United States Securities and Exchange Commission
                             Washington, D.C. 20549

                                    Form 10-Q

(Mark One)

           (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended December 31, 1998

                                       or

          ( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the Transition Period from _____ to _____

                         Commission File Number: 0-26412

                          UNION ACCEPTANCE CORPORATION
             (Exact name of registrant as specified in its charter)


          Indiana                                              35-1908796
(State or other jurisdiction                                (I.R.S. Employer 
of incorporation or organization)                         Identification Number)



250 N. Shadeland Avenue, Indianapolis, IN                         46219
 (Address of principal executive office)                        (Zip Code)



                                 (317) 231-6400
              (Registrant's telephone number, including area code)

         Indicate  by check mark  whether  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  period  that the
registrant  was  required  to file such  reports),  and (2) has been  subject to
filing requirements for the past 90 days.

Yes (X)           No ( )

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date:

                  Class                         Outstanding at February 12, 1999

Class A Common Stock, without par value                  4,459,224 Shares
---------------------------------------                  ----------------
Class B Common Stock, without par value                  8,790,036 Shares
---------------------------------------                  ----------------
<PAGE>



                  UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES
                                    FORM 10-Q
                                      INDEX


                                                                           Page
Part I.  FINANCIAL INFORMATION

Item 1.  Consolidated Condensed Financial Statements (unaudited):

         Consolidated Condensed Balance Sheets as of
         December 31, 1998 and June 30, 1998                                  3

         Consolidated Condensed Statements of Earnings (Loss) and
         Comprehensive Earnings (Loss) for the Three Months
         and Six Months Ended  December 31, 1998 and 1997                     4

         Consolidated Condensed Statements of Cash Flows for the
         Six Months Ended December 31, 1998 and 1997                          5

         Consolidated Condensed Statement of  Shareholders' Equity for
         Six Months Ended December 31, 1998                                   6

         Notes to Consolidated Condensed Financial Statements                 7

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                                 10

Item 3.  Quantitative and Qualitative Disclosures                            21

Part II. OTHER INFORMATION                                                   22


         Signatures                                                          23


<PAGE>

Union Acceptance Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
Dollars in thousands, except share data
(Unaudited)
<TABLE>
<CAPTION>

                                                                        December 31,      June 30,
Assets                                                                      1998            1998
------
                                                                        ----------------------------
<S>                                                                     <C>             <C>        
Cash                                                                    $    7,690      $    75,612
Restricted cash                                                             12,535           17,823
Receivables, net                                                           249,483          118,259
Accrued interest receivable                                                  2,086            1,045
Property, equipment, and leasehold improvements, net                         8,519            7,921
Retained interest in securitized assets                                    198,146          171,593
Other assets                                                                20,207           19,280
                                                                        ----------------------------
  Total Assets                                                          $  498,666       $  411,533
                                                                        ============================

Liabilities

Amounts due under warehouse facilities                                  $  174,831      $    73,123
Long-term debt                                                             199,000          221,000
Accrued interest payable                                                     5,275            6,280
Amounts due to trusts                                                       12,854           15,510
Dealer premiums payable                                                      3,412            1,374
Deferred income tax payable                                                 12,781            9,573
Other payables and accrued expenses                                          2,835            2,200
                                                                        ----------------------------
  Total Liabilities                                                        410,988          329,060
                                                                        ----------------------------

Shareholders' Equity

Preferred Stock, without par value, authorized
  10,000,000 shares; none issued and outstanding                                 -                -

Class A Common Stock, without par value,
  authorized 30,000,000 shares; 4,459,224 and 4,376,446 shares
  issued and outstanding at December 31, 1998 and
  June 30, 1998, respectively                                               58,450           58,360

Class B Common Stock, without par value,
  authorized 20,000,000 shares; 8,790,036 and 8,855,036 shares
  issued and outstanding at December 31, 1998 and
  June 30, 1998, respectively                                                    -                -

Net unrealized gain on retained interest in securitized assets               7,744            7,609
Retained earnings                                                           21,484           16,504
                                                                        ----------------------------
  Total Shareholders' Equity                                                87,678           82,473
                                                                        ----------------------------

  Total Liabilities and Shareholders' Equity                            $  498,666       $  411,533
                                                                        ============================
</TABLE>


See accompanying notes to consolidated condensed financial statements.


<PAGE>

Union Acceptance Corporation and Subsidiaries
Consolidated Condensed Statements of Earnings (Loss) and
  Comprehensive Earnings (Loss)
Dollars in thousands, except share data
(Unaudited)
<TABLE>
<CAPTION>

                                                                  Three Months Ended                   Six Months Ended
                                                                     December 31,                         December 31,
                                                         --------------------------------       ------------------------------
                                                              1998               1997               1998              1997
                                                          ------------       ------------       ------------      ------------


<S>                                                       <C>                <C>                <C>               <C>         
Interest on receivables                                   $      6,938       $      6,473       $     15,189      $     13,100
Other interest                                                   5,037              3,191             10,516             6,304
                                                          ------------       ------------       ------------      ------------
   Total interest income                                        11,975              9,664             25,705            19,404
Interest expense                                                 6,338              6,167             13,290            12,220
                                                          ------------       ------------       ------------      ------------
   Net interest margin                                           5,637              3,497             12,415             7,184
Provisions for estimated credit losses                           1,275              1,770              3,600             3,275
                                                          ------------       ------------       ------------      ------------
   Net interest margin after provision                           4,362              1,727              8,815             3,909

Gain (loss) on sales of receivables, net                         4,087              2,020              6,793            (8,827)
Servicing fees, net                                              5,469              4,803             10,422             9,548
Other revenues                                                   1,173                985              2,379             2,005
                                                          ------------       ------------       ------------      ------------

Total revenues                                                  15,091              9,535             28,409             6,635
                                                          ------------       ------------       ------------      ------------

Salaries and benefits                                            5,453              4,871             11,123             9,481
Other expenses                                                   4,856              4,165              9,177             8,178
                                                          ------------       ------------       ------------      ------------

Total operating expenses                                        10,309              9,036             20,300            17,659
                                                          ------------       ------------       ------------      ------------

Earnings (loss) before provision (benefit)
   for income taxes                                              4,782                499              8,109           (11,024)
Provision (benefit) for income taxes                             1,859               (711)             3,129            (5,367)
                                                          ------------       ------------       ------------      ------------

Net earnings (loss)                                       $      2,923       $      1,210       $      4,980      $     (5,657)
                                                          ============       ============       ============      ============

Other comprehensive earnings (loss) before provision
   (benefit) for income taxes:
Net change in unrealized gain on retained
   interest in securitized assets                               (4,847)             2,315                219             6,627
Provision (benefit) for income taxes related to
   items of other comprehensive earnings                        (1,852)               870                 84             2,492
                                                          ------------       ------------       ------------      ------------

Other comprehensive earnings (loss)                             (2,995)             1,445                135             4,135
                                                          ------------       ------------       ------------      ------------

Comprehensive earnings (loss)                             $        (72)      $      2,655       $      5,115      $     (1,522)
                                                          ============       ============       ============      ============

 Net earnings (loss) per share (diluted & basic)          $       0.22       $       0.09       $       0.38      $      (0.43)
                                                          ============       ============       ============      ============

 Weighted average number of
   common shares outstanding                                13,236,313         13,227,010         13,233,897        13,221,899
                                                          ============       ============       ============      ============
</TABLE>

See accompanying notes to consolidated condensed financial statements.



