================================================================================
                                   FORM 10-K

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



(Mark One)

(X)  Annual Report  Pursuant to Section 13 or 15(d) of the  Securities  Exchange
     Act of 1934

For the fiscal year ended June 30, 1998
or

( )  Transition  Report  Pursuant  to  Section  13 or  15(d)  of the  Securities
     Exchange Act of 1934

For the Transition Period from _____ to _____

Commission File Number:   0-26412


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


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


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

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

Securities Registered Pursuant to Section 12(b) of the Act:  NONE

Securities  Registered  Pursuant  to  Section  12(g) of the Act:  Class A Common
Stock, without par value

Indicate by check mark whether  registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required to file such reports),  and (2) has been subject to filing requirements
for the past 90 days.        Yes (X)           No ( )

Indicate by check mark if disclosure of delinquent  filers pursuant to Item 405,
Regulation S-K (Section  229.405 of this chapter) is not contained  herein,  and
will not be contained,  to the best of the 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  4,047,351  shares of the  issuer's  Class A
Common Stock held by non-affiliates,  as of September 23, 1998, was $21,754,512.
There is no trading market for the issuer's Class B Common Stock.

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

The  number of shares of Class A Common  Stock of the  Registrant,  without  par
value, outstanding as of September 23, 1998, was 4,376,446 shares. The number of
shares of Class B Common Stock of the Registrant,  without par value, as of such
date was 8,855,036.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 1998 Annual Meeting of Shareholders  are
incorporated into Part III.





                 UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES

                                   FORM 10-K

                                     INDEX



PART I                                                                     Page



Item 1.  Business...................................................        3

Item 2.  Properties.................................................       19

Item 3.  Legal Proceedings..........................................       19

Item 4.  Submission of Matters to a Vote of Security Holders........       19


PART II

Item 5.   Market for Registrant's Common Equity and
          Related Stockholder Matters................................       20

Item 6.   Selected Consolidated Financial Data.......................       21

Item 7.   Management's Discussion and Analysis of
          Financial Condition and Results of Operations..............       22

Item 7a.  Quantitative and Qualitative Disclosures...................       38

Item 8.   Financial Statements and Supplementary Data................       39

Item 9.   Changes in and Disagreements with Accountants
          on Accounting and Financial Disclosure.....................       61


PART III


Item 10.  Directors and Executive Officers of the Registrant.........       61

Item 11.  Executive Compensation.....................................       61

Item 12.  Security Ownership of Certain Beneficial
          Owners and Management......................................       61

Item 13.  Certain Relationships and
          Related Transactions.......................................       61

PART IV

Item 14.  Exhibits, Financial Statement Schedules, and
          Reports on Form 8-K........................................       61



SIGNATURES...........................................................       62

<PAGE>

                                     PART I
Item 1.           Business

     Note:  Certain  capitalized  terms used but not  otherwise  defined in this
report are defined in the  "Glossary"  set forth at the  conclusion  of "Item I,
Business."  Unless  otherwise  indicated,  references to the  "Company"  through
fiscal 1995 and before the Spin-off  refer to the conduct of the business by the
Union Division and Union  Acceptance  Corporation  ("UAC") and Subsidiaries as a
combined  business.  References to the "Company"  following  consummation of the
Spin-off by Union Federal  Savings Bank of  Indianapolis of the Company refer to
UAC and Subsidiaries.

Overview

     The Company is a  specialized  finance  company  engaged in  acquiring  and
servicing   automobile  retail   installment   sales  contracts   originated  by
dealerships  affiliated  with major  domestic  and  foreign  manufacturers.  The
Company  focuses  its  efforts on  acquiring  loans on late model used and, to a
lesser extent, new automobiles made to purchasers who exhibit a favorable credit
profile, ("Tier I"). The Company currently acquires loans in 32 states from over
3,600  manufacturer-franchised  auto  dealerships  nationwide.  The Company also
acquires loans from borrowers with adequate credit quality who would not qualify
for a loan under the  Company's  Tier I quality  criteria  ("Tier II").  In June
1996, the Company began  acquiring  loans under the Marine  Lending  program and
terminated  the  program in March  1998.  Tier II and marine  loan  acquisitions
accounted for 2.7% of total loan acquisitions during fiscal 1998.

     During the third quarter of fiscal 1998, the Tier I and Tier II origination
departments were combined  effectively  reducing the  administrative  complexity
involved with separate operating structures.  The Company will continue to track
performance  and acquisition  volume  separately,  as well as maintain  separate
underwriting criteria.

     In July  1998,  the  Company  opened  a new car  franchised  dealership  in
Indianapolis and began retailing a portion of its repossessed autos. The new car
franchised dealership,  Circle City Car Company, will be used as a supplement to
wholesale disposal at auctions. The Company anticipates retailing  approximately
20% of its  repossessions  and  will not  finance  any of its  repossessed  auto
resales.

     The Company was  incorporated  in Indiana in December 1993, as a subsidiary
of Union Federal  Savings Bank of  Indianapolis  ("Union  Federal"),  which is a
federally-chartered  savings bank. Union Federal entered the indirect automobile
finance  business  in 1986.  On August 7, 1995,  the  Spin-off of the Company by
Union Federal was  consummated  concurrently  with the Company's  initial public
offering of 4,000,000 shares of its Class A Common Stock.

     The  Company's  headquarters  are  located at 250 North  Shadeland  Avenue,
Indianapolis,  Indiana,  46219, and the telephone number is (317) 231-6400.  See
"Item 2, Properties."


<PAGE>

Market and Competition

     Based  on  the  Company's  knowledge  and  research  with  respect  to  the
automobile and finance industry,  manufacturer-franchised  dealers in the United
States sold  approximately  19.2 million used  automobiles at retail in calendar
1997 at an average  price of $12,100 for a total sales  volume of  approximately
$232.3  billion.  Based on its knowledge of the industry,  the Company  believes
that  dealership  finance   departments   typically   originate  or  direct  the
origination  of  approximately  60%, or $139.4  billion in calendar 1997, of the
financing of used car loans.  The Company  believes that it currently funds less
than 1.0% of dealer-directed used car financing in the United States.

     Competition in the field of financing  retail  automobile sales is intense.
The auto finance market is highly  fragmented and historically has been serviced
by a variety of financial  entities  including the captive finance affiliates of
major automotive manufacturers, banks, savings associations, independent finance
companies,  credit unions and leasing companies.  Providers of retail automobile
financing  have  traditionally  competed on the basis of interest rates charged,
the quality of credit  accepted,  the  flexibility of loan terms offered and the
quality  of  service  provided  to the  dealers  and  customers.  In  seeking to
establish itself as one of the principal financing sources at the dealerships it
serves,  the Company  competes  predominantly  on the basis of  providing a high
level  of  dealer  service  (including  evening  and  weekend  hours  and  quick
application response time),  offering flexible loan terms, and developing strong
relationships with dealerships.  While the Company seeks to offer rates that are
competitive  in each of its geographic  markets,  the Company does not currently
seek to compete by  offering  the lowest  rates or by  accepting  lower  quality
credit (although its Tier II Lending competes in a lower  credit-quality  market
segment).

     The Company's  competition varies among its geographic markets. In the Tier
I  Lending  market  segment,  the  Company  has  experienced  its  most  intense
competition  in the Midwest,  particularly  in Indiana and Ohio.  The  Company's
primary  competitors for Tier I loans are regional banks and the captive finance
affiliates of major automotive manufacturers.  Competition in the Tier II sector
comes predominantly from independent finance companies.

Dealer Marketing and Service

     The Company  has entered  into  dealer  agreements  with over 3,600  retail
automobile dealers in 32 states. The Company's objective is to enter into dealer
agreements  with a broad  spectrum  of large  domestic  and  foreign  automotive
manufacturer-franchised  dealerships in targeted major  metropolitan  areas. The
Company  believes that  manufacturer-franchised  dealerships  are most likely to
provide the Company with loans that meet the Company's  underwriting  standards.
No  individual  dealer nor group of affiliated  dealers  accounted for more than
1.9% of the Company's loan purchases during the fiscal year ended June 30, 1998.

     The Company's  ability to acquire Tier I loans depends to a large extent on
its ability to establish  and maintain  relationships  with  dealerships  and to
induce finance managers to offer customer loan applications to the Company.  The
Company's  marketing and loan  purchasing  staff  emphasizes  dealer service and
conveniently  accommodating  dealers' needs for customer financing.  The Company
believes its loan purchasing  operations are structured to be more responsive to
these needs than the operations of its competitors.


<PAGE>

     The Company believes that by responding  rapidly to loan applications it is
more likely to be the first  financing  source to indicate  acceptance of a loan
and,  therefore,  is more likely to receive the loan for purchase.  With that in
mind,  the Company has  developed the capacity to process a large volume of loan
applications  rapidly.  The Company's average response time to loan applications
during fiscal 1998 was under one hour.  Although the Company's  loan  purchasing
process is highly  automated,  the  Company  maintains  a strong  commitment  to
personalized  dealer service.  Sales  representatives and credit analysts are in
frequent  contact  with  dealership  personnel.  Management  believes  that this
personal  contact  and  follow-through  on the part of the  Company's  employees
builds strong  relations and maximizes loan  acquisition  volume from individual
dealerships.  The Company's  credit  scoring models and  centralized  purchasing
assure dealers that the Company applies consistent purchasing standards and is a
reliable  financing  source.  The Company's  flexibility in offering longer loan
terms to qualified  borrowers  enhances the  dealers'  ability to offer  desired
financing terms to customers.

     The  Company  has  regional  or field  sales  representatives  who give the
Company a presence in local  markets.  Company sales  representatives  generally
have auto dealer finance or sales  backgrounds and are generally  recruited from
within the  geographic  markets they serve.  The Company  believes this helps to
establish  rapport  and  credibility  with  dealership   personnel.   The  sales
representatives  are in  frequent  contact  with the  Company's  dealers and are
available to receive and respond to comments and  complaints  and to explain new
programs  and  forms.  Additionally,  the  Company  created  a  department  that
specifically  handles  dealer  customer  service  issues,  in order to allow the
outside  sales  representatives  and the credit  analysts  to focus  strictly on
marketing and buying loans. A portion of the sales representatives' compensation
may be based on new dealer  agreements  obtained in new  markets.  However,  the
sales representatives have no authority to approve credit applications.

     When approaching a new dealer,  the Company sales  representatives  explain
the  Company's  program and  describe the ways the dealer can expect more timely
and  reliable  service from the Company  than that  provided by other  financing
sources.  Dealers who decide to  establish a  relationship  with the Company are
provided with a dealer agreement and supplied with copies of the Company's forms
for all  loan  documentation  and  forms  of  drafts  (which  authorized  dealer
personnel  submit for payment of the amount of each  purchase).  Also,  most new
dealer agreements  include  provisions for Automated Clearing House ("ACH") fund
transfers.  ACH  agreements  provide  for the  electronic  transfer  of funds to
individual  dealer accounts for the purchase  amount of loans  originated by the
dealers and purchased by the Company.  The Company is encouraging the use of ACH
payments as opposed to drafts with all of its new dealers and is making attempts
to convert its existing dealer base to the ACH program.  Currently,  over 51% of
the   Company's   dealers  have  ACH   agreements   in  place.   The   Company's
representatives  train dealer personnel in the proper  completion and use of the
Company's  documentation.  The dealer agreement provides the standard terms upon
which the Company  purchases loans from dealers,  contains  representations  and
warranties of the dealer and prescribes the calculation of the Dealer Premium.


<PAGE>

Loan Origination and Purchasing

     Retail automobile buyers are customarily directed to a dealer's finance and
insurance  department  to  finalize  their  purchase  agreements  and to  review
potential financing sources and rates available from the dealer. If the customer
elects  to pursue  financing  at the  dealership,  an  application  is taken for
submission to the dealer's  financing sources.  Typically,  a dealer submits the
purchaser's  application  to more than one  financing  source  for  review.  The
dealership  finance  manager  decides  which source will finance the  automobile
purchase based upon the rates being offered,  the Dealer Premium,  the terms for
approval  and other  factors  (such as  incentives  offered by the  lender.) The
Company  believes  that its rapid  response to an  application  coupled with its
commitment to dealer  service and  flexibility  in terms enhances the likelihood
that the dealership will direct the loan to the Company, even though the Company
may not offer the lowest  rate  available.  See "Item 1.  Business -- Market and
Competition."

     Generally on a monthly basis, the Company quotes rates at which it will buy
loans from  dealers  (the "Buy  Rate").  Buy Rates are based on several  factors
including  the age of the car and the term of the loan.  The Company  sets rates
generally with a view to maintaining a  predetermined  spread above the relevant
treasury  security,  based on the weighted  average  expected  life of the loans
being  acquired.   The  Company  publishes  different  Buy  Rates  in  different
geographic  markets depending on its assessment of competitive  conditions.  See
"Item 7.  Management's  Discussion  and  Analysis of Results of  Operations  and
Financial Condition."

     Centralization   of  loan   purchasing   at  the   Company's   Indianapolis
headquarters  enables the Company to assure uniform  application of underwriting
criteria.  It also enables the Company to respond very rapidly to a large volume
of  loan  applications   with  a  high  level  of  efficiency.   Upon  receiving
applications  by  facsimile  transmission,  certain  data is  entered  into  the
Company's  computer system, and the application is assigned to a credit analyst.
The Company's computer system obtains a credit bureau report, applies the Credit
Scoring model and generates  summary credit analysis for the credit analyst.  In
April 1998,  the Company  automated  the  calculation  of its income and debt to
income ratios and  incorporated  these automated  calculations as well as credit
score  into  a  quality  control  underwriting  screen.  The  Company  evaluates
applications based on four key income or debt to income ratios as well as credit
score and judgment of the credit analyst. Approval authority and advance amounts
are determined by the  combination of the five key  underwriting  criteria.  The
credit analyst analyzes the application  data, the quality control data, and the
credit  bureau  report and sends a response  by  facsimile  transmission  to the
dealer.

     Approximately 69% of the Company's origination department,  including sales
and credit employees, have prior business experience with auto dealerships, many
as dealership  finance  managers.  The Company  believes this common  experience
tends to  strengthen  their  relationships  with dealers and  enhances  dealers'
respect for their credit decisions. The Company also frequently arranges for its
credit  analysts to visit  dealers and their finance  managers,  both to develop
dealer rapport and to maintain awareness of local economic trends.


<PAGE>

     The Company  utilizes a  computerized  credit scoring system to evaluate an
applicant's  credit  profile.  The  Company  continually  evaluates  its scoring
methodologies and makes  adjustments based on its experience.  In July 1996, the
Company  implemented an upgraded version of its customized  credit scoring model
developed by an independent  firm. In February 1997, the Company  analyzed seven
months of  originations  and  compared  the  predictive  ability of actual  loss
experience  between the  customized  credit  scoring  model and a new  scorecard
model.  In March 1997,  the Company  implemented  the new scorecard  model as it
appeared to be more predictive in rank-ordering  risk than the customized credit
scoring model. While the Company is pleased with the performance of the existing
scorecard,  the Company has been  developing a new customized  scorecard that it
plans to implement by the first half of calendar 1999.

     The Company's  purchasing  philosophy  generally  focuses on acquiring high
quality credit and not solely on generating volume. The quality of the Company's
loan purchasing is due in large part to the experience, training and judgment of
the credit  analysts.  Based on  underwriting  guidelines,  credit analysts must
review each of the five criteria,  mentioned above, in the approval process.  An
application  that does not meet the minimum  underwriting  guidelines for any of
the five  underwriting  criteria  requires  the  approval  of a Regional  Credit
Manager.  Credit  analysts  may  approve  applications  that  meet  all of these
guidelines,  with limits on advance amounts based on the combination of the five
criteria.   Regardless  of  the  key   underwriting   ratios,   the  application
characteristics  and credit history must support the credit decision.  The prior
auto  dealership  business  experience  of a majority  of the  Company's  credit
employees is valuable,  not only in assuring sound credit analysis,  but also in
protecting  the Company  from  attempts by dealers or their  customers to obtain
approval of unacceptable credit. Management monitors and regularly audits credit
analysts'  decisions,  and during  fiscal  1998,  the Company  created a quality
control   department  that  primarily  focuses  on  reviewing  loan  files.  The
department reviews 100% of the cashed Tier II loan files and a percentage of the
Tier I cashed files based on predetermined high risk  characteristics  including
high  advance  rates  and  approvals  of  loans  that  were  below  the  minimum
underwriting  criteria.  The Company tracks the delinquency and charge-off rates
of all loans purchased by each individual credit analyst. The review process has
created additional management controls,  more immediate feedback on underwriting
trends,  and an additional  source for capturing  valuable loan data information
that can be analyzed and used as origination or collection tools.

     Of the Tier I loan  applications  received  from  dealerships  for the year
ended June 30, 1998, the Company approved  approximately  16.5%  unconditionally
and  approximately  18.0% with  conditions.  Of the approved  and  conditionally
approved  loans,  approximately  33.9% were ultimately  acquired.  During fiscal
1998, the Company acquired approximately $944.7 million in Tier I loans.

     If the Company  approves a loan and is  selected to provide the  financing,
the automobile  buyer enters into a  simple-interest  retail  installment  sales
contract  with the dealer or a  simple-interest  installment  loan and  security
interest contract with the Company.  The Company also acquires some pre-computed
interest  installment  sale contracts in  California.  The retail sales contract
includes  an  assignment  of the  loan  to the  Company.  In  Ohio,  because  of
regulatory  provisions,  the Company enters into the contract  directly with the
borrower. In connection with the loan acquisition and the preparation of Company
forms, in many states the Company charges the borrower a loan  origination  fee.
Dealerships in some geographic markets utilize a generic state-approved contract
(as opposed to the Company's  contract  form).  Most of the generic forms do not
include  provisions  for  origination  fees.  The use of generic  contract forms
became  more  prevalent  during  fiscal  1997 and  continues  to increase as the
Company enters new geographic markets using generic contracts.  For dealers that

<PAGE>

participate  in the ACH  program,  ACH  payments  are made  only  after all loan
documentation has been received, and the loan has been recorded on the Company's
system. The use of ACH payments greatly reduces the Company's risk of fraudulent
draft use and also  presents  a cash flow  benefit  as the loans are not  funded
until they are booked by the Company.  For non-ACH dealers,  when the dealer has
completed and mailed the Company's loan documents and taken actions  required to
perfect the security  interest on the vehicle,  authorized  dealer personnel may
complete and remit a Company-supplied  draft for payment of the amount financed.
Because the Company provides forms of drafts to dealers in advance of particular
loan   acquisitions,   it  assumes  the  risk  that  such  drafts  may  be  used
fraudulently,  with corresponding loss to the Company. Historically, the Company
has not sustained any material losses due to such uses but there is no assurance
that such losses will not occur.  The Company began  utilizing  dealer drafts on
its Tier II quality loans as part of an administrative change resulting from the
combination of Tier I and Tier II Lending departments.  Previously,  the Company
did not utilize dealer drafts in its Tier II Lending.

