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

                                    FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES  EXCHANGE ACT OF
1934: For the period from June 5,1997 (inception) to December 31, 1997

                        Commission File Number 333-28737

                                  UDS CAPITAL I
              Incorporated under the laws of the State of Delaware
                  I.R.S. Employer Identification No. 74-6454974
                               6000 N. Loop 1604 W
                          San Antonio, Texas 78249-1112
                        Telephone number: (210) 592-2000

Securities  registered  pursuant  to  Section  12(b)  of the  Act:  8.32%  Trust
Originated Preferred  Securities (TOPrS) (and the related guarantee)  registered
on the New York Stock Exchange.

Securities registered pursuant to Section 12(g) of the Act: None

                               UDS FUNDING I, L.P.
              Incorporated under the laws of the State of Delaware
                  I.R.S. Employer Identification No. 74-2835441
                               6000 N. Loop 1604 W
                          San Antonio, Texas 78249-1112
                        Telephone number: (210) 592-2000

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  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes XXX   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 the Form 10-K or any amendment to this
Form 10-K. (XXX)

No voting stock was held by non  affiliates  of UDS Capital I as of February 27,
1998.

As of  February  27,  1998,  there  are  247,440  shares of 8.32%  Trust  Common
Securities, $25.00 liquidation amount per security of UDS Capital I outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Certain  portions of UDS  Capital I's  Prospectus,  dated June 20,  1997,  filed
pursuant to Rule 424(b) in connection  with the  Registration  Statement on Form
S-3 (No.  333-28737)  filed  by UDS  Capital  I and  Ultramar  Diamond  Shamrock
Corporation are incorporated by reference into Part I.

                                TABLE OF CONTENTS

Item                                                                       Page
                                     PART I

  1.  Business.......................................................         2

  2.  Properties.....................................................         4

  3.  Legal proceedings..............................................         4

  4.  Submission of matters to a vote of security stockholders.......         4

                                     PART II

  5.  Market for Registrant's common equity and related stockholder
      matters........................................................         4

  6.  Selected financial data........................................         4

  7.  Management's discussion and analysis of financial condition
      and results of operations......................................         5

  8.  Financial statements and supplementary data....................         7

  9.  Changes in and disagreements with accountants on accounting and
      financial disclosure...........................................        21

                                    PART III

 10. Directors and executive officers of the Registrant..............        21

 11. Executive compensation..........................................        21

 12. Security ownership of certain beneficial owners and management..        21

 13. Certain relationships and related transactions..................        21

                                     PART IV

 14. Exhibits, financial statement schedules and reports on Form 8-K.        22


Signatures...........................................................        24


This Annual Report on Form 10-K (including  documents  incorporated by reference
herein) contain  statements with respect to the Trust's,  the  Partnership's and
the  Company's  expectations  or  beliefs  as to future  events.  These  type of
statements  are  "forward-looking"   and  are  subject  to  uncertainties.   See
"Forward-Looking Statements" on page 6.

                                     PART I
ITEM 1. BUSINESS

                                  UDS Capital I

UDS  Capital I (the  Trust)  is a  statutory  business  trust  formed  under the
Delaware Business Trust Act, as amended,  pursuant to a declaration of trust and
the filing of a certificate of trust with the Secretary of State of the State of
Delaware  on June 5, 1997,  which was  subsequently  amended  by an amended  and
restated  declaration  of trust dated as of June 25, 1997. On June 25, 1997, the
Trust issued  8,000,000 shares of 8.32% Trust  Originated  Preferred  Securities
(TOPrS), with a $25.00 liquidation amount pe security, in an underwritten public
offering.  Also on June 25, 1997,  Ultramar  Diamond  Shamrock  Corporation (the
Company)  purchased  247,440 shares of 8.32% Trust Common Securities (the Common
Securities  and together  with the TOPrS,  the Trust  Securities),  which have a
$25.00  liquidation  amount per security and represent 3% of the total equity of
the Trust.

The Trust used the proceeds  derived from the issuances of the Trust  Securities
to  purchase  partnership  preferred  securities  (the  Preferred   Securities),
representing  the limited  partnership  interests  of UDS  Funding I, L.P.  (the
Partnership)  and,  accordingly,  the assets of the Trust consist  solely of the
Preferred Securities.  The Trust exists for the exclusive purpose of (a) issuing
the Trust Securities  representing  undivided  beneficial ownership interests in
the assets of the Trust, (b) investing the gros proceeds of the Trust Securities
in the  Preferred  Securities,  and (c) engaging in only those other  activities
necessary or incidental thereto.

Pursuant to the Trust declaration,  there are four trustees (the Trustees),  two
of the  Trustees  are  individuals  who are  employees or officers of or who are
affiliated  with the  Company,  a third  Trustee  is The  Bank of New York  (the
Property  Trustee) and a fourth Trustee is The Bank of New York  (Delaware) (the
Delaware  Trustee).  The  Property  Trustee  will  hold  title to the  Preferred
Securities for the benefit of the holders of the Trust Securities.

Holders of the TOPrS are  entitled  to  receive  cumulative  cash  distributions
accumulating  from the date of  original  issuance  (June 25,  1997) and payable
quarterly in arrears on each March 31, June 30,  September  30, and December 31,
at an  annual  rate of 8.32% of the  liquidation  amount  of  $25.00  per  TOPrS
(equivalent  to $2.08  per TOPrS  per  annum)  if, as and when the Trust has the
funds available for payment.  The ability of the Trust to pay  distributions  on
the TOPrS is entirely  dependent on its receipt of  corresponding  distributions
with respect to the Preferred Securities.

