UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             -----------------------
                                    FORM 10-K

                        For Annual and Transition Reports
                        Pursuant to Sections 13 or 15(d)
                     of the Securities Exchange Act of 1934
(Mark One)

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

                   For the fiscal year ended December 31, 1998
                                       OR

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

         For the transition period from .............. to ..............

                        Commission file number 333-08929
                         ------------------------------
                        UNION FINANCIAL SERVICES-1, INC.
             (Exact name of registrant as specified in its charter)

Nevada                                                       86-0817755
(State or other jurisdiction                                (I.R.S. Employer
of incorporation or organization)                           Identification No.)

6991 East Camelback Road, Suite B290
Scottsdale, Arizona                                                85251
(Address of principal executive offices)                        (Zip Code)

                                 (602) 947-7703
              (Registrant's telephone number, including area code)

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

                                      None

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

                                      None

     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 X No ___

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

     The aggregate  market value of the voting stock held by  non-affiliates  of
the registrant on December 31, 1998: None

     The number of  shares  outstanding  of  registrant's  common  stock  as  of
March 31, 1999 was 1,000.


                       -----------------------------------
                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following  documents are  incorporated in Parts I and IV of this
report by reference:  (i) The  Registrant's  Registration  Statement on Form S-3
(File No. 333-28551), as amended and supplemented,  as filed with the Securities
and Exchange Commission on October 14, 1997, (ii) the Registrant's Annual Report
on Form  10-K for the  fiscal  year  ended  December  31,  1996,  and  (iii) the
Registrant's current report on Form 8-K, filed January 6, 1998.


<PAGE>

                                TABLE OF CONTENTS


                                                                           Page
PART I
         ITEM 1.      BUSINESS.................................................1
         ITEM 2.      PROPERTIES...............................................8
         ITEM 3.      LEGAL PROCEEDINGS........................................8
         ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......8

PART I
         ITEM 5.      MARKET FOR REGISTRANT'S COMMON EQUITY
                      AND RELATED STOCKHOLDER MATTERS..........................8
         ITEM 6.      SELECTED FINANCIAL DATA..................................8
         ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS
                      OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........10
         ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES
                      ABOUT MARKET RISK ......................................11
         ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............12
         ITEM 9.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                      ON ACCOUNTING AND FINANCIAL DISCLOSURE..................12

PART III
         ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......12
         ITEM 11.     EXECUTIVE COMPENSATION..................................14
         ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                      AND MANAGEMENT..........................................15
         ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........15

PART IV
         ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES
                      AND REPORTS ON FORM 8-K.................................16

SIGNATURES....................................................................19



<PAGE>


                                     PART I


ITEM 1. BUSINESS

The Company

               Union Financial Services-1, Inc. (the "Company") was incorporated
under the laws of the State of Nevada on  February  28,  1996.  The Company is a
wholly owned subsidiary of Union Financial Services,  Inc., a Nevada corporation
("UFS"). UFS is a privately held corporation.

Business of Company

               General.  The Company is a special purpose  corporation formed by
UFS to engage in the  business  of  purchasing,  financing,  holding and selling
guaranteed  educational  loans  made to  students  and to  parents  of  students
("Eligible  Loans")  under the Higher  Education  Act of 1965,  as amended  (the
"Higher  Education  Act").  Eligible  Loans are  purchased  by the Company  from
qualified  leaders  under the Higher  Education  Act  pursuant  to the terms and
subject  to the  conditions  stated in student  loan  purchase  agreements.  The
proceeds  of the  Eligible  Loans  are used by the  borrowers  to pay the  costs
associated with attendance at post-secondary educational institutions.

               The Company  finances its purchases of Eligible Loans through the
issuance of its Taxable Student Loan Asset-Backed Notes (the "Notes"). The Notes
have been  issued in several  series.  Repayment  of the Notes is secured by the
pledge of a revolving pool of Eligible Loans and certain other property held for
the benefit of the owners of the Notes (the "Trust Estate"). The Trust Estate is
held by a trustee  (the  "Trustee")  pursuant to the terms of the  Indenture  of
Trust governing the issuance of the Notes (the "Indenture").

               Recent   Registration  and  Issuance  of  Notes.  A  registration
statement  on  Form  S-3,   Registration   No.   333-28551  (the   "Registration
Statement"),  was filed with the Securities and Exchange  Commission (the "SEC")
by the Company under the  Securities  Act of 1933,  as amended (the  "Securities
Act"),  for  $500,000,000 of Notes,  and was declared  effective by order of the
Securities  and Exchange  Commission  ("SEC") in October  1997.  A  registration
statement on Form S-3, Registration No. 333-68611, was filed with the SEC by the
Company under the  Securities  Act for  $170,660,000  of additional  Notes which
became  effective in December,  1998. The Company  currently has $278,980,000 of
notes left available on its shelf registration.

               In December,  1998, the Company  issued its Taxable  Student Loan
Asset-Backed  Notes,  Series 1998 (the  "Series  1998  Notes") in the  aggregate
principal amount of $745,000,000,  pursuant to its registration  statement.  The
Series 1998 Notes consisted of (i) Senior Class 1998 A-7 Notes,  Fixed Rate (the
"Class A-7 Notes"), (ii) Senior Class 1998 A-8 Notes, Fixed Rate (the "Class A-8
Notes"),  (iii) Senior Class 1998 A-9 Notes, Fixed Rate (the "Class A-9 Notes"),
(iv) Senior  Class 1998 A-10 Notes,  Auction  Rate  Securities  (the "Class A-10
Notes"),  (v) Senior Class 1998 A-11 Notes,  Auction Rate Securities (the "Class
A-11 Notes"),  (vi) Senior Class A-12 Notes, Auction Rate Securities (the "Class
A-12  Notes"),  and  (vii)  Subordinate  Class  1998  B-5  Notes,  Auction  Rate
Securities (the "Class B-5 Notes").

               Notes Issued.  The following table  summarizes the various series
and classes of Notes issued by the Company since its inception.

                                       1

<PAGE>


                           Notes Issued By The Company

--------------------------------------------------------------------------------
Series   Class     Date Issued         Maturity Dates  Original Principal Amount

1996A     A-1      March 8, 1996         July 1, 2014       $ 48,300,000
1996A     A-2      March 8, 1996         July 1, 2014         48,300,000
1996A     B-1(*)   March 8, 1996         July 1, 2014         11,100,000
1996B     A-3      June 18, 1996         July 1, 2014         73,700,000
1996B     A-4      June 18, 1996         July 1, 2014         54,300,000
1996B     B-2(*)   June 18, 1996         July 1, 2014         14,200,000
1996C     A-5      October 31, 1996      July 1, 2005        225,000,000
1996C     A-6      October 31, 1996      July 1, 2014         75,500,000
1996C     B-3      October 31, 1996      July 1, 2025         15,600,000
1997A     B-4      March 20, 1997        July 1, 2030         30,800,000
1998A     A-7      December 22, 1998    August 1, 2005       125,000,000
1998A     A-8      December 22, 1998   September 1, 2005     125,000,000
1998A     A-9      December 22, 1998   December 1, 2005      125,000,000
1998A     A-10     December 22, 1998    October 1, 2032      100,000,000
1998A     A-11     December 22, 1998   November 1, 2032      100,000,000
1998A     A-12     December 22, 1998   December 1, 2032      100,000,000
1998A     B-5      December 22, 1998   December 1, 2032       70,000,000
                                                             ------------
                                                          $1,341,800,000

------------
(*) These Notes were defeased with the proceeds of the Series 1997A Notes and as
of March 20, 1997 are no longer deemed to be outstanding under the Indenture.

               The Federal Family  Education Loan Program.  The Higher Education
Act  provides  for a program  of  direct  federal  insurance  of  student  loans
("FISLP")  and  reinsurance  of student  loans  guaranteed or insured by a state
agency  or  private  non-profit  corporation   (collectively,   "Federal  Family
Education  Loans," with such program  referred to herein as the "Federal  Family
Education  Loan  Program").  Several types of loans are currently  authorized as
Federal Family  Education  Loans  pursuant to the Federal Family  Education Loan
Program.  These include: (a) loans to students with respect to which the federal
government  makes interest  payments  available to reduce student  interest cost
during periods of enrollment ("Subsidized Federal Stafford Loans"); (b) loans to
students  with  respect  to which  the  federal  government  does not make  such
interest payments  ("Unsubsidized Federal Stafford Loans" and, collectively with
Subsidized Federal Stafford Loans,  "Federal Stafford Loans");  (c) supplemental
loans to parents of dependent students ("Federal PLUS Loans");  and (d) loans to
fund  payment  and  consolidation  of  certain  of  the  borrower's  obligations
("Federal  Consolidation  Loans").  Prior to July 1, 1994,  the  Federal  Family
Education  Loan  Program also  included a separate  type of loan to graduate and
professional students and independent  undergraduate students and, under certain
circumstances,  dependent  undergraduate  students, to supplement their Stafford
Loans ("Federal  Supplemental Loans for Students" or "Federal SLS Loans").


                                       2
<PAGE>


               Guarantee  Agencies.  Each  Eligible Loan is guaranteed as to the
payment of  principal  and interest by a state or private  non-profit  guarantor
(each, a "Guarantee Agency"). Eligible Loans originated prior to October 1, 1993
are  fully  guaranteed  as to the  principal  amount of such  loans and  accrued
interest by the applicable  Guarantee  Agency.  Eligible Loans  originated on or
after October 1, 1993 are  guaranteed as to 98% of the principal  amount of such
loans and  accrued  interest by the  applicable  Guarantee  Agency.  Each of the
Guarantee  Agencies has a reinsurance  contract with the Department of Education
(the "Department").  The Department reimburses the Guarantee Agencies for claims
paid by the  Guarantee  Agencies.  The  amount of such  reinsurance  payment  is
calculated  annually  and is subject to reduction  based upon the annual  claims
rate of the  Guarantee  Agency  to the  Department.  Regardless  of the level of
reinsurance  that the applicable  Guarantee Agency receives from the Department,
the Trustee will  continue to be entitled to  reimbursement  for the  applicable
guaranteed  portion of an Eligible Loan (either 98% or 100%, as applicable) from
such Guarantee Agency.  The obligations of each of the Guarantee Agencies to the
holders of Eligible  Loans  reinsured by the Department  (the "Federal  Loans"),
such as the  Trustee,  are payable  from the  general  funds  available  to such
Guarantee Agency,  including cash on deposit therewith,  reimbursements received
from the  Department and reserve funds  maintained by such  Guarantee  Agency as
required by the Higher  Education  Act. The Higher  Education Act provides that,
subject to the provisions thereof including the proper origination and servicing
of Eligible Loans,  the full faith and credit of the United States is pledged to
the  reinsurance  payments  by the  Department  to the  Guarantee  Agencies.  In
addition,  the Higher  Education Act provides that if the Secretary of Education
has  determined  that a Guarantee  Agency is unable to meet its  obligations  to
holders of Federal Loans, such as the Trustee, then the holders of Federal Loans
may submit  guarantee  claims  directly to the  Department and the Department is
required to pay to the holders the full  insurance  obligation of such Guarantee
Agency until such time as the obligations are transferred by the Department to a
new Guarantee  Agency  capable of meeting such  obligations or until a qualified
successor Guarantee Agency assumes such obligations. Certain delays in receiving
reimbursement  could occur if a Guarantee  Agency fails to meet its obligations.
In addition, failure to properly originate or service an Eligible Loan can cause
an Eligible Loan to lose its guarantee.