<PAGE>

Union Acceptance Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
Dollars in thousands
(Unaudited)

<TABLE>
<CAPTION>

                                                                         Six Months Ended
                                                                            December 31,
                                                                     -------------------------
                                                                        1998            1997
                                                                     ---------       ---------

Cash flows from operating activities:
<S>                                                                  <C>             <C>       
  Net earnings (loss)                                                $   4,980       $  (5,657)
     Adjustments to reconcile net earnings (loss) to net cash
     used by operating activities:
          Receivable acquisitions in excess of liquidations           (756,893)       (476,782)
          Dealer premiums paid in excess of dealer premium
            rebates received on receivables held for sale              (28,456)        (21,175)
          Securitization of receivables held for sale                  627,293         422,537
          Gain on sales of receivables                                 (20,912)        (12,512)
          Proceeds on sale of interest-only strip                           --           7,137
          Return of excess and servicing asset cash flows,
            net of present value effect                                 16,676          10,270
          Impairment of retained interest in securitized assets          5,172          17,549
          Provision for estimated credit losses                          3,600           3,275
          Amortization and depreciation                                  2,430           2,093
          Spread accounts                                               (2,633)          4,320
          Restricted cash                                                5,288          (1,737)
          Other assets and accrued interest receivable                  (3,120)         (2,478)
          Amounts due to trusts                                         (2,656)         (3,288)
          Other payables and accrued expenses                            2,928          (1,754)
                                                                     ---------       ---------
                Net cash used by operating activities                 (146,303)        (58,202)
                                                                     ---------       ---------

Cash flows from investing activities:
  Purchase of property, equipment, and leasehold improvements           (1,225)         (3,256)
                                                                     ---------       ---------

Cash flows from financing activities:
  Principal payment on long-term debt                                  (22,000)             --
  Payment of borrowing fees                                               (102)             --
  Net change in warehouse credit facilities                            101,708          58,157
                                                                     ---------       ---------
                Net cash provided from financing activities             79,606          58,157

Change in cash                                                         (67,922)         (3,301)

Cash, beginning of period                                               75,612          58,801
                                                                     ---------       ---------

Cash, end of period                                                  $   7,690       $  55,500
                                                                     =========       =========

Supplemental disclosures of cash flow information:
--------------------------------------------------

Income taxes paid                                                    $       6       $      20
                                                                     =========       =========

Interest paid                                                        $  15,406       $  12,768
                                                                     =========       =========
</TABLE>

See accompanying notes to consolidated condensed financial statements.


<PAGE>


Union Acceptance Corporation and Subsidiaries
Consolidated Condensed Statement of Shareholders' Equity
For the Six Months Ended December 31, 1998
Dollars in thousands, except per share data
(Unaudited)
<TABLE>
<CAPTION>
                                                            
                                Number of Common Stock                     Net Unrealized
                                 Shares Outstanding                      Gain on Retained                     Total
                              -------------------------       Common        Interest in        Retained    Shareholders'
                              Class A          Class B         Stock     Securitized Assets    Earnings      Equity
                              ------------------------------------------------------------------------------------------

<S>                           <C>             <C>             <C>            <C>              <C>            <C>      
Balance at June 30, 1998      4,376,446       8,855,036       $ 58,360       $7,609           $  16,504      $  82,473

Grants of Common Stock           17,778               -             90            -                   -             90

Conversion of Class B
  Common Stock into
  Class A Common Stock           65,000        (65,000)              -            -                   -              -

Net earnings                          -               -              -            -               4,980          4,980

Net change in unrealized
   gain on retained interest
   in securitized assets              -               -              -          135                   -            135
                              -----------------------------------------------------------------------------------------
Balance at December 31, 1998  4,459,224       8,790,036       $ 58,450       $7,744           $  21,484      $  87,678
                              =========================================================================================

</TABLE>


See accompanying notes to consolidated condensed financial statements.




<PAGE>
Union Acceptance Corporation and Subsidiaries
Notes to Consolidated Condensed Financial Statements
For the Six Months Ended December 31, 1998 and 1997
(Unaudited)

Note 1 - Basis of Presentation
------------------------------
         The forgoing consolidated condensed financial statements are unaudited.
However,  in the opinion of  management,  all  adjustments  necessary for a fair
presentation of the results of the interim period  presented have been included.
All  adjustments are of a normal and recurring  nature.  Results for any interim
period are not  necessarily  indicative  of results to be expected for the year.
The consolidated  condensed  financial  statements include the accounts of Union
Acceptance Corporation and its subsidiaries.

         During  fiscal  1995,  Union  Acceptance   Funding   Corporation,   UAC
Securitization  Corporation,  Performance  Funding  Corporation  and Performance
Securitization  Corporation  were formed as  wholly-owned  subsidiaries  of UAC.
During  fiscal  1996,  UAC Boat  Funding  Corp.  was  formed as a wholly-  owned
subsidiary  of UAC.  In fiscal  1997,  UAC Finance  Corporation  was formed as a
wholly-owned  subsidiary  of UAC.  Circle City Car Company and Union  Acceptance
Receivables  Corporation were formed as wholly-owned  subsidiaries of UAC during
the first and second quarters, respectively, of fiscal 1998.

         The  consolidated  condensed  interim  financial  statements  have been
prepared in accordance with Form 10-Q  specifications,  and,  therefore,  do not
include all  information and footnotes  normally shown in full annual  financial
statements.  A summary of the Company's  significant  accounting policies is set
forth in "Note 1" of the "Notes to  Consolidated  Financial  Statements"  in the
Company's Annual Report on Form 10-K for the year ended June 30, 1998.

Note 2 - Reclassification
-------------------------
         Certain amounts for the prior period have been  reclassified to conform
to the current period presentation.

Note 3 - Other Interest Income
------------------------------
         Other  interest  income  includes  interest  earned on cash  collection
accounts on all securitization transactions before January 1, 1997, the discount
accretion  recognized  on  retained  interest  in  securitized  assets,  and the
discount  accretion  related to the servicing  asset which was  established  for
securitization  transactions  after December 31, 1996. Cash collection  accounts
represent  customer  payments held in trust until  disbursement  by the trustee.
Interest is earned by the Company on these funds prior to  distribution  of such
funds to  investors  and the  servicer.  Beginning  with the  implementation  of
Statement  of Financial  Accounting  Standards  No. 125 on January 1, 1997,  the
Company  established  a  servicing  asset for the  expected  collection  account
interest.

Note 4 - Earnings Per Share
---------------------------
         The Company has implemented Statement of Financial Accounting Standards
No. 128,  "Earnings  per Share" (EPS) which is effective  for interim and annual
periods ending after December 15, 1997, and requires the  presentation  of basic
and  dilutive  earnings  per share.  EPS have been  computed on the basis of the
weighted  average  number  of common  shares  outstanding.  The  effect of stock
options  not  exercised  during the  periods  presented  are  anti-dilutive  and
therefore  not  included in diluted  earnings per share.  The  weighted  average
number of shares used in the basic and diluted  EPS  computations  for the three
months  ended  December  31,  1998  and 1997  were  13,236,313  and  13,227,010,
respectively.  The  weighted  average  number  of  shares  used in the basic and
dilutive EPS  computations  for the six months ended  December 31, 1998 and 1997
were 13,233,897 and 13,221,899, respectively.

Note 5 - Current Accounting Pronouncements
------------------------------------------
         In  June,  1997,  The  Financial   Accounting  Standards  Board  issued
Statement of Financial Accounting Standards No. 131, "Disclosures About Segments
of an Enterprise  and Related  Information,"  which  introduces  new guidance on
segment reporting. The Statement is effective for fiscal years beginning

<PAGE>



Union Acceptance Corporation and Subsidiaries
Notes to Consolidated Condensed Financial Statements
For the Three Months Ended December 31, 1998 and 1997
(Unaudited)

Note 5 - Current Accounting Pronouncements (continued)
------------------------------------------------------
after December 15, 1997, with earlier application  encouraged.  The Statement is
not expected to have a material impact on the financial  condition or results of
operations of the Company.

         In February 1998, Financial Accounting Standards Board issued Statement
of  Financial  Accounting  Standards  No.  132,  "Employer's  Disclosures  about
Pensions and Other  Postretirement  Benefits."  The Statement does not alter the
measurement and recognition  provisions currently outlined in generally accepted
accounting principles but merely standardizes the disclosure  requirements.  The
Statement is effective for fiscal years  beginning after December 15, 1997, with
earlier application encouraged. The Statement is not expected to have a material
impact on the  financial  condition or results of operations of the Company when
adopted.