The Company has irrevocably guaranteed,  on a subordinated basis, the payment in
full of (a) any accumulated and unpaid  distributions on the TOPrS to the extent
of funds of the Trust are legally  available  therefor,  (b) the amount  payable
upon  redemption  of the TOPrS to the  extent of funds of the Trust are  legally
available therefor and (c) generally, the liquidation amount of the TOPrS to the
extent of the assets of the Trust are  legally  available  for  distribution  to
holders of TOPrS. 

                              UDS Funding I, L.P.

The  Partnership  is a limited  partnership  that was formed  under the Delaware
Revised Uniform Limited Partnership Act, as amended, pursuant to an agreement of
limited  partnership and the filing of a certificate of limited partnership with
the  Secretary of State on June 5, 1997,  which was  subsequently  amended by an
amended and restated  agreement of limited  partnership dated June 25, 1997 (the
Limited  Partnership  Agreement).  On June  25,  1997,  the  Partnership  issued
8,247,440  securities of 8.32% Preferred  Securities,  with a $25.00 liquidation
preference per security,  to the Trust, the Partnership's  limited partner. Also
on June 25, 1997, the Company made a capital contribution to the Partnership for
its general partner interest. Pursuant to the Limited Partnership Agreement, the
Company is the sole general partner of the Partnership (the General Partner).

The  Partnership  is  managed  by the  General  Partner  and exists for the sole
purpose of (a) issuing its  partnership  interest,  (b)  investing  the proceeds
thereof  in  certain  eligible  securities  of the  Company  and  eligible  debt
securities  of  non-affiliated  entities,  and (c)  engaging in only those other
activities  necessary  or  incidental  thereto.  To the  extent  that  aggregate
payments to the Partnership on its investments exceed distributions  accumulated
or payable with respect to the  Preferred  Securities,  the  Partnership  may at
times have  excess  funds which  shall be  allocated  to and may, in the General
Partner's sole discretion, be distributed to the General Partner.

So long as the Preferred Securities remain outstanding, the General Partner will
convenant in the Limited  Partnership  Agreement  (a) to remain the sole general
partner of the  Partnership  and to  maintain  directly  100%  ownership  of the
General Partner's interest in the Partnership,  which interest will at all times
represent at least 1% of the total capital of the Partnership,  (b) to cause the
Partnership to remain a limited  partnership  and not to  voluntarily  dissolve,
liquidate,  wind-up  or be  terminated,  except  as  permitted  by  the  Limited
Partnership Agreement, and (c) to use its efforts to ensure that the Partnership
will not be (1) an  investment  company  for  purposes of the 1940 Act or (2) an
association or a publicly traded partnership taxable as a corporation for United
States Federal income tax purposes.

The  Partnership  used the proceeds  derived from the issuances of the Preferred
Securities  and the capital  contribution  from the General  Partner to purchase
subordinated debentures of the Company and two wholly-owned  subsidiaries of the
Company (the Debentures). In addition, the Partnership acquired certain eligible
debt securities  representing 1% of the total assets of the Partnership in fixed
maturity  securities of the United States  government or its agencies  (Eligible
Debt  Securities).  The Debentures  have a term of 20 years and bear interest at
8.32% per annum.  The Debentures are redeemable on or after June 30, 2002 at the
option of the Company and its  subsidiaries,  in whole or in part.  The interest
payment dates on the Debentures  correspond to the distribution payment dates on
the Preferred Securities.

Holders of the  Preferred  Securities  are entitled to receive  cumulative  cash
distributions  accumulating  from the date of original  issuance (June 25, 1997)
and payable  quarterly in arrears on each March 31, June 30,  September  30, and
December 31, at an annual rate of 8.32% of the liquidation  amount of $25.00 per
security  (equivalent  to $2.08 per security per annum) if, as and when declared
by the  General  Partner  in its  sole  discretion  out  of  the  assets  of the
Partnership  when funds are legally  available  for payment.  The ability of the
Partnership to pay distributions on the Preferred Securities is dependent on its
receipt of payments with respect to the Debentures and Eligible Debt  Securities
held by the Partnership.

The  Preferred  Securities  are  redeemable  for  cash,  at  the  option  of the
Partnership,  in whole or in part, from time to time,  after June 30, 2002 at an
amount  per  preferred  security  equal to $25.00  plus  accumulated  and unpaid
distributions  thereon.  Upon the  redemption of the Preferred  Securities,  the
TOPrS will be redeemed, in whole or in part.

The Company has irrevocably guaranteed,  on a subordinated basis, the payment in
full of (a) any accumulated and unpaid distributions on the Preferred Securities
if, as and when declared out of funds legally available therefor, (b) the amount
payable upon  redemption of the  Preferred  Securities to the extent of funds of
the  Partnership  are  legally  available   therefor  and  (c)  generally,   the
liquidation  amount of the  Preferred  Securities to the extent of the assets of
the Partnership are legally  available for  distribution to holders of Preferred
Securities.

The location of the principal  executive offices of the Company,  the Trust, and
the Partnership is c/o Ultramar  Diamond Shamrock  Corporation,  6000 North Loop
1604 West,  San Antonio,  Texas  78249-1112  and the  telephone  number is (210)
592-2000.

ITEM 2. PROPERTIES

Not Applicable.