               Servicing  of  Eligible  Loans.  Union  Bank and  Trust  Company,
Lincoln,  Nebraska  ("Union  Bank") acts as  servicer  (the  "Servicer")  of the
Company's  Eligible  Loans in  accordance  with a second  Amended  and  Restated
Servicing Agreement,  dated as of December 18, 1998 (the "Servicing Agreement").
UNIPAC Service Corporation,  a Nebraska corporation  ("UNIPAC"),  and InTuition,
Inc.,   a  Florida   corporation   ("InTuition")   act  as   subservicers   (the
"Subservicers")  and  custodians  (the  "Custodians")  of the Eligible  Loans in
accordance with Subservicing Agreements (the "Subservicing  Agreements") between
Union Bank and UNIPAC and Union Bank and InTuition respectively. The Company may
appoint other  entities to act as a servicer or  subservicer  if approved by the
rating agencies which rate the Notes.  UNIPAC began its education loan servicing
operations  on January 1, 1978,  and provides  education  loan  servicing,  time
sharing,   administration  and  other  services  to  lenders,  secondary  market
purchasers and Guarantee  Agencies  throughout  the United  States.  UNIPAC is a
privately  held  corporation,  owned  primarily  by Union Bank,  with a minority
ownership  interest held by Packers  Service  Group,  Inc.,  Lincoln,  Nebraska.
UNIPAC's corporate headquarters is located in Aurora,  Colorado.  InTuition is a
privately  held  corporation  that provides  student loan  servicing for clients
throughout  the  country  under  both  timeshare  and  full-service  agreements.
InTuition's corporate headquarters is located in Jacksonville, Florida.

Information on the Notes and Eligible Loans

               In  accordance  with the  Indenture,  the  Company is required to
provide information periodically to the Trustee regarding the Notes and Eligible
Loans,  which information is then forwarded to registered  holders of the Notes.
The following  unaudited  information was reported to registered  holders of the
Notes on February  19, 1999 and  represents  figures as of  December  31,  1998.
Although the information set forth below has not been independently  verified by
third  parties,  the  Company  believes  it to be  accurate  to the  best of its
knowledge.  Undefined  capitalized terms used in the Tables and narrative herein
have the meanings set forth in the Company's Registration Statement.

               The principal  balance of Eligible  Loans as of December 31, 1998
was $  631,449,261.  Set  forth in Table A below  is the  aggregate  outstanding
principal amount of Notes of each Class as of December 31, 1998.

                                       3

<PAGE>


                                     Table A
                Outstanding Aggregate Principal Amount Per Class
                               (December 31, 1998)


               Class                            Principal outstanding*
               -----                             ---------------------
                A-1                                 $ 48,300,000
                A-2                                   48,300,000
                A-3                                   73,700,000
                A-4                                   54,300,000
                A-5                                  225,000,000
                A-6                                   75,500,000
                A-7                                  125,000,000
                A-8                                  125,000,000
                A-9                                  125,000,000
                A-10                                 100,000,000
                A-11                                 100,000,000
                A-12                                 100,000,000
                B-1                                           --
                B-2                                           --
                B-3                                   15,600,000
                B-4                                   30,800,000
                B-5                                   70,000,000

       -----------------
       *     The  principal  amounts  reflect the issuance of the Series
                  1997A Notes in the amount of  $30,800,000,  the proceeds of
                  which  were used to  defease  the Class B-1 Notes and Class
                  B-2 Notes.


               Set  forth  in  Table  B  below  is the  interest  rate  for  the
applicable Class of Notes,  indicating whether such interest rate is fixed or is
calculated  based on the applicable  Auction Rate (for each Class of the Auction
Rate Notes only),  LIBOR Rate (for each class of the LIBOR Rate Notes only),  or
Treasury Rate (for each Class of the Treasury Rate Notes only),  as the case may
be.


                                       4

<PAGE>


                                     Table B
                       Applicable Interest Rate Per Class
                               (December 31, 1998)

                 Class                     Calculation method
                                              Auction Rate
                  A-1                            5.5928%
                  A-2                            5.6036%
                  A-3                            5.6001%
                  A-4                            5.5616%
                  A-6                            5.5766%
                  A-10                           5.80% (2)
                  A-11                           5.75% (2)
                  A-12                           5.75% (2)
                  B-5                            6.15% (2)

                                             Treasury Rate (1)
                  A-5                            6.0689%

                                               Libor Rate (1)
                  B-3                            6.1050%
                  B-4                            5.9814%

                                               Fixed Rate
                  A-7                             5.48%
                  A-8                             5.50%
                  A-9                             5.73%

       --------------------
      (1)   Treasury  Bill Rate  based on  average  rate and LIBOR Rate
                     based on the Smith Barney stated rate.
      (2)   Indicates the initial rate for this class of Notes.

               Set forth in the tables below are the characteristics of Eligible
Loans held in the Trust  Estate on December 31,  1998.  Although  the  unaudited
information  set  forth  below  has not  been  independently  verified  by third
parties, the Company believes it to be accurate to the best of its knowledge.

                                     Table C
                        Composition of the Eligible Loans
                               (December 31, 1998)

Aggregate Outstanding Principal Balance.........................   $ 631,449,261
Number of Borrowers.............................................          73,775
Average Outstanding Principal Balance Per Borrower..............           8,569
Number of Loans.................................................         148,458
Average Outstanding Principal Balance Per Loan..................           4,253
Approximate Weighted Average Remaining Term (months) (does not
include school, grace, deferment or forbearance)................             153


Weighted Average Borrower Interest Rate.........................           7.56%



                                       5
<PAGE>


                                      Table D
                  Distribution of the Eligible Loans by Loan Type
                                (December 31, 1998)

                                               Outstanding      Percent of Loans
                             Number of          Principal        by Outstanding
        Loan Types             Loans             Balance            Balance
------------------------ ------------------- ----------------- -----------------

Consolidated                      17,651     $ 266,597,738            42.22%
PLUS                                 618         1,423,950               .23
SLS                                  177           533,621               .08
Stafford-Subsidized              100,713       241,963,582             38.32
Stafford-Unsubsidized             29,299       120,930,370             19.15
                                  ------       -----------             -----

    Total                       148,458      $ 631,449,261           100.00%
                                ========     =============           ======


                                     Table E
               Distribution of the Eligible Loans by Interest Rate
                               (December 31, 1998)


                                              Outstanding     Percent of Loans
                                Number of      Principal       by Outstanding
  Interest Rate Range             Loans         Balance           Balance
------------------------ ------------------ ---------------- -----------------

Less than 7.50%                  42,643    $ 279,081,417            44.20%
7.50% to 7.99%                   23,185       95,480,603             15.12
8.00% to 8.49%                   76,352      216,597,638             34.30
8.50% to 8.99%                      794        1,951,200               .31
9.00% to 9.49%                    5,123       35,856,911              5.68
9.50% or greater                    361        2,481,492               .39
                                    ---        ---------             -----

    Total                       148,458    $ 631,449,261           100.00%
                                =======    =============           ======


                                     Table F
               Distribution of the Eligible Loans by School Types
                               (December 31, 1998)

                                      Outstanding     Percent of Loans
                      Number of        Principal       by Outstanding
   School Type          Loans           Balance           Balance
------------------- --------------- ---------------- -------------------

2-Year                      10,516     $ 31,673,517               5.01%
4-Year                     126,949      547,531,680               86.71
Proprietary                  8,903       32,557,395                5.16
Unknown                      2,090       19,666,669                3.12
                             -----       ----------                ----

    Total                  148,458   $ 631,449,261              100.00%
                           =======   ==============             ======


                                       6
<PAGE>


Competition

               The  Company  experiences  competition  from  banks  and  savings
associations  and other  private  companies,  non-profit  companies,  trusts and
financial  firms  issuing  debt  securities  the  proceeds  of which are used to
purchase pools of student loans. Many of these entities have greater  financial,
technical,  management and other  resources  than does the Company.  The Company
believes  that key  factors in its  ability to  compete  will be its  ability to
purchase  Eligible Loans and its ability to structure notes or other  securities
in a manner which will be competitive with securities offered by competitors.

Employees

               The Company  does not employ any  employees.  The Company and UFS
have  entered  into an  Administrative  Services  Agreement  which is more fully
described in ITEM 13 hereof.  The Company does not plan to hire any employees in
the next fiscal year.

Forward Looking Statements

               Statements regarding the Company's expectations as to its ability
to purchase Eligible Loans, to structure and issue competitive securities and to
compete  generally,  and certain of the  information  presented  in this report,
constitute  forward  looking  statements  within  the  meaning  of  the  Private
Securities Litigation Reform Act of 1995. Although the Company believes that its
expectations  are  based on  reasonable  assumptions  within  the  bounds of its
knowledge of its business and operations,  there can be no assurance that actual
results will not differ materially from its expectations.

Year 2000 Compliance.

               The Year 2000 problem arises from the use of software  developers
of two  digits  rather  than four to denote  year  dates in  software  programs,
computer  hardware  operating  systems  and  microprocessors  -  based  embedded
controls in automated equipment.  As a result,  information systems that operate
date  sensitive  software or automated  equipment  that contains date  sensitive
microprocessors  may  interpret  "00" to signify 1900 rather than 2000,  thereby
impairing  the ability of the  information  systems or  automated  equipment  to
correctly  calculate,  sequence or recognize dates. This could result in serious
malfunctions  or even  complete  failures  of  affected  systems,  including  an
inability to process  transactions,  issue  securities  or checks,  or engage in
normal business activities.

               We cannot now determine whether the Year 2000 problem will have a
material adverse effect on our business operations.  The conduct of our business
in relationship  to purchasing  loans or  administering  the loans we own is not
significantly  dependent  on  our  own  computer  programs.  However,  our  loan
servicers,  Trustee, the Guarantee Agencies and Department of Education all rely
heavily on computer programs and systems for processing  transactions related to
student loans.

               We have made inquiry of the Trustee,  Union Bank,  UNIPAC Service
Corporation  and  InTuition,  Inc.  concerning  the Year 2000 problem,  and have
received  assurances  that  they  are,  or are  working  to  become,  Year  2000
compliant.  We are aware that the Guarantee Agencies and Department of Education
are working to address the Year 2000  problem.  The  Department of Education has
indicated  that it expects to complete all Year 2000 work on its Federal  Family
Education  Loan Program  computer  systems in March,  1999.  However,  we cannot
provide any assurance that the Department of Education or the Guarantee Agencies
will become Year 2000  compliant  in a timely  manner.  We cannot  influence  or
control the efforts of third parties to address the Year 2000  problem,  nor can
we terminate our dependence on the servicers,  Guarantee  Agencies or Department
of Education.  Under the reasonably  likely worst case  scenario,  the Year 2000
problem  could  delay our  receipt of  principal  and  interest  payments on our
student loans and receipt of claims  payments from the  Guarantee  Agencies.  If
that delay  continues  for a prolonged  period,  we may be unable to make timely
payments of principal and interest due on our Notes.

                                       7
<PAGE>

Changes in Legislation.

