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 year ended December 31, 1998

                        Commission File Number 333-28737

                                  UDS CAPITAL I
                 Formed under the laws of the State of Delaware
                  I.R.S. Employer Identification No. 74-6454974
                            6000 North Loop 1604 West
                          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.
                 Formed under the laws of the State of Delaware
                  I.R.S. Employer Identification No. 74-2835441
                            6000 North Loop 1604 West
                          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 5,
1999.

As of  February  5,  1999,  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.

<PAGE>

                                TABLE OF CONTENTS

Item                                                                     Page
                                     PART I

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

 2.  Properties......................................................      3

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

 4.  Submission of Matters to a Vote of Security Stockholders........      3

                                     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

7A.   Quantitative and Qualitative Disclosures About Market Risk.....      6

 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) contains  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.

<PAGE>

                                     PART I
Item 1.  Business

                                  UDS Capital I

UDS Capital I (the Trust) is a statutory  business trust formed on June 5, 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 per 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  from the  issuance  of the Trust  Securities  to
purchase the  Preferred  Securities  of UDS Funding I, L.P.  (the  Partnership).
Accordingly, the assets of the Trust consist solely of the Preferred Securities.
The Trust exists for the exclusive purposes of:

  - issuing the Trust Securities  representing  ownership interests in the
    assets  of the  Trust,  

  - investing  in the  Preferred  Securities,  and

  - engaging  in only  those  other  activities  necessary  or  incidental
    thereto.

There are four Trustees of the Trust:

  - two Trustees  are  individuals  who are  officers of the Company,

  - the Property  Trustee is The Bank of New York, and 

  - the Delaware Trustee is The Bank of New York (Delaware).

The Property Trustee holds 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 issuance 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 from the Preferred Securities.

The Company has irrevocably guaranteed,  on a subordinated basis, the payment of
all  distributions  and  other  payments  on the TOPrS to the  extent  funds are
legally available.

                               UDS Funding I, L.P.

The  Partnership  is a limited  partnership  formed on June 5, 1997. 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. The Company is
the sole General Partner of the Partnership.

The  Partnership is managed by the General  Partner and exists for the exclusive
purposes of:

  - issuing its partnership interests,

  - investing in certain eligible securities of the Company and eligible debt 
    securities of non-affiliated entities, and

  - 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.

<PAGE>

So long as the Preferred  Securities  remain  outstanding,  the General  Partner
agrees to:

  - remain the sole  general  partner of the  Partnership  and to maintain 
    directly 100% ownership of the General Partner's interest in the Partner-
    ship, which interest will at all times represent at least 1% of the total 
    capital of the Partnership,

  - 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

  - use its efforts to ensure that the Partnership will not be:

     - an investment company for purposes of the 1940 Act or
     - an association  o a publicly  traded  partnership  taxable as a 
       corporation for United States Federal income tax purposes.

The  Partnership  used the proceeds  from the Preferred  Securities  and capital
contribution  to  purchase  subordinated  debentures  of  the  Company  and  two
wholly-owned  subsidiaries  of the Company (the  Debentures).  In addition,  the
Partnership  purchased  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 issuance 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 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 from the Debentures and Eligible Debt Securities.

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.  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 of
distributions due on the Preferred Securities, and the payments upon liquidation
of the  Partnership or the redemption of the Preferred  Securities to the extent
funds are legally available.

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

None.

Item 3.  Legal Proceedings

Neither the Trust nor the  Partnership  know of any material  legal  proceedings
involving the Trust or the Partnership.

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 year ended December 31, 1998.

                                     PART II

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

Market Information

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

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".  The table below shows the high
and low sales prices on the New York Stock  Exchange for the 8.32% TOPrS and the
quarterly cash dividends paid:

                                   Sales Price
                                   -----------                 Cash
    Year 1998               High               Low            Dividends
   -----------             ------            ------           ---------
   4th quarter             $26.06            $24.94            $0.52
   3rd quarter              25.96             24.69             0.52
   2nd quarter              26.13             25.38             0.52
   1st quarter              26.38             25.25             0.52

    Year 1997
   -----------
   4th quarter              26.25             25.44             0.52
   3rd quarter              26.13             25.25             0.52
   2nd quarter              25.00             25.00             0.03


Holders

All of the Common  Securities  of the Trust and all of the  general  partnership
interest in the Partnership are owned by the Company.

As of February 5, 1999, there were 8,000,000 TOPrS  outstanding  which were held
by at least 100 beneficial owners.

Dividends

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 $514,675.  Distributions not paid on 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  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.