ITEM 3. LEGAL PROCEEDINGS

Neither  the Trust nor the  Partnership  know of no material  legal  proceedings
involving the Trust, the Partnership or the assets of either of them.

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

No matter was  submitted to a vote of holders of any  securities of the Trust or
the Partnership  during the period from June 5, 1997 (inception) to December 31,
1997.

                                     PART II

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

(1) There is no established public market for the Common Securities of the Trust
or the general partnership interest in the Partnership.

(2) All of the Common Securities of the Trust and all of the general partnership
interest in the Partnership are owned of record and beneficially by the Company.

(3) The Company, as holder of the Common Securities of the Trust, is entitled to
receive  cumulative  cash  distributions  accumulating  from  June 25,  1997 and
payable  quarterly  in  arrears  on each March 31,  June 30,  September  30, and
December  31, at an annual  rate of 8.32% of the  liquidation  amount per annum.
Distributions  not paid on the  scheduled  payment  dates  will  accumulate  and
compound  quarterly at a rate per annum equal to 8.32%. The Limited  Partnership
Agreement does not require any regular periodic  distributions to be made to the
General  Partner;  however,  to  the  extent  that  aggregate  payments  to  the
Partnership on the Debentures and Eligible Debt Securities exceed  distributions
accumulated or payable with respect to the Preferred Securities, the Partnership
may at times have  excess  funds  which  shall be  allocated  to and may, in the
General Partner's sole discretion, be distributed to the General Partner.

(4) Since June 25,  1997,  the 8.32%  TOPrS of the Trust have been listed on the
New York stock  exchange under the symbol  "UDS-PA".  From June 25, 1997 through
December 31, 1997,  the high and low sales prices on the New York Stock Exchange
have been $26.25 and $25.00 per TOPrS,  respectively.  As of February  27, 1998,
there were 8,000,000 TOPrS outstanding which were held by 100 holders of record.

(5) Since  issuance in June 1997,  the Trust has declared and paid  dividends of
$1.07 per TOPrS. The Trust expects to continue to pay quarterly distributions on
the  TOPrS at a rate of $0.52  per  TOPrS to the  extent  the  Trust  has  funds
available for the payment of such distributions.

ITEM 6. SELECTED FINANCIAL DATA

The  activities  of the  Trust  and  the  Partnership  are  limited  to  issuing
securities  and investing the proceeds as described in Item 1 - Business  above.
Accordingly,  the financial  statements  included herein in response to Item 8 -
Financial  Statements and  Supplementary  Data are  incorporated by reference in
response to this Item.

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
          RESULTS OF OPERATIONS

The  Trust is a  statutory  business  trust  formed  on June 5,  1997  under the
Delaware Business Act. The Trust exists for the exclusive purpose of (a) issuing
the 8.32% TOPrS and the Common Securities of the Trust,  representing  undivided
ownership interests in the assets of the Trust, (b) investing the gross proceeds
from the issuance of the Trust  Securities into the 8.32%  Preferred  Securities
issued by the  Partnership,  and (c)  engaging  in only those  other  activities
necessary or incidental thereto.

The  Partnership  is a limited  partnership  formed  on June 5,  1997  under the
Delaware Revised Uniform Limited Partnership Act, as amended. The Company is the
general  partner of the  Partnership  and the Trust  holds  100% of the  limited
partnership  interest  of the  Partnership.  The  Partnership  is managed by the
general  partner  and exists  for the  exclusive  purposes  of (a)  issuing  its
partnership  interests,  consisting  of the  general  partner  interest  and the
Preferred Securities, (b) investing the proceeds thereof in certain subordinated
debentures of the Company and  wholly-owned  subsidiaries  of the Company and in
certain  non-affiliated  debt  securities,   and  (c)  engaging  in  only  those
activities necessary or incidental thereto.

The Trust's and the Partnership's  activities are limited to issuing  securities
and investing the proceeds as described above.  Since the Trust was organized on
June 5, 1997, its  activities,  as specified in its  declaration of trust,  have
been  limited  to the  issuance  of the TOPrS and  Common  Securities  for total
proceeds  of  $200,000,000  and  $6,186,000,  respectively,  and  investing  the
proceeds  therefrom into Preferred  Securities of the Partnership.  Each quarter
ended, the Trust made  distribution  payments on the TOPrS and Common Securities
in  accordance  with their terms,  and received  funds from the  Partnership  of
equivalent  amounts.  Total  distributions  for the  period  from  June 5,  1997
(inception)  to  December  31,  1997 on the TOPrS  and  Common  Securities  were
$8,552,000  and  $264,000,  respectively.  Total  earnings  from  the  Preferred
Securities  were  $8,816,000  for the period  from June 5, 1997  (inception)  to
December 31, 1997.

Since  the  Partnership  was  organized  on June 5,  1997,  its  activities,  as
specified  in its  Limited  Partnership  Agreement,  have  been  limited  to the
issuance of the Preferred  Securities and the general partner interest for total
proceeds of  $206,186,000  and  $36,386,000,  respectively,  and  investing  the
proceeds  therefrom  into  the  subordinated   debentures  of  the  Company  and
wholly-owned subsidiaries of the Company totaling $240,146,000. In addition, the
Partnership  has  invested  approximately   $2,400,000  in  non-affiliated  debt
securities and other  investments.  Each quarter  ended,  the  Partnership  made
distribution  payments on the Preferred  Securities and general partner interest
in  accordance   with  their  terms,   and  received  funds  from  the  Company,
wholly-owned  subsidiaries of the Company and non-affiliated  investment issuers
of approximately the same amounts.  Total distributions for the period from June
5, 1997 (inception) to December 31, 1997 on the Preferred Securities and general
partner  interest were $8,816,000 and $1,452,000,  respectively.  Total earnings
from the Debentures and other  Partnership  investments were $10,326,000 for the
period from June 5, 1997 (inception) to December 31, 1997.