         In June 1998,  Financial Accounting Standards Board issued Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging  Activities."  The Statement is effective for fiscal years beginning
after June 15, 1999, with earlier application  allowed.  Management is currently
assessing the impact of this Statement on the financial  condition of operations
of the Company upon adoption.

         In April 1998, the American  Institute of Certified Public  Accountants
issued  Statement  of  Position  98-5,  "Reporting  on  the  Costs  of  Start-up
Activities."  This  Statement is  effective  for fiscal  years  beginning  after
December  15, 1998,  with earlier  application  allowed.  This  Statement is not
expected  to have a material  impact on the  financial  condition  or results of
operations of the Company when adopted.

Note 6 - Retained Interest in Securitized Assets
------------------------------------------------

<TABLE>
<CAPTION>
                                                           December 31,        June 30,
                                                              1998               1998
                                                          -----------        -----------
<S>                                                       <C>                <C>        
Estimated fair value of excess servicing receivable,
  net of estimated prepayments                            $   205,466        $   175,164
Allowance for estimated credit losses on securitized          (96,513)           (90,203)
receivables
Estimated dealer premium rebates                               25,526             25,718
Discount to present value                                     (34,883)           (33,117)
                                                          -----------        -----------
                                                               99,596             77,562

Spread accounts                                                70,746             68,113
Accrued interest on securitized receivables                    15,273             13,606
Unrealized gain                                                12,531             12,312
                                                          -----------        -----------
Retained interest in securitized assets                   $   198,146        $   171,593
                                                          ===========        ===========

Outstanding balance of receivables serviced
  through securitized trusts                              $ 2,101,706        $ 1,929,981
Allowance for estimated credit losses as
  a percentage of securitized receivables serviced               4.59%              4.67%
</TABLE>

<PAGE>




Union Acceptance Corporation and Subsidiaries
Notes to Consolidated Condensed Financial Statements
For the Three Months Ended December 31, 1998 and 1997
(Unaudited)

Note 7- Conversion of Common Stock
----------------------------------
         The  Company's  charter  provides  that shares of Class B Common  Stock
convert  automatically  to shares of Class A Common  Stock on a  share-for-share
basis upon  transfer  outside a  prescribed  group of holders.  Pursuant to such
provision,  65,000  shares of Class B Common  Stock were  converted to shares of
Class A Common Stock in the fiscal quarter ended December 31, 1998.



<PAGE>



Item 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------           -------------------------------------------------
                  CONDITION AND RESULTS OF OPERATIONS
                  -----------------------------------

General

         The  Company  derives  substantially  all  of  its  earnings  from  the
acquisition,  securitization and servicing of retail installment sales contracts
originated  by   dealerships   affiliated   with  major   domestic  and  foreign
manufacturers.  To fund the acquisition of receivables prior to  securitization,
the Company utilizes a revolving warehouse facility, discussed in "Liquidity and
Capital Resources." Through securitizations,  the Company periodically pools and
sells receivables to a trust which issues Certificates to investors representing
pro-rata  interests in the receivables  sold. When the Company sells receivables
in a  securitization,  it  records a gain (or loss) on sale of  receivables  and
establishes Retained Interest in Securitized Assets ("Retained  Interest") as an
asset. Excess cash flows are recorded against Retained Interest as received over
the life of the related securitization.

         Acquisition  Volume. The Company currently  acquires  receivables in 32
states from over 3,800  manufacturer-franchised  auto  dealerships.  The Company
primarily  acquires  receivables on automobiles  made to borrowers who exhibit a
favorable  credit  profile  ("Tier I") and since October 1994, to borrowers with
adequate  credit  quality  who  would  not  qualify  for  acquisition  under the
Company's Tier I quality  criteria ("Tier II").  Effective  January 1, 1999, the
Company no longer acquires Tier II  receivables.  The decision to stop acquiring
Tier II receivables will not significantly  impact operations and will allow the
Company to focus on Tier I acquisitions.

         Total  receivable  acquisitions  decreased  to $361.9  million  for the
quarter  ended  December 31,  1998,  from $404.5  million for the quarter  ended
September  30, 1998,  but  increased  from $227.4  million for the quarter ended
December 31, 1997.  Tier I receivable  acquisitions  were $357.3 million for the
quarter ended December 31, 1998, compared to $221.1 million for the same quarter
of last year. Tier II receivable  acquisitions were $4.6 million for the quarter
ended December 31, 1998, compared to $5.8 million for the quarter ended December
31, 1997. As a result of the decision to stop acquiring Tier II receivables  and
our continued effort to improve the credit quality of our portfolio,  receivable
acquisitions are currently expected to decrease to approximately  $290.0 million
for the quarter ended March 31, 1999.  The decrease in  receivable  acquisitions
should  be offset by the  Company's  ability  to  achieve  higher  gross and net
spreads. See - "Discussion of Forward-Looking Statements".

         Gross and Net Spreads.  The gross and net spreads on the second quarter
securitization  of fiscal 1999 were 6.89% and 5.25% compared to 6.71% and 5.07%,
respectively, over the same quarter of last year. Gross spread is defined as the
difference  between the weighted  average  receivable  rate and the  certificate
rate. Net spread is defined as gross spread less servicing fees,  upfront costs,
ongoing credit enhancement and trustee fees, and hedging gains or losses.

         To offset projected lower acquisition volume,  management increased the
targeted gross and net spreads by approximately 50 basis points. Net spreads are
currently  targeted  at 5.50% to 6.00% on  securitizations  (assuming  a pricing
spread for  asset-backed  certificates  over the two-year  treasury  note of 100
basis points) for the remaining six months of fiscal 1999.  Management  believes
that by targeting a spread of 8.00% to 8.50%  between  receivable  rates and the
two-year  treasury  rate  that  these  net  spreads  can be  achieved.  Although
management  believes these spreads can be achieved,  material factors  affecting
the  net  spreads  are  difficult  to  predict  and  could  cause   management's
projections to be materially inaccurate. These include current market conditions
with respect to interest rates and demand for asset-backed  securities generally
and for Certificates  representing interests in securitizations sponsored by the
Company. See - "Discussion of Forward-Looking Statements".

         Gain (loss) on Sales of  Receivables,  Net and Interest Rate Risk. Gain
(loss) on sales of  receivables  continues  to be a  significant  element of the
Company's net earnings.  The gain (loss) on sales of  receivables is affected by
several  factors  but  is  primarily  affected  by  the  amount  of  receivables
securitized,  the net spread, and the level of estimation for net credit losses.
Prior to the  quarter  ended June 30,  1998,  the Company  estimated  the future
servicing  cash  flows  recognized  as a  component  of  the  gain  on  sale  by
discounting  the projected  future  servicing  cash flows from the time they are
received by the respective trust. However, management implemented the "cash out"
method  during the fourth  quarter of fiscal 1998 which  discounts  the expected
future  servicing  cash  flows from the time they are  released  from the spread
account to the Company.


<PAGE>

         The  Company's  sources  for funds  generally  have  variable  rates of
interest,  and its  receivable  portfolio  bears  interest at fixed  rates.  The
Company  therefore  bears  interest  rate  risk on  receivables  until  they are
securitized  and employs a hedging  strategy to mitigate this risk. As a part of
the  hedging  strategy,  the  Company  executes  short  sales  of U.S.  Treasury
securities  having a maturity  approximating the average maturity of receivables
to be acquired  during the  relevant  period.  There is no  assurance  that this
strategy will completely  offset changes in interest rates. In particular,  such
strategy depends on management's  estimates of receivable acquisition volume and
timing  of its  securitizations.  The  Company  realizes  a gain on its  hedging
transactions  during periods of increasing interest rates and realizes a loss on
such transactions  during periods of decreasing interest rates. The hedging gain
or loss will in part offset changes in interest rates as reflected by a lower or
higher  reported  gain on sales of  receivables,  respectively.  Recognition  of
unrealized gains or losses is deferred until the sale of receivables  during the
securitization.  On the date of the sale,  deferred hedging gains and losses are
recognized  as a component of gain (loss) on sales of  receivables.  The Company
plans to change its hedging  strategy to the execution of forward  interest rate
swaps during the third quarter of fiscal 1999.