     Dealers quote loan rates to customers at an average of approximately  1.50%
-  2.00%  over  the Buy  Rate.  This  difference,  in  most  states,  represents
compensation  to the  dealership  in the  form of a Dealer  Premium  paid by the
Company, in addition to the amount financed.  See "Glossary." The Dealer Premium
is paid to the dealer each month for all loans  acquired  from the dealer during
the preceding month. In approximately 50% of all loan  acquisitions,  the dealer
is paid the entire Dealer Premium in advance. If the loan is prepaid or defaults
at any time prior to its scheduled  maturity  date, the amount of the premium is
prorated,  and  the  portion  allocated  to  the  remaining  scheduled  term  is
reimbursable  to the Company as an offset  against the  premiums to be paid with
respect to  subsequent  loans  through  the  dealer's  reserve  account.  In the
majority of the other loan acquisitions,  the Company may advance only a portion
of the Dealer  Premium,  with an offset  against  the dealer only if the loan is
prepaid or defaults  within a limited period of time regardless of the length of
the term. In Ohio,  because the Company enters into  installment  loan contracts
directly with dealers'  customers,  it generally  pays the dealer a referral fee
based on a  percentage  of the note  amount.  From time to time the  Company may
adjust its Dealer Premium payment  methods based on  management's  assessment of
the market.  Before the termination of the Marine Lending  program,  the Company
paid Dealer Premium in conjunction  with marine loan  acquisitions.  The Company
does  not pay a Dealer  Premium  to  dealers  for Tier II  loans.  See  "Item 7.
Management's  Discussion  and Analysis of Results of  Operations  and  Financial
Condition -- Liquidity and Capital Resources."




<PAGE>

Geographic Concentration

     The following table sets forth certain information concerning the states in
which the Company is operating its Tier I business:

<TABLE>
<CAPTION>


                                                              Loans Acquired For The
                                                               Twelve Months Ended                         At June 30,1998
                                                                                                ------------------------------------
                                Date     Re-entry                   June 30,                    Servicing    Number Of     Number Of
           State             Established   Date         1998          1997           1996       Portfolio    Metro Areas    Dealers
           -----             -----------   ----         ----          ----           ----       ---------    -----------    -------
                                                                      (Dollars in Thousands)
<S>                                 <C>             <C>               <C>           <C>              <C>   
Indiana................         Jan-86              $  25,464         40,858        38,755           69,518          1         192

Ohio...................         Apr-88                 52,699         69,928        58,123          127,318          3         241
                                                       
Kentucky...............         Jan-90   Oct-96         7,383          4,701             -            9,425          2          34
                                                        
Arizona................         Jun-91                 27,231         40,452        55,955           78,948          1          91
                                                       
Colorado...............         Dec-91                 18,712         17,861        31,984           38,061          1          92
                                                       
Kansas.................         Jan-92                 10,249          8,591        11,559           17,333          1          36
                                                       
Missouri...............         Jan-92                 18,986         25,034        16,643           43,688          1          91
                                                       
Texas..................         Jun-92                115,143        140,576       153,174          287,473          5         320
                                                      
Minnesota .............         Aug-92    Apr-97       13,325          1,167             -           12,492          1          72
                                                       
Utah...................         Sep-92    Jun-97        7,121              -             -            6,102          1          49
                                                        
Oklahoma...............         Oct-92                 33,682         50,459        60,022           92,530          1          75

Florida................         Apr-93                 76,883         81,815        55,292          146,215          5         222
                                                       
North Carolina.........         Jul-93                 85,515        105,920       113,131          204,302          3         192
                                                       
Georgia................         Apr-94                 36,244         28,610        20,981           63,906          2         111
                                                       
Virginia...............         May-94                 63,110         70,134        68,688          128,695          2         174
                                                       
South Carolina.........         Jul-94                 35,711         35,353        15,175           58,351          2          80
                                                       
Iowa...................         Aug-94                 24,170         23,672        13,673           38,838          2          93
                                                       
Illinois...............         Sep-94                 69,599         78,508        85,716          144,051          2         255
                                                       
California.............         Nov-94                111,501        134,702       129,220          223,473          5         532
                                                      
Nebraska...............         Nov-94                  4,210          2,528         1,053            5,561          1          24
                                                        
New Mexico.............         Dec-94                  3,383          9,058        11,492           12,734          1          27
                                                        
Wisconsin..............         Apr-95                  9,866         14,316        18,007           22,414          2          84
                                                        
Oregon.................         Jun-95                  2,331          5,116         9,861            7,009          1          37
                                                        
Washington.............         Jun-95                  7,062          9,257         9,022           13,680          1          55
                                                        
Maryland...............         Nov-95                 20,279         25,699         7,418           35,747          2          98
                                                       
Tennessee..............         Feb-96                 26,898         21,770         6,704           38,935          4          73
                                                       
Michigan...............         May-96                 24,460         23,181         2,869           36,499          1         100
                                                       
Pennsylvania...........         May-96                  7,712          4,606           317            9,285          2          59
                                                        
Nevada.................         Jan-97                  3,757          2,192             -            4,305          1          34
                                                        
Idaho..................         Sep-97                  1,013              -             -              823          0 *        17

Massachuesetts.........         Jun-98                    990              -             -              990          1          19

South Dakota...........         Jun-98                     36              -             -              220          0 **       49
                                                    =======================================       ================================
           TOTAL.......                             $ 944,725      $1,076,064      $994,834       $1,978,920        58       3,628
                                                    =======================================       ================================

</TABLE>
*    Boise,  Idaho is considered part of the Salt Lake City,  Utah  metropolitan
     area

**   Sioux  Falls,  South  Dakota  is  considered  part of the  Omaha,  Nebraska
     metropolitan area.





     The  Company  intends  to  continue  its  strategy  of  expanding  into new
geographic markets. In considering potential markets for expansion,  the Company
carefully  reviews the regulatory and  competitive  environment and economic and
demographic  factors such as the number of auto registrations and dealerships in
the metropolitan area.

     Because the Company is highly centralized, the incremental cost of entering
new geographic  markets is relatively low, and the Company can enter new markets
quite rapidly.  Alternatively,  the Company's centralized operations give it the
ability to vacate a market  quickly and without great expense if  competitive or
other  factors  arise in the  market  that  make it no longer  suitable  for the
Company's  operations.  The Company's  level of loan  acquisitions in particular
metropolitan   areas  may  fluctuate   significantly   over  time  depending  on
competitive conditions and other factors in those areas.


Loan Processing and Customer Service

     When original loan documents and the dealer's draft (after deposit  through
the dealer's bank) arrive at the Company's headquarters, they are processed onto
the Company's  servicing  system.  In the case of a loan submitted under the ACH
program,  the original loan documents are received by the Company,  and the loan
is processed in much the same way as a loan in which the dealer has  completed a
draft. Once the loan is processed, the Company's computer system triggers an ACH
payment to the dealer. The Company's operations computer network interfaces with
its loan approval system to retrieve the information entered when the borrower's
application  was  received,  saving  time on data  entry  with  respect  to loan
processing.  The system transmits new loans daily to the Company's  outside data
processing servicer.  Twice weekly, this servicer sends data on all new accounts
to the Company's  document  service agency which generates  payment coupon books
and sends them directly to the borrower.  Customer payments are sent directly to
a lockbox.

     The  Company  has a  separate  remote  outsourcing  agreement  with  a data
processing servicer. Under the agreement, the data processing service conducts a
wide array of  applications  in both batch and  on-line  modes,  and it provides
interfacing  with a number  of  Company  developed  systems.  The  service  also
provides off-site data storage at its data centers. The Company provides much of
the hardware to facilitate  the on-line  transmission  of data,  which is routed
through  different  data centers to provide  redundancy  in the event of a power
failure. See - "Year 2000 Compliance."

     The Customer Service  Department  utilizes an automated voice response unit
("VRU") which allows customers to access standard account information as well as
general  information  24 hours a day,  seven days a week.  The VRU  receives  an
average of 70,000  calls per  month.  Approximately  44% of the total  calls are
handled  entirely by the VRU; the other 56% are transferred to live agents.  The
VRU  provides  many  efficiencies  for  the  Company  and is  user-friendly  and
convenient for customers.

     The Company is currently in the process of implementing a new, enhanced VRU
that will be capable of handling a larger call volume and also offer  additional
menu options for the  customers.  The  Collection  Department  plans to use this
system  which  should in turn  improve the  efficiency  of the  Department.  The
Company  expects to  implement  the new VRU during the second  quarter of fiscal
1999. See - "Year 2000 Compliance."


Loan Servicing and Servicing Portfolio

     Under the terms of its New Credit Facility and securitization transactions,
the  Company  acts as  servicer  or  subservicer  with  respect  to the  related
automobile  loans.  Since August 1995, Tier I loan acquisitions have been funded
through the $350 million  Prime  Warehouse  Facility  through  Union  Acceptance
Funding Corporation  ("UAFC"), a wholly-owned  Company subsidiary.  In September
1998,  the Prime and  Non-prime  Warehouse  Facilities  were  terminated  by the
Company and replaced by the New Credit  Facility with the same lender,  having a
borrowing  capacity of $450 million and a term of one year. The Company receives
monthly servicing fees; the contractual fee,  typically one percent per annum on
the  outstanding  principal  balance of the  securitized  loans,  is paid to the
Company through the securitized  trusts.  The Company services the loan pools by
collecting  payments  due from  borrowers  and  remitting  payments  to the pool
trustee in accordance  with the terms of the pooling and  servicing  agreements.
The Company maintains  computerized  records with respect to each loan to record
all receipts and  disbursements and prepares related reports.  As servicer,  the
Company is obligated to monitor  collections and collect delinquent accounts and
use diligence to obtain current payment of accounts.


The following  tables  describe the  composition of the Company's Tier I Lending
servicing portfolio at June 30, 1998:

<TABLE>
<CAPTION>
                          --------------------------------------------------------------------------------------------------
                                                                  Percent of                       Weighted
                            Aggregate          Aggregate          Aggregate         Average         Average       Weighted
                            Number of          Principal          Principal          Loan          Remaining       Average
                              Loans             Balance            Balance          Balance        Term (1)         Rate
                            ---------          ---------          ----------        -------        ---------      --------
                                                   (dollars in thousands, except average balances)
<S>                          <C>              <C>                  <C>             <C>               <C>            <C>   
New auto / van                33,971          $  470,598            23.8%          $13,853           59.2           12.38%
Used auto / van              150,032          $1,508,322            76.2%          $10,053           54.1           13.31%
                         -----------    -----------------     -----------
   Total                     184,003          $1,978,920           100.0%          $10,755           55.3           13.09%
                         ===========    =================     ===========

Loans held for sale            8,472          $  108,159             5.5%          $12,767           67.9           12.27%
                                                              
Other loans serviced(2)      175,531          $1,870,761            94.5%          $10,658           54.6           13.14%
                         -----------    -----------------     -----------
   Total                     184,003          $1,978,920           100.0%          $10,755           55.3           13.09%
                         ===========    =================     ===========

================================================================================
</TABLE>

(1)  Terms are shown in months.

(2)  Amounts include,  Tier I fixed rate auto loans  securitized under trusts as
     well as a small  portfolio  of prime fixed rate auto loans  serviced  under
     agreements with Union Federal (approximately $11,000)


     In addition to servicing  securitized  loans,  the Company also  services a
portfolio of Union Federal fixed and variable rate loans on mobile homes,  boats
and autos, of approximately $1.4 million at June 30, 1998.

     At June 30, 1998, the Tier I servicing  portfolio,  including the principal
balance  of  auto  loans  held  for  sale  and  securitized   auto  loans,   was
approximately $2.0 billion in aggregate  principal balance.  Approximately 76.2%
of the Tier I servicing portfolio, as of June 30, 1998, represented financing of
used  vehicles;  the  remainder  represented  financing  of  new  vehicles.  The
Company's loans consist primarily of simple-interest contracts which provide for
equal monthly  payments (as well as pre-computed  loans acquired in California).
As payments are received under a simple-interest  contract, the interest accrued
to date is paid first, and the remaining payment is applied to reduce the unpaid
principal  balance.  In the  case  of a  liquidation  or  repossession,  amounts
recovered  are applied  first to certain  expenses of  repossession  and then to
unpaid principal.

Tier II Lending

     The Company began acquiring Tier II loans in the fall of 1994 to fund loans
to  borrowers  with  adequate  credit  quality who would not  qualify  under the
Company's Tier I Lending quality criteria. Originally, the Company operated Tier
II Lending under the name Performance Acceptance Corporation ("PAC").

     As discussed  previously,  the Tier I and Tier II  origination  departments
were combined  during the third quarter of fiscal 1998. The  origination of Tier
II loans  requires  more  extensive  credit  review  and  verification  and also
requires  the  approval  of a Regional  Credit  Manager.  Additionally,  greater
emphasis is placed on income and employment stability, the borrower's ability to
afford monthly payments and  loan-to-value  ratios,  and other  collateral-based
lending  standards.  The Company  does not offer as prompt a response to Tier II
loan  applications  as it offers on Tier I applications to permit more extensive
credit  review and  verification.  The  Company's  collection  and  repossession
procedures  relating to all new Tier II loans are essentially the same as Tier I
loans.  In the past,  the Company's  policy was to repossess Tier II loans at or
before  90 days  delinquent,  however,  this  policy  was  changed  to 120  days
delinquent based on management's  decision to allow for more expanded collection
time and achieve  consistency in collection  practices.  The Company,  under the
name PAC,  commenced Tier II loan acquisitions in Indiana and has since expanded
Tier II Lending into  markets at  dealerships  from which the Company  currently
acquires Tier I loans.


     The following  table  describes the  composition  of the Company's  Tier II
Lending servicing portfolio at June 30, 1998:



<TABLE>
<CAPTION>
                       --------------------------------------------------------------------------------------------------
                                                              Percent of                        Weighted
                         Aggregate          Aggregate          Aggregate         Average         Average       Weighted
                         Number of          Principal          Principal          Loan          Remaining       Average
                           Loans             Balance            Balance          Balance        Term (1)         Rate
                           -----             -------            -------          -------        --------         ----
                                                (dollars in thousands, except average balances)

<S>                         <C>               <C>                 <C>            <C>              <C>             <C>   
New auto / van              937               $12,989             19.4%          $13,862          53.0            18.00%
Used auto / van           5,348               $53,866             80.6%          $10,072          48.1            19.28%
                       --------------    -----------------    ------------
   Total                  6,285               $66,855            100.0%          $10,637          49.0            19.03%
                       ==============    =================    ============

Loans held for sale         660                $7,624             11.4%          $11,552          55.1            18.27%
                                                    
Securitized loans         5,625               $59,231             88.6%          $10,530          48.2            19.13%
                       --------------    -----------------    ------------
   Total                  6,285               $66,855              100.0%        $10,637          49.0            19.03%
                       ==============    =================    ============

--------------------------------------------------------------------------------
</TABLE>
(1)  Terms are shown in months.

     The  Company  currently  purchases  Tier  II  loans  at  face  value  at an
appropriate  interest  rate of  approximately  5.00%  above the rate at which it
purchases Tier I loans.  The Company's Tier II loans  experience  higher default
rates than those  historically  experienced  by the Company  with respect to its
Tier I Lending  operations but also earn higher interest rates. The Company does
not, however,  pay Dealer Premiums to dealers in connection with the acquisition
of Tier  II  loans,  which  reduces  its  cash  flow  requirements  for  Tier II
operations.  Since September,  1995, Tier II loan  acquisitions have been funded
through a separate $50 million Non-prime  Warehouse Facility through Performance
Funding Corporation ("PFC"), a wholly-owned Company subsidiary. Beginning in the
third quarter of fiscal 1998, the funding of Tier II loan acquisitions was moved
to Union Acceptance Funding Corporation ("UAFC").  As discussed  previously,  in
September 1998, the Prime and Non-prime Warehouse  Facilities were terminated by
the Company and replaced by the New Credit Facility with the same lender, having
a  borrowing  capacity  of $450  million  and a term of one year.  The  Company,
through its wholly-owned, special-purpose subsidiary, Performance Securitization
Corporation  ("PSC"),  effected its first securitization of Tier II loans in the
third  quarter of fiscal 1996 and  completed  its second Tier II  securitization
during the second quarter of fiscal 1997. The Company  completed a third Tier II
securitization during the fourth quarter of fiscal 1998.

     Of the loan applications received from dealerships for Tier II loans in the
year  ended  June  30,   1998,   the   Company   approved   approximately   8.4%
unconditionally  and  approximately  13.7% with conditions.  Of the approved and
conditionally  approved loans,  approximately 15.7% were ultimately acquired. In
fiscal 1998, the Company acquired approximately $24.0 million in Tier II loans.

Marine Lending program

     The Company began the Marine Lending  program in June 1996 to fund boat and
personal  watercraft loans to borrowers who are classified as low risk. On March
1,  1998,  the  Marine  Lending  program  was  terminated  due  to  strict  rate
competition  in the market,  resulting in the inability to acquire large volumes
of loans with profitable spreads.  The majority of the marine portfolio was sold
in June 1998. Marine loan  acquisitions  totaled $2.5 million for the year ended
June 30, 1998.


Delinquency, Collection and Repossession

     The Company seeks to maintain low levels of delinquency and net charge-offs
first by ensuring and  monitoring  the integrity of its credit  purchasing.  The
Company  tracks  the  delinquency  rate of all  loans  approved  by each  credit
analyst.  The Company also seeks to limit  delinquency and  charge-offs  through
highly automated and efficient collection and repossession procedures.

     The  collections  area is highly  automated  and is supported by a separate
computerized  collections  system  provided  by the  Company's  data  processing
servicer and an automatic  telephone  dialing system.  Delinquent  borrowers are
contacted  by phone,  mail,  telegram,  and in special  circumstances,  personal
visits. Notices to delinquent borrowers are dispatched automatically by computer
when  loans  are 10 days  delinquent  in most  states,  but as  early  as 7 days
delinquent  for other  states.  The  collections  area operates  during  regular
business hours, weekday evenings,  and on Saturdays.  Consistent with the growth
of the servicing  portfolio and higher  delinquencies  and credit losses seen in
the latter half of fiscal 1997 and the first quarter of fiscal 1998, the Company
increased its collection  staff by over 26.0% or 45 full-time  employees  during
fiscal 1998. See - "Employees."

