<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES 
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the fiscal year ended December 31, 1998
                                      OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
    EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For transition period from __________ to __________

Commission File No. 0-12553

                             PACCAR FINANCIAL CORP.
-------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

               Washington                              91-6029712              
        ------------------------          ------------------------------------
        (State of Incorporation)          (I.R.S. Employer Identification No.)

               777 - 106th Avenue N.E., Bellevue, Washington 98004
               ---------------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)

       Registrant's telephone number, including area code: (425) 468-7100
                                                           --------------

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

      Title of Each Class             Name of Each Exchange on Which Registered
      -------------------             -----------------------------------------

  Series H Medium-Term Notes
$5 Million Due December 15, 2000               New York Stock Exchange        
--------------------------------      -----------------------------------------
           Securities registered pursuant to Section 12(g) of the Act:

                                      None
               ---------------------------------------------------
                                (Title of Class)

Indicate by check mark whether the registrant (1) has 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 periods that the 
registrant was required to file such reports), and (2) has been subject to 
such filing requirements for at least 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 registrant's 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]

The aggregate market value of the voting stock held by non-affiliates of the 
registrant as of March 1, 1999:                                               
                                      None

The number of shares outstanding of the registrant's classes of common stock 
as of March 1, 1999:

                  Common Stock, $100 par value -- 145,000 shares
                  ----------------------------------------------

THE REGISTRANT IS A WHOLLY-OWNED SUBSIDIARY OF PACCAR INC AND MEETS THE 
CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS (I)(1)(a) AND (b) OF FORM 10-K 
AND IS, THEREFORE, FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.

<PAGE>

                                     PART I


ITEM 1.  BUSINESS
                                    GENERAL


PACCAR Financial Corp.

     PACCAR Financial Corp. (the "Company"), a wholly-owned subsidiary of 
PACCAR Inc ("PACCAR"), is a Washington corporation organized in 1961 to 
finance the sale of PACCAR products. The Company provides financing and 
leasing of trucks and related equipment manufactured primarily by PACCAR and 
sold through PACCAR's independent dealers in the United States. The Company 
also finances dealer inventories of transportation equipment.

PACCAR

     PACCAR is a multi-national company whose principal products are 
commercial trucks and related service parts. This business accounted for 92% 
of PACCAR's total revenues in 1998. PACCAR markets trucks in the heavy-duty 
diesel category under the Kenworth, Peterbilt, DAF, and Foden nameplates 
primarily through its dealers. These vehicles are manufactured in four plants 
in the U.S., three in Europe and one each in Australia and Mexico. PACCAR 
also competes in the North American Class 6/7 markets. These medium-duty 
trucks are assembled at a PACCAR factory in Mexico and in the Seattle, 
Washington plant. PACCAR competes in the European medium commercial vehicle 
market with a cab-over-engine truck manufactured in the Netherlands. During 
the second quarter of 1998, PACCAR acquired Leyland Trucks Limited. Leyland 
manufactures light commercial vehicles in the United Kingdom for sale 
throughout Europe under the DAF and Leyland DAF nameplates. PACCAR competes 
in the truck parts aftermarket primarily through its independent dealer 
networks. Other PACCAR businesses include industrial winches and retail auto 
parts.

     In the United States, Kenworth and Peterbilt trucks are sold to an 
independent dealer network for resale to retail purchasers. Trucks 
manufactured in the United States for export are marketed by a division of 
PACCAR through an independent international dealer network.

     In addition to the Company, which provides financing and leasing in the 
United States, PACCAR offers similar financing programs for PACCAR products 
in Mexico, Canada, Australia and the United Kingdom through five other 
wholly-owned finance companies. PACCAR also provides full service truck 
leasing through a wholly-owned subsidiary.

     As of December 31, 1998, PACCAR and its subsidiaries had total assets of 
$6.8 billion and stockholders' equity of $1.8 billion. For the year ended 
December 31, 1998, PACCAR's consolidated revenues and net income were $7.9 
billion and $416.8 million, respectively.

     There were four other principal competitors besides PACCAR in the U.S. 
Class 8 truck market in 1998. Based on 1998 industry registration statistics, 
PACCAR's Kenworth and Peterbilt combined truck sales accounted for 
approximately 21% of domestic Class 8 new truck registrations. There were 
seven other principal competitors in the European medium and heavy commercial 
vehicle market in 1998 including parent companies of three competitors of 
PACCAR in the United States. PACCAR's subsidiary, DAF, had a 10.5% share of 
the western European heavy-duty market. These markets are highly competitive 
in price, quality and service. PACCAR is not dependent on any single customer 
for a significant amount of its sales.

     PACCAR's common stock, $1 par value, is traded on the Nasdaq National 
Market under the symbol "PCAR". PACCAR and the Company are subject to the 
informational requirements of the Securities 


                                     -2-
<PAGE>

Exchange Act of 1934 and in accordance therewith files reports and other 
information with the Securities and Exchange Commission (the "Commission"). 
All reports, proxy statements and other information filed by PACCAR and the 
Company with the Commission may be inspected and copied at the public 
reference facilities maintained by the Commission at Room 1024, 450 Fifth 
Street, N.W., Washington, D.C. 20549; Suite 1400, Citicorp Center, 500 West 
Madison Street, Chicago, Illinois 60661; at 7 World Trade Center, 13th Floor, 
New York, New York 10048, or through the Commission's internet site at 
www.sec.gov.

                           BUSINESS OF THE COMPANY

     The Company operates primarily in one industry segment, truck and 
related equipment financing. The Company provides financing for dealers' 
sales of Kenworth and Peterbilt trucks in the United States. In addition, the 
Company provides financing for dealers' purchases of new Class 6, 7 and 8 
trucks and used trucks, regardless of make or model. Financing is also 
provided for truck trailers and allied equipment such as mixer and dump 
bodies attached to the truck.

     The Company currently conducts business with most PACCAR dealers. The 
volume of the Company's business is significantly affected by PACCAR's sales 
and competition from other financing sources.

     As of December 31, 1998, the Company employed 290 full-time employees, 
none of whom are represented by a collective bargaining agent. The Company 
considers relations with its employees to be good.

THE COMPANY'S PRODUCTS

RETAIL RECEIVABLES

     RETAIL CONTRACTS 

     The Company purchases contracts from dealers and receives assignments of 
the contracts and a first lien security interest in the vehicles financed 
("Retail Contracts"). Collateral for vehicles sold to leasing companies may 
also include an assignment of leases and rentals due. Retail Contracts 
purchased by the Company have fixed or floating interest rates.

     DIRECT LOANS 

     The Company also makes loans to the end users of the vehicles financed that
are secured by a first lien security interest in the vehicles ("Direct 
Loans"). Direct Loans have fixed or floating interest rates.

MASTER NOTE

     These contracts are an alternative form of retail financing offered to 
selected dealers for new and used trucks. Retail installment contracts 
originated by the dealer for new or used trucks and meeting the Company's 
requirements as to form, terms and creditworthiness for Retail Contracts are 
pledged to the Company as collateral for direct, full recourse loans by the 
Company to the dealer ("Master Note"). Master Note contracts have fixed or 
floating interest rates.

WHOLESALE CONTRACTS

     The Company provides wholesale financing for new and used truck and 
trailer inventories for dealers ("Wholesale Contracts"). Wholesale Contracts 
are secured by the inventories financed. The amount of credit extended by the 
Company for each truck is generally limited to the invoice price of new 
equipment and to the wholesale value of used equipment. Interest under 
Wholesale Contracts is based upon floating rates.

DEALER LOANS

     The Company makes loans to selected Peterbilt and Kenworth dealers 
("Dealer Loans"). The purposes of these loans include the financing of real 
estate, fixed asset, working capital and dealership acquisitions. Dealer 
loans may have fixed or floating interest rates.


                                     -3-
<PAGE>


LEASES

     The Company offers lease contracts where it is treated as the owner of 
the equipment for tax purposes and generally retains the tax depreciation 
("Leases"). The lessee is responsible for the payment of property and sales 
taxes, licenses, maintenance and other operating items. The lessee is 
obligated to maintain the equipment and to insure the equipment against 
casualty and liability losses.