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 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 which  exists for the  exclusive 
  purposes of: 

  - issuing the 8.32% TOPrS and the Common Securities of the Trust,  

  - investing in the 8.32% Preferred Securities issued by the Partnership, and 

  - engaging in only those other activities necessary or incidental thereto.

The Partnership is a limited partnership which exists for the exclusive purposes
  of:

  - issuing its partnership interests,

  - investing in certain eligible securities of the Company and wholly-owned 
    subsidiaries of the Company and eligible debt securities of non-affiliated
    entities, and

  - engaging in only those activities necessary or incidental thereto.

The Company is the General  Partner and the Trust is the Limited  Partner of the
Partnership. The Partnership is managed by the General Partner.

On June 25,  1997,  the Trust issued the TOPrS and Common  Securities  for total
proceeds of  $200,000,000  and  $6,186,000,  respectively,  and  invested  those
proceeds into Preferred Securities of the Partnership.  The Trust made quarterly
distribution payments on the TOPrS and Common Securities and received funds from
the Partnership of equivalent amounts as summarized below:

                                                               Period from
                                                               June 5, 1997
                                           Year Ended         (Inception) to
                                        December 31, 1998    December 31, 1997
                                        -----------------    -----------------

  Net income from Preferred Securities     $17,155                $8,816
                                           =======                ======

  Distributions to:
    8.32% TOPrS                            $16,640                $8,552
    8.32% Trust Common Securities              515                   264
                                          --------                ------
                                           $17,155                $8,816
                                          ========                ======

On June 25,  1997,  the  Partnership  issued the  Preferred  Securities  and the
general  partner  interest for total proceeds of $206,186,000  and  $36,386,000,
respectively,  and invested those proceeds into the  subordinated  debentures of
the Company and wholly-owned  subsidiaries of the Company totaling $240,146,000.
In addition, the Partnership invested approximately  $2,400,000 in Eligible Debt
Securities and other  investments.  The Partnership made quarterly  distribution
payments on the Preferred Securities and general partner interest,  and received
funds from the Company,  wholly-owned subsidiaries of the Company and investment
issuers of approximately the same amounts.  Net income from debentures and other
investments and  distributions to the General Partner and the Limited Partner is
summarized below:

                                                              Period from
                                                              June 5, 1997
                                      Year Ended             (Inception) to
                                     December 31, 1998      December 31, 1997
                                     -----------------      ------------------
  Net income from debentures and
    other investments                    $20,125                $10,326
                                         =======                =======

  Distributions to:
    General partner                      $ 2,831                $ 1,452
    Limited partner                       17,155                  8,816
                                         -------                -------
                                         $19,986                $10,268
                                         =======                =======

The Company  provides,  at no cost,  all  computer  and  administrative  support
necessary  to  process  the  activities  of the Trust and the  Partnership.  The
Company is in the process of making the necessary  system  conversions to handle
the year 2000  dated  transactions.  However,  the  operations  of the Trust and
Partnership are not complex and the impact,  if any, from year 2000 issues would
be immaterial.

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.

Accounting Pronouncements

In June 1997, the Financial  Accounting  Standards Board (FASB) issued Statement
of  Financial  Accounting  Standard  (SFAS) No.  130,  "Reporting  Comprehensive
Income."  This  statement  established  standards  for  reporting and display of
comprehensive income and its components (revenues,  expenses, gains, and losses)
in a full set of general-purpose financial statements.  The statement requires a
company to (a) classify items of other comprehensive income by their nature in a
financial   statement  and  (b)  display  the   accumulated   balance  of  other
comprehensive  income separately from retained  earnings and additional  paid-in
capital in the equity section of a statement of financial  position.  Presently,
neither the Trust nor the Partnership have items of other  comprehensive  income
in any period presented and therefore  presentation of  comprehensive  income is
not required.

The FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" in June 1998.  This statement  establishes  accounting and reporting
standards for derivative instruments and for hedging activities.  It requires an
entity to recognize  all  derivatives  as either  assets or  liabilities  in the
statement of financial position and measure those instruments at fair value. The
statement is effective for all fiscal  quarters of fiscal years  beginning after
June 15, 1999 with earlier application  encouraged.  The statement should not be
applied  retroactively to financial  statements of prior periods.  The Trust and
the  Partnership  have not entered into, and are not expected to enter into, any
transactions involving derivative instruments or hedging activities.  Therefore,
management  believes  there  would  be no  material  effect  to the  Trust's  or
Partnership's  financial  position  or  results  of  operation  as a  result  of
implementation of this statement.