     The Company utilizes an automatic,  computer-controlled  multiple telephone
line system which dials phone  numbers of  delinquent  borrowers  from a file of
records extracted from the Company's  database.  The system typically  generates
750-1,000  calls per hour and allows the Company to prioritize  calls based on a
wide variety of factors.  Once a call has been placed,  the system  monitors the
call and transfers the call to a collector if it has reached a live human voice.
Collectors handle approximately 400 calls per day.

     After  delinquent  borrowers  fail to respond to the  Company or to fulfill
oral commitments made to bring their loans current,  the Company repossesses the
automobile  securing  the loan.  Repossessions  are  effected for the Company by
contracted  repossession  agents.  The repossession  agent transfers most of the
autos to an independent  auto auction company that  reconditions the repossessed
autos and sells them for the Company.  Historically,  some autos  repossessed in
central   Indiana   determined  to  be  eligible  for  retail  sales  have  been
reconditioned  and sold at an  Indianapolis  location owned by the Company.  The
Company opened a new car franchised  dealership in Indianapolis in July 1998. As
a result of the opening of the dealership, repossession agents will now transfer
a  selection  of the autos from a broader  region to the  dealership  for retail
sale.

     The decision to repossess and  charge-off is generally made after a loan is
at least 90 days but no more  than  120 days  delinquent,  absent  extraordinary
circumstances,  such as bankruptcy or refusal to pay,  requiring earlier action.
See "Item 7.  Management's  Discussion and Analysis of Results of Operations and
Financial Condition -- Delinquency and Credit Loss Experience."


Financing and Sale of Loans

     Loan Funding. The Company relies upon external sources to provide financing
for its loan  purchases,  Dealer  Premiums and other ongoing cash  requirements.
Until  September  1998,  the Company  utilized a $350  million  Prime  Warehouse
Facility  to provide  funding  for its Tier I loan  acquisitions,  a $50 million
Non-prime Warehouse Facility to fund Tier II loan acquisitions,  and until March
1998,  a $50  million  Marine  Warehouse  Facility  to fund  boat  and  personal
watercraft  loans.  In  September  1998,  the  Prime  and  Non-prime   Warehouse
Facilities  were  terminated  by the  Company  and  replaced  by the New  Credit
Facility with the same lender, having a borrowing capacity of $450 million and a
term of one year. See "Item 7.  Management's  Discussion and Analysis of Results
of Operations and Financial Condition -- Liquidity and Capital Resources."

     Hedging.  Because the loans purchased by the Company are fixed-rate  loans,
the Company bears the risk of interest-rate  increases during the period between
the  setting  of the Buy Rate for the  acquisition  of loans and their sale in a
securitization  transaction. In order to mitigate this risk, the Company employs
a hedging strategy in which it executes short sales of U.S. Treasury  securities
having  maturity  approximating  the  average  maturity  of loans to be acquired
during the relevant period.  The Company's  hedging strategy is an integral part
of its practice of periodically  securitizing  loans. See "Item 7.  Management's
Discussion and Analysis of Results of Operations and Financial  Condition" for a
discussion of hedging risks and related issues.

     Securitizations. The Company sells its loans in securitization transactions
to increase the Company's liquidity,  to provide for redeployment of capital and
to reduce risks associated with interest rate fluctuations.  The Company applies
the net  proceeds  from  securitization  transactions  to repay  amounts owed to
short-term  financing sources,  thereby making such sources available for future
loan acquisitions. The Company currently plans to continue securitizing pools of
loans,  generally  on  a  quarterly  basis.   Management  continually  evaluates
alternative  financing sources and, in the future, may consider funding its loan
acquisitions  through a permanent  warehouse  facility  or some other  source or
combination of sources.  Since 1988, the Company has  securitized  approximately
$5.4 billion in auto loan receivables in 29 public offerings and completed three
private placements of Asset-backed  Securities  summarized below. In each of the
public offerings,  the senior  Asset-backed  Securities have been rated "AAA" or
its  equivalent  by one or more  rating  agencies  including  Standard  & Poor's
Corporation,  Moody's  Investors  Service and FITCH IBCA.  Such  ratings are not
recommendations of the rating agencies to invest in the  securitizations and may
be modified or withdrawn by them at any time.
                          Securitization Transactions
<TABLE>
<CAPTION>
                                              Remaining Balance    Weighted                                               Net Loss 
                                Original         at June 30,      Average Loan   Certificate     Gross        Net       to Original
 Securitization                  Amount             1998             Rate          Rate       Spread (1)   Spread (2)    Balance (3)
 --------------                  ------             ----             ----          ----       ----------   ----------   ------------
                                                    (dollars in thousands)                                           
<S>                          <C>              <C>                  <C>            <C>            <C>         <C>        
UACSC 1998-B Auto Trust      $   267,980      $     257,764        12.51%         6.01%          6.50%       5.06%          0.00%
UACSC 1998-A Auto Trust      $   228,938      $     202,189        12.92%         6.11%          6.81%       5.27%          0.13%
UACSC 1997-D Auto Trust      $   204,147      $     158,696        13.02%         6.30%          6.72%       5.07%          0.32%
UACSC 1997-C Auto Trust      $   218,390      $     163,330        13.48%         6.45%          7.03%       5.38%          0.70%
UACSC 1997-B Auto Trust      $   295,758      $     198,415        13.21%         6.57%          6.64%       5.15%          1.06%
UACSC 1997-A Auto Trust      $   293,348      $     176,557        13.29%         6.33%          6.96%       5.43%          2.22%
UACSC 1996-D Auto Trust      $   283,085      $     148,084        13.53%         6.14%          7.39%       5.37%          2.85%
UACSC 1996-C Auto Trust      $   310,999      $     145,016        13.26%         6.44%          6.82%       5.11%          3.53%
UACSC 1996-B Auto Trust      $   245,102      $     101,567        12.96%         6.45%          6.51%       5.58%          3.29%
UACSC 1996-A Auto Trust      $   203,048      $      68,396        13.13%         5.40%          7.73%       5.68%          4.32%
UACSC 1995-D Auto Trust      $   205,550      $      64,860        13.74%         5.97%          7.77%       6.04%          4.79%
UACSC 1995-C Auto Trust      $   236,410      $      61,060        14.08%         6.42%          7.66%       6.11%          5.33%
UACSC 1995-B Grantor Trust   $   220,426      $      46,001        13.91%         6.61%          7.30%       4.88%          5.30%
UACSC 1995-A Grantor Trust   $   173,482      $      32,178        13.22%         7.77%          5.45%       3.88%          5.10%
UFSB  1994-D Grantor Trust   $   114,070      $      17,566        12.51%         7.69%          4.82%       3.91%          4.06%
UFSB  1994-C Grantor Trust   $   150,725      $      16,014        12.05%         6.77%          5.28%       4.04%          3.23%
UFSB  1994-B Grantor Trust   $   142,613      $      13,057        10.74%         6.46%          4.28%       3.54%          2.94%
UFSB  1994-A Grantor Trust   $   119,960      $           -        9.98%          5.08%          4.90%       3.60%          2.54%
UFSB  1993-C Auto Trust      $   141,811      $           -        11.00%         4.88%          6.12%       4.82%          2.58%
UFSB  1993-B Auto Trust      $   212,719      $           -        11.50%         4.45%          7.05%       5.31%          2.51%
UFSB  1993-A Grantor Trust   $   133,091      $           -        11.49%         4.53%          6.96%       4.96%          1.84%
UFSB  1992-C Grantor Trust   $   119,280      $           -        11.64%         5.80%          5.84%       4.48%          1.71%
UFSB  1992-B Grantor Trust   $   116,266      $           -        12.39%         4.90%          7.49%       5.49%          1.59%
UFSB  1992-A Grantor Trust   $   103,619      $           -        13.66%         6.70%          6.96%       5.80%          1.94%
UFSB  1991-B Grantor Trust   $   106,612      $           -        13.64%         7.15%          6.49%       4.94%          1.72%
UFSB  1991-A Grantor Trust   $   150,436      $           -        12.52%         8.40%          4.12%       2.25%          0.79%
UFSB  1989-B Grantor Trust   $    66,469      $           -        14.09%        Variable          -         2.82%          3.15%
UFSB  1989-A Grantor Trust   $   113,080      $           -        13.24%         8.75%          4.49%       1.97%          1.94%
UFSB  1988 Grantor Trust     $   105,179      $           -        12.73%         9.50%          3.23%       1.71%          2.74%
  Total Tier I               ----------       -------------                                                             
     Securitized Trusts      $ 5,282,593      $   1,870,750                                                             
                                                                                                                            
PSC 1998-1 Grantor Trust     $    28,659      $      28,003        18.69%         6.29%          12.40%      8.04%          0.00%
PSC 1996-2 Grantor Trust     $    31,108      $      18,070        19.65%         6.40%          13.25%      9.00%          6.98%
PSC 1996-1 Grantor Trust     $    34,488      $      13,158        19.87%         6.87%          13.00%      8.79%         11.23%
  Total Tier II              -----------      -------------                                                             
     Securitized Trusts      $    94,255      $      59,231                                                             
                             -----------      -------------                                                             
       Grand Total...........$ 5,376,848      $   1,929,981                                                             
                             ===========      =============                                                             
</TABLE> 
         
(1)  Difference between weighted average loan rate and Certificate Rate.

(2)  Difference  between weighted average loan rate and Certificate Rate, net of
     upfront costs,  servicing  fees,  ongoing credit  enhancements  and trustee
     fees, and the hedging gain or loss.

(3)  Net  loss to  original  balance  at June 30,  1998,  for all  pools  with a
     remaining  principal  balance and net loss to  original  balance at time of
     repurchase for all remaining pools.


     In securitization transactions, the Company transfers automobile loans to a
newly-formed trust, which issues one or more classes of fixed-rate  Certificates
to investors (the  "Certificateholders").  Through the 1994-A Grantor Trust, the
Certificates  were  generally  credit-enhanced  by a letter  of  credit  from an
independent   financial    institution.    The   letter   of   credit   provided
Certificateholders with additional assurance, to the extent of the amount of the
letter of credit,  that their  receipt of required  payments from the pool would
not be adversely  affected by loan losses.  Typically,  the letter of credit was
obtained in the amount,  represented  as a percentage of the pool,  necessary to
obtain the desired  investment grade ratings for the  Certificates.  The Company
subsequently  employed  the use of  subordinated  classes of  Certificates  as a
credit enhancement device.  Surety bonds have been utilized as additional credit
enhancements in the Company's Tier I securitizations since the UACSC 1995-D Auto
Trust.  These credit  enhancement  features  allow the offered  Certificates  to
achieve the desired  investment  grade rating.  In future  securitizations,  the
Company  may employ any of the above  devices or may employ  alternative  credit
enhancement devices.

     Gains  from  the  sale  of  loans  in   securitization   transactions  have
historically  provided a significant  portion of the net earnings of the Company
and are likely to continue to represent a  significant  portion of the Company's
net earnings. If the Company were unable or elected not to securitize loans in a
financial  reporting  period,  net earnings  would  likely be lower  relative to
periods in which securitizations  occurred. See "Item 7. Management's Discussion
and Analysis of Results of Operations and Financial Condition -- General."

     Commencing  with  the  1995-A  Grantor  Trust,  the  Company  has  effected
securitizations   through  a  wholly-owned   special-purpose   subsidiary,   UAC
Securitization  Corporation  ("UACSC").  Its Tier II  securitizations  have been
effected through  Performance  Securitization  Corporation,  also a wholly-owned
special  purpose  subsidiary.   In  striving  to  complete  the  most  efficient
securitization transactions,  the Company intends to securitize the Tier II loan
acquisitions  with  the  Tier I loan  acquisitions  in the  future  through  its
wholly-owned subsidiary UACSC. In the future, the Company may pursue alternative
structures for securitizations,  such as an owners' trust structure in which the
securitization  trust  issues both  Certificates  and debt  securities,  and the
Company will continue to assess other structured  financing  alternatives  which
may enable it to fund loans and/or deploy its capital with greater efficiency or
at lower cost.

Employees

     The Company employs personnel experienced in all areas of loan acquisition,
documentation,  collection and  administration.  Currently,  the Company has 494
full-time  employees and 67 part-time  employees,  including 73 full-time and 15
part-time employees in the operations department, 216 full-time and 49 part-time
employees  in  the  collection  department,   72  full-time  employees  in  loan
purchasing,  20 full-time employees in the accounting and finance department and
41 full-time and 1 part-time systems and administrative  employees. In addition,
the Company has 37 sales  representatives  who reside and work in the  Company's
loan purchasing market areas, and 35 full-time and 2 part-time  employees in the
reconditioning and remarketing operations.  None of the employees are covered by
a collective bargaining agreement.

Regulation

     The  Company's  operations  are  subject to  regulation,  supervision,  and
licensing  under various  federal,  state and local  statutes,  ordinances,  and
regulations.  The  Company's  business  operations  are  conducted  primarily in
Arizona, California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Iowa,
Kansas,  Kentucky,  Maryland,  Massachusetts,   Michigan,  Minnesota,  Missouri,
Nebraska,   Nevada,  New  Mexico,  North  Carolina,   Ohio,  Oklahoma,   Oregon,
Pennsylvania,  South Carolina,  Tennessee, Texas, Utah, Virginia, Washington and
Wisconsin and,  accordingly,  the laws and regulations of such states govern the
Company's  operations  conducted in those states. The Company is required to be,
and is,  licensed  as a sales  finance  company in Arizona,  Florida,  Illinois,
Maryland,  Massachusetts,   Michigan,  Missouri,  Nebraska,  New  Mexico,  North
Carolina,  Pennsylvania and Wisconsin. In Colorado,  Idaho, Indiana, Iowa, Texas
and Utah, the Company has either filed the necessary notifications or registered
to accept assignments of installment sale contracts, and in Ohio, the Company is
licensed  to make direct  loans.  As the Company  expands  its  operations  into
additional states, it will be required to comply with the laws of those states.

     Numerous federal and state consumer protection laws and related regulations
impose substantial  requirements upon sellers, holders and servicers involved in
consumer finance.  These laws include the Truth-in-Lending Act, the Equal Credit
Opportunity  Act, the Federal Trade  Commission  Act, the Fair Credit  Reporting
Act, the Fair Debt Collection Practices Act, the Magnuson-Moss Warranty Act, the
Federal Reserve Board's  Regulations B and Z, state  adaptations of the National
Consumer Act and of the Uniform  Consumer Credit Code, state "lemon" laws, state
motor vehicle retail  installment sales acts, retail installment sales acts, and
other similar laws.  Also,  state laws impose finance charge  ceilings and other
restrictions  on consumer  transactions  and  require  contract  disclosures  in
addition to those required under federal law. These requirements impose specific
statutory  liabilities upon creditors who fail to comply with their  provisions.
In some cases,  this liability could affect the Company's ability to enforce the
installment sale contracts it purchases and loans it makes.

     The so-called  "Holder-in-Due-Course"  Rule of the Federal Trade Commission
(the "FTC  Rule"),  the  provisions  of which are  generally  duplicated  by the
Uniform  Consumer  Credit  Code,  other  state  statutes,  or the common laws in
certain  states,  has the effect of subjecting  purchasers of installment  sales
contracts and even some direct lenders in consumer  credit  transactions  to all
claims and defenses  which the obligor in the  transaction  could assert against
the seller of the goods. The installment sale contracts purchased by the Company
and direct loans made by it are generally  subject to the  provisions of the FTC
Rule. Accordingly,  the Company (or the trust to which a contract is assigned in
a securitization),  as holder of the contracts or as the direct lender,  will be
subject to any claims or defenses  that the  purchaser  of the related  financed
vehicle may assert  against the seller of the vehicle.  Liability  under the FTC
Rule is limited to the amounts paid by the obligor under the  contract,  but the
holder of the contract may also be unable to collect any balance  remaining  due
thereunder from the obligor.

     The  dealer  selling an  installment  sale  contract  to the  Company  will
generally  warrant that the completion of each installment sale contract and the
sale of the vehicle to the borrower complies with all requirements of law in all
material  respects.  Accordingly,  if a borrower has a claim against the Company
for violation of any law and such claim  materially  and  adversely  affects the
Company's  interest  in an  installment  sale  contract,  such  violation  often
constitutes a breach of the dealer's  warranties  under the dealer agreement and
related  assignment  and would create an  obligation of the dealer to repurchase
the contract unless the breach is cured.

     All  states in which the  Company  operates  have  adopted a version of the
Uniform  Commercial Code ("UCC").  Except where limited by other state laws, the
UCC governs the Company's rights upon the obligor's default.  Generally, the UCC
allows the  secured  party to conduct a  self-help  repossession,  then sell the
collateral and collect any  deficiency if the proceeds of sale are  insufficient
to pay off the  outstanding  obligation.  The UCC requires the secured  party to
provide the obligor with  reasonable  notice of any sale of the  collateral,  as
well as an opportunity to redeem the collateral  prior to sale. Other state laws
may  expand an  obligor's  rights,  for  example  by  providing  the  obligor an
opportunity to cure default prior to repossession, or by eliminating the secured
party's right to collect a deficiency balance.  In addition,  federal bankruptcy
laws and  related  state  laws may  interfere  with or affect  the  ability of a
secured party to realize upon collateral or enforce a deficiency judgment.

GLOSSARY

     Asset-backed  Securities  - A  general  reference  to  securities,  such as
Certificates,  that are backed by financial assets,  such as automobile loans or
leases,  credit  card or trade  receivables,  home  equity  loans or  equipment.

Business Transfer - The transfer of certain assets related to the Union Division
from  Union  Federal  to the  Company  and the  assumption  of  certain  related
liabilities by the Company.  

Buy Rate - A rate  quoted by the  Company  to  dealers,  generally  on a monthly
basis, at which the Company will buy loans.

Certificates  -  Asset-backed   Securities  representing  fractional  beneficial
interests or  indebtedness  issued to investors by a trust that purchases a pool
of  loans  in  a  Securitization.   Such  securities  are  generally  fixed-rate
securities payable solely from cash flows from the pooled receivables.

Credit Facilities - Certain external  financing  arrangements  negotiated by the
Company with an independent financial  institution  consisting of a $350 million
Warehouse Facility (the "Prime Warehouse  Facility") to fund the Company's Prime
loan  acquisitions,  a $50 million Non-Prime  Warehouse Facility (the "Non-prime
Warehouse  Facility")  to fund  Non-prime  loan  acquisitions  and a $50 million
Marine  Warehouse  Facility  (the  "Marine  Warehouse  Facility")  to fund  loan
acquisitions through it Marine Lending program. In September 1998, the Prime and
Non-prime  Warehouse  Facilities  were terminated by the Company and replaced by
the New Credit  Facility.  The Marine Lending  program was  terminated  March 1,
1998.

Credit  Scoring  -  The  process  of  utilizing  standard  models  in  the  loan
acquisition  process to evaluate an  applicant's  credit profile to arrive at an
estimate  of the  associated  credit  risk based on  statistical  evaluation  of
several  common  characteristics  that  bear  on  credit  worthiness  and  their
correlation with credit risk. 