     Most of the Company's Leases contain a Terminal Rental Adjustment Clause 
which requires the lessee to guarantee to the Company a stated residual value 
upon disposition of the equipment at the end of the lease term.

INSURANCE

     The Company sells physical damage insurance through PACCAR dealers who 
are licensed insurance agents as well as through licensed agents of the 
Company. The Company retains the premium revenues and loss exposure for the 
policies which are issued through an unrelated insurance carrier.

     The Company also charges a fee to provide insurance coverage, through an 
unrelated regulated insurance carrier, on new trucks, used trucks and trailer 
inventory to dealers having Wholesale Contracts with the Company. The Company 
retains annual loss exposure up to that year's fee revenues.

          CUSTOMER CONCENTRATION, PAST DUE ACCOUNTS AND LOSS EXPERIENCE

CUSTOMER CONCENTRATION

     At December 31, 1998, the largest single customer for Retail Contracts, 
Direct Loans or Leases represented 1.2% of the Company's net receivables, and 
the five largest such accounts amounted to 4.4% of net receivables.

     At December 31, 1998, the Company had four Master Note dealers. Master 
Note borrowings totaled 12.1% of the Company's net receivables, while the 
largest Master Note dealer's borrowing amounted to 8.4% of the Company's net 
receivables. Master Note receivables are secured by numerous retail 
installment contracts which, in effect, reduce the amount of dealer 
concentration.

     With respect to wholesale financing, at December 31, 1998, the largest 
single dealer group accounted for 1.4% of the Company's net receivables, and 
the five largest dealer groups collectively accounted for 3.5% of net 
receivables.

PAST DUE RECEIVABLES AND ALLOWANCE FOR LOSSES

     An account is considered past due by the Company if any portion of an 
installment is due and unpaid for more than 30 days. In periods of adverse 
economic conditions, past due levels, repossessions and credit losses 
generally increase.

   The Company maintains an allowance for losses on receivables at a level 
which it considers to be adequate to cover management's estimates of losses. 
The following table summarizes the activity in the Company's allowance for 
losses on receivables and presents related ratios:


                                     -4-
<PAGE>

                             Allowance for Losses
                            ----------------------
                            (Thousands of Dollars)
<TABLE>
<CAPTION>
                                                                         Year Ended December 31
                                                              ----------------------------------------------
                                                                   1998            1997           1996
                                                                   ----            ----           ----
<S>                                                           <C>               <C>             <C>
Balance at beginning of period                                    $37,350       $  36,000       $  35,790
Provision for losses                                               11,485           6,245           3,279
Net losses                                                         (4,035)         (4,895)         (3,069)
                                                                ----------      ----------      ----------
Balance at end of period                                          $44,800       $  37,350       $  36,000
                                                                ----------      ----------      ----------
                                                                ----------      ----------      ----------
Ratios:
   Net losses to average net                                          .16%            .23%            .15%
       receivables and equipment on operating leases
   Allowance for losses to period end net                            1.68%           1.70%           1.70%
       receivables and equipment on operating leases
    Period end gross contracts and leases past                        .65%           1.05%            .93%
       due (over 60 days) to period end gross
       contracts and lease receivables
</TABLE>

     For discussion of the allowance for losses, see "Management's Discussion 
and Analysis of Financial Condition and Results of Operations, 1996-1998."

                       COMPETITION AND ECONOMIC FACTORS

     The truck financing business is highly competitive among banks, 
commercial finance companies, captive finance companies and leasing 
companies. Many of these institutions have substantially greater financial 
resources than the Company and may borrow funds at lower rates.

     The dealers are the primary source of contracts acquired by the Company. 
However, dealers are not required to obtain financing from the Company, and 
they have a variety of other sources which may be used for wholesale and 
customer financing of trucks. Retail purchasers also have a variety of 
sources available to finance truck purchases.

     The ability of the Company to compete in its market is principally based 
on the rates and terms which the Company offers dealers and retail 
purchasers, as well as the specialized services it provides. Rates and terms 
are based on the Company's desire to provide flexible financing which meets 
dealer and customer financing needs, the ability of the Company to borrow 
funds at competitive rates and the Company's need to earn an adequate return 
on its invested capital. The Company's business is also affected by changes 
in market interest rates, which in turn are related to general economic 
conditions, demand for credit, inflation and governmental policies. 
Seasonality is not a significant factor in the Company's business.

     The volume of receivables available to be acquired by the Company from 
dealers is largely dependent upon the number of Kenworth and Peterbilt trucks 
sold. Domestic sales of heavy-duty trucks depend on the capital equipment 
requirements of the transportation industry, which in turn are influenced by 
economic growth and cyclical variations in the economy. Heavy-duty truck 
sales are also sensitive to economic factors such as fuel costs, interest 
rates, federal excise and highway use taxes and taxation of the acquisition 
and use of capital goods.


                                     -5-
<PAGE>

                      REGULATIONS AND SIMILAR MATTERS

     In certain states, the Company is subject to retail installment sales or 
installment loan statutes and related regulations, the terms of which vary 
from state to state. These laws may require the Company to be licensed as a 
sales finance company and may regulate disclosure of finance charges and 
other terms of retail installment contracts. The Company is also subject to 
some of the provisions of federal law relating to discrimination in the 
granting of credit.

                              SOURCES OF FUNDS

     The operations of the Company are financed by borrowings, retained 
earnings, and PACCAR equity investments. The Company's profitable acquisition 
of additional receivables is dependent upon its ability to raise funds at 
competitive rates in the public and private debt markets. The receivables and 
leases that are financed are either fixed rate or floating rate, with a term 
of generally five years or less.

     To reduce the risk of changes in interest rates that could affect 
interest margins, the Company obtains funds with interest rate 
characteristics similar to the corresponding assets. Fixed rate assets are 
funded primarily with publicly offered fixed rate medium-term notes and 
commercial paper combined with interest rate swaps. Floating rate assets are 
funded primarily with commercial paper with maturities of three months or 
less. As a result, the Company's interest margin on existing business does 
not change significantly as interest rates change.

     The Company enters into over-the-counter interest rate contracts as a 
tool to achieve its matched funding objectives and to reduce total borrowing 
costs relative to its primary borrowing sources--commercial paper and fixed 
rate medium-term notes. Fixed interest rate swaps, matched to floating rate 
borrowings, are used to lock in the funding cost of fixed rate assets. 
Floating interest rate swaps, matched to either fixed or floating rate debt, 
are used to convert to a floating rate index more appropriate to the 
Company's floating rate assets. Interest rate caps are occasionally purchased 
to hedge the floating rate funding cost of floating rate assets that have a 
maximum yield. As of December 31, 1998, the total notional principal amount 
of interest rate swap contracts outstanding was $969 million, all of which 
result in a fixed rate payment obligation. The notional amount is used to 
measure the volume of these contracts and does not represent exposure to 
credit loss. The Company's risk in these transactions is the cost of 
replacing, at current market rates, these contracts in the event of default 
by the counterparty. Management believes the risk of incurring such losses is 
remote, and any losses would be immaterial. The permitted types of interest 
rate contracts, their transaction limits and related approval authorizations 
have been established by the Company's senior management and Board of 
Directors. The interest rate contracts outstanding are regularly reported to, 
and reviewed by, the Company's senior management.

     As of December 31, 1998, the Company had $755 million of unused, 
confirmed bank lines of credit, $635 million of which are shared with PACCAR, 
that are reviewed annually for renewal. These lines are maintained primarily 
to support the Company's short-term borrowings. Neither PACCAR nor the 
Company is liable for any borrowings of the other under these lines of credit.

As of December 31, 1998, the Company had $956 million of medium-term 
notes outstanding, $368 million of which was due within 12 months. See "Note 
E--Borrowings" in the Notes to Financial Statements for medium-term note 
maturities.

     An indenture of the Company dated as of December 1, 1983, as amended by 
a first supplemental indenture dated June 19, 1989 (Exhibit 4.1), with 
respect to the Company's medium-term notes which are publicly issued from 
time to time, contains restrictions limiting secured debt which may be 
incurred by the Company and any subsidiary.