Neither the Trust nor the Partnership use derivative financial instruments.

The Company  provides,  at no cost,  all  computer  and  administrative  support
necessary to process the  activities of the Trust and the  Partnership,  and the
Company is in the process of making the necessary  system  conversions to handle
the year 2000 dated transactions.

The impact of inflation has slowed in recent years and is not expected to have a
significant  effect  on the Trust or the  Partnership  as their  activities  are
fixed,  based on the investments owned and the distribution  requirements of the
equity ownership interest in the related entities.

Certain Forward Looking Statements

This Annual Report on Form 10-K and Form S-3,  incorporated herein by reference,
contains  certain  "forward-looking"  statements  as such term is defined in the
U.S. Private Securities  Litigation Reform Act of 1995 and information  relating
to the Trust, the Partnership or the Company and its subsidiaries that are based
on the beliefs of  management  as well as  assumptions  made by and  information
currently  available to management.  When used in this Annual Report or the Form
S-3, the words "anticipate," "believe "estimate," "expect," "intend" and similar
expressions,  as they relate to the Trust, the  Partnership,  the Company or its
subsidiaries or management, identify forward-looking statements. Such statements
reflect the current  views of  management  with respect to future events and are
subject  to  certain  risks,  uncertainties  and  assumptions  relating  to  the
operations  and  results of  operations,  including  as a result of  competitive
factors  and pricing  pressures,  shifts in market  demand and general  economic
conditions and other factors. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results or
outcomes  may vary  materially  from  those  described  herein  as  anticipated,
believed, estimated, expected, or intended.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                    Report of Independent Public Accountants

To UDS Capital I:

We have  audited  the  accompanying  balance  sheet of UDS Capital I, a Delaware
business trust (the Trust) as of December 31, 1997 and the related statements of
income,  stockholders'  equity and cash  flows for the period  from June 5, 1997
(inception)  to  December  31,  1997.   These   financial   statements  are  the
responsibility  of  Ultramar  Diamond  Shamrock  Corporation's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audit 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 our audit provides 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 UDS Capital I as of December
31,  1997 and the  results of its  operations  and its cash flows for the period
from June 5, 1997  (inception) to December 31, 1997 in conformity with generally
accepted accounting principles.



                                               /s/ ARTHUR ANDERSEN LLP


San Antonio,  Texas
February 27, 1998

                                  UDS CAPITAL I
                                  BALANCE SHEET
                                December 31, 1997
                                 (in thousands)

                                     Assets

Investment in UDS Funding I, L.P. preferred securities                 $206,186
                                                                       --------
    Total assets                                                       $206,186
                                                                       ========

                              Stockholders' Equity

8.32 % Trust Originated Preferred Securities, $25.00 
  liquidation amount per security:
     8,000,000 securities authorized, issued and outstanding           $200,000

8.32% Trust Common Securities, $25.00 liquidation amount per
   security:
     247,440 securities authorized, issued and outstanding                6,186
                                                                       ---------
     Total stockholders' equity                                        $206,186

                See accompanying notes to financial statements.


                                  UDS CAPITAL I
                               STATEMENT OF INCOME
        For the Period from June 5, 1997 (inception) to December 31, 1997
                                 (in thousands)

Income on UDS Funding I, L.P. preferred securities                  $8,816
                                                                    ======


                See accompanying notes to financial statements.

<TABLE>
<CAPTION>
                                  UDS CAPITAL I
                        STATEMENT OF STOCKHOLDERS' EQUITY
        For the Period from June 5, 1997 (inception) to December 31, 1997
                                 (in thousands)

                                                                                                  Total
                                                                Common          Preferred        Retained      Stockholders'
                                                               Securities       Securities       Earnings         Equity
                                                               ----------       ----------       --------      -------------
June 5, 1997 (Inception)
<S>                                                             <C>             <C>             <C>            <C>
Issuance of 247,440 securities of 8.32% Trust Common
  Securities to Ultramar Diamond Shamrock Corporation           $6,186          $      -        $    -         $  6,186

Issuance of 8,000,000 securities of 8.32% Trust Originated
 Preferred Securities in a public offering                           -           200,000             -          200,000

Net income                                                           -                 -         8,816            8,816

Dividends on 8.32% Trust Originated Preferred Securities             -                 -        (8,552)          (8,552)

Dividends on 8.32% Trust Common Securities                           -                 -          (264)            (264)
                                                               -------          --------       -------         --------
Balance at December 31, 1997                                    $6,186          $200,000       $     -         $206,186
                                                               =======          ========       =======         ========

                See accompanying notes to financial statements.
</TABLE>


                                  UDS CAPITAL I
                             STATEMENT OF CASH FLOWS
        For the Period from June 5, 1997 (inception) to December 31, 1997
                                 (in thousands)





Cash Flows Provided By Operating Activities -

Net income on UDS Funding I, L.P. preferred securities             $   8,816
                                                                   ---------

Cash Flows Used In Investing Activities -

Purchase of UDS Funding I, L.P. preferred securities                (206,186)
                                                                   ---------

Cash Flows From Financing Activities:

Issuance of 8.32% Trust Originated Preferred Securities in a
 public offering                                                     200,000
Issuance of 8.32% Trust Common Securities to Ultramar
 Diamond Shamrock Corporation                                          6,186
Distributions on 8.32% Trust Originated Preferred Securities          (8,552)
Distributions on 8.32% Trust Common Securities                          (264)
                                                                    --------

    Net cash provided by financing activities                        197,370
                                                                    --------

Net Change in Cash                                                         -
Cash at June 5, 1997 (Inception)                                           -
                                                                   ---------

Cash at December 31, 1997                                          $       -
                                                                   =========

                See accompanying notes to financial statements.