Dealer  Premium - The amount paid to the dealer for the purchase of a loan above
the principal amount financed.  In states other than Ohio, the Dealer Premium is
based  upon the  finance  charge  that  would  be paid on the loan if it  earned
interest at a rate equal to the  difference  between the  contract  rate and the
Company's  periodically  published Buy Rate.  The  difference in rates  averages
between 1.50% - 2.00%.  Dealer Premiums paid to Ohio dealers is generally in the
form of referral fees are  calculated as the product of the principal  amount of
the loan and a  periodically  adjusted  referral rate set forth on the Company's
rate sheets for loans with similar terms,  note rate and age of collateral.  All
or a portion of a Dealer  Premium may be paid in advance at the time the loan is
acquired,  subject to being charged back against the dealer if that loan prepays
or defaults. The Dealer Premium is generally advanced to the dealer in the month
following  purchase  of  the  loan,  creating  the  Dealer  Premium  asset.  The
unamortized  portion of such  advance,  depending  on the dealer  agreement,  is
recoverable from the dealer if the loan is prepaid or defaults.  Dealer premiums
are included in the carrying amount of loans prior to securitization.

Future Servicing Cash Flows - Future Servicing Cash Flows are the projected cash
flows resulting from the difference  between the weighted average coupon rate of
the loans sold and the  Certificate  Rate paid to investors  in the  securitized
trusts, less an allowance for estimated credit losses, the Company's contractual
servicing fee of 1% (on Tier I), and ongoing trust and credit  enhancement fees,
plus  estimated  Dealer  Premium  rebates.  

Gain  (Loss) on Sales of Loans - Gain  (Loss) on Sales of Loans  represents  the
difference  between the sales  proceeds and the  carrying  amount of loans after
reduction for amounts allocated to Retained Interest,  less expenses of the sale
and hedging gains or losses.

Marine  Lending - The Company's  practice of acquiring  loans made to borrowers,
generally with high quality credit, through a boat or personal watercraft dealer
agreement  that provides for the  acquisition of loans at a par plus the payment
of a Dealer  Premium to the dealer.  Borrowers  generally  have a credit history
with no or few minor defaults and can finance their purchase  through a bank, or
an independent finance company that focuses on prime credit.  Marine Lending was
terminated in March 1998.

Marine Warehouse Facility - See definition of Credit Facility, above. New Credit
Facility - An external financing  arrangement  negotiated by the Company with an
independent  financial  institution  having a borrowing capacity of $450 million
and a one year term which  replaces the Credit  Facilities  and will fund Tier I
and II loan  acquisitions.  

Non-prime Warehouse Facility - See definition of Credit Facility, above. 

Pooling  - The  accumulation  of a  group  of  loans  to  create  a  package  of
receivables for sale through a trust to investors in a Securitization.

Prime Warehouse Facility - See definition of Credit Facility, above.

Retained  Interest  in  Securitized  Assets  ("Retained  Interest")  -  Retained
Interest  represents  the  Company's  retained  interest in loans  sold.  At the
closing of each  securitization,  the Company  allocates  its basis in the loans
between the portion of the loans sold through the  certificates  and the portion
of the loans  retained  from the  securitizations  ("Residuals"  and  "Servicing
Assets")  based on the relative fair values of those portions at the date of the
sale. The fair value is based upon the cash proceeds received for the loans sold
and the estimated fair value of the Residuals. Residuals consist of (a) the cash
held in the Spread Account and (b) the excess  servicing  receivables  ("ESRs").
ESRs  represent  the  discounted  cash flows to be  received by the Trust in the
future and dealer  premium  rebates less a discounted  allowance  for  estimated
credit losses.  The fair value of the Residuals is determined by discounting the
expected cash flows released from the Spread Account (the cash out method) using
a discount  rate  which the  Company  believes  is  commensurate  with the risks
involved.  An  allowance  for  estimated  credit  losses  is  established  using
information  from  scoring  models  and  available   historical  loss  data  for
comparable loans and the specific  characteristics of the loans purchased by the
Company.  Market  discount  rates are based on current  market  conditions,  and
prepayment  assumptions  are  based  on  historical  performance  experience  of
comparable  loans and the  impact of trends  in the  economy.  Accrued  interest
through  the date of  securitization,  which  will be  returned  to the  Company
through the trust,  is also  classified  under the  provisions  of  Statement of
Financial  Accounting  Standard  ("SFAS")  125 as  Retained  Interest.  Retained
Interest is reduced by actual  servicing cash flows as received over the life of
the securitization.  Retained Interest is classified as "available-for-sale" and
is carried at market based upon the  application  of current  assumptions to the
remaining expected cash flows.  Unrealized gains and losses  attributable to the
change in the fair value of the  Residuals  are excluded  from  earnings and are
reported net of related  income taxes as a separate  component of  shareholders'
equity until realized. Retained Interest is reviewed periodically for other than
temporary impairment,  with impairment,  if any, recorded as a component of Gain
on Sales of Loans, net.

Securitization  - The  process  through  which loans and other  receivables  are
pooled and sold to a trust which issues Certificates to investors.

Senior  Notes - Unsecured  Senior  Notes of the Company of $110  million and $65
million issued August 1995 and March 1997 respectively.

Senior Subordinated Notes- Unsecured Senior Subordinated Notes of the Company in
the aggregate principal amount of $46 million issued April 1996.

Servicing  Asset - The present value benefit derived from retaining the right to
service loans securitized in excess of adequate servicer compensation. Servicing
Assets are  classified as  held-to-maturity  securities and are carried at their
amortized cost.

Spin-off - The pro rata  distribution of the 9,200,000  shares of Class B Common
Stock formerly held by Union Federal to the shareholders of its holding company,
immediately  prior to consummation  of the Company's  initial public offering in
August 1995.

Spread Account (a component of Retained Interest in Securitized Assets) - A cash
collateral  account or  specific  cash  account  maintained  by the trustee of a
securitization  trust  into which  Future  Servicing  Cash  Flows are  deposited
initially to protect  Certificateholders (and any provider of third-party credit
enhancement)  against credit losses.  The terms of the account,  which vary with
each  securitization,   state  a  maximum  balance,  generally  expressed  as  a
percentage  of the  current  principal  balance.  Generally,  the  initial  cash
deposit, if required, is funded by the Company from the securitization  proceeds
and is expressed as a percentage of the original  balance.  The initial  deposit
amount is typically less than the minimum  balance  ("floor").  The floor amount
required is  determined  based on the original  principal  balance.  The Company
receives cash flow Residuals  that represent  collections on the loans in excess
of the amounts required to pay the Certificate principal and interest,  the base
servicing  fees and certain other fees such as credit  enhancement  fees. If the
amount of cash required for the allocations  exceeds the amount collected during
the collection  period,  the shortfall is drawn from the Spread Account.  If the
cash  collected   during  the  period  exceeds  the  amount  necessary  for  the
allocations,  and the related Spread Account is not at the required  level,  the
excess cash  collected  is retained in the Spread  Account  until the  specified
level or maximum level is achieved.  Once the required or maximum Spread Account
level is achieved,  the excess is released to the Company.  Any remaining Spread
Account   balance  is  released  to  the  Company   upon   termination   of  the
securitization.  There is no recourse to the Company for loan losses  beyond the
balance in the Spread Account and Future Servicing Cash Flows from the trust.

Tier I Lending - The  Company's  practice of acquiring  loans made to borrowers,
generally with high quality credit,  through an automotive dealer under a dealer
agreement that provides for the  acquisition of loans at par plus the payment of
a Dealer  Premium to the dealer.  A Tier I borrower has a credit history with no
or few minor  defaults  and can  finance a new car  purchase  through a bank,  a
captive  finance  subsidiary of an  automobile  manufacturer  or an  independent
finance company that focuses on Tier I credit.

Tier II Lending - The  Company's  practice of acquiring  loans made to borrowers
who generally  would not be eligible for credit under Tier I lending.  Loans are
acquired from automotive  dealers under a dealer agreement that provides for the
acquisition of loans at par without provision for payment of any Dealer Premium.
A Tier II borrower is  characterized  as a borrower with some credit problems in
his or her past which have  subsequently been resolved and who has reestablished
an acceptable payment history. To finance a new or late-model used car, the Tier
II borrower may not qualify for a loan from a captive finance subsidiary but may
access credit through non-traditional finance sources.

Union  Division  - The  indirect  automobile  lending  business  conducted  as a
division of Union  Federal  through  fiscal 1994.  Warehouse - A method  whereby
loans are  financed  by  financial  institutions  on a  short-term  basis.  In a
Warehouse  arrangement,  loans  are  accumulated  or  pooled  on a daily or less
frequent basis and assigned or pledged as collateral  for short-term  borrowings
until they are sold in a Securitization.



Item 2.           Properties

     The Company's operations are centered in a commercial office building owned
by Waterfield  Mortgage  Company,  Inc.  ("Waterfield," a Company  affiliate) in
Indianapolis,  Indiana. The Company occupies office space of 115,555 square feet
under a lease with Waterfield.  The Company sublets a portion of the building to
Union Federal. In addition, the Company leases a garage of 5,000 square feet for
vehicle  reconditioning  and  remarketing,  an office of 500  square  feet and a
75-car lot located in Beech Grove,  Indiana,  from an independent  party.  These
facilities  are  currently  used to  recondition  and sell a small amount of the
financed vehicles  repossessed by the Company in central Indiana.  In July 1997,
the  Company  purchased  a 6.5  acre  (60,000  square  foot)  facility  near its
headquarters in  Indianapolis  at which it has established an automobile  retail
dealership  for the purpose of  expanding  its  reconditioning  and  remarketing
operations.

Item 3.           Legal Proceedings

     The Company is party to litigation in the ordinary course of business. Most
of the  litigation  is  initiated  by the  Company  against  debtors  to collect
deficiency balances. Claims are, however, also asserted against the Company on a
regular  basis.  The claims  against the Company  often involve  allegations  of
wrongdoing by the motor vehicle dealer which originated the contract or sold the
vehicle financed by the Company,  and the Company is named as a defendant due to
its status as holder of the  contract.  Claims  are also  asserted  against  the
Company under the consumer  protection  laws  described  above and some of these
claims,  including  the claims  specifically  described  below,  are asserted on
behalf of a class of  consumers.  Similar  litigation  is common among  industry
participants.

     The first of the pending  actions for which class  certification  is sought
was commenced  October 23, 1997,  in the Common Pleas Court of Cuyahoga  County,
Ohio,  Civil Division,  by plaintiff  Barohda  Rucker.  Suit was initially filed
against the Company and Jackshaw  Chevrolet,  Inc.  ("Jackshaw"),  alleging that
Jackshaw committed unfair,  deceptive and unconscionable acts in connection with
the  sale  of a  vehicle,  and  further  alleging  that  the  Company  committed
disclosure  and other  violations  of the Ohio  Retail  Installment  Sales  Act.
Plaintiff has recently amended her complaint  asserting similar claims on behalf
of a class  consisting of all consumers in Ohio who entered into loan agreements
with the Company. The amended complaint also asserts new claims under or related
to the Ohio  Mortgage  Loan Act on behalf of the proposed  class.  The plaintiff
seeks  rescission of the  contracts,  injunctive  relief,  statutory  penalties,
damages and attorney fees.

     The Company is also a defendant in an action  brought in the District Court
for Boulder County,  Colorado,  on April 10, 1998, by plaintiff Cristy Waggoner.
The plaintiff alleges usury,  contending that the retail  installment  contracts
purchased by the Company were, in fact, direct loans by the Company subject to a
lower usury  limitation.  The plaintiff has also asserted  claims on behalf of a
class  of  similarly   situated  Colorado  residents  who  entered  into  retail
installment  contracts assigned to the Company.  The plaintiff seeks unspecified
damages, statutory penalties and attorney fees.

     Finally,  the Company is a defendant in an adversary  action brought in the
United States  Bankruptcy Court for the Northern  District of Illinois,  Eastern
Division on August 23, 1998,  by  plaintiff,  Keith D.  Ferrell.  The  plaintiff
alleges that the Company  overstated  the value of its  collateral in connection
with his Chapter 13  bankruptcy  proceedings.  The  plaintiff  has also asserted
claims on behalf of a class consisting of similarly situated debtors involved in
Chapter 13  proceedings.  The  plaintiff  seeks  injunctive  relief,  actual and
punitive damages, and attorney fees.

     Each of the forgoing proceedings are in their early stages and no class has
yet been certified.  All proceedings are being vigorously defended and, although
there can be no assurance  that the Company will  ultimately  prevail in each of
the  pending  proceedings,  the  Company,  based on advice  from  outside  legal
counsel,  does  not,  at this  time,  expect  any of the  proceedings  to have a
material effect on the Company.

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  commenced its initial public  offering of Class A Common Stock
on  August  7, 1995  concurrently  with the  Spin-off  by Union  Federal  of the
Company.  Shares of Class A Common Stock are quoted on the Nasdaq Stock Market's
National Market under the symbol "UACA." The following table sets forth the high
and low sales price per share of Class A Common Stock for each quarter in fiscal
1998 and 1997:

Fiscal Year Ended June 30,           1998                   1997
                                     ----                   ----
                              High            Low        High      Low
                              ----            ---        ----      ---

First Quarter               11 1/4           8 7/8      19 1/4    12 1/4
Second Quarter              10 1/4           5 1/8      19 3/4    16 1/4
Third Quarter                9 1/8           7 1/4      22 1/2    13 1/4
Fourth Quarter               9 1/8           6 3/4      14 5/8     7 1/2

     As of September 23, 1998, there were approximately 105 holders of record of
the Company's Class A Common Stock and 8 persons holding Class B Common Stock of
the Company of record.  The Company  estimates  that its Class A Common Stock is
owned beneficially by approximately 1,800 persons.  There is no market for Class
B Common Stock,  and management has no plans to list the Class B Common Stock on
Nasdaq or any exchange.

     The Company  currently  intends to retain earnings for use on the operation
and  expansion of its business and  therefore  does not  anticipate  paying cash
dividends  on Class A Common  Stock or Class B Common  Stock in the  foreseeable
future.  The  payment  of  dividends  is within the  discretion  of the Board of
Directors  and  will  depend,   among  other  things,  upon  earnings,   capital
requirements,  any financing  agreement covenants and the financial condition of
the Company. In addition, provisions of the Senior and Senior Subordinated Notes
limit distributions to shareholders.


Item 6.  Selected Consolidated Financial Data

     The following  table sets forth  certain  selected  consolidated  financial
information  reflecting the consolidated  operations and financial  condition of
the Company for each year in the five year period ended June 30, 1998. This data
should  be  read  in  conjunction  with  the  Company's  consolidated  financial
statements  and related notes thereto and "Item 7.  Management's  Discussion and
Analysis of Results of Operations and Financial  Condition"  included herein. As
described more fully in the notes to  Consolidated  Financial  Statements,  this
report  contains  financial  information  which has been restated to correct the
June 30, 1997 valuation of Retained Interest in Securitized Assets.

<TABLE>
<CAPTION>

                                                                                         Year Ended June 30,
                                                            ---------------------------------------------------------------------
                                                               1998             1997          1996         1995          1994
                                                               ----             ----          ----         ----          ----   
                                                                                      (Dollars in thousands)
Income Statement Data:
<S>                                                            <C>              <C>            <C>          <C>           <C>   
Interest income                                              $ 33,727       $   40,299     $   34,160     $ 18,638      $ 14,260
Interest expense(1)                                            26,107           25,688         22,275       12,961         7,769
                                                            ---------------------------------------------------------------------
  Net interest margin                                           7,620           14,611         11,885        5,677         6,491
Provision for estimated                                                                                              
credit losses                                                   8,050            4,188          2,875        1,074           484
                                                            ---------------------------------------------------------------------
  Net interest margin (deficit) after provision                  (430)          10,423          9,010        4,603         6,007

Gain (loss) on sales of  loans, net                           (11,926)             963         30,357        8,684         4,643
Servicing fees, net                                            26,137           25,344         16,926       14,628        11,570
Other                                                           4,087            3,820          3,096        2,783         2,735
                                                            ---------------------------------------------------------------------
     Total revenues                                            17,868           40,550         59,389       30,698        24,955

Operating expenses                                             35,546           30,502         23,841       14,913         8,995
                                                            ---------------------------------------------------------------------
  Earnings (loss) before provision for income taxes           (17,678)          10,048         35,548       15,785        15,960
  Provision (benefit) for income taxes                         (7,856)           4,166         14,406        6,396         6,384
                                                            ---------------------------------------------------------------------
     Net earnings (loss)                                    $  (9,822)      $    5,882     $   21,142     $  9,389        $9,576
                                                            =====================================================================

Operating Data:
Tier I auto receivables acquired                            $944,725        $1,076,064     $  994,834     $766,972      $614,627
Tier II auto receivables acquired                             24,027            39,610         36,030       21,511             -
Marine receivables acquired                                    2,515             6,590             50            -             -
                                                            ---------------------------------------------------------------------
     Total receivables acquired (dollars)                    $971,267       $1,122,264     $1,030,914     $788,483      $614,627
                                                            =====================================================================

Tier I auto receivables acquired                               64,152           75,844         71,070       58,409        49,307
Tier II auto receivables acquired                               1,746            3,050          2,870        1,770             -
Marine receivables acquired                                       200              496              6            -             -
                                                            ---------------------------------------------------------------------
     Total receivables acquired (number of loans)              66,098           79,390         73,946       60,179        49,307
                                                            =====================================================================

Tier I auto loans securitized                                $919,455       $1,183,190        890,110     $658,703      $617,103
Tier II auto loans securitized                                                                                       
                                                               28,659           31,108         34,488            -             -
                                                            ---------------------------------------------------------------------
     Total auto loans securitized                            $948,114       $1,214,298      $ 924,598     $658,703      $617,103
                                                            =====================================================================

Ratio of operating expenses as a % of
  average servicing portfolio                                    1.78%            1.67%          1.73%        1.49%         1.21%
Servicing fees, net, as a % of operating
  expenses                                                      73.53%           83.09%         71.00%       98.09%       128.63%

Tier I credit losses as a % of avg. servicing portfolio          2.80%            2.40%          1.58%        1.36%         0.69%
Tier II credit losses as a % of avg. servicing portfolio         7.67%            5.18%          2.37%        2.97%           N/A
Marine credit losses as a % of avg. servicing portfolio          1.12%            0.25%            N/A          N/A           N/A
Tier I delinquencies of 30 days or more as a
     % of servicing portfolio                                    3.07%            2.96%          1.84%        1.40%         1.40%
Tier II delinquencies of 30 days or more as a
     % of servicing portfolio                                    8.29%            6.18%          3.35%        1.25%           N/A
Marine deliquencies of 30 days or more as a
     % of servicing portfolio                                     N/A             0.10%            N/A          N/A           N/A