                                     -6-
<PAGE>

                          RELATIONSHIP WITH PACCAR

GENERAL

     The operations of the Company are fundamentally affected by its 
relationship with PACCAR. Sales of PACCAR products are the Company's 
principal source of financing business. The Company receives administrative 
support from and pays dividends to PACCAR, and may occasionally borrow funds 
from or lend money to PACCAR or its affiliates. Since the directors of the 
Company are all executives of PACCAR or its affiliated companies and PACCAR 
is the sole owner of the Company's outstanding voting common stock, PACCAR 
can determine the course of the Company's business. See "Note D--Transactions 
with PACCAR and Affiliates" in the Notes to Financial Statements.

SUPPORT AGREEMENT

     The Company and PACCAR are parties to a Support Agreement which 
obligates PACCAR to provide, when required, financial assistance to the 
Company to assure that the Company maintains a ratio of net earnings 
available for fixed charges to fixed charges (as defined) of at least 1.25 to 
1 for any fiscal year. The Support Agreement also requires PACCAR to own, 
directly or indirectly, all outstanding voting stock of the Company. The 
required ratio for each of the years ended December 31, 1994 - 1998 was met 
without assistance.

     The Company and PACCAR may amend or terminate any or all of the 
provisions of the Support Agreement upon 30 days notice, with copies of the 
notice being sent to all nationally recognized statistical rating 
organizations ("NRSROs") which have issued ratings with respect to debt of 
the Company ("Rated Debt"). Such amendment or termination will be effective 
only if (i) two NRSROs confirm in writing that their ratings with respect to 
any Rated Debt would remain the same after such amendment or termination, or 
(ii) the notice of amendment or termination provides that the Support 
Agreement will continue in effect with respect to Rated Debt outstanding on 
the effective date of such amendment or termination unless such debt has been 
paid or defeased pursuant to the indenture or other agreement applicable to 
such debt, or (iii) the holders of at least two-thirds of the aggregate 
principal amount of all outstanding Rated Debt with an original maturity in 
excess of 270 days consent in writing to such amendment or termination, 
provided that the holders of Rated Debt having an original maturity of 270 
days or less shall continue to have the benefit of the Support Agreement 
until the maturity of such debt.

     The Support Agreement expressly states that PACCAR's commitments to the 
Company thereunder do not constitute a PACCAR guarantee of payment of any 
indebtedness or liability of the Company to others and do not create rights 
against PACCAR in favor of persons other than the Company. There are no 
guarantees, direct or indirect, by PACCAR of payment of any indebtedness of 
the Company.


                                     -7-
<PAGE>

ITEM 2.  PROPERTIES

     The Company's principal office is located in the corporate headquarters 
building of PACCAR (owned by PACCAR) at 777 - 106th Avenue N.E., Bellevue, 
Washington 98004.

     Other offices of the Company are located in leased premises. Annual 
lease rentals for offices in the aggregate are not material in relation to 
expenses as a whole.

ITEM 3.  LEGAL PROCEEDINGS

     The Company is a party to various routine legal proceedings incidental 
to its business involving the collection of accounts and other matters. The 
Company does not consider such matters to be material with respect to the 
business or financial condition of the Company as a whole.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.



                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     All outstanding common stock is owned by PACCAR; therefore, there is no 
trading market in the Company's common stock.

     The Company began in 1994 to pay a dividend to PACCAR for the additional 
paid-in capital invested in the prior year. Cash dividends of $2.1 million, 
$2.7 million and $2.9 million were paid in 1998, 1997 and 1996, respectively.


                                     -8-
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

     The following table summarizes selected financial data for the Company 
and should be read in conjunction with the more detailed financial statements 
included under "Financial Statements and Supplementary Data." The information 
with respect to each of the five years in the period ended December 31, 1998 
has been derived from the Company's audited financial statements. 

                 Balance Sheet Data and Income Statement Data
                 --------------------------------------------
                             (Thousands of Dollars)
<TABLE>
<CAPTION>

Balance Sheet Data                                                  As of December 31
------------------
                                    ----------------------------------------------------------------------------------
                                         1998             1997            1996             1995             1994
                                         ----             ----            ----             ----             ----
<S>                                 <C>              <C>             <C>               <C>              <C>
       
Total Assets                         $  2,679,820     $  2,201,064    $  2,120,612      $ 2,074,405      $ 1,770,769
Total Liabilities                       2,311,591        1,857,660       1,807,559        1,792,934        1,517,436
Total Stockholder's Equity                368,229          343,404         313,053          281,471          253,333

<CAPTION>

Income Statement Data                                            Year Ended December 31
---------------------
                                    ----------------------------------------------------------------------------------
                                         1998             1997            1996             1995             1994
                                         ----             ----            ----             ----             ----
<S>                                 <C>              <C>             <C>               <C>              <C>
Finance and Insurance Margin         $     86,930     $     82,214    $     79,543      $    74,975      $    67,435
Selling, General and
  Administrative Expenses                  35,067           25,272          24,084           23,429           22,815
Provision for Losses
  on Receivables                           11,485            6,245           3,279            4,816            2,473
                                     ------------     ------------    ------------      -----------      -----------

Income Before Income Taxes                 40,378           50,697          52,180           46,730           42,147

Income Taxes                               15,744           19,785          20,321           18,809           16,968
                                     ------------     ------------    ------------      -----------      -----------

Net Income                           $     24,634     $     30,912    $     31,859      $    27,921      $    25,179
                                     ------------     ------------    ------------      -----------      -----------
                                     ------------     ------------    ------------      -----------      -----------
Ratio of Earnings to Fixed               1.36x            1.50x           1.53x             1.52x           1.67x
   Charges (1)
</TABLE>

(1)   For purposes of this ratio, earnings consist of income before income
      taxes plus fixed charges. Fixed charges consist of interest expense plus
      a portion of rent expense (which is deemed representative of an interest
      factor). The method of computing the ratio of earnings to fixed charges
      shown above complies with SEC reporting requirements but differs from
      the method called for in the Support Agreement between the Company and
      PACCAR. The ratios computed pursuant to the Support Agreement were
      1.41x, 1.57x, 1.62x, 1.63x and 1.82x for the years 1998 - 1994,
      respectively. See Exhibits 12.1 and 12.2.


                                     -9-
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
            OF OPERATIONS, 1996 - 1998

RESULTS OF OPERATIONS 
1998 Compared to 1997:
     New business volume was $1.5 billion, increasing 31% over $1.2 billion 
in 1997. Average receivables grew 13% to $2.4 billion in 1998 from $2.1 
billion in 1997. As a result of asset growth, the finance margin of $85.0 for 
1998 increased 6% from $80.4 million in 1997. However, the average margin 
rate on receivables declined for the fourth consecutive year from 3.80% for 
1997 to 3.57% for 1998 due to intense rate competition in the truck lending 
market.

     Selling, general and administrative expenses were 39% higher in 1998 
than 1997 as a result of higher staffing costs and the one-time charge-off of 
an investment in a new loan system that was terminated due to unresolved cost 
and scheduling issues. Operating expenses, excluding the impact of the 
charge-off, would have been 9% higher than the prior year. The provision for 
losses increased 84% to $11.5 million in 1998 from $6.2 million in 1997, 
despite lower net credit losses and a decline in the reserve ratio to 1.68% 
versus 1.70% in 1997, due to asset growth. The level of the allowance 
reflects the risks inherent in the financing of commercial highway 
transportation equipment.

     As a result of the foregoing factors, net income for 1998 decreased 20% 
to $24.6 million from $30.9 million in 1997. Net income for 1998, excluding 
the charge-off, would have been $29.2 million representing a 5% reduction 
from 1997.

1997 Compared to 1996:
     Net income decreased 3% to $30.9 million in 1997 from $31.9 million in 
1996. While the 3% increase in the finance margin to $80.4 million for 1997 
from $77.9 million was attributable to growth in receivables, the higher 
margin was more than offset by increases in the loss provision and selling, 
general and administrative expenses. The provision for losses of $6.2 million 
in 1997 increased 91% compared to 1996 due to asset growth and higher credit 
losses. Selling, general and administrative expenses were 5% higher in 1997 
than 1996 due to increased staffing costs.

