarter ended June 30,
           1993).  Incorporated by reference.               x

    10.18  Amendment No. 1 to KU Energy's Performance
           Share Plan (Exhibit 10.18 to Form 10-K
           Annual Report of KU Energy for the year
           ended December 31, 1996).  Incorporated by
           reference.                                       x

    10.19  KU Energy's Annual Performance Incentive
           Plan of January 1993 (Exhibit 10.J to Form
           10-K Annual Report of KU Energy for the year
           ended December 31, 1993).  Incorporated by
           reference.                                       x

    10.20  Amendment No. 1 to KU Energy's Annual
           Performance Incentive Plan (Exhibit 10.K to
           Form 10-K Annual Report of KU Energy for the
           year ended December 31, 1993).
           Incorporated by reference.                       x

    10.21  Amendment No. 2 to KU Energy's Annual
           Performance Incentive Plan of January 1993
           (Exhibit 10.21 to Form 10-K Annual Report of
           KU Energy for the year ended December 31,
           1996).  Incorporated by reference.               x

    10.22  KU Energy's Annual Performance Incentive
           Plan as amended and restated effective as of
           January 28, 1997 (Exhibit 10.22 to Form 10-K
           Annual Report of KU Energy for the year
           ended December 31, 1996).  Incorporated by
           reference.                                       x

    10.23  KU Energy's Executive Optional Deferred
           Compensation Plan (Exhibit 10.23 to
           Form 10-K Annual Report of KU Energy for the
           year ended December 31, 1996).  Incorporated
           by reference.                                    x

    10.24  KU Energy's Director Retirement Retainer
           Program (Exhibit 10J to Form 10-K Annual
           Report of KU Energy for the year ended
           December 31, 1992).  Incorporated by
           reference.                                       x

    10.25  Amendment No. 1 to KU Energy's Director
           Retirement Retainer Program (Exhibit 10.25
           to Form 10-K Annual Report of KU Energy for
           the year ended December 31, 1996).
           Incorporated by reference.                       x



                                       -46-
<PAGE>

                                                          Applicable to Form
                                                                10-K of

                                                           KU
    No.                     Description                  Energy   KU  Page(s)

    10.26  KU Energy's Amended and Restated Director
           Deferred Compensation Plan (Exhibit 10.26 to
           Form 10-K Annual Report of KU Energy for the
           year ended December 31, 1996).  Incorporated
           by reference.                                    x

    10.27  KU Energy's Long-Term Incentive Plan
           (Exhibit 10.27 to Form 10-K Annual Report of
           KU Energy for the year ended December 31,
           1996).  Incorporated by reference.               x

    10.28  Employment Agreement by and between KU
           Energy Corporation and Michael R. Whitley
           (Exhibit (2)-5 to S-4 Registration Statement
           File No. 333-34219; Annex E to Form DEFM14A
           Joint Proxy Statement of LG&E Energy Corp.
           and KU Energy Corporation dated August 22,
           1997).  Incorporated by reference                x      x

    10.29  KU Energy Stock Option Agreement, dated as
           of May 20, 1997, by and between KU Energy
           and LG&E Energy Corp. (Exhibit 99.1 to
           Form 8-K Current Report dated May 30, 1997).
           Incorporated by reference.                       x

    10.30  LG&E Energy Corp. Stock Option Agreement,
           dated as of May 20, 1997, by and between
           LG&E Energy Corp. and KU Energy
           (Exhibit 99.2 to Form 8-K Current Report
           dated May 30, 1997).  Incorporated by            x
           reference.

    12     Computation of Ratio of Earnings to Fixed
           Charges                                                 x     60

    13     Portions of 1997 KU Energy Annual Report to
           Shareholders                                     x      x*   61-88

    21     List of Subsidiaries                             x      x     89

    23     Consent of Independent Public Accountants -
           KU Energy and KU                                 x      x     90

    27.01  Financial Data Schedule of KU Energy             x            **

    27.02  Financial Data Schedule of KU                           x     **

    99.01  Description of Common Stock - KU Energy          x          91-93

    99.02  Description of Common Stock - KU                        x   94-95

    99.03  Director and Officer Information                        x   96-107




                                       -47-
<PAGE>

                                                          Applicable to Form
                                                                10-K of

                                                           KU
    No.                     Description                  Energy   KU  Page(s)

    99.04  Cautionary Statements - KU Energy and KU         x      x  108-109




   Note  -  Exhibit  numbers  10.01  through 10.28 are management contracts or
   compensatory plans or arrangements required to be filed as exhibits to this
   Form 10-K.