               On October 7, 1998,  President Clinton signed into law the Higher
Education  Amendments  of 1998  (the  "1998  Amendments").  The 1998  Amendments
enacted  significant  reforms to the FFELP including  changes to the formula for
calculating  Eligible  Loan  interest  rates.  Under  the most  recent  formula,
interest  rates  charged to  borrowers  on Stafford  Loans was set at the 91-day
Treasury  Bill rate  plus 1.7%  while a  student  is in  school  and the  91-day
Treasury  rate  plus  2.3%  while  the loan is in  repayment,  and the yield for
Stafford  Loan holders was set at the 91-day  Treasury Bill rate plus 2.2% while
the student is in school and the Treasury  Bill rate plus 2.8% while the loan is
in repayment.  Federal  Consolidation  Loan interest rates were revised to equal
the weighted average of the interest rates on the loans consolidated  rounded up
to the nearest  one-eighth  of 1%,  capped at 8.25%.  The 1998  Amendments  also
mandated an additional recall of Guarantee Agency reserve funds by the Secretary
of  Education  amounting  to $85 million in fiscal year 2002,  $82.5  million in
fiscal year 2006, and $82.5 million in fiscal year 2007. Certain minimum reserve
levels, however, are protected from recall. The 1998 Amendments also reduced the
federal  reinsurance  provided to Guarantee Agencies from 98% to 95% for student
loans first  disbursed on or after  October 1, 1998.  The new recall of reserves
and reduced  reinsurance for federal Guarantee  Agencies increases the risk that
resources  available to Guarantee  Agencies to meet their  guarantee  obligation
will be  significantly  reduced.  In addition,  under the 1998  Amendments,  all
references  to a  "transition"  to full  implementation  of the  Federal  Direct
Student Loan Program were deleted from the Higher  Education Act, and the Direct
Consolidation Loan interest rate calculation was revised to reflect the rate for
FFELP Consolidation  Loans, and is effective for loans on which applications are
received  on or after  February  1,  1999.  The  Higher  Education  Act or other
relevant  federal  or  state  laws,  rules  and  regulations  and  the  programs
implemented  thereunder  may be further  amended or  modified in the future in a
manner that will adversely  impact the programs  described  herein and the loans
made thereunder, including the Eligible Loans or the Guarantee Agencies.

ITEM 2. PROPERTIES

               The Company has no materially important physical properties.

ITEM 3. LEGAL PROCEEDINGS

               None

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

               None

                                     PART II

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

               The  Company  is a  wholly  owned  subsidiary  of  UFS.  UFS is a
privately  held  corporation  and there is no market for its common  stock.  The
minority  owners of UFS  include  certain  officers  of Union  Bank and  certain
relatives of such officers. The minority owners of UFS also indirectly own Union
Bank.

               As of December  31, 1998,  UFS was the only record  holder of the
Company's outstanding shares of common stock. The Company has not paid dividends
to date and does not intend to pay dividends in the foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA

               The following table sets forth the Company's  selected  financial
data as of December  31,  1998,  1997 and 1996,  and for each of the  respective
periods  ended  December  31,  1998,  1997 and 1996,  which was derived from the
financial statements of the Company which have been audited by KPMG Peat Marwick
LLP. The  information  below should be read in  conjunction  with the  Financial
Statements and notes thereto appearing elsewhere in this document.

                                       8
<PAGE>
<TABLE>
<CAPTION>


                        UNION FINANCIAL SERVICES-1, INC.

                             SELECTED FINANCIAL DATA


                                                 Period Ended     Year Ended     Year Ended
Statement of Income Data:                        December 31,    December 31,   December 31,
                                                    1996 (1)            1997          1998
<S>                                                <C>              <C>            <C> 
Revenues:     
    Loan interest..........................      $ 15,636,042     $42,757,006    $ 44,800,871
    Investment interest....................         1,373,140       2,268,878       1,962,767
    Other..................................            17,449         195,084          86,366
                                                       ------         -------          ------
            Total revenues.................        17,026,631      45,220,968      46,850,004
                                                   ----------      ----------      ----------

Expenses:
    Interest on Notes......................        11,987,255      32,782,396      34,076,786
    Loan Servicing ........................         2,255,564       4,917,318       5,475,146
    Financing fees to parent ..............         1,919,207         423,112              --
    Trustee and broker fees................           550,899         915,380         950,018
    Amortization of debt issuance costs....           250,992         494,106         558,734
    Amortization of loan premiums..........           438,584       1,441,526       2,008,889
    Other general and administrative ......           437,956       2,240,328       3,317,040
                                                      -------       ---------       ---------
            Total expenses                         17,840,457      43,214,166      46,386,613
            Income (loss) before income taxes       (813,826)       2,006,802         463,391

Income tax expense (benefit) ..............           274,968         710,717         169,138
                                                      -------         -------         -------
            Net income (loss) .............      $  (538,858)     $ 1,296,085       $ 294,253
                                                  ===========      ==========       =========

Ratio of earnings to fixed charges.........      .93% (2)          1.06%         1.01%

Balance Sheet Data:
Cash and cash equivalents .................      $ 65,402,585      39,542,382    $664,815,085
Student loans receivable, including premiums      491,046,915     525,005,954     639,740,073
Total Assets...............................       568,171,986     575,292,144   1,322,564,317
Notes payable .............................       566,000,000     571,500,000   1,316,500,000
Total liabilities..........................       568,709,844     574,533,917   1,321,511,837
Shareholders' equity (deficit).............         (537,858)         758,227       1,052,480


  -------------
   (1)     The  Company was  incorporated  on February  28,  1996.  Accordingly,
           selected financial data for prior fiscal years is not applicable.

   (2)     Earnings were inadequate to cover fixed charges by $813,826.
</TABLE>


                                       9
<PAGE>


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

               The  following   discussion  and  analysis   should  be  read  in
conjunction  with the  information  set forth under the caption  entitled  "ITEM
6.--SELECTED  FINANCIAL  DATA" and the  financial  statements  and notes thereto
included  elsewhere herein.  Moreover,  any forward looking statements should be
read in conjunction  with  information  set forth in "ITEM 1 -- Forward  Looking
Statements."

General

               The  Company  was  formed on  February  28,  1996  solely for the
purpose of acquiring,  from time to time, Eligible Loans and issuing notes, such
as the Notes,  secured by such Eligible Loans. Since its inception,  the Company
has issued five (5) series of Notes  consisting of seventeen  (17) classes.  The
Notes shown in the audited financial statements of the Company represent limited
obligations of the Company secured solely by the Eligible Loans and other assets
in the Trust Estate.

               The assets of the Company consist primarily of Eligible Loans. At
December  31,  1998,  the Company  held  approximately  $631 million in Eligible
Loans. On January 4, 1999, the Company purchased  approximately  $622 million of
Eligible Loans,  including  approximately $8.7 million of purchased interest and
$14.9  million of loan premium.  Approximately  $399 million of those loans were
purchased from related  parties at prices  equivalent to those  available in the
market.

Results of Operations

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

               Revenues. Revenues for the year ended December 31, 1998 consisted
primarily of interest on the Eligible Loans subject to the  indebtedness  of the
Notes,  which totaled  $44,800,871,  compared to $42,757,006  for the year ended
December 31, 1997, an increase of 4.80%. The amount of interest reported for the
year ended  December  31, 1998 was derived from  Eligible  Loans in an aggregate
principal  amount of  $639,740,073,  compared to $525,005,954 for the year ended
December 31, 1997. The Company's average net investment in Eligible Loans during
the year ended December 31, 1998 was approximately $539,082,229 (excluding funds
held by the Trustee),  compared to $509,142,849  for the year ended December 31,
1997,  and the average  effective  annual  interest  rate of interest  income on
Eligible  Loans was  approximately  8.31%,  compared to 8.40% for the year ended
December 31, 1997. The Company also received  investment income and other income
for the year ended  December 31, 1998 in the amounts of $1,962,767  and $86,366,
respectively,  compared to $2,268,878  and $195,084  respectively,  for the year
ended December 31, 1997.

               Expenses. Expenses for the year ended December 31, 1998 consisted
primarily  of  interest  on  the  Company's   outstanding  Notes  which  totaled
$34,076,786,  compared to  $32,782,396  for the year ended December 31, 1997, an
increase of 3.95%.  The amount of interest  expense  reported  during the period
ended December 31, 1998 depended  primarily upon the amount of Notes outstanding
during  that  period and the  interest  rates on such  Notes.  The  increase  in
interest  expense  was  attributable  primarily  to an  increase  in the  London
InterBank  Offered Rate of interest which is an index used by the Company to set
the amount of interest it pays on its LIBOR Rate Notes.  The  Company's  average
debt outstanding was  approximately  $633,583,333,  compared to $525,737,324 for
the year ended  December 31, 1997, and the average annual cost of borrowings was
approximately 5.38%, compared to approximately 6.24% for the year ended December
31, 1997.  The average  annual cost of borrowing was lower in 1998 than in 1997,
even  though the amount of debt  outstanding  at the year end in 1998 was higher
than in 1997,  because the Company issued $745 million of its Notes in December,
1998.  The Company also incurred loan servicing fees to Union Bank and financing
fees to UFS in the  amount  of  $5,475,146  and $0,  respectively,  compared  to
$4,917,318 and $423,112, respectively, for the year ended December 31, 1997. See
"ITEM 13--CERTAIN  RELATIONSHIPS AND RELATED  TRANSACTIONS" for a description of
the Servicing Agreement and Administrative  Services Agreement pursuant to which
such fees are owed.  Loan servicing fees paid by the Company were higher in 1998
because the Company  held more student  loans in 1998.  Trustee and broker fees,
amortization  of debt issuance costs and  amortization  of loan premiums for the
year ended  December  31, 1998  amounted to $950,018,  $558,734  and  $2,008,889
respectively,  compared to $915,380,  $494,106 and $1,441,526 respectively,  for
the year ended December 31, 1997. Other general and administrative  expenses for
the year ended December 31, 1998 amounted to $3,317,040,  compared to $2,240,328
for the year ended December 31, 1997. The increase in the Company's  general and
administrative expense was attributable primarily to the creation of a loan loss
allowance and payment of origination fees on Federal Consolidation Loans. Income
tax expense for the year ended December 31, 1998 amounted to $169,138,  compared
to an income tax expense in the amount of $710,717  for the year ended  December
31, 1997.

                                       10

<PAGE>

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

               Revenues. Revenues for the year ended December 31, 1997 consisted
primarily of interest on the Eligible Loans subject to the  indebtedness  of the
Notes,  which totaled  $42,757,006,  compared to $15,636,042  for the year ended
December 31, 1996, an increase of 173%. The amount of interest  reported for the
year ended  December  31, 1997 was derived from  Eligible  Loans in an aggregate
principal  amount of  $525,005,954,  compared to $491,046,915 for the year ended
December 31, 1996. The Company's average net investment in Eligible Loans during
the year ended December 31, 1997 was approximately $509,142,849 (excluding funds
held by the Trustee),  compared to $235,985,000  for the year ended December 31,
1996,  and the average  effective  annual  interest  rate of interest  income on
Eligible  Loans was  approximately  8.40%,  compared to 7.95% for the year ended
December 31, 1996. The Company also received  investment income and other income
for the year ended  December 31, 1997 in the amounts of $2,268,878 and $195,084,
respectively,  compared to $1,373,140  and $17,449,  respectively,  for the year
ended December 31, 1996.