FUNDING AND LIQUIDITY
     The Company manages its capital structure consistent with industry 
standards. Since 1983, the Company has registered senior debt securities 
under the Securities Act of 1933 for offering to the public. In 1998, the 
Company registered $1 billion of senior debt securities for offering to the 
public. At the end of 1998, there were $805 million of such securities 
available for issuance.

     The Company believes that it has sufficient financial capabilities, 
including internally generated funds, access to public and private debt 
markets, lines of credit and other financial resources, to fund current 
business needs and service debt maturities.


                                     -10-
<PAGE>

YEAR 2000 ISSUE
As a finance company, the Company relies upon computer processing to 
originate and service loans and leases. The Company has identified and 
evaluated its major internal systems for Year 2000 compliance. Internal 
systems have already been modified to enable the Company to process loans and 
leases with a termination date after the Year 2000. Some additional software 
related changes for the systems to operate properly after the Year 2000 have 
been identified by the Company. The Company has developed a detailed plan, 
including anticipated completion dates for each significant system and 
anticipates overall completion by the end of September 1999. Management 
regularly reviews the progress under this plan. A team consisting of 
full-time employees supplemented with contract staff is working to make the 
necessary changes. Total cost to the Company is expected to approximate $2.0 
million, of which $1.0 million has been incurred through December 31, 1998. 
Operating funds will fund the cost of the project.

In the unlikely event that management concludes that there is a material risk 
that a significant computer system will not be Year 2000 compliant by the end 
of 1999, a contingency plan utilizing manual processes and alternate systems 
will be developed.

Since the Company is not a manufacturer, the Company's reliance on embedded 
computer systems is limited to facilities related matters, such as office 
security systems and telecommunications equipment. The Company is in the 
process of confirming with its vendors that such systems will be, or are, 
Year 2000 compliant.

The Company also relies on the ability of banks and other financial 
institutions participating in the public debt markets to fund its lending 
activity. If there is a significant failure of banking systems or systems of 
other entities within the public market structure due to the Year 2000 issue, 
the Company's ability to access the credit markets and process payments could 
be adversely affected. The Company has sent letters and has received 
responses indicating that banks and other financial institutions with which 
it has relationships already are, or will be, compliant by the Year 2000.

If the United States economy enters into a recession due to widespread 
interruption in commercial activity or the effect of diverting substantial 
resources to achieve Year 2000 compliance, the Company would likely 
experience an increase in credit losses, a reduction in interest income and a 
drop in new lending volume. Due to the cyclical nature of the trucking 
business, however, the possibility of a general economic or a trucking 
industry downturn has long been a factor in the Company's credit granting 
decisions.

Since the Company is a collateral based lender with hard copy documents to 
enforce its loans and leases, the most reasonably likely worst case scenario 
if all its systems are not Year 2000 compliant is that information and 
reports would contain inaccuracies that would slow the efficient processing 
of payments, result in increased administrative costs to the Company and 
generally reduce customer service. The cumulative effect of these potential 
outcomes is unknown, but could have a material effect on the Company's 
financial condition, the results of operations and liquidity.

The Company has no single customer concentration greater than 2% of assets 
and the impact on the Company from a single customer's non-compliance is not 
expected to be material. However, if a large number of its major customers 
encounter operating problems due to Year 2000 that cause them to default on 
their obligations, there could be a material impact on the Company due to 
higher credit losses and lower interest income.

Management believes it is taking the necessary steps regarding Year 2000 
compliance with respect to matters within its control to ensure that the Year 
2000 issue will not materially impact the Company.


                                     -11-
<PAGE>

ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK AND DERIVATIVE FINANCIAL INSTRUMENTS
The Company's primary market risk exposure is from fluctuations in interest 
rates. To manage the risks the Company uses derivative financial instruments, 
primarily interest rate swaps, in accordance with established policies and 
procedures. The objectives are to reduce existing interest rate risk arising 
from the financing of receivables, change interest rate characteristics of 
debt to more closely reflect the interest rate characteristics of the 
receivables being funded, and to reduce funding costs. Derivative usage is 
limited to hedging strategies which match the interest rate characteristics 
of debt to those of the receivables being funded. The Company does not use 
derivatives for trading purposes. Following is a tabular presentation of 
items which are subject to market risk exposure and the derivatives which are 
used to manage the exposure risk.

               Principal (Notional) Amount by Expected Maturity
                  Average Interest Rate (Swap) Strike Price
<TABLE>
<CAPTION>
                                                                                                         FAIR
                                                                                     THERE-             VALUE
(DOLLARS IN MILLIONS)                1999      2000     2001      2002      2003     AFTER      TOTAL    1998
---------------------------------------------------------------------------------------------------------------
<S>                               <C>         <C>      <C>       <C>       <C>      <C>       <C>     <C>
ASSETS
Retail Notes, Contracts and
Wholesale
  Financing, net of Unearned
  Interest and Allowance for 
  Losses:
Fixed Rate                           679.3     570.0    411.2    234.1      72.9      2.2   1,969.7  1,971.9
                                    ------    ------   ------   ------    ------   ------   -------  -------
Average Interest Rate                8.58%     8.44%    8.32%    8.09%     8.09%    8.09%     8.41%   
                                    ------    ------   ------   ------    ------   ------   ------- 
Variable Rate                        226.0      27.8     24.2     16.4       4.2       .9     299.5    299.5
                                    ------    ------   ------   ------    ------   ------   -------  -------
Average Interest Rate                6.81%     6.81%    6.81%    6.81%     6.81%    6.81%     6.81%   
                                    ------    ------   ------   ------    ------   ------   ------- 

LIABILITIES
Commercial Paper                   1,212.7       -        -         -        -        -     1,212.7  1,212.7
                                   -------   -------  -------  -------   -------  ------- ---------  -------
Average Interest Rate                5.10%       -        -         -        -        -       5.10%   
                                   -------   -------  -------  -------   -------  ------- ---------  
Medium-term Notes
   Fixed Rate                        233.0     253.0    235.0    100.0       -        -       821.0    832.6
                                   -------   -------  -------  -------   -------  ------- ---------  -------
   Average Interest Rate             6.06%     6.11%    6.08%    5.89%       -        -       6.06%   
                                   -------   -------  -------  -------   -------  ------- --------- 
   Variable Rate                     135.0       -        -         -        -        -       135.0    135.0
                                   -------   -------  -------  -------   -------  ------- ---------  -------
   Average Interest Rate             5.21%       -        -         -        -        -       5.21%   
                                   -------   -------  -------  -------   -------  ------- ---------  

INTEREST RATE DERIVATIVE
FINANCIAL INSTRUMENTS RELATED TO
DEBT
Interest Rate Swaps
   Pay Fixed/Receive Variable        530.1     327.1     76.9     21.8       9.2      4.0     969.1     (4.6)
                                   -------   -------  -------  -------   -------  ------- ---------  -------
   Average Interest Pay Rate         5.82%     5.59%    5.03%    5.42%     5.97%    5.37%     5.67%   
                                   -------   -------  -------  -------   -------  ------- --------- 
   Average Interest Receive Rate     5.48%     5.40%    5.26%    5.26%     5.28%     5.0%     5.43%   
                                   -------   -------  -------  -------   -------  ------- ---------
</TABLE>

      
                                     -12-
<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial statements of the Company and related schedules described 
under Item 14, "Exhibits, Financial Statement Schedules, and Reports on Form 
8-K," are included following this page.










                                     -13-
<PAGE>

                Report of Ernst & Young LLP, Independent Auditors



Board of Directors
PACCAR Inc and PACCAR Financial Corp.



We have audited the accompanying balance sheets of PACCAR Financial Corp. (a 
wholly-owned subsidiary of PACCAR Inc) as of December 31, 1998 and 1997, and 
the related statements of income and retained earnings and cash flows for 
each of the three years in the period ended December 31, 1998. These 
financial statements are the responsibility of the Company's management. Our 
responsibility is to express an opinion on these financial statements based 
on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the financial position of PACCAR Financial Corp. at 
December 31, 1998 and 1997, and the results of its operations and its cash 
flows for each of the three years in the period ended December 31, 1998 in 
conformity with generally accepted accounting principles.


                                                          /S/ Ernst & Young LLP





Seattle, Washington
February 16, 1999


                                     -14-
<PAGE>

BALANCE SHEETS
PACCAR Financial Corp.