   *  Only the Management's Discussion and Analysis of Financial Condition and
   Results  of  Operations is included or incorporated in the Annual Report on
   Form 10-K of Kentucky Utilities.

   ** Included in electronic filing only.























                                       -48-
<PAGE>


   The  following  instruments defining the rights of holders of certain long-
   term  debt  of  KU  have  not  been  filed with the Securities and Exchange
   Commission but will be furnished to the Commission upon request.

       1. Loan  Agreement dated as of May 1, 1990 between KU and the County of
          Mercer,  Kentucky,  in connection with $12,900,000 County of Mercer,
          Kentucky, Collateralized Solid Waste Disposal Facility Revenue Bonds
          (KU Project) 1990 Series A, due May 1, 2010 and May 1, 2020.

       2. Loan  Agreement dated as of May 1, 1991 between KU and the County of
          Carroll, Kentucky, in connection with $96,000,000 County of Carroll,
          Kentucky,  Collateralized  Pollution  Control  Revenue  Bonds  (KU
          Project) 1992 Series A, due September 15, 2016.

       3. Loan  Agreement dated as of August 1, 1992 between KU and the County
          of  Carroll,  Kentucky,  in  connection  with  $2,400,000  County of
          Carroll,  Kentucky,  Collateralized  Pollution Control Revenue Bonds
          (KU Project) 1992 Series C, due February 1, 2018.

       4. Loan  Agreement dated as of August 1, 1992 between KU and the County
          of  Muhlenberg,  Kentucky,  in  connection with $7,200,000 County of
          Muhlenberg, Kentucky, Collateralized Pollution Control Revenue Bonds
          (KU Project) 1992 Series A, due February 1, 2018.

       5. Loan  Agreement dated as of August 1, 1992 between KU and the County
          of Mercer, Kentucky, in connection with $7,400,000 County of Mercer,
          Kentucky,  Collateralized  Pollution  Control  Revenue  Bonds  (KU
          Project) 1992 Series A, due February 1, 2018.

       6. Loan  Agreement dated as of August 1, 1992 between KU and the County
          of  Carroll,  Kentucky,  in  connection  with  $20,930,000 County of
          Carroll,  Kentucky,  Collateralized  Pollution Control Revenue Bonds
          (KU Project) 1992 Series B, due February 1, 2018.

       7. Loan  Agreement  dated  as  of  December 1, 1993, between KU and the
          County  of  Carroll, Kentucky, in connection with $50,000,000 County
          of Carroll, Kentucky, Collateralized Solid Waste Disposal Facilities
          Revenue Bonds (KU Project) 1993 Series A, due December 1, 2023.

       8. Loan  Agreement  dated  as  of  November 1, 1994, between KU and the
          County  of Carroll, Kentucky, in connection with $54,000,000  County
          of   Carroll,  Kentucky,  Collateralized    Solid  Waste  Disposal
          Facilities Revenue Bonds (KU Project) 1994 Series A, due November 1,
          2024.

   (B)  No  reports  on Form 8-K were filed by KU Energy or KU during the last
        quarter of 1997.















                                       -49-
<PAGE>


    UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL INFORMATION


   The  following  unaudited  pro  forma  financial  information  combines the
   historical  balance  sheets  and statements of income of LG&E Energy and KU
   Energy, including their respective subsidiaries, after giving effect to the
   Merger.    The  unaudited  pro  forma  combined  condensed balance sheet at
   December  31,  1997  gives  effect  to  the Merger as if it had occurred at
   December  31,  1997.  The unaudited pro forma combined condensed statements
   of  income  for all periods give effect to the Merger as if it had occurred
   at  the  beginning of the periods presented.  These statements are prepared
   on the basis of accounting for the Merger as a pooling of interests and are
   based  on  the  assumptions  set forth in the notes thereto.  The pro forma
   financial information does not give effect to the expected synergies of the
   transaction.

   The  following  pro forma financial information has been prepared from, and
   should be read in conjunction with, the historical financial statements and
   related  notes  thereto  of  LG&E  Energy  and  KU  Energy.   The following
   information  is  not  necessarily  indicative  of the financial position or
   operating  results that would have occurred had the Merger been consummated
   on  the date as of which, or at the beginning of the periods for which, the
   Merger  is  being  given effect, nor is it necessarily indicative of future
   operating results or financial position.






