                                  UDS CAPITAL I
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1997

NOTE 1: Summary of Significant Accounting Policies

Basis of Presentation:  UDS Capital I (the Trust) is a statutory  business trust
formed on June 5, 1997 under the Business Trust Act of the State of Delaware for
the exclusive purposes of (a) issuing the Trust Originated  Preferred Securities
(TOPrS) and the Trust Common Securities (the Common Securities and together with
the TOPrS, the Trust Securities)  representing  undivided  beneficial  ownership
interests  in the  assets of the Trust,  (b)  purchasing  Partnership  Preferred
Securities  (the  Preferred  Securities)  representing  the limited  partnership
interests of UDS Funding I, L.P.  (the  Partnership)  with the proceeds from the
sale of the Trust  Securities,  and (c) engaging in only those other  activities
necessary or incidental thereto. The Trust has a perpetual existence, subject to
certain  termination  events as provided in the Declaration of Trust under which
it was formed.

The Trust and Partnership  are  wholly-owned  subsidiaries  of Ultramar  Diamond
Shamrock Corporation (the Company) and all expenses related to the operations of
the Trust and the  Partnership  are paid for by the Company.  The Trustees,  who
manage the Trust, are employees of the Company.

Cash: The Trust maintains  minimal cash balances,  as all income received on the
Preferred Securities is distributed immediately.

Investments:  The  investment  in Preferred  Securities  represents  the limited
partnership  interest in the Partnership,  and is recorded at cost. The carrying
value of the investment approximates its fair value. Income on the investment is
accrued when earned.

Income Taxes: The Trust is classified as a grantor trust for U.S. Federal income
tax purposes.  Accordingly, the Trust does not incur any income tax liabilities.
Such liabilities are incurred directly by the security holders.

Use of Estimates:  The  preparation of financial  statements in accordance  with
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying  notes.  Actual  results could differ from those  estimates.  On an
ongoing  basis,  management  reviews its estimates,  including  those related to
investment values,  based on currently available  information.  Changes in facts
and circumstances may result in revised estimates.

NOTE 2: Investment in UDS Funding I, L.P. Preferred Securities

On June 25, 1997, the Trust purchased 8,247,440 8.32% Preferred  Securities with
a $25.00  liquidation  preference per security from the Partnership,  a Delaware
partnership. The general partnership interest in the Partnership is owned by the
Company.  The Preferred  Securities  are redeemable on or after June 30, 2002 at
the option of the Partnership,  in whole or in part, at a redemption price equal
to $25.00 per security.  Upon any  redemption of the Preferred  Securities,  the
TOPrS will be redeemed.

Distributions  on the Preferred  Securities are payable  quarterly in arrears on
March 31, June 30, September 30, and December 31 of each year. Distributions not
paid on the scheduled payment date accumulate and compound quarterly at the rate
of 8.32% per annum. The distribution  payment dates of the Preferred  Securities
correspond  to the  distribution  payment  dates of the TOPrS.  The  Company has
guaranteed,  on a subordinated  basis,  the  distributions  due on the Preferred
Securities  if and  when  declared  by th  Partnership  and  the  payments  upon
liquidation of the Partnership or the redemption of the Preferred  Securities to
the extent funds are legally available.



                                  UDS CAPITAL I
                    NOTES TO FINANCIAL STATEMENTS -continued
                                December 31, 1997

NOTE 3: Stockholders' Equity

Trust Originated Preferred Securities (TOPrS)

On June 25, 1997, the Trust issued  8,000,000 of the 8.32% TOPrS,  with a $25.00
liquidation  amount per security in an underwritten  public offering.  The total
proceeds  from the public  offering were  $200,000,000  and the Company paid all
fees and  expenses  related to the  offering.  Holders of the TOPrS have limited
voting rights and are not entitled to vote to appoint,  remove or replace, or to
increase or decrease  the number of  trustees,  which  voting  rights are vested
exclusively in the holder of the Common Securities. Under certain circumstances,
the  TOPrS  have  preferential   rights  to  payments  relative  to  the  Common
Securities.

The TOPrS are  redeemable  on or after June 30, 2002 at the option of the Trust,
in whole or in part,  at a  redemption  price  equal  to  $25.00  per  security.
Distributions  on the TOPrS are cumulative,  from June 25, 1997, and are payable
quarterly on March 31, June 30,  September  30, and December 31 of each year, if
and when the  Trust  has funds  available  for  distribution.  The  Company  has
guaranteed,  on a subordinated basis, the payment of all distributions and other
payments on the TOPrS to the extent funds are legally available.  This guarantee
and  the  Partnership  distribution  guarantee  are  subordinated  to all  other
liabilities  of the Company  and rank pari passu with the most senior  preferred
stock of the Company.