<TABLE>
<CAPTION>
                                                                                      December 31
                                                                              1998                 1997
                                                                       -------------------- --------------------
                                                                                (Thousands of Dollars)
<S>                                                                    <C>                    <C>
ASSETS
  Cash                                                                   $       14,641       $       13,370
  Finance and other receivables net of                                                       
     allowance for losses of $44,800 in 1998 ($37,350 in 1997)                2,606,540            2,136,315
  Loans to affiliate                                                             13,493                    -
  Equipment on operating leases net of
     depreciation of $10,894 in 1998 ($16,332 in 1997)                           30,076               34,593
  Other assets                                                                   15,070               16,786
                                                                       -------------------- --------------------

TOTAL ASSETS                                                             $    2,679,820       $    2,201,064
                                                                       -------------------- --------------------
                                                                       -------------------- --------------------

LIABILITIES
  Accounts payable and accrued expenses                                  $       38,590       $       36,580
  Payable for finance receivables acquired                                       41,526               35,799
  Commercial paper and other short-term borrowings                            1,212,743              759,016
  Medium-term notes                                                             956,000              964,000
  Income taxes - current and deferred                                            62,732               62,265
                                                                       -------------------- --------------------

  TOTAL LIABILITIES                                                           2,311,591            1,857,660
                                                                       -------------------- --------------------


STOCKHOLDER'S EQUITY
  Preferred stock, par value $100 per share,
     6% noncumulative and nonvoting,
     450,000 shares authorized,
     310,000 shares issued and outstanding                                       31,000               31,000
  Common stock, par value $100 per share,
     200,000 shares authorized,
     145,000 shares issued and outstanding                                       14,500               14,500
  Paid-in capital                                                                13,990               11,706
  Retained earnings                                                             308,739              286,198
                                                                       -------------------- --------------------

  TOTAL STOCKHOLDER'S EQUITY                                                    368,229              343,404
                                                                       -------------------- --------------------

TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY                               $    2,679,820       $    2,201,064
                                                                       -------------------- --------------------
                                                                       -------------------- --------------------
</TABLE>

See accompanying notes.


                                     -15-
<PAGE>

STATEMENTS OF INCOME AND RETAINED EARNINGS
PACCAR Financial Corp.

<TABLE>
<CAPTION>
                                                                       Year Ended December 31
                                                              1998               1997              1996
                                                        ------------------ ----------------- -----------------
                                                                       (Thousands of Dollars)
<S>                                                     <C>                <C>               <C>
  Interest and other income                              $      197,819     $      181,152    $     175,836
  Rentals on operating leases                                     8,525              9,801           11,767
                                                        ------------------ ----------------- -----------------

TOTAL FINANCE INCOME                                            206,344            190,953          187,603

  Interest expense                                              112,958            101,440           98,536
  Other borrowing expense                                         2,051              1,810            1,803
  Depreciation expense related
     to operating leases                                          6,310              7,319            9,358
                                                        ------------------ ----------------- -----------------

  TOTAL FINANCE EXPENSES                                        121,319            110,569          109,697
                                                        ------------------ ----------------- -----------------

  FINANCE MARGIN                                                 85,025             80,384           77,906

  Insurance premiums earned                                       6,694              5,726            5,528
  Insurance claims and underwriting expenses                      4,789              3,896            3,891
                                                        ------------------ ----------------- -----------------

  INSURANCE MARGIN                                                1,905              1,830            1,637

  Selling, general and
     administrative expenses                                     35,067             25,272           24,084
  Provision for losses on receivables                            11,485              6,245            3,279
                                                        ------------------ ----------------- -----------------

INCOME BEFORE INCOME TAXES                                       40,378             50,697           52,180

  Federal and state income taxes                                 15,744             19,785           20,321
                                                        ------------------ ----------------- -----------------

NET INCOME                                                       24,634             30,912           31,859

  Retained earnings at beginning of year                        286,198            257,941          229,015
  Cash dividends paid                                            (2,093)            (2,655)          (2,933)
                                                        ------------------ ----------------- -----------------

RETAINED EARNINGS AT END OF YEAR                         $      308,739     $      286,198    $     257,941
                                                        ------------------ ----------------- -----------------
                                                        ------------------ ----------------- -----------------
</TABLE>

See accompanying notes.


                                     -16-
<PAGE>

STATEMENTS OF CASH FLOWS
PACCAR Financial Corp.

<TABLE>
<CAPTION>
                                                                                    Year Ended December 31
                                                                        1998                 1997                 1996
                                                                 -------------------- -------------------- -------------------
                                                                                    (Thousands of Dollars)
<S>                                                              <C>                  <C>                  <C>
OPERATING ACTIVITIES:
  Net income                                                      $        24,634      $        30,912      $        31,859
  Items included in net income not
     affecting cash:
     Provision for losses on receivables                                   11,485                6,245                3,279
     Charge-off of loan system investment                                   7,453                    -                    -
     Increase (decrease) in deferred taxes payable                          1,446                1,573               (3,640)
     Depreciation and amortization                                         10,187               11,294               13,236
  (Increase) decrease in payables and other                                (5,139)              (4,429)              13,223
                                                                 -------------------- -------------------- -------------------

NET CASH PROVIDED BY
OPERATING ACTIVITIES                                                       50,066               45,595               57,957

INVESTING ACTIVITIES:

  Finance and other receivables acquired                               (1,507,276)          (1,155,213)          (1,053,350)
  Collections on finance and other receivables                          1,063,047            1,017,968              942,736
  Net (increase) decrease in wholesale
     receivables                                                          (45,908)              40,857               53,404
  Acquisition of equipment                                                (13,609)             (17,132)             (11,421)
  Proceeds from disposal of equipment                                       9,033                9,303               11,880
                                                                 -------------------- -------------------- -------------------

NET CASH USED IN
INVESTING ACTIVITIES                                                     (494,713)            (104,217)             (56,751)

FINANCING ACTIVITIES:

  Net increase in commercial paper
     and other short-term borrowings                                      453,727               59,400               41,759
  Proceeds from medium-term notes                                         460,000              415,000              375,000
  Payments of medium-term notes                                          (468,000)            (415,000)            (410,500)
  Additions to paid-in capital                                              2,284                2,093                2,655
  Payment of cash dividend                                                 (2,093)              (2,655)              (2,933)
                                                                 -------------------- -------------------- -------------------

NET CASH PROVIDED BY
FINANCING ACTIVITIES                                                      445,918               58,838                5,981
                                                                 -------------------- -------------------- -------------------

NET INCREASE IN CASH                                                        1,271                  216                7,187

CASH AT BEGINNING OF YEAR                                                  13,370               13,154                5,967
                                                                 -------------------- -------------------- -------------------

CASH AT END OF YEAR                                               $        14,641      $        13,370      $        13,154
                                                                 -------------------- -------------------- -------------------
                                                                 -------------------- -------------------- -------------------
</TABLE>

See accompanying notes.


                                     -17-
<PAGE>

NOTES TO FINANCIAL STATEMENTS
PACCAR Financial Corp.
December 31, 1998
(Thousands of Dollars)


NOTE A--SUMMARY OF ACCOUNTING POLICIES

INDUSTRY: PACCAR Financial Corp. (the "Company"), a wholly-owned subsidiary 
of PACCAR Inc ("PACCAR"), provides financing of trucks and related equipment 
manufactured primarily by PACCAR and sold by authorized dealers. The Company 
also finances dealer inventories of transportation equipment. The operations 
of the Company are fundamentally affected by its relationship with PACCAR. 
Sales of PACCAR products are the Company's principal source of financing 
business.

Due to the nature of the Company's business, customers are concentrated in 
the transportation industry throughout the United States. The Company's 
receivables and direct financing lease portfolio are not concentrated in any 
geographic region. Generally, all receivables are collateralized by the 
equipment being financed. The risk of credit losses related to this 
concentration has been considered in establishing the allowance for losses.

USE OF ESTIMATES: The preparation of financial statements in conformity with 
generally accepted accounting principles requires management to make 
estimates and assumptions that affect amounts reported and disclosed in the 
financial statements. Actual results could differ from the amounts estimated 
by management.