               Expenses. Expenses for the year ended December 31, 1997 consisted
primarily  of  interest  on  the  Company's   outstanding  Notes  which  totaled
$32,782,396,  compared to  $11,987,255  for the year ended December 31, 1996, an
increase of 173%. The amount of interest  expense reported during the year ended
December 31, 1997 depended primarily upon the amount of Notes outstanding during
that period and the interest  rates on such Notes.  The  Company's  average debt
outstanding was  approximately  $525,737,324,  compared to $213,533,000  for the
year ended  December 31, 1996,  and the average  annual cost of  borrowings  was
approximately 6.24%, compared to approximately 5.61% for the year ended December
31,  1996.  The Company  also  incurred  loan  servicing  fees to Union Bank and
financing  fees to UFS in the amount of $4,917,318  and $423,112,  respectively,
compared to $2,255,564 and $1,919,207, respectively, for the year ended December
31, 1996. See "ITEM 13--CERTAIN  RELATIONSHIPS  AND RELATED  TRANSACTIONS" for a
description of the Servicing  Agreement and  Administrative  Services  Agreement
pursuant to which such fees are owed.  Trustee and broker fees,  amortization of
debt  issuance  costs  and  amortization  of loan  premiums  for the year  ended
December 31, 1997 amounted to $915,380,  $494,106 and $1,441,526,  respectively,
compared to $550,899,  $250,992 and $438,584,  respectively,  for the year ended
December 31, 1996. Other general and administrative  expenses for the year ended
December  31, 1997  amounted to  $2,240,328,  compared to $437,956  for the year
ended December 31, 1996. Income tax expense for the year ended December 31, 1997
amounted  to  $710,717,  compared  to an income  tax  benefit  in the  amount of
$274,968  for  the  year  ended  December  31,  1996,   which  resulted  from  a
carryforward of the Company's net operating loss.

               For the year ended  December 31,  1998,  there were no unusual or
infrequent  events or  transactions  or any  significant  economic  dangers that
materially affected the amount of reported income.

Liquidity and Capital Resources

               Eligible  Loans held by the Company are pledged as collateral for
the Notes,  the terms of which provide for the  retirement of all Notes from the
proceeds of the Eligible Loans.  Cash flows from payments on the Eligible Loans,
together with proceeds of reinvestment  income earned on the Eligible Loans, are
intended to provide cash  sufficient to make all required  payments of principal
and interest on each outstanding series of Notes. Withdrawals were made from the
Reserve Fund in the Trust Estate  during 1998 to cover  shortages in the Revenue
Fund  caused by slow  payment to the Company of  interest  due on the  Company's
Eligible Loans and the  capitalization  of interest to the principal  balance of
the Eligible Loans at rates higher than those  anticipated  by the Company.  The
Reserve Fund is fully funded  under the terms of the  Indenture  and the Company
anticipates  that it will require no additional  funds to meet the obligation on
its outstanding Notes.

               It is  anticipated  that regular  payments under the terms of the
Eligible Loans, as well as early prepayment,  will reduce the number of Eligible
Loans held in the Trust Estate. The Company is authorized under the Indenture to
use principal receipts from Eligible Loans to purchase additional Eligible Loans
until April 1, 2002. Thereafter,  principal receipts from Eligible Loans will be
used to reduce the amount of Notes outstanding.  The Company also plans to issue
additional  Notes  the  proceeds  of which  will be used to  acquire  additional
Eligible Loans.

Impact of Inflation

               For the year ended  December  31,  1998,  cost  increases  to the
Company were not materially impacted by inflation.

ITEM 7A.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

               The Company's  assets consist almost  entirely of Eligible Loans.
Those Eligible Loans are subject to market risk in that the cash flows generated
by the Eligible Loans can be affected by changes in interest rates. The Eligible
Loans  generally  bear  interest at a rate equal to the average bond  equivalent
rates of weekly  auctions of 91-day  Treasury  bills (the "91 day Treasury  Bill
Rate") plus a margin  specified for each Eligible Loan.  Thus, if interest rates
generally  increase,  the  Company  would  expect to  receive  greater  interest
payments on its Eligible Loans,  and if interest rates generally  decrease,  the
Company  would  expect the  interest  payments it  receives  to be reduced.  The
Company does not hold any of its assets for trading purposes.


                                       11
<PAGE>


               The Company  attempts to manage its interest rate risk by funding
its  portfolio  of  Eligible  Loans with  variable  rate debt  instruments.  The
majority  of the Notes bear  interest  at a rate that is reset  periodically  by
means of auction  procedures,  or by reference to the London  Interbank  Offered
Rate  ("LIBOR") or a specified  Treasury  rate,  plus an applicable  margin.  By
funding the Eligible  Loan with  variable  rate Notes,  the Company  attempts to
maintain a positive  "spread"  between the interest earned on its Eligible Loans
and its interest payment obligations under the Notes. Thus, in an environment of
generally  declining  interest rates,  the Company should receive lower interest
payments on it Eligible Loans, but the interest payments due on the Notes should
also be lower.

               The interest  rates on each series of Auction Rate Notes is based
generally on the outcome of each  auction of such series of Notes.  The interest
rates on each  series of LIBOR  Rate  Notes  and  Treasury  Rate  Notes is based
generally on the LIBOR Rate or Treasury  Rate then in effect for the  applicable
interest rate period.  The Eligible Loans,  however,  generally bear interest at
the 91-day Treasury Bill Rate plus margins specified for such Eligible Loans. As
a result of the  differences  between the indices used to determine the interest
rates on  Eligible  Loans and the  interest  rates on the Notes,  there could be
periods of time when the rates on  Eligible  Loans are  inadequate  to  generate
sufficient  cash  flow to cover  the  interest  on the  Notes  and the  expenses
required to be paid under the Indenture.  In a period of rapidly rising interest
rates,  the interest  rates on Eligible Loans may not increase as quickly as the
variable  interest rates with respect to the Notes. If there is a decline in the
rates on Eligible Loans,  the amount of funds  representing  interest  deposited
into the Trust Estate may be reduced and,  even if there is a similar  reduction
in the variable interest rates applicable to any series of Notes,  there may not
necessarily  be a similar  reduction in the other amounts  required to be funded
out of such funds (such as certain administrative expenses).

               The Company has  conducted a  sensitivity  analysis to  determine
what effect  differing  changes of the interest  rates on Eligible Loans and the
Notes would be on its cash flows and its resulting  ability to pay the principal
and interest due on the Notes.

               The company's  management case cash flow was prepared  assuming a
60 basis points spread between  Treasury  bills and LIBOR.  In this analysis the
net present value of the estimated issuer  withdrawals at the five-year treasury
bill rate on December 15th, 1998 (4.34%) plus 100 basis points was  $27,132,810.
When this spread was  increased by 10 basis points to 70, the net present  value
of the cash flow was reduced to $23,543,053, or a reduction of $3,589,757 of the
estimated issuer withdrawals.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

               The  financial   statements  and  supplementary   financial  data
required  by this  ITEM 8 are set  forth  in ITEM  14 of  this  Form  10-K.  All
information which has been omitted is either inapplicable or not required.

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

               There were no adverse  opinions or  disclaimers  of opinion,  nor
were there any  modifications  as to  uncertainty,  audit scope,  or  accounting
principles  rendered by the current accounting firm. There were no disagreements
with the  current  accounting  firm on any matter of  accounting  principles  or
practices, financial statement disclosure, or auditing scope or procedure.

               The  accounting  firm of KPMG Peat  Marwick  LLP was  engaged  to
perform the annual audit of the Company for the year ended December 31, 1998.

               There are no other changes in or  disagreements on accounting and
financial statement disclosure.

                                    PART III

ITEM 10.       DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

               The  Company  is  governed  by a Board  of  Directors,  which  is
required by the Company's  Articles of  Incorporation  to include at least three
directors.  Directors  are required to be elected at each annual  meeting of the
shareholders.   The  present   directors  and  their   addresses  and  principal
occupations or affiliations are as follows: 


                                       12
<PAGE>
<TABLE>
<CAPTION>

                                                                Principal       Officers and
                      Other                                     Occupation     Directors Term
Name of Director  Offices Held   Age          Address         or Affiliation      From To*
----------------  ------------   ---          -------         --------------      -------

<S>                 <C>           <C>    <C>                    <C>             <C>   
Michael S.          Chairman      35   4732 Calvert Street    Executive       February  Present
Dunlap                                 Lincoln, Nebraska      Vice            1996
                                       68506                  President of
                                                              Union Bank
                                                              and Trust
                                                              Company; President
                                                              Farmers & Merchants
                                                              Investment, Inc.

Stephen F.          President     46   6991 East Camelback    President of    February  Present
Butterfield                            Road, Suite B290       Union           1996
                                       Scottsdale, Arizona    Financial
                                       85251                  Services, Inc.

Ronald W. Page        Vice        50   1801 California        Senior Vice     February  Present
                   President,          Street                 President of    1996
                    Treasurer          Suite 3920             Union
                  and Secretary        Denver, CO 80202       Financial
                                                              Services, Inc.
                                                              Investment Banker,
                                                              A.G. Edwards & Sons
                                                              Inc. 1990-1995

Ross Wilcox            --         56   4732 Calvert Street    Chief           February  Present
                                       Lincoln, Nebraska      Executive       1996
                                       68506                  Officer of
                                                              Union Bank
                                                              and Trust
                                                              Company

Dr. Paul R. Hoff        -         64   Hernia Hill, Rural     Retired         February  Present
                                       Route 1                Physician       1996
                                       Seward, Nebraska
                                       68434

-------------
(*)     Each director holds office until the next annual meeting of shareholders
        following his or her election  until such  director's  successors  shall
        have been elected and  qualified.  The Company's  next annual meeting is
        scheduled for March __, 2000.
</TABLE>

Executive Management

        The  Board of  Directors  and  executive  officers  described  below are
responsible for overall  management of the Company.  The Company's  officers and
directors are  shareholders,  officers and  directors of business  entities that
have engaged in the business of purchasing, holding and selling student loans.

               Michael S. Dunlap,  Chairman of the Board. As the Chairman of the
Board of Directors, Mr. Dunlap is responsible for the executive direction of the
Company.  Mr. Dunlap is also  Executive  Vice  President of Union Bank and Trust
Company,  and  President of Farmers & Merchants  Investment  Inc. He has been an
employee of Union Bank and Trust Company for  approximately 15 years. Mr. Dunlap
is also a director of Stratus Fund, Inc.,  NHELP-II,  Inc., Union Bank and Trust
Company and other affiliated  banks,  Union Financial  Services,  Inc.,  UNIPAC,
InTuition Holdings,  Inc. and Farmers and Merchants Investment,  Inc. Mr. Dunlap
received a Bachelor  of Science  degree in finance  and  accounting  and a Juris
Doctor degree from the University of Nebraska.

        Stephen F.  Butterfield,  President  and  Director.  As  President,  Mr.
Butterfield  is  responsible  for the overall  management  and  direction of the
Company.  Included in his  responsibilities  are loan  purchasing,  marketing of
corporate  services and coordination of the Company's capital market activities.
Mr.  Butterfield  has been a member of the student loan  industry  since January
1989,  first as  President  of a for-profit  student  loan  secondary  marketing
facility  located  in  Scottsdale,  Arizona  and  currently  as  President  of a
non-profit  student loan secondary  marketing  facility in Scottsdale,  Arizona.
Prior to his work in the student loan industry,  Mr.  Butterfield spent 15 years
as an investment banker specializing in municipal finance.  Mr. Butterfield is a
director of Outdoor Systems, Inc. and NHELP-II,  Inc. Mr. Butterfield received a
Bachelor of Science degree in Business from Arizona State University.