Certain Forward Looking Statements

This  Annual  Report  on Form  10-K and the Form  S-3,  incorporated  herein  by
reference,  contain 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 7A.  Quantitative and Qualitative Disclosures About Market Risk

Neither the Trust nor the Partnership have entered into any  transactions  using
derivative  financial  instruments  or  derivative  commodity  instruments.  The
Company's  management  believes that the Trust's and  Partnership's  exposure to
market risk associated with other investments is not material.

<PAGE>

Item 8.  Financial Statements and Supplementary Data

                    Report of Independent Public Accountants

To UDS Capital I:

We have  audited the  accompanying  balance  sheets of UDS Capital I, a Delaware
business  trust (the  Trust) as of December  31, 1998 and 1997,  and the related
statements  of  income,  stockholders'  equity and cash flows for the year ended
December 31, 1998 and 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 audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of UDS Capital I as of December
31, 1998 and 1997,  and the results of its operations and its cash flows for the
year ended  December  31, 1998 and the period from June 5, 1997  (inception)  to
December 31, 1997 in conformity with generally accepted accounting principles.



                                                        ARTHUR ANDERSEN LLP
                                                    /s/ ARTHUR ANDERSEN LLP

San Antonio, Texas
January 29, 1999

<PAGE>
<TABLE>
<CAPTION>

                                  UDS CAPITAL I
                                 BALANCE SHEETS
                     (in thousands, except securities data)

                                                           December 31,
                                                         1998           1997
                                                         ----           ----
                                     Assets
<S>                                                      <C>          <C>
Investment in UDS Funding I, L.P. Preferred Securities   $206,186     $206,186
                                                         --------     ---------

    Total Assets                                         $206,186     $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      $200,000

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

     Total Stockholders' Equity                          $206,186     $206,186
                                                         ========     =========


                 See accompanying notes to financial statements.
</TABLE>
<PAGE>

                                  UDS CAPITAL I
                              STATEMENTS OF INCOME
                                 (in thousands)

                                                                Period from
                                                                 June 5, 1997
                                          Year Ended           (Inception) to
                                       December 31,1998      December 31, 1997
                                       ----------------      -----------------
Net income on UDS Funding I, L.P.
 Preferred Securities                      $17,155                $8,816
                                           =======                ======


                 See accompanying notes to financial statements.

<PAGE>
<TABLE>
<CAPTION>
                                  UDS CAPITAL I
                       STATEMENTS OF STOCKHOLDERS' EQUITY
   Year Ended December 31, 1998 and 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                                                       --          200,000                --        200,000
 Preferred Securities in a public offering

Net income                                                       --               --             8,816          8,816

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

Dividends on 8.32% Trust Common Securities                       --               --              (264)          (264)
                                                             ------         --------         ---------       --------

Balance at December 31, 1997                                  6,186          200,000                --        206,186

Net income                                                       --               --            17,155         17,155

Dividends on 8.32% Trust Originated Preferred                    --               --           (16,640)       (16,640)
Securities

Dividends on 8.32% Trust Common Securities                       --               --              (515)          (515)
                                                            -------         --------         ---------       --------

Balance at December 31, 1998                                 $6,186         $200,000         $      --       $206,186
                                                             ======         ========         =========       ========

                 See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                  UDS CAPITAL I
                            STATEMENTS OF CASH FLOWS
                                 (in thousands)

                                                                                            Period from
                                                                                           June 5, 1997
                                                                       Year Ended           (Inception) to
                                                                    December 31, 1998      December 31, 1997
                                                                    -----------------      -----------------

Cash Flows Provided By Operating Activities -
<S>                                                                     <C>                 <C>
Net income on UDS Funding I, L.P. Preferred Securities                  $ 17,155            $   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             (16,640)              (8,552)
Distributions on 8.32% Trust Common Securities                              (515)                (264)
                                                                         -------            ---------

    Net cash (used in) provided by financing activities                  (17,155)             197,370
                                                                         -------            ---------

Net Change in Cash                                                             -                   -
Cash at Beginning of Period                                                    -                   -
                                                                         -------            ---------

Cash at End of Period                                                   $      -            $       -
                                                                         =======            =========

                 See accompanying notes to financial statements.
</TABLE>
<PAGE>

                                  UDS CAPITAL I
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 1998 and 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 for the exclusive purposes of:

  - 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,

  - 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

  - engaging in only those other activities necessary or incidental thereto. 

The Trust has a perpetual existence, subject to certain termination events.

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.  Two 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.  The Company
is the  General  Partner  of  the  Partnership.  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 the  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, 1998 and 1997

NOTE 3: Stockholders' Equity

Trust Originated Preferred Securities

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 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 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.