ESTIMATED LOSSES ON RECEIVABLES: The provision for losses on finance and 
other receivables is charged to income in an amount sufficient to maintain 
the allowance for losses at a level considered adequate to cover estimated 
losses. Receivables are charged to this allowance when, in the judgment of 
management, they are deemed uncollectible (usually upon repossession of the 
collateral). On certain retail contracts acquired from the dealers, the 
dealer retains liability, up to specified limits, for the credit loss on the 
sale of a repossessed vehicle. The amount and collectibility of dealer 
recourse provisions have been considered in establishing the allowance for 
credit losses on receivables.

REVENUE RECOGNITION: Revenue from net finance receivables and other 
receivables is recognized using the interest method. Certain loan origination 
costs are deferred and amortized to interest and other income. For operating 
leases, income is recognized on a straight line basis over the lease term.

Recognition of income is suspended when management determines that collection 
of future income is not probable (generally after 90 days past due). 
Recognition is resumed if the receivable becomes contractually current and 
collection doubts are removed.

EQUIPMENT: Equipment on operating leases is recorded at cost and depreciated 
on a straight-line basis over the contract term of each operating lease to an 
estimated residual value.

INCOME TAXES: The Company is included in the consolidated federal income tax 
return of PACCAR. Income taxes for the Company are determined on a separate 
return basis, and any related tax liability is paid by the Company to PACCAR 
and any related tax benefit is paid by PACCAR to the Company.


                                     -18-
<PAGE>

NOTES TO FINANCIAL STATEMENTS
PACCAR Financial Corp.
December 31, 1998
(Thousands of Dollars)


DERIVATIVE FINANCIAL INSTRUMENTS: The Company enters into interest rate 
contracts and cap agreements to manage certain exposures to fluctuations in 
interest rates. The Company uses interest rate swap contracts to match the 
interest rate characteristics of the Company's finance receivables with the 
borrowings used to fund those receivables and to limit the Company's exposure 
to rising interest rates. Interest rate swap contracts involve the exchange 
of fixed and floating rate interest payments without the exchange of the 
underlying principal. Net amounts paid or received are reflected as 
adjustments to interest expense. Interest rate cap premiums paid are 
amortized to interest expense ratably during the life of the agreement. The 
fair values of interest rate swap and cap agreements are not recognized in 
the financial statements. Realized gains or losses at the time of maturity, 
termination or repayment of an interest rate contract or cap agreement are 
recorded in a manner consistent with the original designation of the interest 
rate contract or cap agreement. The Company does not engage in derivatives 
trading, market-making or other speculative activities.

RECLASSIFICATIONS: Certain prior year amounts have been reclassified to 
conform to the 1998 presentation.

NEW ACCOUNTING PRONOUNCEMENTS: In June 1998, the Financial Accounting 
Standards Board issued Statement No. 133, Accounting for Derivative 
Instruments and Hedging Activities, which is required to be adopted in the 
first quarter of 2000. Based on review of the pronouncement, management 
believes its current use of derivatives for hedging purposes will be 
considered cash flow hedges under the new pronouncement. Management does not 
anticipate that the adoption of the new Statement will have a significant 
effect on earnings or the financial position of the Company. However, given 
the complex nature of the new Standard and the dependence on market values, 
the impact will not be known until adoption.


                                     -19-
<PAGE>

NOTES TO FINANCIAL STATEMENTS
PACCAR Financial Corp.
December 31, 1998
(Thousands of Dollars)


NOTE B--RECEIVABLES

Terms for substantially all finance and other receivables range up to 60 
months. Experience of the Company has shown that some receivables will be 
paid prior to contractual maturity and others will be extended or renewed. 
Accordingly, the maturities of receivables presented here should not be 
regarded as a forecast of future collections.

The Company's finance and other receivables are as follows:

<TABLE>
<CAPTION>
                                                                                  December 31
                                                                           1998                1997
                                                                   ------------------- -------------------
<S>                                                                <C>                 <C>
Notes and contracts due within:
   One year                                                          $      794,837      $      755,461
   Two years                                                                634,223             513,867
   Three years                                                              458,233             346,027
   Four years                                                               262,634             176,638
   Five years and beyond                                                     87,410              61,872
                                                                   ------------------- -------------------
                                                                          2,237,337           1,853,865

Wholesale financing                                                         161,051             115,143
Direct financing leases (including estimated residual
   values of $11,652)                                                       385,484             328,037
Interest and other receivables                                               22,047               8,306
                                                                   ------------------- -------------------

                                                                          2,805,919           2,305,351

Unearned interest:
   Notes and contracts                                                      (94,515)            (93,247)
   Direct financing leases                                                  (46,571)            (38,439)
                                                                   ------------------- -------------------

                                                                           (141,086)           (131,686)
                                                                   ------------------- -------------------


Net finance and other receivables                                    $    2,664,833      $    2,173,665
                                                                   ------------------- -------------------
                                                                   ------------------- -------------------
</TABLE>

Future minimum lease payments on direct financing leases totaled $373,832 at 
December 31, 1998 and are due as follows: $117,560 in 1999; $97,092 in 2000; 
$81,324 in 2001; $52,687 in 2002; and $25,169 in 2003 and beyond.

The allowance for losses on receivables is summarized as follows:

<TABLE>
<CAPTION>
                                                   1998               1997               1996
                                             ------------------ ------------------ -----------------
<S>                                          <C>                <C>                <C>
Balance at beginning of year                  $      37,350      $      36,000      $      35,790
Provision for losses                                 11,485              6,245              3,279
Net losses                                           (4,035)            (4,895)            (3,069)
                                             ------------------ ------------------ -----------------

Balance at end of year                        $      44,800      $      37,350      $      36,000
                                             ------------------ ------------------ -----------------
                                             ------------------ ------------------ -----------------
</TABLE>


                                     -20-
<PAGE>

NOTES TO FINANCIAL STATEMENTS
PACCAR Financial Corp.
December 31, 1998
(Thousands of Dollars)


At December 31, 1998 and 1997, the recorded investments in notes and 
contracts that were considered to be impaired were $16,146 and $20,353, 
respectively. Included in the allowance for losses were specific reserves of 
$5,073 and $5,172 on these impaired notes and contracts. The average recorded 
investment in impaired notes and contracts during the years ended December 
31, 1998 and 1997, was $18,659 and $27,021, respectively. For the years ended 
December 31, 1998 and 1997, the Company recognized interest income of $888 
and $963 respectively, on those impaired loans, all of which was recognized 
using the cash basis method of income recognition.

NOTE C--OPERATING LEASES

Terms of operating leases range up to 60 months. Future annual minimum rental 
payments to be received for transportation equipment on operating leases 
beginning January 1, 1999 were: $7,295 in 1999; $4,674 in 2000; $2,007 in 
2001 and $454 in 2002.

NOTE D--TRANSACTIONS WITH PACCAR AND AFFILIATES

The Company and PACCAR are parties to a Support Agreement which obligates 
PACCAR to provide, when required, financial assistance to the Company to 
assure that the Company maintains a ratio of net earnings available for fixed 
charges to fixed charges (as defined) of at least 1.25 to 1 for any fiscal 
year. The Support Agreement also requires PACCAR to own, directly or 
indirectly, all outstanding voting stock of the Company. The required ratio 
for the years ended December 31, 1998, 1997 and 1996, was met without 
assistance.

PACCAR charges the Company for certain administrative services it provides. 
These costs are charged to the Company based upon the Company's specific use 
of the services and PACCAR's cost. Management considers these charges 
reasonable and not significantly different from the costs that would be 
incurred if the Company were on a stand-alone basis. Fees for services of 
$2,451, $1,976 and $2,676 in 1998, 1997 and 1996, respectively, were charged 
to the Company. In lieu of current year payment, PACCAR recognizes certain of 
these administrative services as an additional investment in the Company. The 
Company records the investment as paid-in capital. The Company pays a 
dividend to PACCAR for the paid-in capital invested in the prior year. Cash 
dividends of $2,093, $2,655, and $2,933 were paid in 1998, 1997 and 1996, 
respectively.