               Ronald  W.  Page,  Vice  President,   Treasurer,   Secretary  and
Director.  As Vice President,  Treasurer and Secretary,  Mr. Page is responsible
for the financial operations and record keeping of the Company.  Included in his
responsibilities are financial planning and capital market operations.  Mr. Page
spent 20 years as an investment  banker  specializing  in tax-exempt and taxable
asset-backed  finance,  with a specialty in the securitization of student loans.
Mr. Page is a director of Union Financial  Services,  Inc.,  NHELP-II,  Inc. and
Ref-Chem Corporation. Mr. Page received a Bachelor of Science degree in Business
Administration from the University of Colorado, Boulder, Colorado, and a Masters
of Public Administration in Public Policy Analysis from the American University,
Washington, DC.


                                       13
<PAGE>


               Ross Wilcox,  Director. Mr. Wilcox is the Chief Executive Officer
and a  Director  of Union  Bank and  Trust  Company  and has  been  employed  or
affiliated  with Union Bank and Trust  Company for over 30 years.  Mr. Wilcox is
the  Chairman  of the Board for Mills  County  State Bank and is on the Board of
Directors for UNIPAC, Union Financial Services, Inc. and Union Insurance Agency.

               Dr. R. Paul  Hoff,  Director.  Dr.  Hoff is a medical  doctor who
practiced as a family physician in Seward,  Nebraska for approximately 30 years,
until his  retirement  three  years ago.  Dr.  Hoff also serves as member of the
Board of Directors of Packers Service Group,  Inc. Dr. Hoff has been involved in
a number of business  enterprises over the years and currently owns and operates
a retail antique store in Ennis, Montana.

               The  Company's  executive  officers  are elected  annually by the
Board of  Directors  and serve at the  discretion  of the Board.  The  Company's
directors  hold office until the next annual meeting of  stockholders  and until
their successors have been duly elected and qualified.

Section 16(a) Beneficial Ownership Reporting Compliance

               Section  16(a)  of the  Securities  Exchange  Act of  1934 is not
applicable to the Company, because the Company has no class of equity securities
registered pursuant to Section 12 thereof.

ITEM 11.       EXECUTIVE COMPENSATION

               The  Company's  executive  officers  are not  compensated  by the
Company for services rendered by them,  although some of the Company's  officers
are compensated by UFS, which receives remuneration from the Company pursuant to
an  Administrative  Services  Agreement  by and between UFS and the  Company.  A
detailed  description of the  Administrative  Services Agreement is set forth in
ITEM 13 of this Form 10-K.

Aggregated Option Exercises and Year-End Option Values in 1998

               The Company has not issued any options.

Long-Term Incentive Plan -- Awards in 1998

               The Company has no long-term incentive plan.

Defined Benefit or Actuarial Plan Disclosure in 1998

               The Company has no such benefit plans.

Employment Agreements

               The Company has not entered into any employment agreements.

Director Compensation

               Directors of the Company are not  compensated  as directors,  but
may  receive   reimbursement  of  out-of-pocket   expenses  in  connection  with
attendance at Board meetings.

Officer Compensation

               The Company has not adopted a compensation plan for officers.

Board Meetings

               During fiscal year 1998, the Board held 3 regular  meetings.  All
of the Directors attended all of the meetings of the Board.

Committees Of The Board

               The Board of Directors has not  established an Audit Committee or
a Compensation Committee.


                                       14
<PAGE>


ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

               As of March 11, 1999,  there were 1,000  shares of the  Company's
common  stock,  no par value,  outstanding,  all of which  were held by UFS.  No
director or  executive  officer  owns any shares of the Company and there are no
other beneficial owners.

Changes in Control.

               The Company knows of no arrangement,  including the pledge by any
person of  securities of the Company,  which may at a subsequent  date result in
change of control of the Company.

ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

               Administrative  Services  Agreement.  The  Company  and UFS,  the
Company's parent corporation,  entered into an Administrative Services Agreement
(the "Agreement") dated as of August 1, 1996, as amended November 1, 1998. Under
the  Agreement,  UFS  agreed:  (i) to  assist  the  Company  in  developing  and
implementing financing transactions to enable the Company to purchase loans made
to borrowers under the Federal Family Education Loan Program (the "Loans"); (ii)
to monitor,  and to the extent required,  direct the Servicer in connection with
its  servicing of the Loans;  (iii) to respond to inquiries and requests made by
borrowers, educational institutions,  Guarantee Agencies, the Trustee, and other
parties  with  respect to the Loans and  respond to  requests  by the  Company's
independent auditors for information concerning the Company's financial affairs;
(iv) to  maintain  financial  records  concerning  the Loans and,  if  furnished
adequate information with respect to financial affairs not related to the Loans,
prepare and maintain a general ledger and financial  statements for the Company;
(v) to furnish or cause to be furnished to the Company or the Trustee  copies of
reports received with respect to the Loans, and prepare such additional  reports
with respect to the Loans as the Company or the Trustee may  reasonably  request
from time to time;  (vi) to prepare for and furnish to the Company  estimates of
Maintenance  and  Operating  Expenses  (as  defined in the  Indenture)  and such
statistical  reports  and cash flow  projections  as may be  required  under the
Indenture or requested by the Company;  and (vii) to provide such other services
with  respect to  administration  of its program as the  Company may  reasonably
request.  The Agreement expires upon the stated maturity of the Notes.  Pursuant
to the Agreement, the Company paid UFS the sum of $0 during 1998 as compensation
for services  provided by UFS in connection with issuance of Notes.  The Company
also  pays to UFS on the  first day of each  calendar  month an amount  equal to
0.015% of the  average  outstanding  balance of the Loans  during the  preceding
month.  The  obligation  of the  Company  to pay fees under the  Agreement  is a
limited obligation to be satisfied solely from distributions made by the Trustee
to the  Company  under the  terms of the  Indenture.  Although  the  Company  is
obligated to pay to UFS the full amount of all accrued  fees,  such payments are
made exclusively from amounts deposited in the Operating Fund for payment of the
Company's  Maintenance and Operating Expenses (as defined in the Indenture).  If
the Company does not have funds on hand to cover the full amount of the fees due
under the Agreement,  then payment of the unpaid balance is deferred until there
are sufficient funds available from such sources to satisfy part, or all, of the
outstanding  debt.  The fee payable to UFS under the Agreement may be revised on
January  1,  1999,  and on each  January  1  thereafter  during  the term of the
Agreement. To alter the fee, UFS must provide written notice of the proposed new
fee to the Company  ninety (90) days prior to the next January 1. If UFS and the
Company  cannot reach an agreement  within sixty (60) days of the receipt of the
notice,  either party may terminate the Agreement upon thirty (30) day's written
notice to the other party. The Administrative  Services Agreement has been filed
as an Exhibit to this Form 10-K.

               Servicing  Agreement.  The Company and Union Bank  entered into a
Second  Amended and Restated  Servicing  Agreement (the  "Servicing  Agreement")
dated as of  December  18,  1998.  Under the  Servicing  Agreement,  Union  Bank
services the Eligible  Loans.  Certain of the  shareholders  of UFS also hold an
interest in the bank  holding  company that owns and  controls  Union Bank,  and
certain of the  officers  and  directors  of the Company are also  officers  and
directors of Union Bank.  Union Bank entered into  subservicing  agreements with
UNIPAC and InTuitition (the "Subservicing Agreements") dated as of March 1, 1996
and December 18, 1998 respectively.  Under the Subservicing  Agreements,  UNIPAC
and InTuition,  as Subservicers,  assume  substantially all of the duties of the
Servicer under the Servicing Agreement for the term of the Servicing  Agreement.
Union Bank owns 80.5% of UNIPAC and its parent corporation also has the right to
vote 50% of the voting stock of the parent corporation of InTuition. The Company
believes  that the terms and  conditions  of the  Servicing  Agreement  (and the
subservicing  arrangements)  are  comparable to those offered by or available to
unrelated parties. The servicing fee to Union Bank is calculated using an annual
asset-based  charge that ranges  from 0.60 to 1.25  percent of the student  loan
principal  balance,  depending  on the type of  loan,  calculated  monthly.  The
Servicing Agreement has been filed as an Exhibit to this Form 10-K.


                                       15
<PAGE>


               Student Loan  Purchase  Agreements.  The Company has entered into
Student Loan Purchase  Agreements  with Union Bank,  InTuition  Holdings,  Inc.,
NHELP-I,  Inc.,  and NEBHELP,  INC.  pursuant to which the Company has purchased
Eligible Loans.  Although Union Bank, InTuition Holdings,  Inc., NHELP-I,  Inc.,
and  NEBHELP,  INC.  are related to the Company as  described  in the  paragraph
above,  the Company  believes that the terms and  conditions of the Student Loan
Purchase Agreements are comparable to those offered by or available to unrelated
parties.

                                     PART IV

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

Financial Statements

               The financial statements and financial statement  information and
schedules  required by this Item are included in this report  commencing on page
F-1. The Report of Independent  Public  Accountants  appears on page F-1 of this
report. A schedule of Valuation and Qualifying  Accounts appears on page F-14 of
this  report.   All  other   schedules  have  been  omitted   because  they  are
inapplicable,  not required,  or the  information  is included  elsewhere in the
financial statements or notes thereto.

Exhibits

               All exhibits listed hereunder,  unless otherwise indicated,  have
previously  been  filed as  exhibits  to the  Company's  Registration  Statement
declared  effective  in October  1997.  Such  exhibits  have been filed with the
Commission  pursuant  to  the  requirements  of  the  Acts  administered  by the
Commission. Such exhibits are incorporated herein by reference under Rule 12b-23
of the Securities Exchange Act of 1934.

        The  following  is a  complete  list of  exhibits  filed  as part of the
Company's  Registration Statement and this Form 10-K. Exhibit numbers correspond
to the numbers in the Exhibit Table of Item 601 of Regulation S-K.


Exhibit No.                    Description                              Location
---------------- --------------------------------------------------- -----------

   3.1  Articles of Incorporation of the Company                             *

   3.2  Bylaws of the Company                                                *

   4.1  Form of Second Amended and Restated Indenture                        **

   4.2  Form of Supplemental Indenture                                       **

 4.2.1  1998 Supplemental Indenture by and between the Company and Zions    ***
        First National Bank

  10.1  Administrative Services Agreement, dated as of August 1, 1996,       **
        by and between Union Financial Services, Inc. and the Company

10.1.1  Amendment to Administrative Services Agreement, dated as of          **
        November 1, 1996, by and between Union Financial Services, Inc.
        and the Company

  10.2  Amended and Restated Servicing Agreement,  dated as of June 19,      ** 
        1996,  by and between  Union Bank and Trust  Company and the
        Company

10.2.1  Second Amended and Restated  Servicing  Agreement,  dated as of     ***
        December  18,  1998 by and  between  Union Bank and Trust
        Company and the Company

  24.1  Consent of KPMG Peat Marwick LLP, Independent Auditors              ****

  27.1  Financial Data Schedule                                             ****

  99.1  Loan Sale and Commitment Agreement,  dated as of March 1, 1996,      ** 
        by and between Union Bank and Trust Company and the Company

  99.2  Loan Sale and Commitment Agreement,  dated as of June 19, 1996,      ** 
        by and between Union Bank and Trust Company and the Company
  
                                     16
<PAGE>

  99.3  Loan Sale and Commitment Agreement,  dated as of November 1,         **
        1996,  by and  between  Union  Bank and Trust  Company  and the
        Company

 
--------------------
*       Incorporated by reference  herein to the Company's Annual Report on Form
        10-K for the fiscal year ended December 31, 1996.