                                       -50-
<PAGE>


                                  LG&E ENERGY CORP.
                       UNAUDITED PRO FORMA COMBINED CONDENSED
                                    BALANCE SHEET
                                 At December 31,1997
                               (Thousands of Dollars)
<TABLE>
<CAPTION>

                                            LG&E Energy    KU Energy    Pro Forma   Pro Forma
                                            (As Reported) (As Reported)  Adjustment  Combined
                                                             (Note 1)     (Note 2)    (Note 3)

      ASSETS
      Current assets:
<S>                                         <C>           <C>            <C>        <C>
        Cash and temporary cash investments $   104,366   $    21,726    $      -   $   126,092
        Marketable securities                    22,300             -           -        22,300
        Accounts receivable - less reserve      521,166        74,937        (156)      595,947
        Materials and supplies - primarily
          at average cost:
          Fuel (predominately coal)              17,651        27,799           -        45,450
          Gas stored underground                 49,396             -           -        49,396
          Other                                  31,866        23,648           -        55,514
        Price risk management assets            120,341             -           -       120,341
        Prepayments and other                    10,599         5,769           -        16,368
          Total current assets                  877,685       153,879        (156)    1,031,408


      Utility plant:
        At original cost                      2,779,234     2,611,634           -     5,390,868
        Less: reserve for depreciation        1,072,842     1,128,282           -     2,201,124
          Net utility plant                   1,706,392     1,483,352           -     3,189,744


      Other property and investments
        - less reserve:
        Investments in affiliates               168,276         2,157           -       170,433
        Non-utility property and plant, net     421,486         2,666           -       424,152
        Price risk management assets             44,240             -           -        44,240
        Other                                    24,743        42,409           -        67,152
          Total other property and
            investments                         658,745        47,232           -       705,977


      Deferred debits and other assets          123,569        52,799      (5,012)      171,356

          Total assets                      $ 3,366,391   $ 1,737,262    $ (5,168)  $ 5,098,485


      See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
</TABLE>





                                                -51-
<PAGE>
                                   LG&E ENERGY CORP.
                       UNAUDITED PRO FORMA COMBINED CONDENSED
                                    BALANCE SHEET
                                At December 31, 1997
                               (Thousands of Dollars)

<TABLE>
<CAPTION>

                                            LG&E Energy    KU Energy    Pro Forma   Pro Forma
                                            (As Reported) (As Reported)  Adjustment  Combined
                                                             (Note 1)     (Note 2)    (Note 3)

      CAPITAL AND LIABILITIES
      Current liabilities:
<S>                                          <C>          <C>            <C>       <C>
        Long-term debt due within one year   $    20,000  $        21    $      -  $    20,021
        Notes payable                            360,184       33,600           -      393,784
        Accounts payable                         449,230       29,561       3,082      481,873
        Trimble County settlement                 13,248            -           -       13,248
        Price risk management liabilities        131,107            -           -      131,107
        Other                                     84,966       42,733      (3,330)     124,369
          Total current liabilities            1,058,735      105,915        (248)   1,164,402

      Long-term debt                             664,339      546,351           -    1,210,690

      Deferred credits and other liabilities:
        Accumulated deferred income taxes        327,343      252,492           -      579,835
        Investment tax credit, in process
          of amortization                         75,800       26,131           -      101,931
        Accumulated provision for pensions
          and related benefits                    43,883       35,664           -       79,547
        Regulatory liability                      65,502       51,577           -      117,079
        Price risk management liabilities         23,803            -           -       23,803
        Other                                     67,576       15,010           -       82,586
          Total deferred credits and
            other liabilities                    603,907      380,874           -      984,781

      Minority interests                         105,985            -           -      105,985

      Cumulative preferred stock                  98,353       40,000           -      138,353
      Common equity                              835,072      664,122      (4,920)   1,494,274
        Total capital and liabilities        $ 3,366,391  $ 1,737,262    $ (5,168) $ 5,098,485


      See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements.