Trust Common Securities

On June 25, 1997, the Trust issued 247,440 of the 8.32% Common Securities with a
$25.00 liquidation amount per security to the Company for $6,186,000. The Common
Securities  are redeemable on or after June 30, 2002 at the option of the Trust,
in whole or in part,  at a  redemption  price  equal  to  $25.00  per  security.
Distributions on the Common  Securities are cumulative,  from June 25, 1997, and
payable  quarterly on March 31, June 30,  September  30, and December 31 of each
year, in arrears,  at the annual rate of 8.32% of the liquidation amount, if and
when the Trust has funds  available for  distribution,  subject to the Preferred
Securities preferential rights.

                    Report of Independent Public Accountants


To UDS Funding I, L.P.:

We have  audited  the  accompanying  balance  sheet of UDS  Funding I,  L.P.,  a
Delaware limited  partnership (the  Partnership) as of December 31, 1997 and the
related  statements of income,  partners'  capital and cash flows for the period
from June 5, 1997 (inception) to December 31, 1997.  These financial  statements
are the responsibility of the General Partner's  management.  Our responsibility
is to express an opinion on these financial statements based on our audit.

We conducted our audit 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 our audit provides 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 UDS Funding I, L.P. as of
December 31, 1997 and the results of its  operations  and its cash flows for the
period from June 5, 1997  (inception)  to December 31, 1997 in  conformity  with
generally accepted accounting principles.


                                                     /s/ ARTHUR ANDERSEN LLP

San Antonio,  Texas
February 27, 1998

<TABLE>
<CAPTION>
                               UDS FUNDING I, L.P.
                                  BALANCE SHEET
                                December 31, 1997
                                 (in thousands)

                                     Assets
<S>                                                                                   <C> 
Cash and cash equivalents                                                             $     56
                                                                                      --------
Investments: 
  Bank certificate of deposit                                                               99
  Investment in U.S. Treasury Notes, at amortized cost                                   2,329
  Subordinated debentures of Ultramar Diamond Shamrock Corporation, at cost            206,186
  Subordinated debentures of Ultramar, Inc. and Diamond Shamrock Refining
   Company, both wholly-owned subsidiaries of Ultramar Diamond Shamrock
   Corporation, at cost                                                                 33,960

     Total investments                                                                 242,574

       Total assets                                                                   $242,630
                                                                                      ========

                                Partners' Capital

Limited partnership interest held by UDS Capital I, a Delaware business trust
  8,247,440 preferred securities with $25.00 per security liquidation preference      $206,186

General partnership interest held by Ultramar Diamond Shamrock Corporation              36,444
                                                                                      --------

       Total Partners' Capital                                                        $242,630
                                                                                      ========

                See accompanying notes to financial statements.
</TABLE>


                               UDS FUNDING I, L.P.
                               STATEMENT OF INCOME
        For the Period from June 5, 1997 (inception) to December 31, 1997
                                 (in thousands)

Interest income:

  Interest income on subordinated debenture of Ultramar Diamond
   Shamrock Corporation                                                $ 8,816

  Interest income on subordinated debentures of Ultramar, Inc. and
   Diamond Shamrock Refining Company, both wholly-owned
   subsidiaries of Ultramar Diamond Shamrock Corporation                 1,452

  Interest income on U.S. government securities, certificate of             58
   deposit and cash equivalents

     Net income                                                        $10,326

                See accompanying notes to financial statements.


<TABLE>
<CAPTION>
                               UDS FUNDING I, L.P.
                         STATEMENT OF PARTNERS' CAPITAL
        For the Period from June 5, 1997 (inception) to December 31, 1997
                                 (in thousands)

                                                                                                   Total
                                                                       General      Limited       Partners'
                                                                       Partner      Partners       Capital
                                                                       -------      --------      ---------
June 5, 1997 (Inception)
<S>                                                                    <C>          <C>           <C> 
  Issuance of partnership preferred securities to UDS Capital I        $     -      $206,186      $206,186

  Issuance of general partner interest to Ultramar Diamond 
   Shamrock Corporation                                                 36,386             -        36,386

  Net income allocated to partners                                       1,510         8,816        10,326

  Distributions to partners                                             (1,452)       (8,816)      (10,268)
                                                                       -------      --------      --------  

Balance at December 31, 1997                                           $36,444      $206,186      $242,630
                                                                       =======      ========      ========

                See accompanying notes to financial statements.
</TABLE>


                               UDS FUNDING I, L.P.
                             STATEMENT OF CASH FLOWS
        For the Period from June 5, 1997 (inception) to December 31, 1997
                                 (in thousands)

Cash Flows from Operating Activities:
  Net income                                                       $    10,326
  Accretion on U.S. government securities                                  (26)
                                                                   ----------- 
       Net cash provided by operating activities                        10,300
                                                                   -----------

Cash Flows from Investing Activities:
  Purchases of affiliated subordinated debentures                     (240,146)
  Purchases of U.S. government securities                               (3,503)
  Maturities of U.S. government securities                               1,200
  Purchase of bank certificate of deposit                                  (99)
                                                                   -----------
    Net cash used in investing activities                             (242,548)
                                                                   -----------

Cash Flows from Financing Activities:
  Proceeds from issuance of preferred securities                       206,186
  Contributions for general partner interest                            36,386
  Distributions to partners                                            (10,268)
                                                                   -----------
    Net cash provided by financing activities                          232,304
                                                                   -----------

Net Change in Cash                                                          56
Cash at June 5, 1997 (Inception)                                             -
                                                                   -----------

Cash at December 31, 1997                                          $        56
                                                                   ===========

                See accompanying notes to financial statements.