**      Incorporated  by  reference  herein  to  the  Company's   Registration
        Statement  on  Form S-3  (File  No. 333-28551).

***     Incorporated by reference herein to the Company's current report on Form
        8-K, filed January 6, 1998

****    Filed herewith.

Reports on Form 8-K

               The Company  filed reports on Form 8-K during the last quarter of
the period covered by this report:

          o           Current report on Form 8-K, filed January 6, 1998,  copies
                      of an  Underwriting  Agreements  between  Union  Financial
                      Services-1, Inc. and Salomon Smith Barney, LLC dated as of
                      December  16, 1998 and the 1998  Supplement  Indenture  of
                      Trust by and between Union Financial Services-1,  Inc. and
                      Zions First National Bank.

          o           Current  reports on Form 8-K,  filed  December  16,  1998,
                      filing a copy of  Computational  Materials  in  connection
                      with the issuance by Union Financial  Services-1,  Inc. of
                      its Taxable Student Loan Asset-backed Notes Series 1998.

          o           Current report on Form 8-K filed December 14, 1998, filing
                      a copy of Computational  Materials, in connection with the
                      issuance  by  Union  Financial  Services-1,  Inc.  of  its
                      Taxable Student Loan Asset-backed Notes Series 1998.

                                       17
<PAGE>


                          INDEX TO FINANCIAL STATEMENTS


Financial Statements of Union Financial Services-1, Inc.

Report of Independent Auditors.............................................. F-1

Balance Sheets as of December 31, 1998 and 1997 ............................ F-2

Statements of Operations for the years ended December 31, 1998 and 1997
   and the period from inception (February 28, 1996) to December 31, 1996... F-3

Statement of Stockholders' Equity/Deficit for the years ended 
   December 31, 1998 and 1997 and the period from inception
   (February 28, 1996) to December 31, 1996................................. F-4

Statement of Cash Flows for the years ended  December 31, 1998 and 1997
   and the period from inception (February 28, 1996) to December 31, 1996... F-5

Notes to Financial Statements............................................... F-6

Valuation and Qualifying Accounts and Independent Auditors Report.......... F-14





                                       18
<PAGE>



                       UNION FINANCIAL SERVICES - 1, INC.

                              Financial Statements

                           December 31, 1998 and 1997

                   (With Independent Auditors' Report Thereon)


<PAGE>

                          Independent Auditors' Report



The Board of Directors
Union Financial Services - 1, Inc.:


We have audited the accompanying balance sheets of Union Financial Services - 1,
Inc. as of December 31, 1998 and 1997 and the related  statements of operations,
stockholders'  equity and cash flows for the years ended  December  31, 1998 and
1997 and the period from  inception  (February  26,  1996) to December 31, 1996.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial position of Union Financial Services - 1,
Inc. at December  31,  1998 and 1997 and the results of its  operations  and its
cash flows for the years  ended  December  31, 1998 and 1997 and the period from
inception (February 26, 1996) to December 31, 1996, in conformity with generally
accepted accounting principles.



February 19, 1999
Lincoln, Nebraska


                                      F-1
<PAGE>

<TABLE>
<CAPTION>
                       UNION FINANCIAL SERVICES - 1, INC.

                                 Balance Sheets

                           December 31, 1998 and 1997


                             Assets                                      1998            1997
                                                                    ----------------  ------------
<S>                                                               <C>                  <C>       
Cash and cash equivalents                                         $     664,815,085    39,542,382
Student loans receivable, net of allowance of $416,801 in 1998          639,740,073   525,005,954
Accrued interest receivable                                              11,110,808     7,735,292
Debt issuance cost, net of accumulated amortization of $1,273,986
   in 1998 and $715,252 in 1997                                           6,698,845     2,997,516
Deferred tax asset                                                          153,132            --
Other assets                                                                 46,374        11,000
                                                                    ----------------  ------------

           Total assets                                           $   1,322,564,317   575,292,144
                                                                    ================  ============

              Liabilities and Stockholders' Equity

Liabilities:
   Notes payable                                                  $   1,316,500,000   571,500,000
   Accrued interest payable                                               3,725,622     1,607,350
   Income taxes payable to parent                                           146,270       436,748
   Other liabilities                                                      1,139,945       989,819
                                                                    ----------------  ------------

           Total liabilities                                          1,321,511,837   574,533,917
                                                                    ----------------  ------------

Stockholders' equity:
   Common stock, no par value.  Authorized 1,000 shares;
     issued 1,000 shares                                                      1,000         1,000
   Retained earnings                                                      1,051,480       757,227
                                                                    ----------------  ------------

           Total stockholders' equity                                     1,052,480       758,227

Commitments and contingencies
                                                                    ----------------  ------------

           Total liabilities and stockholders' equity             $   1,322,564,317   575,292,144
                                                                    ================  ============


See accompanying notes to financial statements.
</TABLE>
 
                                      F-2
<PAGE>

                       UNION FINANCIAL SERVICES - 1, INC.

                            Statements of Operations

             Years ended December 31, 1998 and 1997 and period from
               inception (February 28, 1996) to December 31, 1996



                                             1998         1997        1996
                                          -----------  ----------- ------------

Revenues:
   Loan interest                        $ 44,800,871   42,757,006   15,636,042
   Investment interest                     1,962,767    2,268,878    1,373,140
   Other                                      86,366      195,084       17,449
                                          -----------  ----------- ------------

           Total revenues                 46,850,004   45,220,968   17,026,631
                                          -----------  ----------- ------------

Expenses:
   Interest on notes                      34,076,786   32,782,396   11,987,255
   Loan servicing                          5,475,146    4,917,318    2,255,564
   Financing fees to parent                       --      423,112    1,919,207
   Trustee and broker fees                   950,018      915,380      550,899
   Amortization of debt issuance costs       558,734      494,106      250,992
   Amortization of loan premiums           2,008,889    1,441,526      438,584
   Other general and administrative        3,317,040    2,240,328      437,956
                                          -----------  ----------- ------------

           Total expenses                 46,386,613   43,214,166   17,840,457
                                          -----------  ----------- ------------

           Income (loss) before 
              income taxes                   463,391    2,006,802     (813,826)

Income tax expense (benefit)                 169,138      710,717     (274,968)
                                          -----------  ----------- ------------

           Net income (loss)            $    294,253    1,296,085     (538,858)
                                          ===========  =========== ============


See accompanying notes to financial statements.

                                       F-3
<PAGE>

                       UNION FINANCIAL SERVICES - 1, INC.

                  Statements of Stockholders' Equity (Deficit)

             Years ended December 31, 1998 and 1997 and period from
               inception (February 28, 1996) to December 31, 1996

                                                                       Total
                                                       Retained    stockholders'
                                             Common    earnings        equity
                                            stock      (deficit)      (deficit)
                                           ---------   ----------   ------------

Balance at inception (February 28, 1996) $       --           --             --

Issuance of common stock                      1,000           --          1,000

Net loss                                         --     (538,858)      (538,858)
                                           ---------   ----------    -----------

Balance at December 31, 1996             $    1,000     (538,858)      (537,858)

Net income                                       --    1,296,085      1,296,085
                                           ---------   ----------    -----------

Balance at December 31, 1997                  1,000      757,227        758,227

Net income                                       --      294,253        294,253
                                           ---------   ----------    -----------

Balance at December 31, 1998             $    1,000    1,051,480      1,052,480
                                           =========   ==========    ===========


See accompanying notes to financial statements.

                                       F-4
<PAGE>
<TABLE>
<CAPTION>

                       UNION FINANCIAL SERVICES - 1, INC.

                            Statements of Cash Flows

             Years ended December 31, 1998 and 1997 and period from
               inception (February 28, 1996) to December 31, 1996



                                                             1998          1997          1996
                                                         ------------- ------------- -------------
<S>                                                      <C>               <C>            <C>      
Net income (loss)                                      $      294,253     1,296,085      (538,858)
Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities:
     Amortization                                           2,567,623     1,935,632       689,576
     Deferred tax expense (benefit)                          (153,132)      274,968      (274,968)
     Provision for loan losses                                600,000            --            --
     (Increase) decrease in accrued interest receivable    (3,375,516)      515,533    (8,250,825)
     (Increase) decrease in other assets                      (35,374)        2,888       (13,888)
     Increase in accrued interest payable                   2,118,272       114,209     1,493,141
     (Decrease) increase in other liabilities                 150,126      (226,884)    1,216,703
     Increase (decrease) in income taxes payable to parent   (290,478)      436,748            --
                                                         ------------- ------------- -------------

       Net cash provided by (used in) operating activities  1,875,774     4,349,179    (5,679,119)
                                                         ------------- ------------- -------------

Cash flows used in investing activities:
   Purchase of student loans, including premiums         (178,538,396) (101,061,642) (515,058,073)
   Proceeds from sale of student loans                      2,056,884     6,139,464             --
   Net proceeds from student loan principal payments
     and loan consolidations                               59,138,505    59,491,767    23,572,574
                                                         ------------- ------------- -------------

          Net cash used in investing activities          (117,343,007)  (35,430,411) (491,485,499)
                                                         ------------- ------------- -------------

Cash flows provided by financing activities:
   Proceeds from issuance of common stock                           --             --         1,000
   Proceeds from issuance of notes payable                745,000,000    30,800,000   566,000,000
   Payment for debt issuance costs                         (4,260,064)     (278,971)   (3,433,797)
   Payment to defease notes payable                                 --   (25,300,000)            --
                                                         ------------- ------------- -------------

          Net cash provided by financing activities       740,739,936     5,221,029   562,567,203
                                                         ------------- ------------- -------------

          Net increase (decrease) in cash and
             cash equivalents                             625,272,703   (25,860,203)   65,402,585

Cash and cash equivalents, beginning of year               39,542,382    65,402,585            --
                                                         ------------- ------------- -------------

Cash and cash equivalents, end of year                 $  664,815,085    39,542,382    65,402,585
                                                         ============= ============= =============

Supplemental disclosures:
   Interest paid                                       $   30,351,165    32,668,187    10,494,114
                                                         ============= ============= =============

   Income taxes paid to parent                         $      611,748            --            --
                                                         ============= ============= =============


See accompanying notes to financial statements.
</TABLE>

                                       F-5
<PAGE>


                       UNION FINANCIAL SERVICES - 1, INC.

                          Notes to Financial Statements

                        December 31, 1998, 1997 and 1996


 (1)   Summary of Significant Accounting Policies and Practices

       Description of Business

       Union  Financial  Services  -  1,  Inc.  (the  Company),  a  wholly-owned
       subsidiary  of Union  Financial  Services,  Inc.,  was  organized  as a C
       Corporation on February 28, 1996  (inception  date) to invest in eligible
       student  loans issued under Title IV of the Higher  Education Act of 1965
       as amended (the Act).  Student  loans  beneficially  owned by the Company
       include  those  originated  under the Stafford  Loan Program  (SLP),  the
       Parent Loan  Program  for  Undergraduate  Students  (PLUS)  program,  the
       Supplemental Loans for Students (SLS) program and loans which consolidate
       certain borrower obligations (Consolidation).  Title to the loans is held
       by an  eligible  lender  trustee  under  the Act for the  benefit  of the
       Company. The financed eligible loan borrowers are geographically  located
       throughout  the  United  States and the  majority  are in school or their
       first year of repayment.