</TABLE>






                                                -52-
<PAGE>

                                   LG&E ENERGY CORP.
              UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
                             Year Ended December 31, 1997
                     (Thousands of Dollars Except Per Share Data)
<TABLE>
<CAPTION>


                                            LG&E Energy    KU Energy    Pro Forma   Pro Forma
                                            (As Reported) (As Reported)  Adjustment  Combined
                                                            (Note 1)     (Note 2)     (Note 3)
      REVENUES
<S>                                         <C>           <C>            <C>       <C>
        Energy marketing and trading        $ 3,266,811   $         -    $     (4) $ 3,266,807
        Electric utility                        615,159       716,410        (305)   1,331,264
        Gas utility                             231,011             -           -      231,011
        Argentine gas distribution and
         other                                  150,839         5,899           -      156,738
          Total revenues                      4,263,820       722,309        (309)   4,985,820

      COST OF REVENUES
        Energy marketing and trading          3,245,234             -         (14)   3,245,220
        Fuel and power purchased                166,692       260,981        (295)     427,378
        Gas supply expenses                     158,929             -           -      158,929
        Argentine gas distribution and
          other                                  84,873             -           -       84,873
          Total cost of revenues              3,655,728       260,981        (309)   3,916,400

      Gross profit                              608,092       461,328           -    1,069,420

      OPERATING EXPENSES
        Operation and maintenance:
          Energy marketing and trading           40,012             -           -       40,012
          Utility                               214,635       201,247           -      415,882
          Argentine gas distribution and
            other                                49,562         3,661           -       53,223
        Depreciation and amortization           115,736        84,297           -      200,033
        Non-recurring charges                    (1,342)            -           -       (1,342)
          Total operating expenses              418,603       289,205           -      707,808

      Equity in earnings of joint ventures       21,014             -           -       21,014

      OPERATING INCOME                          210,503       172,123           -      382,626

      Other income and (deductions)              15,476         3,960           -       19,436
      Interest charges and
        preferred dividends                      63,865        41,959           -      105,824
      Minority interest                           9,035             -           -        9,035

      Income before income taxes                153,079       134,124           -      287,203

      Income taxes                               55,262        48,945           -      104,207

      NET INCOME (Note 5)                   $    97,817   $    85,179    $      -  $   182,996

      Average common shares outstanding
        (Note 4)                                 66,471        37,818      25,338      129,627

      Earnings per share of common
        stock - basic and diluted           $      1.47   $      2.25    $      -  $      1.41


      See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements.

</TABLE>

                                                 -53-
<PAGE>
                                    LG&E ENERGY CORP.
              UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
                             Year Ended December 31, 1996
                     (Thousands of Dollars Except Per Share Data)
<TABLE>
<CAPTION>

                                            LG&E Energy    KU Energy    Pro Forma   Pro Forma
                                            (As Reported) (As Reported)  Adjustment  Combined
                                                            (Note 1)     (Note 2)     (Note 3)
      REVENUES
        Energy marketing and
<S>                                         <C>           <C>            <C>       <C>
          trading (Note 6)                  $ 2,748,873   $         -    $      -  $ 2,748,873
        Electric utility                        607,160       711,686        (760)   1,318,086
        Gas utility                             214,419             -           -      214,419
        Argentine gas distribution and
          other                                  19,013         4,522           -       23,535
          Total revenues                      3,589,465       716,208        (760)   4,304,913

      COST OF REVENUES
        Energy marketing and trading          2,664,399             -        (257)   2,664,142
        Fuel and power purchased                166,323       260,688        (503)     426,508
        Gas supply expenses                     140,482             -           -      140,482
        Argentine gas distribution and
          other                                  13,059             -           -       13,059
          Total cost of revenues              2,984,263       260,688        (760)   3,244,191

      Gross profit                              605,202       455,520           -    1,060,722

      OPERATING EXPENSES
        Operation and maintenance:
          Energy marketing and trading           41,916             -           -       41,916
          Utility                               214,786       201,811           -      416,597
          Argentine gas distribution and
            other                                25,991         2,759           -       28,750
        Depreciation and amortization           103,556        80,612           -      184,168
        Non-recurring charges
          (Notes 7 and 8)                        26,330         5,493           -       31,823
          Total operating expenses              412,579       290,675           -      703,254

      Equity in earnings of joint ventures       18,818             -           -       18,818

      OPERATING INCOME                          211,441       164,845           -      376,286

      Other income and (deductions)               3,808         5,327           -        9,135
      Interest charges and
        preferred dividends                      53,887        41,889           -       95,776

      Income before income taxes                161,362       128,283           -      289,645

      Income taxes                               57,359        46,334           -      103,693

      NET INCOME                            $   104,003   $    81,949    $      -  $   185,952

      Average common shares outstanding
        (Note 4)                                 66,294        37,818      25,338      129,450

      Earnings per share of common
        stock - basic and diluted           $      1.57   $      2.17    $      -  $      1.44

      See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements.