<PAGE>

                    Report of Independent Public Accountants


To UDS Funding I, L.P.:

We have  audited  the  accompanying  balance  sheets of UDS  Funding I, L.P.,  a
Delaware limited partnership (the Partnership) as of December 31, 1998 and 1997,
and the related  statements of income,  partners' capital and cash flows for the
year ended  December  31, 1998 and 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 audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position  of UDS Funding I, L.P. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for  the  year  ended  December  31,  1998  and the  period  from  June 5,  1997
(inception)  to  December  31,  1997  in  conformity  with  generally   accepted
accounting principles.


                                                        ARTHUR ANDERSEN LLP
                                                    /s/ ARTHUR ANDERSEN LLP

San Antonio, Texas
January 29, 1999

<PAGE>
<TABLE>
<CAPTION>
                               UDS FUNDING I, L.P.
                                 BALANCE SHEETS
                     (in thousands, except securities data)

                                                                                        December 31,
                                                                                    1998              1997
                                                                                    ----              ----
                                   Assets
<S>                                                                               <C>                <C>
Cash and cash equivalents                                                         $     25           $     56
                                                                                  --------           --------

Investments:
  Bank certificate of deposit                                                          100                 99
  Investment in U.S. government securities, at amortized cost                        2,472              2,326
  Subordinated debentures of Ultramar Diamond Shamrock Corporation, at cost        206,186            206,186
  Subordinated debentures of Ultramar Inc. and Diamond Shamrock Refining
   Company, L.P., both wholly-owned subsidiaries of Ultramar Diamond
Shamrock                                                                            33,960             33,960
                                                                                  --------           --------
   Corporation, at cost
     Total investments                                                             242,718            242,571

Accrued interest receivable                                                             26                  3
                                                                                  --------           --------

       Total Assets                                                               $242,769           $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             $206,186           $206,186
preference

General partnership interest held by Ultramar Diamond Shamrock Corporation          36,583             36,444
                                                                                  --------           --------

       Total Partners' Capital                                                    $242,769           $242,630
                                                                                  ========           ========

                 See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                               UDS FUNDING I, L.P.
                              STATEMENTS OF INCOME
                                 (in thousands)

                                                                                            Period from
                                                                                           June 5, 1997
                                                                      Year Ended           (Inception) to
                                                                   December 31, 1998      December 31, 1997
                                                                   -----------------      -----------------
Interest income:
<S>                                                                      <C>                  <C>
  Interest income on subordinated debenture of
    Ultramar Diamond Shamrock Corporation                                $17,155              $ 8,816

  Interest income on subordinated debentures of Ultramar Inc.
and
   Diamond Shamrock Refining Company, L.P., both wholly-owned              2,825                1,452
   subsidiaries of Ultramar Diamond Shamrock Corporation

  Interest income on U.S. government securities,
    certificate of deposit and cash equivalents                              145                   58
                                                                         -------              -------
     Net income                                                          $20,125              $10,326
                                                                         =======              =======

                 See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                               UDS FUNDING I, L.P.
                         STATEMENTS OF PARTNERS' CAPITAL
  Year Ended December 31, 1998 and the Period from June 5, 1997 (Inception) to
                               December 31, 1997
                                 (in thousands)

                                                                                                         Total
                                                                      General          Limited         Partners'
                                                                      Partner          Partner          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

  Net income allocated to partners                                      2,970            17,155           20,125

  Distributions to partners                                            (2,831)          (17,155)         (19,986)
                                                                      -------          --------         --------

Balance at December 31, 1998                                          $36,583          $206,186         $242,769
                                                                      =======          ========         ========

                 See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                               UDS FUNDING I, L.P.
                            STATEMENTS OF CASH FLOWS
                                 (in thousands)

                                                                                             Period from
                                                                                            June 5, 1997
                                                                      Year Ended           (Inception) to
                                                                   December 31, 1998      December 31, 1997
                                                                   -----------------      -----------------
<S>                                                                     <C>                    <C>
Cash Flows from Operating Activities:
  Net income                                                            $ 20,125               $  10,326
  Accretion of U.S. government securities                                      -                     (23)
  Increase in accrued interest receivable                                    (23)                     (3)
                                                                        --------               ---------
       Net cash provided by operating activities                          20,102                 10,300
                                                                        --------               --------
Cash Flows from Investing Activities:
  Purchases of affiliated subordinated debentures                              -                (240,146)
  Purchase of bank certificate of deposit                                   (100)                    (99)
  Maturity of bank certificate of deposit                                     99                      -
  Purchases of U.S. government securities                                 (3,072)                 (3,503)
  Maturities of U.S. government securities                                 2,926                  1,200
                                                                        --------               ---------
    Net cash used in investing activities                                   (147)              (242,548)
                                                                        --------               --------
Cash Flows from Financing Activities:
  Proceeds from issuance of preferred securities                               -                206,186
  Contributions for general partner interest                                   -                 36,386
  Distributions to Limited Partner                                       (17,155)                (8,816)
  Distributions to General Partner                                        (2,831)                (1,452)
                                                                        --------               ---------
    Net cash (used in) provided by financing activities                  (19,986)               232,304
                                                                        --------               --------
Net Change in Cash                                                           (31)                    56
Cash at Beginning of Period                                                   56                      -
                                                                        --------               ---------
Cash at End of Period                                                   $     25               $      56
                                                                        ========               =========