       The notes payable  outstanding  are payable  primarily  from interest and
       principal payments on the student loans receivable.

       Union  Financial  Services,  Inc.,  the  parent,  is  a  holding  company
       organized  for the  purpose  of  establishing  and  owning  the  stock of
       corporations like the Company engaged in the  securitization of financial
       assets. The parent also provides managerial and administrative support to
       the Company.

       Student Loans Receivable

       Investments in student loans,  including premiums,  are recorded at cost,
       net of premium  amortization.  Premiums are amortized  over the estimated
       principal life of the related loans.

       Interest on Student Loans

       Interest  on student  loans is accrued  when earned and is either paid by
       the  Department  of Education or the borrower  depending on the status of
       the loan at the time of accrual. In addition, the Department of Education
       makes quarterly  interest subsidy payments on certain  qualified Title IV
       loans until the student is required  under the  provisions  of the Act to
       begin  repayment.  Repayment on guaranteed  student loans normally begins
       within six months  after  completion  of their  course of study,  leaving
       school  or  ceasing  to carry  at least  one-half  the  normal  full-time
       academic load as determined by the educational institution.  Repayment of
       PLUS  loans  normally  begins  within  sixty  days  from the date of loan
       disbursement  and  repayment of SLS loans  begins  within one month after
       completion of course study,  leaving  school or ceasing to carry at least
       the normal  full-time  academic  load as  determined  by the  educational
       institution.

       Cash Equivalents

       Cash equivalents  consist of marketable  short-term  investment trust and
       lockbox  receivables  in transit.  For purposes of the statements of cash
       flows, the Company considers all investments with original  maturities of
       three months or less to be cash equivalents.


                                                                     (Continued)
                                       F-6

<PAGE>


                       UNION FINANCIAL SERVICES - 1, INC.

                          Notes to Financial Statements

                        December 31, 1998, 1997 and 1996


       Income Taxes

       Income  taxes are  accounted  for under the asset and  liability  method.
       Deferred tax assets and  liabilities  are  recognized  for the future tax
       consequences  attributable to differences between the financial statement
       carrying  amounts of existing assets and liabilities and their respective
       tax bases. Deferred tax assets and liabilities are measured using enacted
       tax rates expected to apply to taxable income in the years in which those
       temporary differences are expected to be recovered or settled. The effect
       on  deferred  tax  assets  and  liabilities  of a change  in tax rates is
       recognized in income in the period that includes the enactment date.

       The Company and its parent will file a  consolidated  federal tax return.
       The financial  statements reflect income taxes computed as if the Company
       filed a separate tax return.  Current income tax payments are made by the
       Company  to its  parent as if the  Company  were a  separate  tax  paying
       entity.

       Use of Estimates

       The preparation of the financial  statements in conformity with generally
       accepted  accounting  principles  requires management to make a number of
       estimates and assumptions  that effect the reported amounts of assets and
       liabilities,  reported  amounts  of  revenues  and  expenses,  and  other
       disclosures. Actual results could differ from those estimates.

       Comprehensive Income

       During  1998,  the  Company  adopted  the  provisions  of  the  Financial
       Accounting  Standards  Board Statement No. 130,  Reporting  Comprehensive
       Income.  This  Statement  requires that an enterprise  classify  items of
       other comprehensive  income by their nature in the financial  statements.
       The Company has no sources of other comprehensive income.  Therefore, the
       Company's comprehensive income consists solely of its net income.

 (2)   Cash and Cash Equivalents

       The Company's cash and cash equivalents at December 31, 1998 and 1997 are
       held by the  trustee in  various  accounts  subject to use  restrictions,
       imposed by the indenture of trust, as shown on the following page.

                                                                     (Continued)
                                       F-7

<PAGE>


                       UNION FINANCIAL SERVICES - 1, INC.

                          Notes to Financial Statements

                        December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>

                                                                          1998           1997
                                                                      -------------  -------------
<S>                                                                       <C>           <C>      
   Loan Account 98A Fund - Established for the purpose of
      purchasing eligible student loans with proceeds of the
      borrowing                                                     $ 619,999,565             --
   Recycling Account Fund - Established to maintain excess
      funds for future operating needs, if necessary, and
      purchases of eligible student loans                              14,164,858      27,723,00
   Reserve Fund - Established to cure any deficiencies in the
      debt service requirements                                        26,330,011      7,706,756
   Cost of Issuance Fund - Established to pay administrative
      and issuance costs incurred with the issuance of Company debt       975,926             --
   Revenue Fund - Established for the receipt of interest
      payments on eligible student loans and investment securities
      and to pay fees and expenses incurred under the indenture         1,305,941        150,768
   Interest Fund - Established for the payment of debt
      service interest requirements                                            --             --
   Restricted Cash 97A Escrow - Excess funds required for
          potential interest payments on defeased debt (see note 4)     1,154,529      3,320,995
   Operating cash and cash equivalents                                    884,255        640,858
                                                                     ------------   ------------

                  Total cash and cash equivalents                   $ 664,815,085     39,542,382
                                                                     ============   ============
</TABLE>

 (3)   Student Loans Receivable and Concentration of Credit Risk

       Student  loans are  recorded  at cost,  including  unamortized  premiums.
       Guaranteed  loans may be made  under this  program by certain  lenders as
       defined by the Act. These loans,  including related accrued interest, are
       guaranteed  at  their  maximum  level  permitted  under  the  Act  by  an
       authorized  guarantee agency which has a contract of reinsurance with the
       Department  of  Education.  The  terms  of the  loans,  which  vary on an
       individual basis, generally provide for repayment in monthly installments
       of principal and interest  over a period of up to twenty years.  Interest
       rates on  loans  may be fixed or  variable,  and will  vary  based on the
       average of the 91-day U. S. Treasury bill rate, and currently  range from
       7% to 10%  dependent  upon  type,  terms of loan  agreements  and date of
       origination.  For Title IV loans,  the Company  has entered  into a trust
       agreement in which an unrelated  financial  institution will serve as the
       eligible  lender trustee.  As an eligible  lender trustee,  the financial
       institution  acts as the eligible  lender in acquiring  certain  eligible
       student loans as an  accommodation  to the Company who holds a beneficial
       interest in the student loan assets as the beneficiary of such trust.


                                                                     (Continued)
                                      F-8
<PAGE>


                       UNION FINANCIAL SERVICES - 1, INC.

                          Notes to Financial Statements

                        December 31, 1998, 1997 and 1996


       Substantially all student loan principal and related accrued interest are
       guaranteed as defined by the Act.  These  guarantees  are made subject to
       the  performance  of certain  loan  servicing  procedures  stipulated  by
       applicable  regulations.  If these procedures are not met, affected loans
       may not be covered by the  guarantees  should the borrower  default.  The
       Company retains and enforces  recourse  provisions  against servicers and
       lenders under certain  circumstances.  Should loans lose their guaranteed
       status and recourse  provisions  prove  unenforceable,  the  unguaranteed
       portion has been reserved in a trustee account (Reserve Fund). Such loans
       are subject to "cure" procedures and reinstatement of the guarantee under
       certain  circumstances.  Also, in accordance with Student Loan Reform Act
       of 1993,  loans  disbursed prior to October 1, 1993 are fully insured and
       loans disbursed  subsequent to October 1, 1993  (approximately 80% of the
       student loans at December 31, 1998) are insured up to 98%.

       The Company has provided for an allowance  for loan loss related to those
       loans only guaranteed up to 98% for principal and interest. The provision
       is based upon historical default rates for such loans.

 (4)   Notes Payable

       The Company  periodically  issues taxable student loan asset-backed notes
       to finance the  acquisition  of student  loans.  All notes are  primarily
       secured by the student loans receivable,  related accrued  interest,  and
       other  property  and funds held in trust.  The  majority of the notes are
       variable rate notes with  interest  rates reset  periodically  based upon
       auction rates and national indices.

       The following tables summarize  outstanding notes payable at December 31,
       1998 and 1997 by issue:
<TABLE>
<CAPTION>

                                                         Final         Carrying        Interest
                       1998                            maturity         amount          range
  -----------------------------------------------      ----------   --------------- ---------------
<S>                                                      <C>         <C>               <C>   
  1996A Senior Auction Rate Notes, Class A-1 and A-2    7-01-14   $   96,600,000    4.95% - 5.70%
  1996B Senior Auction Rate Notes, Class A-3 and A-4    7-01-14      128,000,000    5.38% - 5.80%
  1996C Senior Treasury Rate Notes, Class A-5           7-01-05      225,000,000    4.50% - 5.99%
  1996C Senior Auction Rate Notes, Class A-6            7-01-14       75,500,000    5.10% - 6.40%
  1996C Subordinate LIBOR Rate Notes, Class B-3         7-01-25       15,600,000    5.42% - 6.20%
  1997A Subordinate LIBOR Rate Notes, Class B-4         7-01-30       30,800,000    5.39% - 6.12%
  1998A Senior Fixed Rate Notes, Class A-7              8-01-05      125,000,000        5.48%
  1998A Senior Fixed  Rate Notes Class A-8              9-01-05      125,000,000        5.50%
  1998A Senior Fixed Rate Notes Class A-9              12-01-05      125,000,000        5.73%
  1998A Senior Auction Rate Notes Class A-10           10-01-32      100,000,000        5.80%
  1998A Senior Auction Rate Notes Class A-11           11-01-32      100,000,000        5.75%
  1998A Senior Auction Rate Notes Class A-10           12-01-32      100,000,000        5.75%
  1998B Subordinate Auction Rate Notes, Class B-5      12-01-32       70,000,000        6.15%
                                                                 ---------------

                                                                 $ 1,316,500,000
                                                                 ===============
</TABLE>


                                                                     (Continued)
                                       F-9
<PAGE>


                       UNION FINANCIAL SERVICES - 1, INC.

                          Notes to Financial Statements

                        December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>


                                                          Final         Carrying        Interest
                        1997                            maturity         amount          range
   -----------------------------------------------      ----------   --------------- ---------------
<S>                                                      <C>           <C>                <C>  
   1996A Senior Auction Rate Notes, Class A-1 and A-2    7/01/14   $   96,600,000    5.19% - 6.20%
   1996B Senior Auction Rate Notes, Class A-3 and A-4    7/01/14      128,000,000    5.34% - 5.91%
   1996C Senior Treasury Rate Notes, Class A-5           7/01/05      225,000,000    5.45% - 5.73%
   1996C Senior Auction Rate Notes, Class A-6            7/01/14       75,500,000    5.32% - 6.05%
   1996C Subordinate LIBOR Rate Notes, Class B-3         7/01/25       15,600,000    5.86% - 5.92%
   1997A Subordinate LIBOR Rate Notes, Class B-4         7/01/30       30,800,000    5.95% - 6.14%
                                                                     ------------

                                                                   $  571,500,000
                                                                     ============
</TABLE>

       Generally,  the notes can be redeemed on any interest payment date at par
       plus accrued interest.  Subject to note provisions, all notes are subject
       to redemption  prior to maturity at the option of the Company,  without a
       prepayment penalty.