         Portfolio  Performance.  Since  September  30,  1997,  the  Company has
experienced  steady  improvement in both delinquency and net credit losses.  The
Company  attributes  the  improvement  to the  implementation  of tighter credit
standards  in March  1997 and  strategic  changes  made in its  origination  and
collection  departments.  Recoveries as a percentage of gross charge-offs on the
Tier I portfolio  dropped  slightly to 37.79% for the quarter ended December 31,
1998,  compared to 38.67% for the quarter ended  September 30, 1998,  and 38.11%
for the same quarter of last year. In response to declining  recovery rates, the
Company opened a new car franchised  dealership in Indianapolis in July 1998 and
is retailing a portion of its  repossessed  automobiles  through the dealership.
The Company  anticipates  that this method of disposing of  repossessions  along
with stricter  monitoring of the repossession and resale process should increase
the recovery rate over time.  Although the overall recovery  percentage  remains
below management's expectations, recovery rates for repossessed automobiles sold
by the Company's retail operation are  significantly  higher than recovery rates
on vehicles sold at auction. Approximately 10.0% of repossessed automobiles were
sold at the Company's  retail operation during the six months ended December 31,
1999. The recovery rate on automobiles retailed by the Company was approximately
60.00% as a  percentage  of gross  charge-offs,  compared  to our  total  Tier I
reported  recoveries  as a  percentage  of gross  charge-offs  of 37.79%.  See -
"Discussion of Forward-Looking Statements".

         Provisions are made for estimated net credit losses in conjunction with
each receivable sale. Current assumptions utilized in the gain (loss) on sale of
receivables  calculation  for  estimated  net  credit  losses  during the second
quarter  securitization  was 4.40% over the life of the pool based on a combined
sale of Tier I,  Tier II and  modified  receivables.  Allowance  related  to net
credit  losses  on  securitized  receivables  (inherent  in  Retained  Interest)
declined to 4.59% at December 31, 1998, compared to 4.64% and 5.06% at September
30, 1998, and December 31, 1997, respectively.

         Tier I Portfolio. Set forth below is certain information concerning the
Company's  experience  pertaining to delinquencies  and net credit losses on the
Tier I fixed rate retail automobile, light truck and van receivables serviced by
the Company.  There can be no assurance that future  delinquency  and net credit
loss experience on receivables will be comparable to that set forth below.
See "Discussion of Forward-Looking Statements".


<PAGE>
<TABLE>
<CAPTION>


                                                          Tier I Delinquency Experience
                               ---------------------------------------------------------------------------------

                                 At December 31, 1998        At September 30, 1998       At December 31, 1997
                               ------------------------    -----------------------     -------------------------
                                                            (Dollars in thousands)

                               Number of                    Number of                   Number of
                                Loans          Amount         Loans        Amount        Loans          Amount 
                               --------   --------------    --------  -------------  ----------      ------------
<S>                            <C>          <C>             <C>        <C>             <C>           <C>        
Servicing portfolio            202,890      $ 2,277,112     194,882    $ 2,151,695     179,962       $ 1,920,930
Delinquencies:                                                                                      
  30-59 days                     4,379      $    44,626       3,741    $    38,040       3,954       $    41,778
  60-89 days                     1,682           17,475       1,873         19,652       2,274            25,933
  90 days or more                  694            7,161         793          7,966         688             8,048
                               --------   --------------    --------  -------------  ----------      ------------
Total delinquencies              6,755      $    69,262       6,407    $    65,658       6,916       $    75,759
                               ========   ==============    ========  =============  ==========      ============
Delinquency as a percentage                                                                         
  of servicing portfolio          3.33%            3.04%       3.29%          3.05%       3.84%             3.94%
                                                                                                        
</TABLE>


         As  indicated  by  the  above  table,   delinquency  rates  based  upon
outstanding receivable balances of accounts 30 days past due and over were 3.04%
at December 31,  1998,  compared to 3.05% at  September  30, 1998,  and 3.94% at
December 31, 1997, for UAC's Tier I servicing portfolio.

<TABLE>
<CAPTION>
                                                                    Tier I Credit Loss Experience
                                                                      For the Three Months Ended
                                          ----------------------------------------------------------------------------------

                                               December 31, 1998           September 30, 1998         December 31, 1997
                                          --------------------------    ------------------------    ------------------------
                                                                         (Dollars in thousands)
                                          Number of                      Number of                  Number of
                                            Loans             Amount       Loans         Amount      Loans          Amount 
                                            -----             ------       -----         ------      -----          ------ 
<S>                                         <C>           <C>              <C>       <C>            <C>          <C>       
Average servicing portfolio                 200,164       $ 2,234,753      190,877   $ 2,088,163    179,334      $1,916,778
                                                                                                                
Gross charge-offs                             1,886            19,339        2,196        23,651      1,977          22,373
Recoveries                                                      7,309                      9,146                      8,527
                                                      ----------------              -------------                -----------
  Net charge-offs                                         $    12,030                $    14,505                  $  13,846
                                                      ================              =============                ===========
                                                                                                                
Gross charge-offs as a percentage                                                                               
  of average servicing portfolio (1)           3.77%             3.46%        4.60%         4.53%      4.41%           4.67%
Recoveries as a percentage of                                                                                   
  gross charge-offs                                             37.79%                     38.67%                     38.11%
Net charge-offs as a percentage                                                                                 
  of average servicing portfolio (1)                             2.15%                      2.78%                      2.89%
</TABLE>

<TABLE>
<CAPTION>
                                                         For the Six Months Ended
                                       -------------------------------------------------------
                                            December 31, 1998             December 31, 1997
                                       --------------------------    -------------------------
                                                       (Dollars in thousands)

                                       Number of                     Number of
                                        Loans            Amount        Loans       Amount 
                                        -----            ------        -----       ------ 
<S>                                     <C>           <C>             <C>       <C>        
Average servicing portfolio             195,521       $ 2,161,458     177,627   $ 1,899,190

Gross charge-offs                         4,082            42,990       4,031        45,429
Recoveries                                                 16,455                    16,661
                                                    --------------              ------------
  Net charge-offs                                   $      26,535               $    28,768
                                                    ==============              ============

Gross charge-offs as a percentage
  of average servicing portfolio (1)       4.18%             3.98%       4.54%         4.78%
Recoveries as a percentage
  of gross charge-offs                                      38.28%                    36.68%
Net charge-offs as a percentage
  of average servicing portfolio (1)                         2.46%                     3.03%
</TABLE>

    (1) Annualized



<PAGE>

         As indicated in the above table,  net credit  losses on the Tier I auto
portfolio  totaled  $12.0  million for the quarter  ended  December 31, 1998, or
2.15%  (annualized) as a percentage of the average servicing  portfolio compared
to 2.78% and 2.89% for the quarters  ended  September 30, 1998, and December 31,
1997, respectively.

         Tier II Portfolio.  Set forth below is certain  information  concerning
the Company's  experience  pertaining to delinquencies  and net credit losses on
the Tier II portfolio. There can be no assurance that future delinquency and net
credit loss  experience  on  receivables  will be  comparable  to that set forth
below. See "Discussion of Forward-Looking Statements".