</TABLE>
<PAGE>

Item 6.  Selected Consolidated Financial Data (Continued)

<TABLE>
<CAPTION>


At June 30,                                               1998          1997            1996         1995           1994
-----------                                               ----          ----            ----         ----           ----
                                                                                (Dollars in thousands)
Balance Sheet Data(2):
<S>                                                     <C>           <C>             <C>          <C>           <C>      
Loans, net                                              $118,259      $121,156        $259,290     $201,022      $  96,101
Retained interest in securitized assets                  171,593       170,791         147,024      118,076         78,598
Total assets                                             411,533       391,268         451,195      349,283        181,516
Due to Union Federal                                           -             -               -      338,958        177,577
Amounts due under warehouse facilities                    73,123        44,455         187,756            -              -
Long-term debt                                           221,000       221,000         156,000            -              -
 Total shareholder equity(3)                              82,473        86,848          78,624            2              2

Other Data:
Tier I auto servicing portfolio                       $1,978,920    $1,860,272      $1,548,538   $1,159,349       $843,245
Tier II auto servicing portfolio                          66,855        68,289          47,062       19,858              -
Marine servicing portfolio                                     -         6,227              50            -              -
Other loans  serviced                                      1,642         2,488           3,420        5,203              -
                                                      ---------------------------------------------------------------------
     Total servicing portfolio                        $2,047,417    $1,937,276      $1,599,070   $1,184,410       $ 843,245
                                                      =====================================================================

Average Tier I auto servicing portfolio                1,922,977     1,759,666       1,343,770      982,875        744,149
Average Tier II auto servicing portfolio                  69,622        63,305          33,124        9,448              -
Average Marine servicing portfolio                         6,920         2,357                            -              -
Other loans average servicing portfolio                    1,941         2,799           4,222        6,643              -
                                                      ---------------------------------------------------------------------
     Total average servicing  portfolio               $2,001,460    $1,828,127      $1,381,116     $998,966       $744,149
                                                      =====================================================================

Number of Tier I auto loans serviced (at period end)     184,003       173,693         147,722      117,837         91,837
Number of Tier II auto loans serviced (at period end)      6,285         6,056           4,067        1,687              -
Number of Marine loans serviced (at period end)                -           472               6            -              -
Number of Other loans serviced (at period end)               256           402             537          836              -
                                                      ---------------------------------------------------------------------
     Total number of loans serviced (at period end)                                                           
                                                         190,544       180,623         152,332      120,360         91,837

Number of dealers                                                                                             
                                                           3,628         3,204           2,523        1,604            884
Number of employees (full-time equivalents)                                                                   
                                                             529           387             313          215            142
</TABLE>
--------------------------------------------------------------------------------

(1)      Interest  expense for the years ended June 30, 1994 and 1995, was based
         upon  the  average  monthly  balance  "Due to Union  Federal"  at Union
         Federal's all-inclusive cost of funds.

(2)      All  consolidated  balance  sheet  amounts,  except the amounts "Due to
         Union Federal", represent actual recorded assets and liabilities of the
         Company's  business.  The amount Due to Union Federal includes division
         funding by Union Federal as well as inter-company funding.

(3)      The consolidated  financial  statements  reflect no allocation of Union
         Federal's historical equity. Earnings of the Company are transferred to
         Union  Federal  through  the Due to Union  Federal  account at June 30,
         1994, and 1995.




Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

     Note:  Certain  capitalized  terms used but not  otherwise  defined in this
report are defined in the  "Glossary"  set forth at the  conclusion  of "Item 1.
Business."

General

     The Company  derives  substantially  all of its earnings from the purchase,
securitization  and servicing of  automobile  loans  originated  by  dealerships
affiliated with major domestic and foreign  manufacturers.  To fund the purchase
of loans prior to securitization,  the Company utilizes the revolving New Credit
Facility,    discussed   in   "Liquidity   and   Capital   Resources."   Through
securitizations, the Company periodically pools and sells loans to a trust which
issues Certificates to investors  representing interests in the loans sold. When
the Company  sells loans in a  securitization,  it records a gain or loss on the
sale of loans and establishes  Retained  Interest as an asset.  Future Servicing
Cash Flows are  received  over the life of the related  securitization.  See the
"Glossary"  under  "Item  1.  Business"  for  definitions  of  accounting  terms
pertaining to securitizations.

     The  following  table  illustrates  changes  in the  Company's  total  loan
acquisition  volume and  information  with  respect  to Gain  (Loss) on Sales of
Loans,  net and  Securitizations  during the past eight quarters.  More complete
quarterly  statements  of  earnings  information  is set forth in Note 14 of the
Consolidated Financial Statements.

<TABLE>
<CAPTION>
                                                Selected Quarterly Financial Information
                                              For Quarters in the Fiscal Years Ended June 30,
                                      -------------------------------------------------------------
                                                                    1998                              
                                      -------------------------------------------------------------   
                                             First        Second          Third         Fourth (3)    
                                             -----        ------          -----         ----------   
                                                                 (Dollars in thousands)
                                          
<S>                                       <C>            <C>            <C>              <C>          
Loans acquired                            $252,877       $227,405       $220,317         $ 270,668    
 
Gain on Sales of Loans                       5,549          3,173          5,749             5,110    
    Less:  Impairment                      (16,396)        (1,153)        (2,636)           (3,451)    
    Less:  Cash out adjustment                   -              -              -            (7,871)    
           Gain  (loss) on Sales of        (10,847)         2,020          3,113            (6,212)    

Servicing portfolio
     at period end                       1,977,368      2,001,111      2,008,287         2,047,417    
 
Selected
Securitization Data:                        1997-C         1997-D         1998-A     1998-B/1998-1     
Original amount                            218,390        204,147        228,938    267,980/28,659     
Weighted avg. loan rate                     13.48%         13.02%         12.92%      12.51%/18.69%      
Weighted avg.
  remaining maturity (mos.)                  70.68          67.14          70.80       67.50/57.70    
Certificate rate                              6.45%          6.30%          6.11%       6.01%/6.29%    
Gross spread (1)                              7.03%          6.72%          6.81%      6.50%/12.40%    
Net spread (2)                                5.38%          5.07%          5.27%       5.06%/8.04%    

---------------------------------------------------------------------------------------------------
</TABLE>


(1)      Difference between weighted average loan rate and Certificate Rate.

(2)      Difference between weighted average loan rate and Certificate Rate, net
         of upfront costs, servicing fees, ongoing surety bond and trustee fees,
         and hedging gains or losses.

(3)      Two securitizations  were effected during the presented quarters -- one
         public securitization (Tier I securitization) and one private placement
         (Tier II securitization)


<TABLE>
<CAPTION>
                                                Selected Quarterly Financial Information
                                              For Quarters in the Fiscal Years Ended June 30,
                                      -------------------------------------------------------------
                                                                1997                                  
                                      -------------------------------------------------------------    
                                         First        Second (3)        Third             Fourth      
                                         -----        ----------        -----             ------ 
                                                                (Dollars in thousands)                                          
<S>                                    <C>               <C>           <C>               <C>          
Loans acquired                         $296,601          $307,420      $279,847          $238,396     
                                                                                                      
Gain on Sales of Loans                    6,875             7,790         9,783             7,693     
    Less:  Impairment                         -                 -       (15,951) (4)      (15,227)    
    Less:  Cash out adjustment                -                 -             -                 -     
         Gain  (loss) on Sales of                                                                       
               Loans, net                 6,875             7,790        (6,168)           (7,534)     
                                                                                                      
Servicing portfolio                                                                                   
     at period end                    1,709,917         1,835,662     1,910,455         1,937,276     
                                                                                                      
Selected                                                                                              
Securitization Data:                     1996-C     1996-D/1996-2        1997-A            1997-B     
Original amount                         310,999    283,085/31,108       293,348           295,758         
Weighted avg. loan rate                  13.26%      13.53%/19.65%        13.29%            13.21%     
Weighted avg.                                                                                        
  remaining maturity (mos.)               67.41       67.75/62.70         71.35             69.18     
Certificate rate                          6.44%        6.14%/6.40%         6.33%             6.57%     
Gross spread (1)                          6.82%       7.39%/13.25%         6.96%             6.64%     
Net spread (2)                            5.11%        5.37%/9.00%         5.43%             5.15%     
                                                                 
---------------------------------------------------------------------------------------------------- 
</TABLE>

(1)      Difference between weighted average loan rate and Certificate Rate.

(2)      Difference between weighted average loan rate and Certificate Rate, net
         of upfront costs, servicing fees, ongoing surety bond and trustee fees,
         and hedging gains or losses.

(3)      Two securitizations  were effected during the presented quarters -- one
         public securitization (Tier I securitization) and one private placement
         (Tier II securitization)

(4)      Impairment  was reduced by reserves taken during the first two quarters
         of fiscal 1997 of $3.7  million  and by  existing  reserves at June 30,
         1996 of $2.2 million.


     Acquisition Volume. The Company currently acquires loans in 58 metropolitan
areas in 32 states from over 3,600 manufacturer-franchised auto dealerships. The
Company primarily  acquires loans on automobiles made to borrowers who exhibit a
favorable  credit profile  ("Tier I Lending").  The Company also offers a second
level of loan quality to borrowers with adequate credit  quality,  but who would
not  qualify  for a loan under the  Company's  Tier I Lending  quality  criteria
("Tier II Lending").  During fiscal 1997, the Company developed a Marine Lending
program  to fund  loans to  borrowers  for boats  and  personal  watercraft  and
terminated  the  program in March  1998.  The  Company's  focus is on the Tier I
automobile  lending  market.  Only 2.7% of total loan  acquisitions  represented
loans made to borrowers  for Tier II and marine loans.  During fiscal 1998,  the
Company extended  operations into the states of Idaho,  Massachusetts  and South
Dakota.

     The Company's total loan acquisitions decreased 13.5% to $971.3 million for
the year ended June 30, 1998,  from $1.1  billion in fiscal  1997.  The decrease
resulted  primarily  from increased  competition in the consumer  finance market
combined  with the Company's  decision to tighten  credit  standards  during the
third  quarter  of fiscal  1997.  Additionally,  the  termination  of the Marine
Lending program  contributed to the decrease.  Marine loan acquisitions  totaled
$2.5  million for the year ended June 30,  1998,  compared  to $6.6  million for
fiscal 1997. Tier II loan acquisitions  totaled $24.0 million for the year ended
June 30, 1998, compared to $39.6 million in fiscal 1997. In late fiscal 1997 the
Company made strategic  decisions with regard to pricing and underwriting with a
view  to  improving  the  overall  credit  quality  of the  portfolio  over  the
long-term.  These  changes  coupled  with  intense  competition  in the consumer
finance  markets  resulted in lower loan  acquisition  volume in the first three
quarters of fiscal 1998,  however,  Tier I acquisition volume increased 16.4% in
fourth  quarter of fiscal 1998  compared to the fourth  quarter of fiscal  1997.
Loan   acquisitions  for  the  first  quarter  of  fiscal  1999  have  increased
significantly over all fiscal 1998 quarters.  Total Tier I loan acquisitions for
the months of July and August  have  surpassed  $257.0  million,  and total loan
acquisitions  for the first  quarter of fiscal  1999 are  expected  to be nearly
$400.0 million.  See "Discussion of  Forward-Looking  Statements." The Company's
servicing  portfolio  increased 5.7% to  approximately  $2.0 billion at June 30,
1998,  compared to  approximately  $1.9 billion at June 30, 1997. Total serviced
loans  increased as a result of increased loan  acquisition  volume in excess of
loan  repayments  and gross  charge-offs,  but decreased by  approximately  $7.0
million as a result of selling the marine portfolio. The volume of loans sold in
securitizations  decreased  to $948.1  million for the year ended June 30, 1998,
from $1.2 billion for the prior year. The decreased volume of loans  securitized
is a result of a decrease in Tier I loan acquisitions.  Management  continues to
focus on controlled  growth,  recognizing that the underlying  credit quality of
the portfolio is one of the most  important  factors  associated  with long-term
profitability.

Delinquency and Credit Loss Experience

     From June 1997 to September  1997,  the Company  continued to see a general
deterioriation  in the consumer  credit markets  primarily as a result of debtor
over extension. As a result of the deterioration, the Company experienced higher
delinquency and net credit losses from June to September 1997.

     Due to rising delinquency and net credit losses, the Company made strategic
changes in its  origination  and  collection  departments.  As a result of these
strategic  efforts,  the Company has seen improvements in delinquency and credit
loss  ratios  since  the  September  30,  1997,  quarter.  The  efforts  in  the
origination  department include  implementing  tighter credit standards in March
1997, developing quality control screens that rank an obligor by not only credit
score,  but by predetermined  debt and income ratios,  and growing the portfolio
with quality  obligors  through dealer  development  and dealer  expansion.  The
collection  department's  efforts include  restructuring  the collectors to form
specialized  sub-departments of collectors for auxiliary  functions such as skip
tracing  and high risk  accounts,  initiating  collection  calls  earlier in the
delinquency  process  through  use of the power  dialer,  targeting  higher risk
obligors  through the use of quarterly  updated  credit  scores,  and increasing
collection efforts on charged-off accounts.

     The Company has seen  improvements  in  recoveries as a percentage of gross
charge-offs  since the September 30, 1997,  quarter.  This percentage,  however,
remains below management's  expectations,  and the Company continues to look for
ways  to  improve.  In July  1998,  the  Company  opened  a new  car  franchised
dealership in Indianapolis  and has begun retailing a portion of its repossessed
autos  through  the  dealership.  The  Company  anticipates  that this method of
repossession  disposal along with stricter  monitoring of the  repossession  and
resale  process  should  continue to increase the recovery  percentage to within
management's  expectations  over time.  The Company  will not finance any of its
repossessed auto resales. See "Discussion of Forward-Looking Statements".

     Provisions are made for estimated  credit losses in  conjunction  with each
loan sale.  Current credit loss  assumptions  utilized in the calculation of the
Gain on Sales of Loans  during  the year for Tier I and Tier II  securitizations
were 4.00% and 12.00%,  respectively,  over the life of the pool.  Allowance for
estimated  credit losses on securitized  loans  (inherent in Retained  Interest)
increased  to 4.67% at June 30, 1998,  compared to 4.40% at June 30,  1997.  The
Company  recorded a pre-tax charge of $23.6 million and $34.9 million during the
years  ended  June 30,  1998,  and June 30,  1997,  respectively,  to  primarily
increase the  provision  for  estimated  credit losses on those pools which were
deemed to have other than temporary impairment.

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

                                         Tier I Delinquency Experience
                                                  At June 30,
                                 ----------------------------------------------
                                          1998                    1997
                                 ---------------------   ----------------------
                                            (Dollars in thousands)
                                  Number of               Number of
                                    Loans     Amount        Loans      Amount
                                  ---------   ------      ---------    ------

Servicing portfolio               184,003  $1,978,920     173,693   $1,860,272
Delinquencies
     30-59 days                     3,179      32,967       2,487       27,373
     60-89 days                     1,907      20,819       1,646       18,931
     90 days or more                  657       6,992         723        8,826 
                                  -------  ----------     -------   ----------
Total delinquencies                5,743     $ 60,778       4,856     $ 55,130
                                  =======  ==========     =======   ==========
                                                                 
Total delinquencies
    as a % of servicing portfolio   3.12%        3.07%       2.80%        2.96%


     As indicated in the above table,  delinquency  rates based upon outstanding
loan  balances of accounts 30 days past due and over  increased to 3.07% at June
30, 1998,  from 2.96% at June 30, 1997,  for the Tier I Lending  portfolio.  The
Company  attributes the increase in delinquency from one year ago to the general
deterioration  in the consumer credit market.  Although  delinquency  rates have
increased  from a year ago,  the June  1998  quarter  is the  third  consecutive
quarter  of  improved  performance  in  the  servicing  portfolio.   The  steady
improvement is a direct result of the Company's  continued focus on refining its
collection  practices and consistent  application of  conservative  underwriting
guidelines.

<TABLE>
<CAPTION>
                                           Tier I Credit Loss Experience
                                            For the Years Ended June 30,
                         -------------------------------------------------------------------
                                 1998                    1997                   1996
                         ---------------------    -------------------    -------------------
                          Number                   Number                 Number
                         of Loans     Amount      of Loans   Amount      of Loans   Amount
                         --------     ------      --------   ------      --------   ------
                                               (Dollars in thousands)
<S>                       <C>        <C>           <C>     <C>            <C>      <C>      
Avg. servicing
   portfolio              179,822   $1,922,977    164,858 $1,759,666      132,363  $1,343,770

Gross charge-offs           7,909       87,325      6,280     70,830        3,663      40,815
Recoveries                              33,545                28,511                   19,543
                                      --------                ------                   ------
 Net credit losses                    $ 53,780               $42,319                  $21,272
                                      ========              ========                   ======

Gross charge-offs as a % of
     avg servicing 
     portfolio                4.40%       4.54%        3.81%     4.03%        2.77%      3.04%
Recoveries as a %
    of gross charge-offs                 38.41%                 40.25%                  47.88%
Net credit losses as a %
    of avg. servicing
    portfolio                             2.80%                  2.40%                   1.58%
</TABLE>

     As indicated in the table above,  net credit losses on the Tier I portfolio
totaled  $53.8  million for the fiscal year ended June 30,  1998,  or 2.80% as a
percentage  of the average  servicing  portfolio,  compared to $42.3  million or
2.40% for the fiscal year ended June 30, 1997. Net credit losses have increased,
and recovery rates have decreased over one year ago;  however,  as stated above,
both net credit  losses and  recovery  rates have  improved  steadily  since the
quarter ended September 30, 1997.