The Company's employees are covered by a defined benefit pension plan, an 
unfunded postretirement medical and life insurance plan and a defined 
contribution plan sponsored by PACCAR. Separate allocations of plan assets, 
defined benefit accumulated plan benefits and defined contribution plan 
benefits relating to the Company have not been made. Expenses charged to the 
Company by PACCAR for these plans were $1,039, $820, and $791 for years 1998, 
1997 and 1996, respectively.

Periodically, the Company borrows funds from PACCAR and makes loans to 
PACCAR. At December 31, 1998, 1997 and 1996, there were no outstanding loans 
for the Company from or to PACCAR.

The Company periodically loans funds to certain foreign and domestic finance 
and leasing affiliates of PACCAR. These various affiliates have Support 
Agreements with PACCAR, similar to the Company's Support Agreement. The 
foreign affiliates operate in the United Kingdom, Canada and Australia, and 
any resulting currency exposure is fully hedged. The aggregate of any such 
loans not guaranteed by PACCAR will not exceed the equivalent of 50 million 
United States dollars. At December 31, 1998, there was $13 million in loans 
outstanding to a finance affiliate operating in the United Kingdom. There 
were no loans at December 31, 1997 or December 31, 1996.

The Company's Articles of Incorporation provide that the 6% noncumulative, 
nonvoting preferred stock (100% owned by PACCAR) is redeemable only at the 
option of the Company's Board of Directors.


                                     -21-
<PAGE>

NOTES TO FINANCIAL STATEMENTS
PACCAR Financial Corp.
December 31, 1998
(Thousands of Dollars)


NOTE E--BORROWINGS

Borrowings are summarized as follows:

<TABLE>
<CAPTION>
                                                       Effective
                                                         Rate*                 1998                 1997
                                                 -------------------- -------------------- --------------------
      <S>                                        <C>                  <C>                  <C>
      Commercial paper                                   5.27%           $   1,212,743        $     715,016
      Other short-term borrowings                           -                        -               44,000
      Fixed rate medium-term notes                       6.10%                 821,000              789,000
      Floating rate medium-term notes                    5.40%                 135,000              175,000
                                                 -------------------- -------------------- --------------------

             Total                                       5.59%           $   2,168,743        $   1,723,016
                                                 -------------------- -------------------- --------------------
                                                 -------------------- -------------------- --------------------
</TABLE>

*The effective rate is the weighted average rate as of December 31, 1998 and 
includes the effects of interest rate agreements.

Principal amounts of medium-term notes due over the next five years beginning 
January 1, 1999 are $368,000 in 1999, $253,000 in 2000, $235,000 in 2001, 
$100,000 in 2002, and $0 in 2003.

At December 31, 1998, there was $805 million of medium-term debt available 
for issuance under a currently outstanding shelf registration.

Cash paid for interest (net of swap interest received) was $118,032 in 1998, 
$101,845 in 1997, and $102,414 in 1996.

At December 31, 1998, the Company had outstanding 56 interest rate swaps with 
various financial institutions with a total notional balance of $969 million. 
The notional principal of these contracts matures as follows: $530 million in 
1999, $327 million in 2000, $77 million in 2001, $22 million in 2002, and $13 
million thereafter. The notional amount is used to measure the volume of 
these contracts and does not represent exposure to credit loss. The Company's 
risk in these transactions is the cost of replacing, at current market rates, 
these contracts in the event of default by the counterparty. Management 
believes the risk of incurring such losses is remote and any losses would be 
immaterial.

At December 31, 1998, the interest rate swap weighted average pay rate was 
5.67%. The weighted average interest rate swap receive rate of 5.43% offsets 
the pay rate on associated debt obligations.

NOTE F-- CREDIT ARRANGEMENTS

The Company and PACCAR have lines of credit arrangements with various 
commercial banks that are reviewed annually for renewal. These lines are 
maintained primarily to support the Company's short-term borrowings. At 
December 31, 1998, the unused portion of these credit lines was $755 million 
of which $635 are shared with PACCAR. The Company compensates the banks for 
providing lines of credit with fees that are immaterial.

The Company has entered into facility agreements with various lending 
institutions, under which the lending institutions may sell a participation 
or assign all or a portion of the note to other institutions. These notes 
generally mature within 90 days. At December 31, 1998, there were no notes 
outstanding, compared with $19 million at December 31, 1997.


                                     -22-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
PACCAR Financial Corp.
December 31, 1998
(Thousands of Dollars)


NOTE G--INCOME TAXES

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                                                                 Year Ended December 31
                                                     1998                 1997              1996
                                              -------------------- ------------------- ---------------
<S>                                           <C>                  <C>                 <C>
Current provision
  Federal                                      $      12,809        $      15,278       $      20,531
  State                                                1,489                2,934               3,430
                                              -------------------- ------------------- ---------------
                                                      14,298               18,212              23,961

Deferred expense (benefit)                             1,446                1,573              (3,640)
                                              -------------------- ------------------- ---------------

                                               $      15,744        $      19,785       $      20,321
                                              -------------------- ------------------- ---------------
                                              -------------------- ------------------- ---------------
</TABLE>

A reconciliation between the statutory federal income tax rate and the actual
provision for income taxes is shown below:

<TABLE>
<CAPTION>
                                                                 Year Ended December 31
                                                     1998                 1997              1996
                                              -------------------- ------------------- ---------------
<S>                                           <C>                  <C>                 <C>
Tax at the statutory rate of 35%               $      14,132        $      17,743       $      18,263
Effect of state income taxes                           1,612                2,042               2,058
                                              -------------------- ------------------- ---------------
                                               $      15,744        $      19,785       $      20,321
                                              -------------------- ------------------- ---------------
                                              -------------------- ------------------- ---------------
</TABLE>

Cash paid for income taxes was $15,885 in 1998, $17,386 in 1997, and $23,802 
in 1996.

Deferred income tax assets and liabilities consisted of the following:

<TABLE>
<CAPTION>
                                                                    As of December 31
                                                                1998                1997
                                                          ------------------- -------------------
<S>                                                       <C>                 <C>
Deferred tax liabilities:
   Depreciation                                            $        75,509     $        71,748
   State income tax                                                  9,514               8,621
                                                          ------------------- -------------------
                                                                    85,023              80,369

Deferred tax assets:
   Allowance for doubtful accounts                                 (15,721)            (13,073)
   Other                                                            (5,343)             (4,783)
                                                          ------------------- -------------------
                                                                   (21,064)            (17,856)

                                                          ------------------- -------------------

Net deferred tax liability                                 $        63,959     $        62,513
                                                          ------------------- -------------------
                                                          ------------------- -------------------
</TABLE>

                                     -23-
<PAGE>

NOTES TO FINANCIAL STATEMENTS
PACCAR Financial Corp.
December 31, 1998
(Thousands of Dollars)


NOTE H--FAIR VALUES OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Company in estimating 
its fair value disclosures for financial instruments:

CASH: The carrying amount reported in the balance sheets is stated at fair 
value.

NET RECEIVABLES: For floating rate loans and wholesale financings, fair 
values are stated at carrying values. For fixed rate loans, fair values are 
estimated using discounted cash flow analyses applying interest rates 
currently being offered for loans with similar terms to borrowers of similar 
credit quality. The carrying amount of accrued interest and other receivables 
approximates their fair value. Direct financing leases and the related 
allowance for losses are not included in net receivables for purposes of this 
note.

OFF-BALANCE-SHEET INSTRUMENTS: Fair values for the Company's interest rate 
contracts are based on costs which would be incurred to terminate existing 
agreements and enter into new agreements with similar notional amounts, 
maturity dates and counterparties' credit standings at current market 
interest rates or currency exchange rates.

COMMERCIAL PAPER, SHORT-TERM BANK LOANS AND MEDIUM-TERM NOTES: The carrying 
amount of the Company's commercial paper, bank loans and floating rate 
medium-term notes approximates their fair value. The fair value of the 
Company's fixed rate medium-term notes is estimated using discounted cash 
flow analyses, based on the Company's current incremental borrowing rates for 
similar types of borrowing arrangements.

The carrying amount of trade payables and receivables approximate their fair 
value and have been excluded from the accompanying table.