<TABLE>
<CAPTION>
                                                         Tier II Delinquency Experience
                                --------------------------------------------------------------------------------
                                    At December 31, 1998       At September 30, 1998       At December 31, 1997
                                ---------------------------   ------------------------  ------------------------
                                                               (Dollars in thousands)

                                   Number of                   Number of                 Number of
                                    Loans         Amount        Loans        Amount        Loans        Amount 
                                -----------    ------------   --------   -------------  ----------- ------------
<S>                                  <C>        <C>             <C>        <C>               <C>      <C>      
Servicing portfolio                  6,327      $   66,363      6,376      $   67,685        6,367    $  70,439
Delinquencies:
  30-59 days                           421      $    4,492        359      $    3,758          400    $   4,647
  60-89 days                           183           1,871        158           1,683          150        1,728
  90 days or more                        5              48          9              65            -            -
                                -----------    ------------   --------   -------------  ----------- ------------
Total delinquencies                    609      $    6,411        526      $    5,506          550    $   6,375
                                ===========    ============   ========   =============  =========== ============
Delinquency as a percentage
   of servicing portfolio             9.63%           9.66%      8.25%           8.14%        8.64%        9.05%

</TABLE>


         As  indicated in the above table,  Tier II  portfolio  delinquency  was
9.66% based on outstanding  receivable balances of accounts 30 days past due and
over at December 31, 1998, compared to 8.14% at September 30, 1998, and 9.05% at
December 31, 1997.  Delinquency  as a percentage  of servicing  portfolio on the
Tier II portfolio is expected to increase, while not actually deteriorating,  as
a  result  of  a  declining  Tier  II  average   servicing   portfolio  and  the
determination to eliminate Tier II receivable  acquisitions effective January 1,
1999. See "Discussion of Forward-Looking Statements".

<TABLE>
<CAPTION>
                                                                   Tier II Credit Loss Experience
                                                                      For the Three Months Ended
                                       -------------------------------------------------------------------------------
                                          December 31, 1998             September 30, 1998        December 31, 1997
                                       -------------------------      ------------------------   ---------------------
                                                                       (Dollars in thousands)

                                        Number of                      Number of                 Number of
                                          Loans           Amount         Loans          Amount     Loans       Amount 
                                          -----           ------         -----          ------     -----       ------ 
<S>                                       <C>          <C>             <C>           <C>            <C>       <C>    
Average servicing portfolio               6,370        $  67,145       6,342         $  67,319      6,340   $  70,547
                                                                                                              
Gross charge-offs                           168            1,663         215             2,118        195       2,163
Recoveries                                                   580                           741                    708
                                                     ------------                    ----------             ----------
  Net charge-offs                                      $   1,083                     $   1,377              $    1,455
                                                     ============                    ==========             ==========
                                                                                                              
Gross charge-offs as a percentage                                                                             
  of average servicing portfolio (1)      10.55%            9.91%      13.56%            12.58%     12.30%      12.26%
Recoveries as a percentage                                                                                    
  of gross charge-offs                                     34.87%                        34.99%                 32.75%
Net charge-offs as a percentage                                                                               
  of average servicing portfolio (1)                        6.45%                         8.18%                  8.25%
</TABLE>
                                                                  
<TABLE>
<CAPTION>
                                                    For the Six Months Ended               
                                      ----------------------------------------------------
                                          December 31, 1998           December 31, 1997
                                      ------------------------     -----------------------
                                                     (Dollars in thousands)

                                       Number of                   Number of   
                                         Loans         Amount        Loans        Amount 
                                         -----         ------        -----        ------ 
<S>                                       <C>        <C>            <C>         <C>      
Average servicing portfolio               6,356      $  67,232      6,271       $  70,186
                                                                               
Gross charge-offs                           383          3,780        424           4,637
Recoveries                                               1,321                      1,641
                                                    -----------                -----------
  Net charge-offs                                   $    2,459                 $    2,996
                                                    ===========                ===========
                                                                               
Gross charge-offs as a percentage                                              
  of average servicing portfolio (1)      12.05%         11.25%     13.52%          13.21%
Recoveries as a percentage                                                     
  of gross charge-offs                                   34.94%                     35.39%
Net charge-offs as a percentage                                                
  of average servicing portfolio (1)                      7.32%                      8.54%
</TABLE>
    (1) Annualized


         As  indicated  in the above  table,  net credit  losses for the quarter
ended  December  31,  1998,  totaled  $1.1  million or 6.45%  (annualized)  as a
percentage  of the average  Tier II  servicing  portfolio  compared to 8.18% and
8.25% for the  quarters  ended  September  30,  1998,  and  December  31,  1997,
respectively.


<PAGE>

Results of Operations

         Net  earnings  increased  141.6% to $2.9  million or $0.22 per  diluted
share for the quarter ended December 31, 1998, compared to $1.2 million or $0.09
per  diluted  share for the  quarter  ended  December  31,  1997.  Net  earnings
increased  188.0% to $5.0 million or $0.38 per diluted  share for the six months
ended  December  31,  1998,  compared to a net loss of $5.7 million or $0.43 per
diluted  share for the six months ended  December 31, 1997.  The increase in net
earnings was primarily related to a higher gain on sale of receivables, net, and
an increase in other interest income.

         Net interest  margin after provision  increased  152.6% to $4.4 million
and 125.5% to $8.8  million for the quarter and six months  ended  December  31,
1998,  respectively,   compared  to  $1.7  million  and  $3.9  million  for  the
corresponding periods ended December 31, 1997.

         Interest on  receivables  increased  7.2% to $6.9  million and 16.0% to
$15.2  million  for  the  quarter  and  six  months  ended  December  31,  1998,
respectively,  compared to $6.5 million and $13.1 million for the  corresponding
periods ended  December 31, 1997.  The increase in interest on  receivables  was
primarily  a  result  of an  increase  in the  average  outstanding  balance  of
receivables  held for sale for the quarter  and six months  ended  December  31,
1998, to $204.3  million and $220.2  million,  respectively,  compared to $161.2
million and $171.4  million for the  corresponding  periods  ended  December 31,
1997.

         Other  interest  income  increased  57.9% to $5.0  million and 66.8% to
$10.5  million  for  the  quarter  and  six  months  ended  December  31,  1998,
respectively,  compared to $3.2 million and $6.3  million for the  corresponding
periods ended December 31, 1997.  The increase in other interest  income relates
primarily  to the  implementation  of the "cash out" method of valuing  Retained
Interest  at  June  30,  1998,  which  increased  the  discount  resulting  in a
subsequent increase in discount accretion but was offset by lower collection and
spread account interest. Other interest income related to discount accretion was
$4.7 million and $9.8 million for the quarter and six months ended  December 31,
1998,  respectively,  compared to $1.8  million and $3.4 million for the quarter
and six months ended  December 31, 1997.  Other  interest  income related to the
restricted cash accounts  (collection  and spread  accounts) for the quarter and
six months ended December 31, 1998, was $326,000 and $1.4 million, respectively,
compared to  $695,000  and $2.9  million  for the  quarter and six months  ended
December 31, 1997.

         Interest  expense  increased  2.8% to $6.3  million  and  8.8% to $13.3
million for the quarter and six months ended December 31, 1998, compared to $6.2
million and $12.2 million for the corresponding periods ended December 31, 1997.
The increase was  primarily  related to higher  average  borrowing  needs due to
higher  receivable  acquisitions  but was offset by lower  interest on long-term
debt as a result of a required principal payment of $22.0 million made in August
1998.

         Provision for estimated  credit losses  decreased 28.0% to $1.3 million
for the quarter  ended  December  31,  1998,  compared  to $1.8  million for the
quarter ended  December 31, 1997, and increased 9.9% to $3.6 million for the six
months  ended  December  31,  1998,  from $3.3  million for the six months ended
December 31, 1997. The decrease during the current quarter is primarily  related
to improvement in the quality of the held for sale portfolio.