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

                                        Tier II Delinquency Experience
                                                 At June 30,
                                 ---------------------------------------------
                                          1998                  1997
                                 ---------------------   ---------------------
                                            (Dollars in thousands)
                                  Number of               Number of
                                    Loans     Amount        Loans     Amount
                                  -----       ------      -----       ------
Servicing portfolio                 6,285    $ 66,855       6,056    $ 68,289
                                                                 
Delinquencies       
     30-59 days                       365       4,023         236       2,807
     60-89 days                       140       1,457         123       1,412
     90 days or more                    5          64           -           -   
                                    -----    --------       -----    --------
Total delinquencies                   510     $ 5,544         359     $ 4,219  
                                    =====    ========       =====    ========
                                                                   
Total delinquencies
    as a % of servicing portfolio      8.11%    8.29%       5.93%       6.18%



<TABLE>
<CAPTION>
                                                        Tier II Credit Loss Experience
                                                         For the Years Ended June 30,
                                      -------------------------------------------------------------------
                                             1998                     1997                   1996
                                      ---------------------   --------------------   --------------------
                                      Number of              Number of              Number of
                                        Loans      Amount      Loans     Amount       Loans     Amount
                                      ---------    ------    ---------   ------     ---------   ------
                                       
                                                            (Dollars in thousands)
<S>                                     <C>        <C>           <C>    <C>            <C>       <C>    
Avg. servicing
   portfolio                            6,320      $69,622       5,491  $  63,305      2,869     $33,124
                                                                                            
Gross charge-offs                         748        8,275         422      4,698        136       1,455
Recoveries                                           2,937                  1,420                    670
                                                  ========               ========               ========
Net credit losses                                  $ 5,338                 $3,278                $   785
                                                  ========               ========              =========

Gross charge-offs
   as a % of avg.
   servicing portfolio                  11.84%       11.89%       7.69%      7.42%       4.74%      4.39%
Recoveries as a %
    of gross charge-offs                             35.49%                 30.23%                 46.07%
Net credit losses as a %
    of avg. servicing
    portfolio                                         7.67%                  5.18%                  2.37%


</TABLE>


     Tier II portfolio  delinquency was 8.29% based on outstanding loan balances
of  accounts  30 days past due and over at June 30,  1998,  compared to 6.18% at
June 30, 1997.  Credit losses during fiscal 1998 totaled $5.3 million,  or 7.67%
as a percentage  of the average Tier II  servicing  portfolio,  compared to $3.3
million,  or 5.18%, in fiscal 1997. The Company began acquiring Tier II loans in
October 1994.

     Marine Portfolio.  Due to the termination of the Marine Lending program and
the resulting sale of most of the marine loans,  delinquency was minimal at June
30, 1998 and 1997.  Credit losses during fiscal 1998 totaled $78,000 or 1.12% as
a percentage  of the average  marine  servicing  portfolio  compared to .25% for
fiscal 1997.

Results of Operations

     The  following  table  illustrates  the  Company's  consolidated  financial
results for the past eight fiscal quarters.  More complete earnings  information
can be found in the Consolidated Financial Statements and the Notes thereto.

<TABLE>
<CAPTION>

                                                           Selected Quarterly Financial Information
                                                        For Quarters in the Fiscal Year Ended June 30,
                              ---------------------------------------------------------------------------------------------------
                                                        1998                                                1997
                              ---------------------------------------------------------------------------------------------------
                                    First       Second       Third      Fourth        First      Second       Third       Fourth
                                    -----       ------       -----      ------        -----      ------       -----       ------ 
                                                                         (Dollars in thousands)
<S>                            <C>             <C>         <C>          <C>         <C>         <C>        <C>           <C>    
Interest on loans              $    6,627      $ 6,473     $ 7,133      $7,638      $ 9,233     $ 9,096    $  7,543      $ 8,042
Interest on spread accounts 
   and restricted cash              1,572        1,461       1,443       1,380        1,510       1,545       1,618        1,712 
                               ----------      -------     -------      ------      -------     -------    --------      -------
   Total interest income            8,199        7,934       8,576       9,018       10,743      10,641       9,161        9,754
Interest expense                    6,053        6,167       6,990       6,897        6,410       6,265       6,118        6,895 
                               ----------      -------     -------      ------      -------     -------    --------      -------
   Net interest margin              2,146        1,767       1,586       2,121        4,333       4,376       3,043        2,859
Provision for estimated
      credit losses                 1,505        1,770       1,900       2,875          855         993       1,180        1,160 
                               ----------      -------     -------      ------      -------     -------    --------      -------
   Net interest margin
      (deficit) after provision       641          (3)       (314)       (754)        3,478       3,383       1,863        1,699

Gain (loss) on sales
      of loans, net               (10,847)       2,020       3,113      (6,212)       6,875       7,790      (6,168)      (7,534)
Servicing fees, net                 6,286        6,533       6,529       6,789        5,826       6,258       6,854        6,406
Other revenues                      1,020          985       1,065       1,017          934         910       1,011          965
Operating expenses                  8,623        9,036       8,822       9,065        7,146       7,832       7,545        7,979
Net earnings (loss)            $   (6,867)    $  1,210      $  917    $ (5,082)   $   5,918      $6,193    $ (2,398)      (3,831)
</TABLE>


Years Ended June 30, 1998 and 1997

     Net earnings  (loss)  decreased to ($9.8)  million or ($0.74) per share for
the year ended June 30, 1998, compared to $5.9 million or $.45 per share for the
year ended June 30, 1997.  The decrease in net earnings is primarily a result of
lower gains recognized on the fiscal 1998  securitization  transactions of $19.6
million  pre-tax  ($12.0  million  net  of  tax)  compared  to the  fiscal  1997
securitization transactions of $32.1 million pre-tax ($19.1 million net of tax).
Gains on the  securitizations  were  offset  by  charges  taken for pool by pool
impairments  of the Retained  Interest  asset of $23.6  million  pre-tax  ($14.2
million net of tax) and $31.2 million pre-tax ($18.5 million net of tax) for the
years ended June 30, 1998 and 1997,  respectively.  Net earnings also  decreased
due to the  implementation  of valuing Retained  Interest on a "cash out" rather
than  "cash  in" basis  effectively  reducing  after-tax  net  earnings  by $4.9
million.  Exclusive of the  after-tax  other than  temporary  Retained  Interest
impairment  charges and the  after-tax  "cash out" charge for fiscal  1998,  net
earnings  would  have been $9.3  million  or $0.70  per  share for  fiscal  1998
compared to $24.4 million and $1.85 per share for fiscal 1997.

     The "cash out"  method  estimates  Retained  Interest  by  discounting  the
expected  excess cash flows from the time they are projected to be released from
the  Spread  Account  using a  discount  rate  which  the  Company  believes  is
commensurate  with the risks  involved.  Historically  the Company has estimated
Retained  Interest,  recognized  as a  component  of the gain on  sale,  and its
subsequent fair value by discounting the projected  Future  Servicing Cash Flows
from the time they are received by the respective  trust,  the "cash in" method.
Use of the "cash out" method resulted in a larger discount of estimated Retained
Interest due to the timing of the expected  excess cash flows  released from the
Spread  Account.  Additionally,  interest  income earned on the Spread  Accounts
became a component of the expected excess cash flows and beginning in the fourth
quarter  of fiscal  1998,  will no  longer be  recognized  as  interest  income.
Offsetting  the lower gain on sales and the reduction of interest  earned was an
increase in the accretion of discounted excess servicing.

     Net  interest  margin   (deficit)  after  provision   decreased  104.1%  to
($430,000)  for the year ended June 30,  1998,  compared  to $10.4  million  for
fiscal 1997. The decreased  interest margin after provision as compared to prior
year is a result of a combination  of factors but is primarily due to a decrease
in the average  loans held for sale balance and an increase in the provision for
estimated credit losses.

     Interest on loans  decreased 17.8% to $27.9 million for the year ended June
30, 1998,  compared to $33.9 million for year ended June 30, 1997.  The decrease
in interest income resulted from a decrease in the average  outstanding  balance
of loans held for sale to $206.2 million for the year ended June 30, 1998,  from
$228.3  million  for  fiscal  1997,   which  was  a  result  of  decreased  loan
acquisitions  during the first three quarters of fiscal 1998. Interest earned on
the Tier II and marine portfolios was  approximately  $5.2 million and $801,000,
respectively.

     Interest  earned on spread  accounts and restricted  cash decreased 8.3% to
$5.9 million for the year ended June 30, 1998,  compared to $6.4 million for the
year ended June 30, 1997. The decrease is primarily due to the  reclassification
of collection  account interest.  As a result of the implementation of SFAS 125,
the  Company  established  a  Servicing  Asset  related  to  all  securitization
transactions  after UACSC  1996-D.  The  Servicing  Asset related to fiscal 1998
securitizations  totaled $2.3  million  compared to $1.5 million for fiscal 1997
securitizations.  Such amounts equal the  discounted  projected cash flow of the
interest  earned on the  collection  account  and are  deemed  to be  additional
servicing compensation.  Such amounts were recognized as a component of the gain
on sale with the  discount  being  accretive  into  income  in  future  periods.
Establishment of the Servicing Asset had the effect of reducing  interest income
by $1.1  million  and  $153,000  for the  years  ended  June 30,  1998 and 1997,
respectively,  however  accretion  of the  discount  will  somewhat  offset  the
reduction of interest  income in future  periods.  The  decrease  related to the
establishment  of the  Servicing  Asset was partially  offset by higher  average
balances on the cash  collection  and Spread  Accounts.  The average  balance of
these accounts was $139.2 million in fiscal 1998,  compared to $127.4 million in
fiscal 1997. The increased  restricted  cash balances  result from the increased
size of the securitized  servicing portfolio.  Average securitized loan balances
were  $1,793.3  million  during the current  fiscal  year,  compared to $1,445.4
million in fiscal 1997. Cash collection  accounts  represent  customer  payments
held in trust  until  disbursement  by the  trustee.  Interest  is earned by the
Company on these  funds prior to  distribution  of such funds to  investors  and
servicer.   Spread  Account  balances   represent  credit   enhancement  on  the
securitized  pools; the Spread Account  requirements are affected by the size of
the securitized servicing portfolio as well as loss and delinquency trends which
may trigger higher spread requirements.

     As a result of the  implementation  of the  "cash  out"  method of  valuing
Retained  Interest,  interest  earned on spread accounts will be lower in future
periods.  However the  reduction  in income will be  partially  offset by higher
discount accretion.

     Interest  expense  increased  1.6% to $26.1 million for the year ended June
30,  1998,  from $25.7  million for the year ended June 30,  1997.  The increase
relates to the  issuance  of $65.0  million in Senior  Notes  during  March 1997
resulting in higher long-term debt expense for all four quarters of fiscal 1998,
but only the  fourth  quarter  of  fiscal  1997.  Interest  expense  related  to
long-term  debt was $19.5 million and $15.7 million for the years ended June 30,
1998 and 1997, respectively.  The increase in interest related to long-term debt
was offset by a decrease in the  average  warehouse  borrowing  needs for fiscal
1998  compared to fiscal 1997.  The average  outstanding  borrowings  was $111.2
million for the year ended June 30,  1998,  compared  to $174.2  million for the
year ended June 30, 1997.  The average  cost of funds on the combined  long-term
debt and  warehouse  borrowings  increased  to 7.86% for the year ended June 30,
1998,  from 7.39% for the year ended June 30,  1997.  Interest  rates on the New
Credit Facility and Credit Facilities are variable in nature and are affected by
changes in market rates of interest.

     Provision  for estimated  credit  losses  increased to $8.1 million for the
year ended June 30,  1998,  compared to $4.2 million for the year ended June 30,
1997.  Increased  provisions  were made in  response  to  increased  losses  and
delinquency  trends being  experienced  by the Company during the latter part of
fiscal  1997 and the first  quarter  of  fiscal  1998 and the  consumer  finance
industry in general.  The increase in the provision was also related to a higher
balance of modified loans at June 30, 1998, compared to June 30, 1997, that were
not eligible for securitization until the fourth quarter of fiscal 1998.

     Gain (loss) on sales of loans,  net and interest rate risk.  Gain (Loss) on
Sales of Loans  continues  to be a  significant  element  of the  Company's  net
earnings.  The Gain  (Loss) on Sales of Loans is  affected  by several  factors,
primarily  the  amount of loans  securitized,  the net  spread  and the level of
estimated  credit  losses.  Historically,  the Company has  estimated the Future
Servicing  Cash  Flows  recognized  as a  component  of  the  gain  on  sale  by
discounting  the projected  Future  Servicing  Cash Flows from the time they are
received by the respective trust. However, management implemented the "cash out"
method  during the fourth  quarter of fiscal 1998 which  discounts  the expected
Future  Servicing  Cash  Flows from the time they are  released  from the Spread
Account to the Company.  Loss on sales of loans  totaled  $11.9  million for the
year ended June 30, 1998, compared to a gain of $963,000 for the year ended June
30, 1997. The decrease in Gain (Loss) on Sales of Loans is primarily a result of
lower gains recognized on fiscal 1998  securitization  transactions  compared to
fiscal 1997.  The gain for the years ended June 30, 1998 and 1997,  consisted of
gains on new  securitization  transactions  of $19.6 million and $32.1  million,
(including $2.3 million and $1.5 million of Servicing Asset income), and charges
for other than temporary  impairments of Retained  Interest of $23.6 million and
$31.2 million,  respectively. The net gain for the year ended June 30, 1998, was
also  lower  than  prior  year  due  to a $7.9  million  charge  related  to the
implementation  of the "cash  out"  method of  valuing  Retained  Interest.  The
decrease  in the Gain  (Loss)  on Sales of Loans is also  attributed  to a 21.9%
decrease in the volume of loans  securitized  to $948.1  million for fiscal 1998
compared to $1,214.3 million for fiscal 1997. Additionally, the weighted average
net spread  decreased  to 5.28% for the year ended June 30,  1998,  compared  to
5.36% for the year ended June 30, 1997.  Credit loss  assumptions  on the Tier I
transactions were 4.00% throughout fiscal 1998 compared to 3.25% throughout most
of fiscal 1997.  Allowance  for credit losses were 12.00% for the Tier II fiscal
1998 securitization compared to 10.00% for the two previous securitizations.

     The Company adjusts its pricing  frequently and employs a hedging  strategy
to help  ensure an  adequate  net spread in the  ensuing  securitization,  while
mitigating  the risks of  increasing  interest  rates and the  volatility in net
spreads. See "Discussion of Forward-Looking Statements."

     Gross and net spreads.  Market  interest rates were lower in fiscal 1998 as
compared to the corresponding periods of fiscal 1997. Gross spread is defined as
the difference  between the weighted average loan rate and the Certificate rate.
Net  spread is defined as gross  spread  less  servicing  fees,  upfront  costs,
ongoing credit  enhancement  fees and trustee fees, and hedging gains or losses.
Net  spreads  peaked  in the  third  quarter  of  fiscal  1997 at 5.43% and have
fluctuated  over the  succeeding  five  quarters  between  5.06% and 5.38%.  Net
spreads  have  been   decreasing   but   continue  to  be  within   management's
expectations.

     Management  is currently  targeting net spreads of 5.00% to 5.50% on Tier I
securitizations  (assuming a pricing spread for Asset-Backed Securities over the
two-year  treasury  note  of 50  basis  points).  Management  believes  that  by
targeting a gross  spread of 7.00% to 7.50%  between loan rates and the two-year
treasury rate, these net spreads can be achieved.  Although  management believes
these spreads can be achieved,  material  factors  affecting the net spreads are
difficult to predict and could cause  management's  projections to be materially
inaccurate.  These  include  current  market  conditions  with respect to market
interest  rates  and  demand  for  Asset-Backed  Securities  generally  and  for
Certificates representing interests in securitizations sponsored by the Company.
See "Discussion of Forward-Looking Statements."

     Servicing  fees, net is comprised of fees earned by the Company as Servicer
of the  securitized  loan  portfolio  (typically  1% per annum),  the  scheduled
accretion  of  discount   established  on  Retained  Interest  at  the  time  of
securitization, and rebates received in excess of original estimates inherent in
the Gain (Loss) on Sales of Loans  calculation until the third quarter of fiscal
1997.  Servicing  fees,  net increased  3.1% to $26.1 million for the year ended
June 30,  1998,  compared  to $25.3  million  for the year ended June 30,  1997.
Servicing  fees,  net as a  percentage  of  the  average  securitized  servicing
portfolio  decreased  to 1.46% for fiscal  1998,  from  1.75% for  fiscal  1997.
Although the average  securitized loan portfolio increased 24.1% to $1.8 billion
for the year ended June 30, 1998,  from $1.4 billion for the year ended June 30,
1997, the increase in servicing fees related to the larger securitized portfolio
was nearly offset by a decrease in excess rebates. Rebates received in excess of
original  estimate inherent in the gain calculation were recorded as a reduction
of Retained  Interest  during  fiscal 1998,  but were recorded as a component of
servicing fees in fiscal 1997 and totaled $2.3 million.  The change in recording
excess rebates was made during the third quarter of fiscal 1997.

     Other  revenues  increased 7.0% to $4.1 million for the year ended June 30,
1998, from $3.8 million for the year ended June 30, 1997. Other revenues consist
primarily of late charge fee income and origination fee income.  The increase in
the current year resulted  primarily from increases in late charge fee income to
$3.3 million from $2.6 million in the prior year but was offset by a decrease in
origination fees. The increase in late charge fee income is primarily due to the
increase in the servicing portfolio as well as higher delinquencies  experienced
during fiscal 1998 compared to fiscal 1997. The decrease in origination  fees is
primarily  due to a lower  volume  of loans  acquired  during  the  first  three
quarters of fiscal 1998 compared to fiscal 1997. Additionally,  origination fees
have decreased due to the use of a greater  percentage of generic contracts that
do not allow for an origination fee to be charged.

     Salaries and benefits expense increased 24.0% to $19.4 million for the year
ended June 30, 1998,  from $15.7 million for the year ended June 30, 1997.  This
increase  resulted  primarily from an increase in full-time  equivalent  ("FTE")
employees.  Average FTE's for the year ended June 30, 1998, were 466 compared to
368 for the year ended June 30,  1997.  The  Company has  experienced  growth in
collections,  human  resources  and  training,  operations,  systems  and retail
operations.  The  increases  in the  collections  and  operations  areas  are in
response  to  an  increase  in  the  servicing  portfolio  and  an  increase  in
delinquencies  during  the  year.  Increases  in human  resources  and  training
resulted from a focus on providing  better  training to  employees.  The systems
area increased because of a Company  commitment to improve internal analysis and
reporting of corporate  financial,  origination and collection data that will be
used to improve operations and lead to a stronger more profitable portfolio. The
increase in the number of reconditioning  and remarketing  operations  employees
was due to the opening of a new automotive dealership in July 1998 to facilitate
remarketing of  repossessed  vehicles.  Increases in salary and benefit  expense
were also due to annual merit increases for the Company's existing employees.

     Other operating expense includes occupancy and equipment costs, outside and
professional  services,  loan expenses,  promotional  expenses,  travel,  office
supplies and other.  Other operating expense increased 8.7% to $16.1 million for
the year ended June 30,  1998,  from $14.8  million  for the year ended June 30,
1997.  The increase in other  operating  expense was primarily  attributed to an
increase in consulting and  professional  fees for the Activity Based Management
("ABM")  consulting  project that began in July 1997 and the non-recurring  fees
related  to the  change  in  commercial  domicile  for  five  of  the  Company's
subsidiaries.  ABM is used as a tool to better manage the Company's business and
to improve the pricing of products and overall operating efficiency.  The change
in commercial domicile provided a one-time income tax benefit of $860,000 in the
second  quarter of fiscal 1998 which was  recorded as a component  of income tax
expense.