                 See accompanying notes to financial statements.
</TABLE>

<PAGE>
                               UDS FUNDING I, L.P.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 1998 and 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 for the exclusive purposes of:

  - issuing its partnership interests,

  - investing in certain  eligible  securities of the Company and  eligible debt
    securities of  non-affiliated entities, and

  - engaging in only those other activities necessary or incidental thereto.

The Company, as General Partner, has agreed to pay all expenses and fees related
to the  organization  and  operation  of  the  Partnership  and  for  all  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  provided  by law,  the  holders of the
Preferred Securities have no voting rights.

Cash  and  Cash  Equivalents:   The  Partnership  considers  all  highly  liquid
investments with an original  maturity of three months or less when purchased to
be cash  equivalents.  As of  December  31,  1998  and  1997,  cash  equivalents
consisted of $25,049 and $12,258, respectively, of overnight money market funds,
whose cost approximates fair value.

Investments:  The Partnership  holds  investments in subordinated  debentures of
Ultramar  Diamond  Shamrock  Corporation  (the  Company)  and  two  wholly-owned
subsidiaries  of the  Company.  The  Company is one of the  largest  independent
refining  and  marketing  companies  in North  America.  The Company  owns seven
refineries  in the United States and Canada and has  approximately  6,400 retail
convenience stores.

Investments in subordinated debentures of the Company and its 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, 1998 and 1997.

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.

Reclassifications: Certain previously reported amounts have been reclassified to
conform to the 1998 presentation.

<PAGE>

                               UDS FUNDING I, L.P.
                    NOTES TO FINANCIAL STATEMENTS - continued
                           December 31, 1998 and 1997

NOTE 2: Investments

U.S. government securities
Investments in U.S. government securities consisted of the following at December
31 (in thousands):

                                      Gross Unrealized
              Amortized               ----------------
  Year           Cost             Gains            Losses          Fair Value
  ----           ----             -----            ------          ----------
  1998          $2,472             $7                $1              $2,478

  1997           2,326              -                 1               2,325

At December 31, 1998,  maturities of U.S. government  securities were as follows
(in thousands):

               Year ending December 31,
                         1999                    $   501
                         2000                        650
                         2001                        631
                         2002                        690
                                                  ------
                                                  $2,472

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.

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  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.

<PAGE>

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.

<PAGE>

                                     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:
        Report of Independent Public Accountants
        Balance Sheets as of December 31, 1998 and 1997
        Statements of Income for the Year Ended December 31, 1998 and the Period
          from June 5, 1997 (Inception) to December 31, 1997
        Statements of Stockholders' Equity for the Year Ended December 31, 1998
          and the Period from June 5, 1997 (Inception) to December 31, 1997
        Statements of Cash Flows for the Year  Ended December 31,  1998 and  the
          Period from June 5, 1997 (Inception) to December 31, 1997
        Notes to Financial Statements

        UDS Funding I, L.P. - Financial Statements:
        Report of Independent Public Accountants
        Balance Sheets as of December 31, 1998 and 1997
        Statements of Income for the Year Ended December 31, 1998 and the Period
          from June 5, 1997 (Inception) to December 31, 1997
        Statements of Partners' Capital for the Year Ended December 31, 1998 and
          the Period from June 5, 1997 (Inception) to December 31, 1997
        Statements of Cash Flows  for the Year Ended December 31, 1998  and  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>
 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 Agreement       Current Report on Form 8-K dated June 30, 1997
           by Ultramar Diamond Shamrock Corporation dated June 
           25, 1997

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

4.8        Affiliate Debenture Guarantee Agreement between            Registration Statement on Form S-3 (File
           Ultramar Diamond Shamrock Corporation and The              No.333-28737)
           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>
<PAGE>
                                   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
February 5, 1999.

UDS Capital I

By:  /s/ H. PETE SMITH                                 By:  /s/ STEVE BLANK
Name:    H. Pete Smith                                 Name:    Steve Blank
Title:   Regular Trustee                               Title:   Regular 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