The carrying amounts and fair values of the Company's financial instruments 
at December 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                                                1998                                  1997
                                                     ---------------------------          ----------------------------
                                                      Carrying          Fair               Carrying           Fair
                                                       Amount           Value               Amount            Value
                                                     ----------       ----------          ----------        ----------
<S>                                                  <C>               <C>                 <C>                <C>
Cash                                                $    14,641      $    14,641         $    13,370       $    13,370
Net receivables                                       2,291,403        2,293,528           1,852,525         1,858,117
Commercial paper and short-term bank loans            1,212,743        1,212,743             759,016           759,016
Medium-term notes                                       956,000          967,568             964,000           964,709
</TABLE>

The Company's intent is to hold interest rate contracts until maturity. If 
recorded at fair value at December 31, 1998, the Company's off-balance-sheet 
financial instruments (interest rate contracts) would represent gross assets 
of $751 and offsetting gross liabilities of $5,313, resulting in a net 
liability of $4,562. If recorded at fair value at December 31, 1997, the 
Company's off-balance-sheet financial instruments would have reflected a net 
liability balance of $743.


                                     -24-
<PAGE>

NOTES TO FINANCIAL STATEMENTS
PACCAR Financial Corp.
December 31, 1998
(Thousands of Dollars)


NOTE I--QUARTERLY RESULTS  (Unaudited)

<TABLE>
<CAPTION>
                                                                       QUARTER
                                    -------------------------------------------------------------------------------
                                          First               Second              Third               Fourth
                                          -----               ------              -----               ------
<S>                                 <C>                 <C>                 <C>                 <C>
1998
----

Gross income                        $      49,755       $      52,661       $      54,465       $      56,157
Income before income taxes                 11,791              11,958              12,195               4,434*
Net income                                  7,067               7,393               7,487               2,687

1997
----

Gross income                        $      48,317       $      48,322       $      49,320       $      50,720
Income before income taxes                 12,744              12,791              12,916              12,246
Net income                                  7,782               7,805               7,882               7,443
</TABLE>

* As disclosed in the Company's 8-K filed December 10, 1998, the Company 
recorded a one-time charge-off of an investment in a new loan system in the 
amount of $7,453 during fourth quarter 1998.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE

     The registrant has not had any disagreements with its independent 
auditors on accounting or financial disclosure matters.


                                     -25-
<PAGE>


                                   PART III


ITEMS 10, 11, 12 AND 13

     These items omitted pursuant to Form 10-K General Instruction (I)(1)(a) 
and (b).










                                     -26-
<PAGE>

                                    PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

      The following financial statements of the Company are included in Item 8:

      AT DECEMBER 31, 1998 AND 1997 AND FOR THE YEARS ENDED DECEMBER 31, 
1998, 1997, AND 1996

           Balance Sheets -- December 31, 1998 and 1997

           Statements of Income and Retained Earnings -- Years Ended 
             December 31, 1998, 1997 and 1996

           Statements of Cash Flows -- Years Ended December 31, 1998, 1997 
             and 1996

           Notes to Financial Statements -- December 31, 1998

     All schedules for which provision is made in the applicable accounting 
regulation of the Securities and Exchange Commission are not required under 
the related instructions, are inapplicable or have been otherwise disclosed 
and, therefore, have been omitted.

           Listing of Exhibits

  The exhibits required by Item 601 of Regulation S-K are listed in the 
accompanying Exhibit Index.

(b) REPORTS ON FORM 8-K FILED IN THE FOURTH QUARTER OF 1998

On December 10, 1998 the Company filed a Form 8-K under Item 5 disclosing the 
write-off of its investment in the development of a new loan system.


                                     -27-
<PAGE>

                                  SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities 
Exchange Act of 1934, the Registrant has duly caused this report to be signed 
on its behalf by the undersigned, thereunto duly authorized.


                   PACCAR Financial Corp.



                    By                         
                        --------------------
                        Andrew J. Wold
                        President


Date:  March 23, 1999

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 
registrant as of the above date and in the capacities indicated.

(1)   Principal Executive Officer

                                                                     President
      --------------------------------------
         Andrew J. Wold

(2)   Principal Financial Officer

                                                                     Treasurer
      --------------------------------------
         Patricia A. Donohoe

(3)   Principal Accounting Officer

                                                                     Controller
      --------------------------------------
         Michael T. Barkley

(4)   A Majority of the Board of Directors:


      --------------------------------------
         Andrew J. Wold

      David J. Hovind*
      Mark C. Pigott*
      Michael A. Tembreull*

*By                                          
      ---------------------------------------
      Andrew J. Wold
      Attorney-in-Fact


                                     -28-
<PAGE>

                             PACCAR Financial Corp.
                                 EXHIBIT INDEX


  3.1         Restated Articles of Incorporation of the Company, as amended
              (incorporated by reference to Exhibit 3.1 to the Company's Form
              10-K dated March 26, 1985. Amendment incorporated by reference to
              Exhibit 19.1 to the Company's Quarterly Report on Form 10-Q dated
              August 13, 1985, File Number 0-12553).

  3.2         By-Laws of the  Company,  as amended  (incorporated  by  reference
              to Exhibit  3.2 to the  Company's  Registration Statement on Form 
              10 dated October 20, 1983, File Number 0-12553).

  4.1         Indenture for Senior Debt Securities dated as of December 1, 1983
              and first Supplemental Indenture dated as of June 19, 1989 between
              the Company and Citibank, N.A. (incorporated by reference to
              Exhibit 4.1 to the Company's Annual Report on Form 10-K dated
              March 26, 1984, File Number 0-12553 and Exhibit 4.2 to the
              Company's Registration Statement on Form S-3 dated June 23, 1989,
              Registration Number 33-29434).

  4.2         Forms of Medium-Term Note, Series G (incorporated by reference to
              Exhibits 4.3A and 4.3B to the Company's Registration Statement on
              Form S-3 dated December 8, 1993, Registration Number 33-51335).
              Form of Letter of Representation among the Company, Citibank, N.A.
              and the Depository Trust Company, Series G (incorporated by
              reference to Exhibit 4.4 to the Company's Registration Statement
              on Form S-3 dated December 8, 1993, Registration Number 33-51335).

  4.3         Forms of Medium-Term Note, Series H (incorporated by reference to
              Exhibits 4.3A and 4.3B to the Company's Registration Statement on
              Form S-3 dated March 11, 1996, Registration Number 333-01623).
              Form of Letter of Representation among the Company, Citibank, N.A.
              and the Depository Trust Company, Series H (incorporated by
              reference to Exhibit 4.4 to the Company's Registration Statement
              on Form S-3 dated March 11, 1996, Registration Number 333-01623).

  4.4         Forms of Medium-Term Note, Series I (incorporated by reference to
              Exhibits 4.2A and 4.2B to the Company's Registration Statement on
              Form S-3 dated September 10, 1998, Registration Number 333-63153).

              Form of Letter of Representation among the Company, Citibank, N.A.
              and the Depository Trust Company, Series I (incorporated by
              reference to Exhibit 4.3 to the Company's Registration Statement
              on Form S-3 dated September 10, 1998, Registration Number
              333-63153).

  10.1        Support Agreement between the Company and PACCAR dated as of June
              19, 1989 (incorporated by reference to Exhibit 28.1 to the
              Company's Registration Statement on Form S-3 dated June 23, 1989,
              Registration Number 33-29434).

  12.1        Statement re computation of ratio of earnings to fixed charges of
              the Company pursuant to SEC reporting requirements for each of the
              five years in the period ended December 31, 1998.

  12.2        Statement re computation of ratio of earnings to fixed charges of
              the Company pursuant to the Support Agreement with PACCAR for each
              of the five years in the period ended December 31, 1998.

  12.3        Statement re computation of ratio of earnings to fixed charges of
              PACCAR and subsidiaries pursuant to 


                                     -29-
<PAGE>

              SEC reporting requirements for each of the five years in the 
              period ended December 31, 1998.

  23          Consent of Independent Auditors.

  25.1        Power of attorney of certain officers and directors.

  27          Financial Data Schedule for Article 5 of Regulation S-X, Item 
              601(c) for the year ended December 31, 1998. 

Other exhibits listed in Item 601 of Regulation S-K are not applicable.







                                     -30-