Years Ended June 30, 1997 and 1996

     Net  earnings  decreased  to $5.9  million  or $0.45 per share for the year
ended June 30, 1997,  compared to $21.1  million or $1.60 per share for the year
ended June 30, 1996. The decrease in net earnings is primarily a result of third
and fourth  quarter  after-tax  charges of $9.5 and $9.0 million,  respectively,
($16.0 and $15.2 million pre-tax,  respectively,) for the impairment of Retained
Interest related  primarily to an increase in the allowance for estimated credit
losses on the  securitized  portfolio.  The  charge  was taken  based on current
trends with  respect to credit  loss and  delinquency  and their  effects on the
valuation of Retained Interest on a pool by pool basis. Exclusive of the pool by
pool impairment charges, net earnings would have been $24.4 million or $1.85 per
share.

     Net interest  margin after  provision  increased 15.7% to $10.4 million for
the year ended June 30,  1997,  compared to $9.0  million for fiscal  1996.  The
increased interest margin as compared to prior year is a result of a combination
of factors but is  primarily  due to an  increase in the average  loans held for
sale  balance  and a decrease  in the cost of funds on the  average  outstanding
borrowings.

     Interest on loans  increased 18.1% to $33.9 million for the year ended June
30,  1997,  compared to $28.7  million for last year.  The  increase in interest
income  resulted  from an increase in the average  outstanding  balance of loans
held for sale to $228.3  million for the year ended June 30,  1997,  from $186.6
million  for fiscal  1996,  which was a result of  increased  loan  acquisitions
during the year and the timing of the fourth  quarter  securitization.  The 1997
fourth quarter  securitization  was effected in June instead of May (as compared
to previous years); therefore, an additional one month of interest was earned by
the  Company.  Interest  earned  on the  Tier  II  and  Marine  portfolios  were
approximately $3.8 million and $255,000, respectively.

     Interest  earned on spread  accounts and restricted cash increased 17.2% to
$6.4 million for the year ended June 30, 1997,  compared to $5.4 million for the
year ended June 30, 1996. The increase is a result of increased average balances
on cash  collection and Spread  Accounts.  The average balance of these accounts
was $127.4  million in fiscal 1997,  compared to $110.3  million in fiscal 1996.
The increased  restricted  cash balances  result from the increased  size of the
securitized servicing portfolio. Average securitized loan balances were $1,445.4
million during the current fiscal year,  compared to $1,179.4  million in fiscal
1996.  The average  interest yield on the Spread  Accounts and  restricted  cash
accounts  improved  approximately  15  basis  points  which  contributed  to the
increase as well.  Spread Account balances  represent credit  enhancement on the
securitized  pools; the Spread Account  requirements are affected by the size of
the securitized servicing portfolio as well as loss and delinquency trends which
may trigger  higher spread  requirements.  Cash  collection  accounts  represent
customer payments held in trust until  disbursement by the trustee.  Interest is
earned by the  Company on these  funds  prior to  distribution  of such funds to
investors  and  Servicer.  As a result of the  implementation  of SFAS 125,  the
Company   established  a  Servicing   Asset  related  to  the  1997A  and  1997B
securitization transactions of $743,000 and $750,000, respectively. Such amounts
equal  the  discounted  projected  cash  flow  of  the  interest  earned  on the
collection account and are deemed to be additional servicing compensation.  Such
amounts  were  recognized  as a component  of the gain on sale with the discount
being  accretive to income in the future.  Establishment  of the Servicing Asset
will have the effect of reducing  interest  earned on restricted  cash in future
periods, however, accretion of the discount on the Servicing Asset will somewhat
offset this decrease.

     Interest  expense  increased 15.3% to $25.7 million for the year ended June
30, 1997,  from $22.3 million for the year ended June 30, 1996. The increase was
primarily  a result of an  increase in the  average  outstanding  borrowings  to
$347.7  million for the year ended June 30,  1997,  from $288.4  million for the
year ended June 30,  1996,  offset by a decline in the average  cost of funds to
7.39% for the year ended June 30,  1997,  from 7.72% for the year ended June 30,
1996. Cost of funds in the prior year included  interest  expense in the form of
amortization   of  upfront   borrowing  fees  paid  in   conjunction   with  the
establishment of the Prime and Non-prime  Warehouse  Facilities.  The agreements
provided for an initial term of one year to be renewed annually;  therefore, the
total upfront fees paid to establish the Facilities were amortized during fiscal
1996.  Upfront  fees  paid in fiscal  1996  related  to the Prime and  Non-prime
Warehouse  Facilities  totaled  approximately  $1.5 million.  The renewal of the
Prime and Non-Prime  Warehouse  Facilities do not require  payment of additional
fees.  Interest  rates on the  Prime  and  Non-prime  Warehouse  Facilities  are
variable in nature and are affected by changes in market rates of interest.

     Provision  for estimated  credit  losses  increased to $4.2 million for the
year ended June 30,  1997,  compared to $2.9 million for the year ended June 30,
1996.  Increased  provisions were made in response to, and in  anticipation  of,
increased losses and delinquency trends being experienced by the Company and the
industry in general.

     Gain (loss) on sales of loans,  net and interest rate risk.  Gain (Loss) on
Sales of Loans  continues  to be a  significant  element  of the  Company's  net
earnings.  The Gain (Loss) on Sales of Loans is affected by several factors, but
is primarily affected by the amount of loans securitized and the net spread. The
Company  adjusts its pricing  frequently and employs a hedging  strategy to help
ensure an adequate net spread in the ensuing  securitization,  while  mitigating
the risks of increasing  interest rates and the volatility in net spreads.  Gain
(Loss) on Sales of Loans decreased to $963,000 for the year ended June 30, 1997,
from $30.4  million  for the year ended June 30,  1996.  The  decrease  in gains
recognized by the Company in the current  fiscal year is due to pre-tax  charges
of $31.2 million for the impairment of Retained  Interest  primarily  related to
the increase in allowance for estimated credit losses related to its securitized
portfolio.  Exclusive of the charges,  gains  recorded in  conjunction  with the
fiscal 1997  securitization  transactions  were $31.7 million  compared to $30.4
million in fiscal 1996 and  included  $1.5 million in  servicing  asset  income.
Although the volume of loans securitized increased 31.3% to $1,214.3 million for
the year ending June 30, 1997,  compared to $924.6  million in fiscal 1996,  the
weighted  average net spread on the  securitization  transactions  decreased  to
5.36% in fiscal  1997,  compared  to 5.96% in  fiscal  1996.  Additionally,  the
allowance for estimated  credit losses  established  at the time of the sale was
3.87%  (excluding  the charge) as a  percentage  of total loans  securitized  in
fiscal 1997,  compared to 3.57% in fiscal 1996.  Credit loss  assumptions on the
Tier I transactions  were 3.25%  throughout  most of fiscal 1997;  however,  the
Company  began  providing for losses at 3.50% on Tier I  securitizations  in the
fourth  quarter of fiscal  1997.  Allowance  for  estimated  credit  losses were
established  at 3.00% for the majority of fiscal 1996.  Allowance  for estimated
credit   losses  have   historically   been  made  at  10.00%  on  the  Tier  II
securitizations.

     Gross and net spreads.  Market interest rates were higher in fiscal 1997 as
compared to the  corresponding  periods of fiscal 1996. Market rates experienced
an upward trend beginning in the fourth quarter of fiscal 1996, but demonstrated
relatively small  fluctuations  throughout fiscal 1997.  Because changes in loan
rates on  automobile  loans tend to lag behind  fluctuations  in market rates of
interest,  spreads are  adversely  affected in a rising  rate  environment.  The
increased  market rates in fiscal 1997 had the effect of reducing  gross and net
spreads on Tier I  securitizations  compared  to fiscal  1996.  Gross  spread is
defined  as the  difference  between  the  weighted  average  loan  rate and the
Certificate  rate.  Net spread is defined as gross spread less  servicing  fees,
upfront  costs,  ongoing credit  enhancement  fees and trustee fees, and hedging
gains or losses.

     Management  is currently  targeting net spreads of 5.00% to 5.50% on Tier I
securitizations  (assuming a pricing spread for Asset-backed  Certificates  over
the  two-year  Treasury  Note of 50 basis  points) for fiscal  1998.  Management
believes that by targeting a spread of 7.00% to 7.50% between loan rates and the
two-year  treasury  rate that the net spread  targets can be achieved.  Although
management  believes these spreads can be achieved,  material factors  affecting
the  net  spreads  are  difficult  to  predict  and  could  cause   management's
projections to be materially inaccurate. These include current market conditions
with respect to market  interest  rates and demand for  Asset-backed  Securities
generally,  and  for  Certificates  representing  interests  in  Securitizations
sponsored by the Company. See "Discussion of Forward-Looking Statements."

     Servicing  fees, net is comprised of fees earned by the Company as Servicer
of the  securitized  loan  portfolio  (typically  1% per annum),  the  scheduled
accretion  of  discount   established  on  Retained  Interest  at  the  time  of
securitization, and rebates received in excess of original estimates recorded in
the gain  calculation.  Servicing fees, net increased 49.7% to $25.3 million for
the year ended June 30, 1997,  compared to $16.9 million for the year ended June
30,  1996.  Servicing  fees,  net as a  percentage  of the  average  securitized
servicing  portfolio  increased to 1.75% for fiscal  1997,  from 1.42% in fiscal
1996.  The  increase in  servicing  fees,  net is  primarily a result of a 22.6%
increase  in the  average  securitized  loan  balances  in  fiscal  1997 to $1.4
billion,  compared  to $1.2  billion  in fiscal  1996.  Servicing  fees are also
impacted by the timing of Future Servicing Cash Flows and excess rebates. Excess
rebates received during fiscal 1997 were $2.3 million,  compared to $2.8 million
in fiscal  1996.  The  Company's  rebate  receivable  was  marked to market as a
component  of  Retained  Interest in  accordance  with SFAS 125 during the third
quarter of fiscal 1997.

     Other revenues  increased 23.4% to $3.8 million for the year ended June 30,
1997,  from $3.1 million for the year ended June 30,  1996.  The increase in the
current year resulted primarily from increases in late charge fee income to $2.6
million from $1.9 million in the prior year.

     Salaries and benefits expense increased 30.8% to $15.7 million for the year
ended June 30, 1997,  from $12.0 million for the year ended June 30, 1996.  This
increase  resulted  primarily from an increase in full-time  equivalent  ("FTE")
employees.  Average FTE's for the year ended June 30, 1997, were 333 compared to
270 for the year ended June 30,  1996.  The  Company has  experienced  growth in
credit, sales and operations,  collections,  and support. These increases are in
response to, and in anticipation  of,  continued  expansion and loan acquisition
growth as well as a growing servicing portfolio. Additional levels of management
and support  staff have been added to ensure  efficiency  in  operations  as the
Company's   acquisition  volume  and  servicing  portfolio  continues  to  grow.
Increases in salary and benefit  expense were also due to annual merit increases
for the Company's existing employees.

     Other operating expense includes occupancy and equipment costs, outside and
professional  services,  loan expenses,  promotional  expenses,  travel,  office
supplies and other. Other operating expense increased 25.1% to $14.8 million for
the year ended June 30,  1997,  from $11.9  million  for the year ended June 30,
1996.  Many of these  expenses  vary directly with  increased  loan  acquisition
volume and the increased size of the servicing portfolio.  Both loan acquisition
volume and the servicing portfolio were increased during the year ended June 30,
1997,  compared to the year ended June 30,  1996.  Occupancy  expense  increased
reflecting a full twelve  months of rent expense in fiscal 1997 at the Company's
new headquarters,  compared to only six months in fiscal 1996. Equipment expense
was also impacted by a full year of expense from its  collections  and telephone
systems implemented at the Company's new headquarters in January 1996.



Financial Condition

     Loans,  net and  servicing  portfolio.  Loans,  net includes the  principal
balance of loans held for sale,  net of  unearned  discount  and  allowance  for
credit  losses,  loans in  process,  and prepaid  dealer  premiums.  Loans,  net
decreased to $118.3  million at June 30, 1998,  from $121.2  million at June 30,
1997.   This  decrease  was  due  primarily  to  the  fourth   quarter  Tier  II
securitization and the sale of the marine portfolio.  The Tier II securitization
and the  sale  of the  marine  portfolio  accounted  for  $18.3  million  of the
difference  but was  offset  by an  increase  in the Tier I loans  held for sale
balance of $17.8 million.  The modified loan portfolio balance included in loans
held for sale totaled $20.8 million at June 30, 1998,  compared to $14.3 million
at June 30, 1997. The modified loan portfolio  balance  increased  during fiscal
1998; however, due to more refined  underwriting  policies for modifications and
the ability to securitize a small percentage of the modified portfolio in future
securitizations,  the  balance is  expected to  decrease.  Allowance  for credit
losses on loans held for sale was  increased  $1.1  million  from June 30, 1997,
primarily as a result of higher losses from modifications.  The Company serviced
$1.9  billion and $1.8 billion in  securitized  loans,  and the total  servicing
portfolio  was $2.0 billion and $1.9  billion as of June 30, 1998,  and June 30,
1997, respectively.

     Retained interest in securitized  assets ("Retained  Interest").  Beginning
with  the June 30,  1998,  consolidated  financial  statements,  the  previously
captioned Excess Servicing asset and the Spread Account asset have been combined
into one asset  entitled  Retained  Interest in  Securitized  Assets  ("Retained
Interest"). Retained Interest increased to $171.6 million at June 30, 1998, from
$170.8 million at June 30, 1997. The Retained  Interest balance increased by the
amounts  capitalized  upon  consummation  of  the  various  Tier I and  Tier  II
securitizations,  including  estimated dealer premium rebates,  unrealized gains
recognized  on certain  pools,  and in some  securitizations,  the initial  cash
deposits into a specific cash account  ("Spread  Account")  held by the Trust as
credit enhancement for the benefit of the investors.  Total amounts  capitalized
for the year ended June 30, 1998,  were $49.1  million.  Retained  Interest also
increased  by an  additional  pre-tax  unrealized  gain  of $8.5  million  and a
$800,000  increase in accrued  interest.  Additions  to Retained  Interest  were
offset by the return of excess  cash  flows  over the year ended June 30,  1998,
related to all  securitizations  of $22.5 million and by the effect of the $23.6
million  impairment of Retained Interest taken during the fiscal year ended June
30, 1998.  Impairment of Retained  Interest is measured on a disaggregate  basis
(pool by pool) in  accordance  with SFAS 115.  Additionally,  Retained  Interest
decreased  by the net  decrease in Spread  Accounts of $3.6 million for the year
ended June 30, 1998, and by $7.9 million  related to the  implementation  of the
"cash out" method of valuing  Retained  Interest.  Withdrawals of Spread Account
funds are made when the balance of the account is in excess of the  requirements
stipulated in the servicing  agreement (the Company's  servicing  agreements are
collectively referred to as the "Pooling and Servicing  Agreements").  Allowance
for estimated  credit losses on securitized  loans is included as a component of
Retained  Interest.  At June 30, 1998, the allowances related to both Tier I and
Tier  II  securitized  loans  totaled  $90.2  million  or  4.67%  of  the  total
securitized loan portfolio, compared to $79.9 million or 4.40% at June 30, 1997.
See--"Note 1 of the Consolidated Financial Statements."

     Amounts due under credit facilities and long-term debt. Beginning in August
1995, after the Spin-off from its parent,  the revolving  Credit  Facilities and
Senior Notes  constituted  the Company's  primary funding  sources.  The Company
issued in a private  placement  $46.0  million in Senior  Subordinated  Notes in
April 1996 and $65.0  million in Senior Notes in March 1997.  The balance of the
revolving  Credit  Facilities and the Senior and Senior  Subordinated  Notes was
$294.1 million at June 30, 1998, compared to $265.5 million at June 30, 1997.

Liquidity and Capital Resources

     Sources and uses of cash in  operations.  The Company's  business  requires
significant  amounts of cash to support  operations.  Its  primary  uses of cash
include:  (i)  acquisitions  and  financing  of loans;  (ii)  payment  of Dealer
Premiums;  (iii) securitization costs including cash held in Spread Accounts and
similar cash collateral  accounts under the revolving  Credit  Facilities;  (iv)
servicer  advances of payments on securitized  loans pursuant to  securitization
trusts;  (v) losses on hedging  transactions  realized  in  connection  with the
closing of securitization transactions where interest rates have declined during
the period  covered by the hedge;  (vi)  operating  expenses;  (vii)  payment of
income taxes; and (viii) interest  expense.  The Company's  sources of cash from
operations include: (i) standard servicing fees; generally 1.0% per annum of the
Tier I securitized  portfolio;  (ii) Future  Servicing Cash Flows;  (iii) Dealer
Premium rebates;  (iv) gains on hedging transactions realized in connection with
the closing of securitization  transactions  where interest rates have increased
during the periods  covered by the hedge;  (v)  interest  income;  (vi) sales of
loans  in  securitization   transactions;   and  (vii)  proceeds  from  sale  of
interest-only strips in conjunction with securitization  transactions.  Net cash
used by operating  activities  decreased to $5.0 million for the year ended June
30, 1998,  from net cash provided by operating  activities of $126.0 million for
the year ended June 30,  1997.  The  decrease was  primarily  attributable  to a
decrease  in loans  securitized  relative  to loans  acquired  and a decrease in
proceeds  from  the  sale of  interest-only  strips.  Proceeds  from the sale of
interest-only  strips  generated $13.9 million in cash for the period ended June
30, 1998,  compared to $31.8  million for the period  ended June 30,  1997.  The
increase in cash used for investing activities was primarily due to the purchase
of property for the expansion of the reconditioning  and remarketing  operations
in Indianapolis.

     Hedging.  Hedging  transactions  may  represent  a source  or a use of cash
during a given period  depending  on changes in interest  rates.  During  fiscal
1998,  hedging  transactions  have  required  a net use of cash of $2.7  million
compared to $6.3 million used during fiscal 1997.