                               UDS FUNDING I, L.P.
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1997

NOTE 1: Summary of Significant Accounting Policies

Basis of  Presentation:  UDS  Funding  I, L.P.  (the  Partnership)  is a limited
partnership  formed on June 5, 1997 under the Delaware  Revised  Uniform Limited
Partnership Act for the exclusive  purposes of purchasing  certain eligible debt
instruments  of Ultramar  Diamond  Shamrock  Corporation  (the  Company) and the
Company's  wholly-owned  subsidiaries,   Ultramar,  Inc.  and  Diamond  Shamrock
Refining Company (the  Subsidiaries)  with (a) the proceeds from the sale of the
Partnership preferred securities (the Preferred  Securities),  representing 100%
of the limited  partnership  interest,  to UDS Capital I (the Trust),  and (b) a
capital  contribution  from the Company in exchange for the general  partnership
interest in the Partnership.

The Company in its capacity as the sole general partner of the Partnership,  has
agreed to pay all expenses and fees related to the organization and operation of
the Partnership and for all the debts and other  obligations of the Partnership.
Additionally, the Company has agreed to indemnify certain officers and agents of
the  Partnership.  Except as provided in certain  partnership  agreements and as
otherwise  provided by law,  the  holders of the  Preferred  Securities  have no
voting rights.

Cash and Cash Equivalents:  The Company considers all highly liquid  investments
with an original  maturity  of three  months or less when  purchased  to be cash
equivalents.  As of December 31, 1997, cash equivalents  consisted of $12,258 of
overnight money market funds, whose cost approximates fair value.

Investments:  Investments  in  subordinated  debentures  of the  Company and the
Subsidiaries,   and  in   U.S.   government   securities   are   classified   as
held-to-maturity  and are recorded at amortized  cost. The carrying value of the
subordinated debentures approximates their fair value as of December 31, 1997.

As of  December  31,  1997,  the U.S.  government  securities  consist of a U.S.
Treasury Note with a market value of $1,723,843, which matures on June 30, 1998,
and a U.S. Treasury Note with a market value of $600,750, which matures on March
31, 1998.

Income Taxes:  The Partnership is classified as a partnership  for U.S.  Federal
income tax purposes.  Accordingly, the Partnership does not incur any income tax
liabilities. Such liabilities are incurred directly by the partners.

Use of Estimates:  The  preparation of financial  statements in accordance  with
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying  notes.  Actual  results could differ from those  estimates.  On an
ongoing  basis,  management  reviews its estimates,  including  those related to
investment values,  based on currently available  information.  Changes in facts
and circumstances may result in revised estimates.

NOTE 2: Investment in Subordinated Debentures

On June 25, 1997, the  Partnership  purchased  debentures of the Company and the
Subsidiaries.  The  subordinated  debentures  have a term of 20  years  and bear
interest at 8.32% per annum.  The  subordinated  debentures are redeemable on or
after June 30, 2002 at the option of the Company and the Subsidiaries,  in whole
or in part, at a redemption  price equal to the entire  principal  amount of the
subordinated  debentures being so redeemed plus any accrued and unpaid interest.
The interest payment dates  correspond to the distribution  payment dates of the
Preferred  Securities.  Interest  and  redemption  payments on the  Subsidiaries
debentures are guaranteed by the Company on a subordinated basis.


                               UDS FUNDING I, L.P.
                    NOTES TO FINANCIAL STATEMENTS - continued
                                December 31, 1997

NOTE 3: Partners' Capital

On June  25,  1997,  the  Partnership  sold  8,247,440  of the  8.32%  Preferred
Securities,  with a $25.00 liquidation  preference per security to the Trust for
total proceeds of  $206,186,000.  The Preferred  Securities are redeemable on or
after June 30, 2002 at the option of the Partnership,  in whole or in part, at a
redemption  price equal to $25.00 per security.  Distributions  on the Preferred
Securities are cumulative from June 25, 1997 and are payable  quarterly on March
31, June 30,  September 30 and December 31 of each year, if and when declared by
the General Partner.

The Company has guaranteed,  on a subordinated  basis, the  distributions due on
the  Preferred  Securities  if and  when  declared  by the  Partnership  and the
payments upon  liquidation of the Partnership or the redemption of the Preferred
Securities  to the  extent  funds  are  legally  available.  This  guarantee  is
subordinated  to all other  liabilities of the Company and ranks pari passu with
the most senior preferred stock of the Company.

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

None.


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Trustees of the Trust are as follows:

Regular Trustee                H. Pete Smith
Regular Trustee                Steve Blank
Property Trustee               The Bank of New York
Delaware Trustee               The Bank of New York (Delaware)


H. Pete Smith is Executive  Vice  President and Chief  Financial  Officer of the
Company,  and has  served  in those  capacities  since the  Merger  of  Ultramar
Corporation and Diamond Shamrock,  Inc. in December 1996. From April 1996 to the
Merger,  he was Senior Vice  President and Chief  Financial  Officer of Ultramar
Corporation.  Prior to April 1996,  he was Vice  President  and Chief  Financial
Officer of Ultramar Corporation.