</TABLE>
                                                 -54-
<PAGE>
                                    LG&E ENERGY CORP.
              UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
                             Year Ended December 31, 1995
                     (Thousands of Dollars Except Per Share Data)
<TABLE>
<CAPTION>

                                            LG&E Energy    KU Energy    Pro Forma   Pro Forma
                                            (As Reported) (As Reported)  Adjustment  Combined
                                                            (Note 1)     (Note 2)     (Note 3)
      REVENUES
<S>                                         <C>           <C>            <C>       <C>
        Energy marketing and trading        $   630,249   $         -    $ (1,616) $   628,633
        Electric utility                        571,086       686,400      (2,212)   1,255,274
        Refund - Trimble County
          settlement (Note 9)                   (28,300)            -           -      (28,300)
        Gas utility                             181,126             -           -      181,126
        Argentine gas distribution and
          other                                  20,519         4,028           -       24,547
          Total revenues                      1,374,680       690,428      (3,828)   2,061,280


      COST OF REVENUES
        Energy marketing and trading            604,302             -           -      604,302
        Fuel and power purchased                154,832       259,424      (3,828)     410,428
        Gas supply expenses                     110,738             -           -      110,738
        Argentine gas distribution and
          other                                  19,858             -           -       19,858
          Total cost of revenues                889,730       259,424      (3,828)   1,145,326

      Gross profit                              484,950       431,004           -      915,954

      OPERATING EXPENSES
        Operation and maintenance:
          Energy marketing and trading           18,177             -           -       18,177
          Utility                               203,284       198,712           -      401,996
          Argentine gas distribution and
            other                                21,697         2,969           -       24,666
        Depreciation and amortization            94,393        75,268           -      169,661
          Total operating expenses              337,551       276,949           -      614,500


      Equity in earnings of joint ventures       28,158             -           -       28,158

      OPERATING INCOME                          175,557       154,055           -      329,612

      Other income and (deductions)               5,389         6,092           -       11,481
      Interest charges and
        preferred dividends                      53,822        42,273           -       96,095

      Income before income taxes                127,124       117,874           -      244,998

      Income taxes                               44,294        41,821           -       86,115

      NET INCOME                            $    82,830   $    76,053    $      -  $   158,883

      Average common shares outstanding
        (Note 4)                                 66,105        37,818      25,338      129,261

      Earnings per share of common
        stock - basic and diluted           $      1.25   $      2.01    $      -  $      1.23

      See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements.

</TABLE>

                                                 -55-
<PAGE>
                                    LG&E ENERGY CORP.
                             NOTES TO UNAUDITED PRO FORMA
                        COMBINED CONDENSED FINANCIAL STATEMENTS


      1.   Reclassifications  have  been  made  to certain  as reported  account
           balances  reflected in KU Energy's financial statements to conform to
           this  reporting  presentation.    All  other  financial  statement
           presentation  and  accounting  policy  differences are immaterial and
           have  not been adjusted in the pro forma combined condensed financial
           statements.

      2.   Intercompany  transactions  (power  purchased  and  power  sales
           transactions)  between  LG&E  Energy and KU Energy during the periods
           presented were eliminated through pro forma adjustments.

      3.   Merger-related  transaction  costs  are  currently  estimated  to  be
           approximately  $16.5  million (including fees for financial advisors,
           attorneys,  accountants,  consultants,  filings  and printing).  LG&E
           Energy and KU Energy have incurred transaction costs of $13.3 million
           through  December 31, 1997, which are included in deferred debits and
           other assets in the pro forma combined condensed balance sheet.  None
           of  the  estimated cost savings resulting from the Merger or costs to
           achieve  such  savings  have been reflected in the pro forma combined
           condensed  statements  of  income.    A  charge  of  $4.92  million
           ($8.25  million, net of income taxes of $3.33 million) as a pro forma
           adjustment  to  retained  earnings  and  a  credit  of  $5.0  million
           ($8.25  million  less  $13.3  million actual charges incurred through
           December  31,  1997) as a pro forma adjustment to deferred debits and
           other  assets  have  been  made  in  the pro forma combined condensed
           balance  sheet  to recognize such estimated transaction costs and the
           proposed treatment following the consummation of the Merger.