       The  indenture of trust  contains,  among other  requirements,  covenants
       related to the  restriction  of funds to be maintained in a reserve fund.
       Management  believes the Company is in  compliance  with all covenants of
       the note agreements at December 31, 1998.

       In December 1998, the Company issued $745,000,000 of Taxable Student Loan
       Asset-Backed  Notes,  Series 1998A, due in maturities from August 1, 2005
       to December 1, 2032, at varying  rates.  The proceeds were deposited into
       the Loan Account Fund 98A for the purchase of eligible student loans.

       In March 1997, the Company  issued $30.8 million of Taxable  Student Loan
       Asset-Backed  Notes,  Series 1997A,  due July 1, 2030.  The proceeds were
       deposited  in an escrow fund to provide for the  defeasance  of the $11.1
       million of the Series 1996A Class B  Subordinate  Notes and $14.2 million
       of the Series 1996B Class B-2  Subordinate  Notes,  respectively,  in May
       1999.  As  a  result  of  the  transaction,  the  Company  recognized  an
       accounting loss of approximately $145,000 on the defeasance in 1997.

 (5)   Income Taxes

       Components  of income tax expense  (benefit)  in 1998,  1997 and 1996 are
       shown on the following page.

                                                                     (Continued)
                                       F-10

<PAGE>


                       UNION FINANCIAL SERVICES - 1, INC.

                          Notes to Financial Statements

                        December 31, 1998, 1997 and 1996


                                          1998        1997          1996
                                       -----------  ----------   ------------

      Current:
          Federal                   $   300,265      395,099             --
          State                          22,005       40,650             --
                                       -----------  ----------   ------------

                                        322,270      435,749             --
                                       -----------  ----------   ------------

      Deferred:
          Federal                      (142,712)     256,693       (256,693)
          State                         (10,420)      18,275        (18,275)
                                       -----------  ----------   ------------

                                       (153,132)     274,968       (274,968)
                                       -----------  ==========   ============

                                    $   169,138      710,717       (274,968)
                                       ===========  ==========   ============

       The actual  income tax  expense  (benefit)  differs  from the  "expected"
       income tax expense,  computed by applying the federal statutory corporate
       tax rates to income (loss) before income taxes for 1998, 1997 and 1996 as
       shown below:
<TABLE>
<CAPTION>

                                                               1998         1997        1996
                                                            ----------   ----------   ---------

<S>                                                       <C>             <C>           <C>      
       Computed "expected" income tax expense (benefit)   $  157,553      682,313     (276,701)
       Increase (decrease) in income taxes resulting
       from:
          State taxes, net of federal income tax benefit       7,646       26,829      (12,062)
          Other                                                3,939        1,575       13,795
                                                            ----------   ----------  ----------

                                                          $  169,138      710,717     (274,968)
                                                            ==========   ==========   =========
</TABLE>

       The Company's  deferred tax assets at December 31, 1998 resulted from the
       future tax benefit of the loan loss allowance,  not currently  deductible
       for tax  purposes.  Management  believes  that it is more likely than not
       that the Company  will  generate  sufficient  future  taxable  income and
       capital  gains to fully  recover  deferred  tax  assets  recognized  and,
       therefore, no valuation allowance is required. There were no deferred tax
       assets or liabilities at December 31, 1997.

 (6)   Fair Value of Financial Instruments

       Fair value estimates, methods and assumptions are set forth below:

o         Accrued Interest Receivable/Payable, Other Assets and Accounts Payable
          - The carrying value of certain asset and liability accounts including
          accrued interest  receivable,  other assets,  accrued interest payable
          and  other  liabilities  approximate  fair  value  due to their  short
          maturities.

o         Student  Loans - The fair  value of  student  loans are  estimated  at
          amounts  recently  paid by the  Company  to  acquire  the loans in the
          market.  The fair value of the  student  loans  approximates  carrying
          value.
                                                                     (Continued)
                                       F-11
<PAGE>


                       UNION FINANCIAL SERVICES - 1, INC.

                          Notes to Financial Statements

                        December 31, 1998, 1997 and 1996


o         Notes  Payable  -  The  fair  value  of the notes payable approximates
          carrying value due to the nature of  the  financing arrangement.   The
          terms of the arrangement specify that the outstanding debt is callable
          at par at specified interest payment dates.

 (7)   Guarantee Agencies

       As of December 31, 1998 and 1997,  Iowa College  Student Aid  Commission,
       Nebraska  Student  Loan  Program,  Inc.  and  Kentucky  Higher  Education
       Assistance  Authority  and the United  Student  Aid Fund were the primary
       guarantors,  guaranteeing approximately 88% and 75%, respectively, of the
       total  student  loans  beneficially  owned  by  the  Company.  Management
       periodically  reviews the financial  condition of its guarantors and does
       not   believe   the  level  of   concentration   creates  an  unusual  or
       unanticipated credit risk. In addition, management believes that based on
       the Higher Education  Amendments of 1992, the security for and payment of
       any of the  Company's  obligations  would  not  be  materially  adversely
       affected as a result of legislative action or other failure to perform on
       its  obligations  on the  part  of any  guarantee  agency.  The  Company,
       however, offers no assurances to that effect.

 (8)   Recent Student Loan Legislation

       The Company was organized  pursuant to provisions of the Act and as such,
       may be subject to  legislative  changes.  Legislative  changes  affecting
       competition,  loan asset  characteristics,  debt structure provisions and
       regulatory  compliance may from time to time affect the operations of the
       Company. The Act expired September 1998 and was reauthorized with certain
       amendments  effective October 1, 1998. These amendments  included certain
       provisions for changes in the existing  Federal Family Loan Program which
       included  changes to  interest  rates,  special  allowance  payments  and
       guarantee  fees  that  could  have a  material  effect  on the  financial
       statements.

 (9)   Purchase Commitments

       The Company has entered into a put option  agreement  with Union Bank and
       Trust  Company  (UB&T) to purchase  up to $3 million of eligible  student
       loans at 101% of the principal  amount.  These eligible loans may consist
       of loans owned by UB&T in its  individual  capacity or in its capacity as
       trustee of certain  grantor  trusts in its trust  department.  No amounts
       were purchased under this agreement in 1998 and 1997.

(10)   Related Parties

       Certain  owners  and  directors  of the  Company  are also  officers  and
       directors  of  UB&T  which  owns  80.5%  of  UNIPAC  Service  Corporation
       (UNIPAC). All loans currently held were purchased from UB&T.

       Under the terms of an agreement, the Company contracts all loan servicing
       through UB&T.  UNIPAC has been  contracted as the  sub-servicer  by UB&T.
       Fees  paid to UB&T are  calculated  using an  annual  asset-based  charge
       ranging  from  .60% to  1.25%  of the  student  loan  principal  balance,
       calculated monthly. At December 31, 1998 and 1997, $506,274 and $867,066,
       respectively,  was payable to UB&T for loan  servicing and is included in
       other liabilities.  In 1998, the Company also paid approximately $385,000
       to UB&T for services provided in connection with the purchase of eligible
       student loans.

                                       F-12
                                                                     (Continued)
<PAGE>


                       UNION FINANCIAL SERVICES - 1, INC.

                          Notes to Financial Statements

                        December 31, 1998, 1997 and 1996

       The Company incurred fees to its parent for managerial and administrative
       support for the  operations of the Company  based on a service  agreement
       that requires  .015% of the average  outstanding  loan balance to be paid
       monthly. In addition,  the parent has provided additional services to the
       Company on an  as-needed  transactional  basis.  These fees  amounted  to
       approximately $953,000, $1,330,000 and $2,135,000 in 1998, 1997 and 1996,
       respectively.  At December 31, 1998,  the amount payable to its parent is
       approximately $210,000.

(11)   Subsequent Event

       On January 4, 1999, the Company purchased  approximately  $622 million of
       eligible  loans,  including   approximately  $8.7  million  of  purchased
       interest and $14.9 million of loan premiums.  Approximately  $399 million
       of these loans were purchased from related  parties at prices  equivalent
       to those available in the market.





                                       F-13
<PAGE>
    
                                                                 Schedule I
                       UNION FINANCIAL SERVICES - 1, INC.

                        Valuation and Qualifying Accounts

             Years ended December 31, 1998 and 1997 and period from
               inception (February 28, 1996) to December 31, 1996




                                                Additions
                                   Balance at  charged to     Loans   Balance at
                                  beginning of  costs and    charged    end of
          Description                 year      expenses       off*      year
                                  ------------ ------------ --------- ---------

Year ended December 31, 1998,
   allowance deducted from asset
   accounts, allowance for
   loan losses                     $        --     600,000   (183,199)   416,801
                                    =========== ==========   ========= =========

Year ended December 31, 1997,
   allowance deducted from asset
   accounts, allowance for
   loan losses                     $        --     133,408  (133,408)         --
                                   =========== ===========  ========= ==========

Period from inception to December 31,
  1996, allowance deducted from asset
   accounts, allowance for
   loan losses                     $        --       4,441    (4,441)         --
                                   =========== ===========  ========== =========


* Loans charged off are net of recoveries.

                                      F-14
<PAGE>

 Independent Auditors' Report



The Board of Directors
Union Financial Services - 1, Inc.


Under date of February  19,  1999,  we  reported on the balance  sheets of Union
Financial  Services - 1, Inc. as of December 31, 1998 and 1997,  and the related
statements of  operations,  stockholder's  equity and cash flows for each of the
years ended December 31, 1998 and 1997 and the period from  inception  (February
28, 1996) to December 31, 1996,  as contained in the 1998 annual  report.  These
financial statements and our report thereon are incorporated by reference in the
annual  report on Form 10-K for the year ended  December 31, 1998. In connection
with our audits of the aforementioned financial statements,  we also audited the
related  accompanying  financial  statement  schedule.  This financial statement
schedule is the responsibility of the Company's  management.  Our responsibility
is to  express  an opinion on this  financial  statement  schedule  based on our
audits.

In our opinion,  such financial statement schedule,  when considered in relation
to the basic financial  statements  taken as a whole,  presents  fairly,  in all
material respects, the information set forth therein.





Lincoln, Nebraska
February 19, 1999



                                      F-15

<PAGE>


                                   SIGNATURES


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


                                   UNION FINANCIAL SERVICES-1, INC.



                                   By: /s/ Michael S. Dunlap
                                     ------------------------------------   
                                     Michael S. Dunlap, Chairman of the Board
                                    (Principal Executive Officer)



                                   By: /s/ Ronald W. Page
                                     ------------------------------------  
                                    Ronald W. Page, Vice President (Principal
                                    Financial and Accounting Officer)


                                    Date:  March 31, 1999

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


              Signature                    Title                   Date
        -----------------           ------------------           ---------

By: /s/ Michael S. Dunlap          Chairman of the Board         March 31, 1999
------------------------           (Principal Executive
       Michael S. Dunlap           Officer)

By: /s/ Stephen F. Butterfield     President and Director        March 31, 1999
-------------------------------
      Stephen F. Butterfield


By: /s/ Ronald W. Page             Vice-President, Secretary,    March 31, 1999
---------------------              Treasurer and Director
      Ronald W. Page               (Principal Financial and
                                   Accounting Officer)


By: /s/ Ross Wilcox                Director                      March 31, 1999
--------------------------
      Ross Wilcox


By:/s/ Paul Hoff                   Director                      March 31, 1999
--------------------------
      Dr. Paul Hoff