Steve Blank is Vice  President  and  Treasurer  of the Company and has served in
that  capacity  with the Company  since the Merger of Ultramar  Corporation  and
Diamond  Shamrock,  Inc.  in  December  1996.  Previously  he served in  various
positions  within  Ultramar  Corporation.  Each  Trustee  has  served  in  their
respective  capacity since the Trust was organized on June 5, 1997. The Trustees
serve at the pleasure of the Company,  as the holder of the Common Securities of
the Trust.

The Partnership has no directors or executive  officers,  and the Company serves
as General Partner.

ITEM 11.  EXECUTIVE COMPENSATION

Neither the Trust nor the Partnership has any executive officers. No employee of
the Company  receives any compensation for serving as a Trustee or acting in any
capacity  for the Trust or the  Partnership  separate  from  compensation  as an
employee of the Company.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information in Item 1 - Business and Item 5 - Market for Registrants' Common
Equity and Related  Stockholder  Matters with respect to ownership of the Common
Securities of the Trust is incorporated by reference in response to this item.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

                                     PART IV

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

(A) Documents filed as part of this report:
     (1)  Financial  Statements  of the Trust and the  Partnership  are included
under Part II, Item 8:


UDS Capital I - Financial Statements:
  Accountants Report
  Balance Sheet as of December 31, 1997
  Statement of Income for the Period from June 5, 1997  (inception)  to December
  31, 1997  Statement of  Stockholders'  Equity for the Period from June 5, 1997
  (inception) to
   December 31, 1997
  Statement  of Cash  Flows for the  Period  from June 5,  1997  (inception)  to
  December 31, 1997 Notes to Financial Statements

UDS Funding I, L.P. - Financial Statements:
  Accountants Report
  Balance Sheet as of December 31, 1997
  Statement of Income for the Period from June 5, 1997  (inception)  to December
  31,  1997  Statement  of  Partners'  Capital  for the Period from June 5, 1997
  (inception) to
   December 31, 1997
  Statement  of Cash  Flows for the  Period  from June 5,  1997  (inception)  to
  December 31, 1997 Notes to Financial Statements

     (2) Financial Statement Schedules - None.

(B) Reports on Form 8-K - None.

(C) Exhibits:

Certain of the  following  exhibits were  previously  filed as exhibits to other
reports  or  registration  statements  filed by the Trust  and are  incorporated
herein by  reference  to such reports or  registration  statements  as indicated
parenthetically  below by the appropriate  report reference date or registration
statement number.
<TABLE>
<CAPTION>
    Exhibit                                                                       Incorporated by Reference
    Number                          Description                                  to the Following Documents
<S>   <C>       <C>                                                             <C>
      4.1       Certificate of Trust of UDS Capital I dated June                Registration Statement on Form S-3 (File
                5, 1997                                                         No.333-28737)

      4.2       Amended and Restated Declaration of Trust of                    Current Report on Form 8-K dated June 30, 1997
                UDS Capital I dated June 25, 1997 

      4.3       Certificate of Limited Partnership of UDS                       Registration Statement on Form S-3 (File 
                Funding I, L.P. dated June 5, 1997                              No.333-28737)

      4.4       Amended and Restated Limited Partnership                        Current Report on Form 8-K dated June 30, 1997
                Agreement of UDS Funding I, L.P. dated June
                25, 1997

      4.5       Trust Preferred Securities Guarantee Agreement                  Current Report on Form 8-K dated June 30, 1997
                between Ultramar Diamond Shamrock 
                corporation and The Bank of New York as 
                guarantee Trustee dated June 25, 1997

      4.6       Partnership Preferred Securities Guarantee                      Current Report on Form 8-K dated June 30, 1997
                Agreement by Ultramar Diamond Shamrock
                Corporation dated June 25, 1997

      4.7       Subordinated Indenture between Ultramar                         Current Report on Form 8-K dated June 30, 1997
                Diamond Shamrock Corporatoin The Bank
                of New York dated June 25, 1997

      4.8       Affiliate Debenture Guarantee Agreement                         Registration Statement on Form S-3 (File 
                between Ultramar Diamond Shamrock                               No.333-28737)
                Corporation and The Bank of New York

      4.9       Certificate Evidencing Trust Preferred Security                 Current Report on Form 8-K dated June 30, 1997

     4.10       Certificate Evidencing Partnership Preferred                    Current Report on Form 8-K dated June 30, 1997
                Security

     4.11       Subordinated Debenture                                          Current Report on Form 8-K dated June 30, 1997

     10.1       8.32% Subordinated Debenture Due 2017 dated                     Current Report on Form 8-K dated June 30, 1997
                June 25, 1997

     23.1       Consent of Arthur Andersen                                      +

     27.1       Financial Data Schedule                                         +

+ Filed herewith.
</TABLE>
                                   SIGNATURES

Pursuant to the  requirements of section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the Trust and the  Partnership  have duly caused this report to be
signed on their behalf by the undersigned, thereunto duly authorized as of March
16, 1998.

UDS Capital I

By:  /s/ H. PETE SMITH
Name:    H. Pete Smith
Title:   Trustee

By:  /s/ STEVE BLANK
Name:    Steve Blank
Title:   Trustee

UDS Funding I, L.P.

By: Ultramar Diamond Shamrock Corporation, as General Partner

By:  /s/ H. PETE SMITH
Name:    H. Pete Smith
Title:   Executive Vice President and Chief Financial Officer