         Gain on sales of receivables, net totaled $4.1 million and $2.0 for the
quarters  ended  December 31,  1998,  and 1997,  respectively.  Gain on sales of
receivables,  net totaled  $6.8  million for the six months  ended  December 31,
1998,  compared to a loss on sales of  receivables,  net of $8.8 million for the
six months ended December 31, 1997. The gain for the quarters ended December 31,
1998,  and  1997,  consisted  of gains on  securitization  transactions  of $5.8
million and $3.4  million and charges for other than  temporary  impairments  of
Retained Interest of $1.6 million and $1.2 million,  respectively.  The gain for
the six  months  ended  December  31,  1998  and  1997  consisted  of  gains  on
securitization transactions of $12.0 million and $9.0 million, respectively, and
charges  for other than  temporary  impairments  of  Retained  Interest  of $5.2
million and $17.5 million,  respectively.  Unrealized gains on Retained Interest
are not charged to income.  (See - Financial  Condition - "Retained  interest in
securitized assets," below). The increase in the securitization transaction gain
relates to a higher volume of receivables securitized,  and a higher net spread,
but was offset by a higher  credit loss  assumption of 4.40% for the fiscal 1999
second  quarter  securitization  compared  to 4.00% for the fiscal  1998  second
quarter  securitization.  The  increase  was also  offset by an  increase in the
discount of the estimated Retained Interest related to the implementation of the
"cash out" method of valuing  Retained  Interest.  The  receivables  sold in the
securitization  for the quarter  ended  December 31, 1998,  were $275.9  million
compared to $204.1  million for the same quarter of last year.  The  receivables
sold in the  securitizations  for the six months ended  December  31, 1998,  and
1997, were $627.3 million and $422.5 million,  respectively. The increase in the
credit  loss  assumption  from  4.00%  to  4.40%  was  related  to the  combined
securitization  of Tier I,  Tier II and  modified  receivables  in  fiscal  1999
securitizations  compared to the  securitization  of only Tier I receivables  in
fiscal 1998. The annual  prepayment  estimate and discount rate assumptions used
for the fiscal 1999 and fiscal 1998 second quarter  securitizations  were 25.00%
and 9.76%, and 28.60% and 10.67%, respectively.

         Servicing  fees, net increased  13.9% to $5.5 million and 9.2% to $10.4
million  for  the  quarter  ended  and  six  months  ended  December  31,  1998,
respectively,  compared to $4.8 million and $9.5  million for the  corresponding
periods ended December 31, 1997. The increase in servicing fees, net is a result
of the increase in average  securitized  receivables by  approximately  14.1% to
$2.1 billion for the second quarter of fiscal 1999, compared to $1.8 billion for
the  second  quarter  of  fiscal  1998.  Servicing  fees  consist  primarily  of
contractual servicing fees of 1.0% on Tier I securitizations. Beginning with the
quarter ended September 30, 1998, the scheduled  accretion of discount on excess
servicing  cash flows,  previously  a component  of  servicing  fees,  net,  was
reclassified to other interest income.

         Other  revenues  totaled  $1.2 million and $2.4 million for the quarter
and six months ended December 31, 1998,  respectively,  compared to $1.0 million
and $2.0 million for the  corresponding  periods ended December 31, 1997.  Other
revenues consist primarily of late charge and origination fee income.

         Salaries and benefits expense increased 11.9% to $5.5 million and 17.3%
to $11.1  million  for the  quarter  and six months  ended  December  31,  1998,
respectively,  from $4.9 million and $9.5 million for the quarter and six months
ended  December  31,  1997.  The  increase  resulted  primarily  from  increased
full-time  equivalent ("FTE")  employees.  Average FTE's for the quarter and six
months ended December 31, 1998, were 528 and 534, respectively,  compared to 441
and 431 for the quarter and six months ended  December 31, 1997.  Since December
31, 1997, the Company has experienced growth primarily in collections,  systems,
reconditioning  and  remarketing,  but modestly in other areas.  The increase in
collections  is  primarily  in response to a growing  servicing  portfolio.  The
systems area increased  because of the Company's  commitment to improve internal
analysis and reporting of corporate  financial,  acquisition and collection data
that  will be  used  to  improve  operations.  The  increase  in the  number  of
reconditioning and remarketing  operations employees was due to the opening of a
new  automotive  dealership  in  July  1998  to  facilitate  reconditioning  and
remarketing of repossessed vehicles.

         Other  operating  expense  increased 16.6% to $4.9 million and 12.2% to
$9.2  million  for  the  quarter  and  six  months  ended   December  31,  1998,
respectively,  from $4.2 million and $8.2 million for the corresponding  periods
ended  December  31,  1997.  Other  operating  expense  includes  occupancy  and
equipment  costs,  outside  and  professional  services,   receivable  expenses,
promotional expenses, travel, office supplies and other. Total operating expense
as a percentage of the average  servicing  portfolio was 1.79% and 1.81% for the
quarter ended December 31, 1998, and 1997, respectively.


Financial Condition

         Receivables, net and servicing portfolio. Receivables, net includes the
principal  balance of receivables  held for sale,  net of unearned  discount and
allowance for estimated net credit losses,  receivables in process,  and prepaid
dealer premiums. The Company's portfolio of receivables, net increased to $249.5
million at December 31, 1998, from $118.3 million at June 30, 1998. The increase
was primarily due to a higher volume of Tier I receivables  acquired compared to
Tier I  receivables  securitized  in the  two  fiscal  1999  securitizations  of
approximately $147.5 million. The increase was offset by the sale of Tier II and
modified receivables in the first and second quarter  securitizations.  The Tier
II  receivables  held for sale  decreased  approximately  $3.5  million  as more
receivables  were securitized than acquired during the six months ended December
31, 1998. The modified  receivable  portfolio,  included in receivables held for
sale,  decreased  approximately  $10.0  million  as a  portion  of the  modified
receivables  were  included  in the first and  second  quarter  securitizations.
Allowance for net credit losses on receivables held for sale was $2.2 million at
December  31,  1998,  compared  to $1.9  million at June 30,  1998.  The Company
serviced $2.1 billion and $1.9 billion in securitized receivables, and the total
servicing  portfolio  was $2.3 billion and $2.0 billion as of December 31, 1998,
and June 30, 1998, respectively.

         Retained interest in securitized assets ("Retained Interest"). Retained
Interest  increased to $198.1 million at December 31, 1998,  from $171.6 million
at June 30,  1998.  The  Retained  Interest  balance  increased  by the  amounts
capitalized  upon  consummation  of the UACSC  1998-C  and  1998-D  Auto  Trusts
("1998-C" and  "1998-D")  securitizations  including  estimated  dealer  premium
rebates.  Total amounts  capitalized for the six months ended December 31, 1998,
were $43.1 million.  Retained  Interest also increased by an additional  pre-tax
unrealized gain of $219,000, a $1.7 million increase in accrued interest,  and a
net increase in spread accounts of $2.6 million.  Additions to Retained Interest
were  offset by the  return of  excess  cash  flows  over the six  months  ended
December 31, 1998,  related to all  securitizations  of $15.9 million and by the
effect of the $5.2  million  impairment  of Retained  Interest  taken during the
first and second  quarters of fiscal 1999.  Withdrawals  of spread account funds
are made when the  balance  of the  account  is in  excess  of the  requirements
stipulated in the servicing  agreement (the Company's  servicing  agreements are
collectively referred to as the "Pooling and Servicing  Agreements").  Allowance
for net credit losses on  securitized  receivables is included as a component of
Retained  Interest.  At December 31, 1998, the allowance  related to both Tier I
and Tier II securitized  receivables totaled $96.5 million or 4.59% of the total
securitized  receivable portfolio compared to $90.2 million or 4.67% at June 30,
1998. The Company's  assumptions for valuing  Retained  Interest on a "cash out"
basis at December 31, 1998,  include estimates for net credit losses of 4.00% to
6.39% on Tier I  receivables  and 12.00% to 15.49% on Tier II  receivables  as a
percentage of original  principal  balance over the life of receivables,  annual
prepayment  estimates  ranging from 15.81% to 25.98% and discount  rates ranging
from 8.48% and 10.55% in the  valuation  of Retained  Interest  at December  31,
1998.  Impairment  of Retained  Interest,  an  available-for-sale  security,  is
measured on a disaggregate basis (pool by pool) in accordance with SFAS 115. See
- "Discussion of Forward-Looking Statements".