      4.   The  pro  forma  combined  condensed financial statements reflect the
           conversion  of  each  share  of KU Energy Common Stock (no par value)
           outstanding  into  1.67  shares  of  LG&E Energy Common Stock (no par
           value)  as  provided in the Merger Agreement.  The pro forma combined
           condensed financial statements are presented as if the companies were
           combined during all periods included therein.

      5.   LG&E  Energy's non-recurring charges for the year ended December 31,
           1997,  included a net insurance settlement of $7.6 million related to
           losses  incurred in its Canadian office during 1996, partially offset
           by    a  charge of $6.3 million to reflect the costs of consolidating
           the  trading,  risk  management  and administrative operations of its
           power  and  gas  marketing  divisions  into a single energy marketing
           unit, located in its Louisville headquarters.

      6.   LG&E  Energy  adopted the mark-to-market method of accounting for its
           energy  trading  and  price  risk  management activities during 1996.
           This resulted in an increase in Energy Marketing and Trading revenues
           and  income from operations of $26.2 million for 1996.  The impact on
           prior period financial results was immaterial.

      7.   LG&E  Energy's  net  income  for  the  year ended December 31, 1996,
           includes a non-recurring after-tax charge of $17.1 million for losses
           in  its  natural  gas  marketing business resulting from unauthorized
           transactions  entered  into  by  a  marketer in its Calgary, Alberta,
           office.    This  charge  is reflected in non-recurring charges on the

                                         -56-
<PAGE>



           respective statements of income.

      8.   KU Energy's net income for the year ended December 31, 1996, includes
           a  non-recurring  write-off of nonutility investments of $5.5 million
           which  is reflected in non-recurring charges.

      9.   LG&E  Energy's 1995 operating revenues were reduced by $28.3 million
           related to a settlement agreement approved by the Kentucky Commission
           on  December  8,  1995,  which resolved numerous legal and regulatory
           proceedings  to  determine  the  appropriate  ratemaking treatment to
           implement  the  Kentucky  Commission's 1988 decision that LG&E should
           not  be  allowed  to recover 25 percent of the cost of Trimble County
           Unit 1 (Trimble County) from ratepayers.




































                                         -57-
<PAGE>



                                      SIGNATURES

        Pursuant  to  the  requirements of Section 13 or 15(d) of the Securities
     Exchange Act  of 1934, KU Energy Corporation and Kentucky Utilities Company
     have each  duly  caused  this  report  to  be  signed  on its behalf by the
     undersigned, thereunto duly authorized, on March 25, 1998.

                                         KU ENERGY CORPORATION AND
                                         KENTUCKY UTILITIES COMPANY
                                                  (Registrants)



                                         /s/Michael R. Whitley
                                         Michael R. Whitley
                                         Chairman and President

        Pursuant  to  the  requirements  of the Securities Exchange Act of 1934,
     this report has been signed below by the following persons on behalf of the
     registrants in the capacities and on the date indicated.

        Signature                 Title


        /s/Michael R. Whitley
        Michael R. Whitley        Chairman and President (Principal Executive
                                  Officer) and Director of KU Energy and KU


        /s/O.M. Goodlett
        O. M. Goodlett            Senior Vice-President (Principal Financial
                                  Officer) of KU Energy and KU


        /s/Michael D. Robinson
        Michael D. Robinson       Controller (Principal Accounting Officer) of
                                  KU Energy and KU


        /s/Mira S. Ball
        Mira S. Ball              Director of KU Energy and KU


        /s/Carol M. Gatton
        Carol M.  Gatton          Director of KU Energy and KU


        /s/Harry M. Hoe
        Harry M. Hoe              Director of KU Energy and KU


        /s/Milton W. Hudson
        Milton W. Hudson          Director of KU Energy and KU


        /s/John T. Newton
        John T. Newton            Director of KU Energy and KU




                                         -58-
<PAGE>





        Signature                 Title


        /s/Frank V. Ramsey, Jr.
        Frank V. Ramsey, Jr.      Director of KU Energy and KU


        /s/William L. Rouse, Jr.
        William L. Rouse, Jr.     Director of KU Energy and KU


        /s/Charles L. Shearer
        Charles L. Shearer        Director of KU Energy and KU


        /s/Lee T. Todd, Jr.
        Lee T. Todd, Jr.          Director of KU Energy and KU



     March 25, 1998





























                                         -59-