         Amounts due under  revolving  warehouse  credit  facility and long-term
debt. The balance of the revolving  warehouse credit facility and the Senior and
Senior  Subordinated Notes was $373.8 million at December 31, 1998,  compared to
$294.1  million at June 30,  1998.  The  increase in  borrowings  was  primarily
related to the  timing of the  securitization  in the  current  quarter  but was
offset by a required  principal  payment on the Company's  Senior Note in August
1998 of $22.0  million.  The December 1998 quarter  securitization  was effected
during the second  month of the quarter  while the fiscal  1998  fourth  quarter
securitization  was effected  during the third month of the quarter.  The timing
difference  resulted in the Company borrowing for more days after the closing of
the securitization  transaction in the quarter ended December 31, 1998, compared
to the quarter ended June 30, 1998.

         Net  deferred  income  taxes.  The net deferred  income  taxes  payable
totaled $12.8 million at December 31, 1998, compared to $9.6 million at June 30,
1998.  This increase is a result of the deferral of a portion of the gain on the
sale of  receivables  for the  securitizations  effected  during  the  first two
quarters  of fiscal  1999 in excess of  previously  deferred  income  recognized
currently for tax purposes.

Liquidity and Capital Resources

         Sources and Uses of Cash in Operations. The Company's business requires
significant  amounts of cash to support  operations.  Its  primary  uses of cash
include (i)  acquisitions  and financing of receivables,  (ii) payment of dealer
premiums,  (iii) securitization costs including cash held in spread accounts and
similar cash collateral  accounts under the revolving warehouse credit facility,
(iv)  servicer  advances  of  payments on  securitized  receivables  pursuant to
securitization trusts, (v) losses on hedging transactions realized in connection
with the  closing  of  securitization  transactions  where  interest  rates have
declined during the period covered by the hedge, (vi) operating expenses,  (vii)
payment of income taxes, and (viii) interest  expense.  The Company's sources of
cash from operations  include (i) standard  servicing  fees,  generally 1.0% per
annum of the Tier I securitized  portfolio,  (ii) future  servicing  cash flows,
(iii) dealer premium  rebates,  (iv) gains on hedging  transactions  realized in
connection with the closing of securitization  transactions where interest rates
have increased  during the periods covered by the hedge, (v) interest income and
(vi) sales of receivables in securitization transactions and (vii) proceeds from
sale of interest-only  strips in conjunction with  securitization  transactions.
Net cash used by operating  activities  increased to $146.3  million for the six
months ended  December 31, 1998,  from net cash used by operating  activities of
$58.2  million for the six months  ended  December  31,  1997.  The increase was
primarily  attributable  to a decrease in  receivables  securitized  relative to
receivables acquired.

         Hedging.  Hedging  transactions may represent a source or a use of cash
during a given period  depending on the change in interest  rates.  In the first
and second quarters of fiscal 1999, hedging transactions  required a use of cash
of $6.6 million,  compared to $1.7 million during the first and second  quarters
of fiscal 1998.

         Financing Activities. Net cash provided by financing activities for the
six months  ended  December  31, 1998,  was $79.6  million  compared to net cash
provided by  financing  activities  of $58.2  million  for the six months  ended
December 31, 1997.  The  increase was a result of higher  borrowings  related to
higher  receivable   acquisitions  for  the  period  after  the  second  quarter
securitization  through  December  31,  1998,  compared to the same period ended
December 31, 1997, but was offset by a required  principal  payment on long-term
debt of $22.0  million in August  1998.  The  Company  has  substantial  capital
requirements  to support its ongoing  operations  and  anticipated  growth.  The
Company's   sources  of  liquidity   are   currently   funds  from   operations,
securitizations   and  external  financing  including  long-term  debt  and  the
revolving  warehouse  credit  facility.  Historically,  the Company has used the
securitization  of receivable pools as its primary source of long-term  funding.
Securitization  transactions  enable the  Company to improve its  liquidity,  to
recognize  gains from the sales of the receivable  pools while  maintaining  the
servicing  rights  to the  receivables,  and to  control  interest  rate risk by
matching the repayment of amounts due to investors in the  securitizations  with
the actual  cash  flows  from the  securitized  assets.  Between  securitization
transactions,  the Company relies  primarily on the revolving  warehouse  credit
facility  to  fund  ongoing   receivable   acquisitions  (not  including  dealer
premiums).  In addition to  receivable  acquisition  funding,  the Company  also
requires  substantial capital on an ongoing basis to fund the advances of dealer
premiums,   securitization   costs,   servicing   obligations   and  other  cash
requirements  previously  described.  The Company's  ability to borrow under the
revolving  warehouse  credit  facility is dependent upon its compliance with the
terms  and  conditions  thereof.  The  Company's  ability  to  obtain  successor
facilities  or  similar  financing  will  depend on,  among  other  things,  the
willingness  of financial  institutions  to  participate  in funding  automobile
financing  business  and  the  Company's  financial  condition  and  results  of
operations.   Moreover,  the  Company's  growth  may  be  inhibited,   at  least
temporarily,  if the Company is not able to obtain  additional  funding  through
these or other  facilities,  or if it is unable to  satisfy  the  conditions  to
borrowing  under  the  revolving   warehouse   credit   facility.   The  Company
consistently  assesses its long-term receivable funding arrangements with a view
to optimizing cash flows and reducing costs.

         Warehouse  Facility.  The Company has  borrowing  arrangements  with an
independent  financial  institution  for a $450.0  million  revolving  warehouse
credit  facility  that is insured by a surety bond provider to fund the purchase
of Tier I and Tier II  receivable  acquisitions.  At December 31,  1998,  $174.8
million of the  capacity  was  utilized,  and an  additional  $51.9  million was
available  to borrow  based on the  outstanding  principal  balance of  eligible
receivables.  At September 30, 1998, June 30, 1998 and December 31, 1997,  $84.8
million,  $73.1 million and $102.6 million of the capacity was utilized,  and an
additional $62.6 million, $4.7 million and $20.6 million was available to borrow
based  on  the   outstanding   principal   balance  of   eligible   receivables,
respectively.

         Long-term debt. The Company issued $110.0 million of 8.53% Senior Notes
due August 1, 2002, in connection  with the Company's  initial public  offering.
Interest on the Notes is payable  semiannually,  and  principal  payments  began
August 1, 1998, and are due on each subsequent  August 1, in the amount equal to
approximately 20% of the stated original principal balance. A required principal
payment was made on the Senior Notes in August 1998 of $22.0  million.  In April
1996, the Company completed a private placement of $46.0 million of 9.99% Senior
Subordinated  Notes due March 30, 2003,  with  interest  payable  quarterly  and
principal due at maturity.  In March 1997,  the Company  issued $65.0 million of
Senior Notes due  December 27, 2002.  The Notes were issued as "Series A" in the
principal  amount of $50.0  million  at 7.75%  interest  and  "Series  B" in the
principal  amount of $15.0 million at 7.97%  interest.  Interest on the Notes is
payable  semiannually  and  principal  payments are due March 15,  2002,  in the
amount equal to approximately 33 1/3% of the stated original  balance,  with the
remaining principal due at maturity.

         The Company's credit agreements, among other things, require compliance
with monthly and quarterly  financial  maintenance tests as well as restrict the
Company's ability to create liens, incur additional indebtedness,  sell or merge
assets and make investments. The Company is in compliance with all covenants and
restrictions imposed by the terms of indebtedness.

         Based on current cash flow  projections,  Management  believes that the
Company's  existing capital resources,  the revolving  warehouse credit facility
described above,  future earnings,  expected growth in receivable  acquisitions,
and periodic  securitization of receivables should provide the necessary capital
and liquidity for its operations  through at least the next twelve  months.  The
period  during  which  its  existing  capital  resources  will  continue  to  be
sufficient will,  however,  be affected by the factors described above affecting
the  Company's  cash  requirements.  A number of these  factors are difficult to
predict,  particularly  including the cash effect of hedging  transactions,  the
availability of outside credit enhancement in securitizations or other financing
transactions   and  other   factors   affecting   the  net  cash   provided   by
securitizations.   Depending  on  the  Company's   ongoing  cash  and  liquidity
requirements,  market conditions and investor interest,  the Company may seek to
issue  additional  debt or  equity  securities  in the  near  term.  The sale of
additional  equity,  including  Class A Common Stock or preferred  stock,  would
dilute the interests of current shareholders.

Discussion of Forward-Looking Information

         The above  discussions  and notes to consolidated  condensed  financial
statements contain forward-looking  statements made by the Company regarding its
results of  operations,  effects of changes in  accounting  policies,  cash flow
needs and liquidity,  receivable  acquisition volume, target spreads,  potential
credit losses,  recovery rates,  prepayment rates,  servicing income,  Year 2000
compliance,   and  other  aspects  of  its  business.   Similar  forward-looking
statements  may be made by the Company from time to time.  Such  forward-looking
statements are subject to a number of important factors that cannot be predicted
with  certainty  and which could  cause such  forward-looking  statements  to be
materially  inaccurate.  Such factors include,  for example,  demand for new and
used autos,  competition,  and consumer credit and delinquency  trends.  See the
"Discussion of Forward-Looking  Information" under "Management's  Discussion and
Analysis of Financial  Condition  and Results of  Operations"  in the  Company's
Annual Report on Form 10-K for fiscal 1998 which is incorporated  herein by this
reference.


Year 2000 Compliance

         During  the  year  ended  June  30,  1997,  the  Company  began  a risk
evaluation of potential Year 2000 issues. The outcome of this evaluation was the
formation of a Year 2000  Committee  that  consists of  directors,  officers and
employees of the Company.  The purpose of this committee is to assess all risks,
analyze  current  systems,  coordinate  upgrades  and  replacements,  and report
current and projected status of all known Year 2000 compliance issues.

         During the assessment  phase,  over thirty  service  bureaus and system
vendors  were  identified  that  performed  or  supplied   potential  Year  2000
compliance  issues.  The list included  eight service  bureaus,  seven  software
vendors,  seven hardware  vendors,  one electric  company,  six  maintenance and
supplies companies and four telecommunications  companies. Once the systems were
identified,  an  immediate  correspondence  was  established  for the purpose of
educating  the  Company  on known  Year  2000  issues  or Year  2000  compliance
certification.

         The systems  identified were put through one of two possible phases. If
the  vendor  provided  proof that the system in  question  had proper  Year 2000
compliance  certification  and a testing  cycle  was  possible,  an  appropriate
testing cycle was performed. If the testing cycle failed or the system had known
Year 2000 issues, a mission critical evaluation and replacement  recommendations
were performed.

         The Company had two known mission critical systems at December 31, 1998
that were not Year 2000 compliant. As of February 1, 1999, certified replacement
products for one of the mission critical systems was implemented,  and the other
system  is  scheduled  for  implementation  during  March  1999.  Following  the
implementation  of the Year  2000  replacement  products  on the  final  mission
critical system, the Company plans to repeat a company wide internal test of all
systems in the  quarter  ended June 30,  1999,  and again in the  quarter  ended
September 30, 1999.

         The replacement or remediation  costs for year 2000  compliance  issues
with the  Company  is  estimated  to be less than  $100,000,  which the  Company
recognizes as incurred.  This estimated cost is mostly due to software  upgrades
that include new features which are combined with Year 2000 corrections.

         The  Company  estimates  that the worst case Year 2000  issue  scenario
would be discontinuance  of electrical power.  Although the Company has numerous
power backup  devices,  a long-term  power outage would have a material  adverse
effect on the Company's  operations.  Although the  discontinuance of electrical
power is possible,  the Company  believes the likeliness of such an outage to be
remote. See - "Discussion of Forward-Looking Statements".



<PAGE>

Item 3.           Quantitative and Qualitative Disclosures About Market Risk

         The  Company  bears the  primary  risk of loss due to  defaults  in its
servicing  portfolio.  Default  and credit  loss rates are  impacted  by general
economic  factors  that  affect  borrowers'  ability to  continue to make timely
payments on their  indebtedness.  Prepayments  on  receivables  in the servicing
portfolio  reduce the size of the portfolio  and reduce the Company's  servicing
income.  The gain  (loss)  on sales  of  receivables  in  connection  with  each
securitization  transaction  and the amount of Retained  Interest  recognized in
each  transaction  reflect  deductions  for  estimates  of future  defaults  and
prepayments.   The  carrying   value  of  Retained   Interest  may  be  adjusted
periodically  to reflect  differences  between  estimated  and actual net credit
losses and  prepayments  on past  securitizations.  For  example,  if net credit
losses  increased  or  decreased  by  100  basis  points  on  a  $300.0  million
securitization,  the gain on sale would  result in a reduction or an increase of
the gain (loss) on sales of receivables by  approximately  $3.0 million pre-tax.
The same 100 basis points increase or decrease would result in a reduction or an
increase of the Retained  Interest of  approximately  $21.0  million  based on a
securitized  receivable  portfolio of $2.1  billion at December  31,  1998.  The
Company does not believe  fluctuations in interest rates  materially  affect the
rate of prepayments on receivables.

         The  Company's  sources  of  funds  generally  have  variable  rates of
interest,  and its  receivable  portfolio  bears  interest at fixed  rates.  The
Company  therefore  bears  interest  rate  risk on  receivables  until  they are
securitized  and employs a hedging  strategy to mitigate this risk. As a part of
the  hedging  strategy,  the  Company  executes  short  sales  of U.S.  Treasury
securities  having a maturity  approximating the average maturity of receivables
to be acquired  during the  relevant  period.  There is no  assurance  that this
strategy will completely  offset changes in interest rates. In particular,  such
strategy depends on management's  estimates of receivable acquisition volume and
timing  of its  securitizations.  The  Company  realizes  a gain on its  hedging
transactions  during periods of increasing interest rates and realizes a loss on
such transactions  during periods of decreasing interest rates. The hedging gain
or loss will  substantially  offset changes in interest rates as seen by a lower
or higher  reported gain on sales of receivables,  respectively.  Recognition of
unrealized gains or losses is deferred until the sale of receivables  during the
securitization.  On the date of the sale,  deferred hedging gains and losses are
recognized as a component of gain (loss) on sales of  receivables.  Increases or
decreases in interest rates reduce or increase the fair value of long-term debt,
respectively.  The Company plans to change its hedging strategy to the execution
of forward  interest  rate swaps during the third  quarter of fiscal  1999.  The
unrealized  hedging  gain at December  31, 1998 was  $624,000  based on notional
amounts outstanding of $339.0 million.


<PAGE>

Part II. Other Information

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

         At the Company's Annual Meeting of  Shareholders,  on December 7, 1998,
the following nominees were elected to the Board of Directors.


                          Affirmative          Votes
                             Votes            Withheld
                           ----------         --------
Howard L. Chapman          47,564,442          173,649
John M. Davis              47,564,442          173,649
Fred M. Fehsenfeld         47,564,842          173,249
Donald A. Sherman          47,564,442          173,649
John M. Stainbrook         47,561,442          176,649
Jerry D. Von Deylen        47,561,442          176,649
Richard D. Waterfield      47,561,542          176,549
Thomas M. West             47,564,442          173,649


Item 6.  Exhibits and Reports on Form 8-K

                  Exhibit 27 -  Financial Data Schedule

         (b)  Reports on Form 8-K

                  No  reports on Form 8-K were filed  during the  quarter  ended
December 31, 1998.

<PAGE>



Signatures

         Pursuant to the  requirements  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.

                                       Union Acceptance Corporation

 February 16, 1999                     By:      /S/   John M. Stainbrook
                                                ------------------------
                                       John M. Stainbrook
                                       President and Chief Executive Officer



February 16, 1999                      By:      /S/   Rick A. Brown
                                                ------------------------
                                       Rick A. Brown
                                       Treasurer and Chief Financial Officer