     Financing activities.  Net cash provided by financing activities for fiscal
1998 was $28.6 million compared to a use of $79.7 million in the prior year. The
increase was a result of an increase in warehouse  borrowings  at June 30, 1998,
relative to the balance at June 30, 1997.  The Company has  substantial  capital
requirements  to support its ongoing  operations  and  anticipated  growth.  The
Company's   sources  of  liquidity   are   currently   funds  from   operations,
securitizations   and  external  financing  including  long-term  debt  and  the
revolving  New  Credit  Facility.   Historically,   the  Company  has  used  the
securitization  of loan  pools  as its  primary  source  of  long-term  funding.
Securitization  transactions  enable the  Company to improve its  liquidity,  to
recognize gains from the sales of the loan pools while maintaining the servicing
rights to the loans, and to control interest rate risk by matching the repayment
of amounts due to  investors in the  securitizations  with the actual cash flows
from the securitized assets.  Between securitization  transactions,  the Company
relies  primarily on the New Credit  Facility to fund ongoing loan  acquisitions
(not including Dealer Premiums).  In addition to loan acquisition  funding,  the
Company  also  requires  substantial  capital  on an  ongoing  basis to fund the
advances of Dealer Premiums,  securitization  costs,  servicing  obligations and
other cash  requirements  described above. The Company's ability to borrow under
the New Credit  Facility is  dependent  upon its  compliance  with the terms and
conditions  thereof.  The Company's  ability to obtain  successor  facilities or
similar  financing  will  depend on,  among other  things,  the  willingness  of
financial  institutions to participate in funding automobile  financing business
and the Company's financial condition and results of operations.  Moreover,  the
Company's growth may be inhibited,  at least temporarily,  if the Company is not
able to obtain additional  funding through these or other facilities or if it is
unable to satisfy the conditions to borrowing under the New Credit Facility. The
Company  consistently  assesses it's long-term loan funding  arrangements with a
view to optimizing cash flows and reducing costs.

     Warehouse  facility.  The  aggregate  capacity  of the Prime and  Non-prime
Warehouse  Facilities was $400.0  million,  of which $73.1 million was utilized,
and an additional  $4.7 million was available to borrow based on the outstanding
principal  balance of eligible  loans at June 30, 1998.  According to the credit
agreement,  modified loans can not be pledged as collateral,  thus, they are not
considered eligible loans that can be borrowed against.

     In September 1998, the Company entered into a borrowing arrangement with an
independent  financial  institution  for the $450.0 million New Credit  Facility
that is insured by a surety  bond  provider.  The  proceeds  from the New Credit
Facility  were  used to pay off and  close  the  existing  Prime  and  Non-prime
Warehouse  Facilities.  The New Credit Facility is renewable annually and allows
for borrowings against both Tier I and Tier II loan acquisitions. The New Credit
Facility  provides  funding for loan  acquisitions  at a purchase price of up to
100% of the  outstanding  principal  balance  of  eligible  loans at the time of
purchase.  The  advance  rate may be  adjusted  based  on an  actual  net  yield
percentage that is measured monthly on all receivables in the Warehouse.

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

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

     During the fiscal quarter ended December 31, 1997, the Company was notified
by FITCH IBCA  ("Fitch")  that its  ratings of the  Company's  Senior and Senior
Subordinated  Notes were being  reduced  one grade.  At the time of the  initial
downgrade, Fitch informed the Company that it would consider a further downgrade
of such  securities if the Company failed to show material  improvement in asset
quality  unless  the  Company  obtained  additional  equity  capital.   Although
improvement in asset quality during the second and third quarters of fiscal 1998
occurred,  the Company was notified on February 27, 1998, of a further downgrade
to "BB+" and "BB" on the  Senior and Senior  Subordinated  notes,  respectively.
Given the  improvement  in asset quality and adequacy of capital  resources,  at
that time, the Company did not seek additional  equity investment in the current
fiscal year. The Company  completed a Tier I securitization  including a portion
of the modified loan  portfolio and a Tier II  securitization  during the fourth
quarter of fiscal 1998 resulting in an increase in liquidity for the short-term.

     Management believes that the Company's existing capital resources,  the New
Credit  Facility  described  above,  future  earnings,  expected  growth in loan
acquisitions,  and periodic securitization of loans should provide the necessary
capital and liquidity for its  operations  through at least the third quarter of
fiscal  1999.  The period  during  which its  existing  capital  resources  will
continue to be sufficient will,  however,  be affected by the factors  described
above affecting the Company's cash  requirements.  A number of these factors are
difficult  to  predict,  particularly  including  the  cash  effect  of  hedging
transactions,  the availability of outside credit enhancement in securitizations
or  other  financing  transactions  and  other  factors  affecting  the net cash
provided  by  securitizations.  Depending  on the  Company's  ongoing  cash  and
liquidity requirements, market conditions and investor interest, the Company may
seek to issue additional debt or equity securities in the near term. The sale of
additional  equity,  including  Class A Common Stock or preferred  stock,  would
dilute the interests of current shareholders.



Discussion of Forward-Looking Statements

     The  above  discussions  contain  forward-looking  statements  made  by the
Company regarding its results of operations, cash flow needs and liquidity, loan
origination  volume,  target spreads and other aspects of its business.  Similar
forward-looking  statements  may be made by the Company from time to time.  Such
forward-looking  statements  are subject to a number of  important  factors that
cannot be predicted  with  certainty and which could cause such  forward-looking
statements to be materially inaccurate. Among these factors are the following:

     Capital  requirements and  availability.  The Company requires  substantial
amounts of cash to support its business and growth as described  above. Its cash
requirements can vary depending on the cash-effect of hedging transactions,  the
availability  of  external  credit   enhancement  in  securitizations  or  other
financing  transactions  and the other factors that affect the net cash provided
by  securitizations  (at  closing  and over time) as well as the  percentage  of
principal  amount of loans  acquired for which the Company can obtain  Warehouse
financing.  The  Company's  ability to meet  these  ongoing  cash and  liquidity
requirements  depends  on several  factors.  First is the  Company's  ability to
effect  periodic  securitizations  of its loan  portfolio  and the terms of such
securitizations  which are  dependent on market  factors  generally,  changes in
interest rates, demand for Asset-Backed  Securities and the Certificates offered
in the Company's securitizations  particularly.  Another important factor is the
Company's  ability to continue to comply with the terms of its Senior and Senior
Subordinated  Notes and Warehouse  Facility and/or its ability to obtain funding
to replace and/or  supplement such facility should it become necessary to do so.
The Company's  ability to obtain  successor  facility or similar  financing will
depend on, among other things,  the  willingness  of financial  institutions  to
participate  in  funding  automobile  financing  businesses  and  the  Company's
financial  condition and results of operations.  Moreover,  the Company's growth
may be  inhibited,  at least  temporarily,  if the Company is not able to obtain
additional  funding  through  these or other  facilities  or if it is  unable to
satisfy the conditions to borrow under the Credit Facility.

     Loan  acquisition  volume,  spread  and  growth.  Many  factors  affect the
Company's loan acquisition  volume and spread,  which have significant impact on
the  Company's net  earnings.  Volume is affected by overall  demand for new and
used automobiles in the economy generally, the willingness of automobile dealers
to forward  prospective  borrowers' loan applications to the Company, as well as
the number of qualified  borrowers  whose loans are approved and whose loans are
ultimately  acquired by the Company.  Competition can impact  significantly both
acquisition  volume and the note rate at which loans are originated.  Generally,
competition  in the Company's  business is intense.  The Buy Rate offered by the
Company is a significant  competitive  factor. A competitor offering a lower Buy
Rate may be more likely to acquire a loan. The continued growth of the Company's
servicing  portfolio  will  depend  significantly  on  the  receptivity  to  the
Company's program of new dealers in existing  geographic  markets as well as new
markets and the  continued  stability of the  Company's  relationships  with its
existing dealer network.

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

     Loan losses and  prepayment  rates.  The Company  bears the primary risk of
loss due to defaults in its servicing  portfolio.  Default and credit loss rates
are  impacted by general  economic  factors  that affect  borrowers'  ability to
continue to make timely payments on their indebtedness.  Prepayments on loans in
the  servicing  portfolio  reduce  the  size of the  portfolio  and  reduce  the
Company's  servicing income.  The Gain on Sales of Loans in connection with each
securitization  transaction  and the amount of Retained  Interest  recognized in
each  transaction  reflect  deductions  for  estimates  of future  defaults  and
prepayments.   The  carrying   value  of  Retained   Interest  may  be  adjusted
periodically to reflect  differences  between estimated and actual credit losses
and  prepayments on past  securitizations.  The Company's  results of operations
could be adversely  affected if default or prepayment rates on securitized loans
substantially exceed the estimated levels.

     Regulation. The Company's business is subject to numerous federal and state
consumer  protection laws and regulations which, among other things: (i) require
the Company to obtain and maintain  certain  licenses and  qualifications;  (ii)
limit the  interest  rates,  fees and other  charges  the  Company is allowed to
charge; (iii) limit or prescribe certain other terms of the Company's contracts;
(iv)  require  specified  disclosures;  and (v) define the  Company's  rights to
repossess and sell  collateral.  Changes in existing laws or regulations,  or in
the  interpretation  thereof,  or the  promulgation  of any  additional  laws or
regulation could have an adverse effect on the Company's business.

Impact of Current Accounting Pronouncements

     In June,  1997, The Financial  Accounting  Standards  Board ("FASB") issued
SFAS  No.  131,  "Disclosures  About  Segments  of  an  Enterprise  and  Related
Information,"  which introduces new guidance on segment reporting. The Statement
is effective for fiscal years  beginning  after December 15, 1997,  with earlier
application encouraged.  The Statement is not expected to have a material impact
on the financial condition or results of operations of the Company.

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

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

Year 2000 Compliance

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

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

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

     The Company has three known mission  critical  systems that are not in Year
2000  compliance.  All three of the systems have Year 2000 compliance  certified
replacement  products that are scheduled for  implementation  in November  1998,
February 1999 and March 1999, respectively.

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

     The Company estimates that the worst case Year 2000 issue scenario would be
discontinuance  of  electrical  power.  Although the Company has numerous  power
backup  devices,  a  long-term  power  outage  would  bring  the  Company  to  a
standstill.  Because of this potentially  crippling effect, the Company has been
examining the potential of installing a complete  electrical backup generator at
a cost of approximately $400,000.




Item 7a.          Quantitative and Qualitative Disclosures About Market Risk

     The Company bears the primary risk of loss due to defaults in its servicing
portfolio.  Default  and credit  loss  rates are  impacted  by general  economic
factors that affect  borrowers'  ability to continue to make timely  payments on
their  indebtedness.  Prepayments on loans in the servicing portfolio reduce the
size of the  portfolio and reduce the Company's  servicing  income.  The Gain on
Sales of Loans in connection with each securitization transaction and the amount
of Retained  Interest  recognized in each  transaction  reflect  deductions  for
estimates of future  defaults and  prepayments.  The carrying  value of Retained
Interest may be adjusted  periodically to reflect  differences between estimated
and actual credit losses and prepayments on past  securitizations.  For example,
if credit losses  increased or decreased by 1.00%,  the gain on sale of a $300.0
million  securitization  would  result in a reduction or an increase of the Gain
(Loss) on Sales of Loans by $3.0  million  pre-tax.  The same 1.00%  increase or
decrease would result in a reduction or an increase of the Retained  Interest of
approximately  $19.3  million  as of June 30,  1998.  See "Item 7.  Management's
Discussion  and Analysis of Results of Operations  and Financial  Condition" and
"Notes 1 and 4 of the Consolidated Financial Statements."

     The Company's  sources of funds  generally  have variable rates of interest
and its loan  portfolio  bears  interest at fixed rates.  The Company  therefore
bears  interest  rate risk on loans  until they are  securitized  and  employs a
hedging strategy to mitigate this risk. As a part of the hedging  strategy,  the
Company  executes  short  sales of U.S.  Treasury  securities  having a maturity
approximating  the average  maturity of loans to be acquired during the relevant
period.  There is no assurance that this strategy will completely offset changes
in  interest  rates.  In  particular,  such  strategy  depends  on  management's
estimates of loan acquisition volume. The Company realizes a gain on its hedging
transactions  during periods of increasing interest rates and realizes a loss on
such transactions  during periods of decreasing interest rates. The hedging gain
or loss will  substantially  offset changes in interest rates as seen by a lower
or  higher  reported  gain on  sales  of  loans,  respectively.  Recognition  of
unrealized  gains or  losses is  deferred  until  the sale of loans  during  the
securitization.  On the date of the sale,  hedging deferred gains and losses are
recognized  as a component of gain on sales of loans.  Increases or decreases in
interest   rates  reduce  or  increase   the  fair  value  of  long-term   debt,
respectively.  See "Item 7.  Management's  Discussion and Analysis of Results of
Operations  and  Financial  Condition"  and  "Notes 2 and 6 of the  Consolidated
Financial Statements."

Item 8.  Financial Statements and Supplementary Data
         -------------------------------------------


                          Independent Auditors' Report




The Board of Directors
Union Acceptance Corporation:


We have audited the accompanying consolidated balance sheets of Union Acceptance
Corporation  and  Subsidiaries  as of June 30,  1998 and 1997,  and the  related
consolidated  statements of earnings (loss) and  comprehensive  earnings (loss),
shareholders'  equity,  and cash  flows for each of the years in the  three-year
period ended June 30, 1998.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of the Union Acceptance
Corporation  and  Subsidiaries  as of June 30, 1998 and 1997, and the results of
their  operations  and their cash flows for each of the years in the  three-year
period ended June 30, 1998 in  conformity  with  generally  accepted  accounting
principles.

As discussed in note 1 to the  consolidated  financial  statements,  the Company
adopted the provisions of the Financial  Accounting  Standards Board's Statement
of Financial Accounting Standard No. 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities, on January 1, 1997.

As discussed in note 13 to the consolidated  financial  statements,  the Company
has restated its June 30, 1997 consolidated  financial  statements to include an
other  than  temporary  impairment   adjustment  of  the  retained  interest  in
securitized assets.



/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP

August 27, 1998
Indianapolis, Indiana

<PAGE>


UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES
                                     
Consolidated Balance Sheets

June 30, 1998 and 1997

(in thousands, except share data)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                                     Assets                                       1998            1997
---------------------------------------------------------------------------------------------------------------------------

<S>                                                                                          <C>                    <C>   
Cash                                                                                         $      75,612       $  58,801
Restricted cash                                                                                     17,823          16,657
Loans, net                                                                                         118,259         121,156
Accrued interest receivable                                                                          1,045           1,232
Property, equipment, and leasehold improvements, net                                                 7,921           2,150
Retained interest in securitized assets                                                            171,593         170,791
Other assets                                                                                        19,280          20,481
---------------------------------------------------------------------------------------------------------------------------

Total assets                                                                                 $     411,533       $ 391,268
---------------------------------------------------------------------------------------------------------------------------


                                      Liabilities and Shareholders' Equity
---------------------------------------------------------------------------------------------------------------------------

Liabilities:
   Amounts due under warehouse facilities                                                    $       73,123      $  44,455
   Long-term debt                                                                                  221,000         221,000
   Accrued interest payable                                                                          6,280           5,793
   Amounts due to trusts                                                                            15,510          16,067
   Dealer premiums payable                                                                           1,374           1,372
   Deferred income tax payable                                                                       9,573          13,859
   Other payables and accrued expenses                                                               2,200           1,874
-------------------------------------------------------------------------------------------------------------------------

Total liabilities                                                                            $      329,060      $  304,420
---------------------------------------------------------------------------------------------------------------------------

Shareholders' equity:
   Preferred stock, without par value, authorized 10,000,000 shares;
           none issued and outstanding                                                                  --              --
   Class A common stock, without par value, authorized 30,000,000 shares;
           4,376,446 and 4,016,788 shares issued and outstanding at June 30, 1998
           and June 30, 1997, respectively                                                          58,360          58,270
   Class B common stock, without par value, authorized 20,000,000 shares;
           8,855,036 and 9,200,000 shares issued and outstanding at June 30, 1998
           and June 30, 1997, respectively                                                              --              --
   Net unrealized gain on retained interest in securitized assets                                    7,609           2,252
   Retained earnings                                                                                16,504          26,326
---------------------------------------------------------------------------------------------------------------------------

Total shareholders' equity                                                                          82,473          86,848
---------------------------------------------------------------------------------------------------------------------------

Total liabilities and shareholders' equity                                                   $     411,533       $ 391,268
===========================================================================================================================
</TABLE>


See accompanying notes to consolidated financial statements.

<PAGE>


UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES
                       
Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss)

Years ended June 30, 1998, 1997, and 1996

(in thousands, except share data)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
                                                                               1998              1997              1996
--------------------------------------------------------------------------------------------------------------------------

<S>                                                                        <C>                   <C>               <C>   
Interest on loans                                                          $    27,871        $  33,914          $ 28,712
Interest on spread accounts and restricted cash                                  5,856            6,385             5,448
--------------------------------------------------------------------------------------------------------------------------

Total interest income                                                           33,727           40,299            34,160

Interest expense                                                                26,107           25,688            22,275
--------------------------------------------------------------------------------------------------------------------------

Net interest margin                                                              7,620           14,611            11,885

Provision for estimated credit losses                                            8,050            4,188             2,875
--------------------------------------------------------------------------------------------------------------------------

Net interest margin (deficit) after provision                                     (430)          10,423             9,010

Gain (loss) on sales of loans, net                                             (11,926)             963            30,357
Servicing fees, net                                                             26,137           25,344            16,926
Other revenues                                                                            4,087            3,820             3,096
--------------------------------------------------------------------------------------------------------------------------

Total revenues                                                                  17,868           40,550            59,389
--------------------------------------------------------------------------------------------------------------------------

Salaries and benefits                                                           19,427           15,673            11,985
Other revenues                                                                          16,119           14,829            11,856
--------------------------------------------------------------------------------------------------------------------------

Total operating expenses                                                        35,546           30,502            23,841
--------------------------------------------------------------------------------------------------------------------------

Earnings (loss) before provision (benefit) for income taxes                   (17,678)           10,048            35,548
Provision (benefit) for income taxes                                           (7,856)            4,166            14,406
--------------------------------------------------------------------------------------------------------------------------

Net earnings (loss)                                                            (9,822)            5,882            21,142
--------------------------------------------------------------------------------------------------------------------------

Other comprehensive earnings before taxes:
   Net unrealized gain on retained interests in securitized assets               8,527            3,785                 -
   Income taxes related to items of other comprehensive earnings                (3,170)          (1,533)                -
--------------------------------------------------------------------------------------------------------------------------

Other comprehensive earnings, net of taxes                                       5,357            2,252                 -
--------------------------------------------------------------------------------------------------------------------------

Comprehensive earnings (loss)                                              $    (4,465)        $  8,134         $  21,142
==========================================================================================================================

Net earnings (loss) per common share (basic and diluted)                   $     (0.74)        $   0.45         $    1.60
==========================================================================================================================

Weighted average number of common shares outstanding                        13,226,651       13,215,112        13,209,378
==========================================================================================================================

</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES
                        
Consolidated Statements of Shareholders' Equity

For the years ended June 30, 1998, 1997, and 1996

(in thousands, except share data)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                                                                             Net
                                                Number of                                unrealized 
                                              common stock                                gain on               
                                            shares outstanding                            retained                      Total
                                   ---------------------------------------    Common     interest in    Retained    shareholders'
                                    Class A              Class B               stock     securitized    earnings       equity
                                                                                           assets
---------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                    <C>              <C>                                          <C>   
Balance at June 30, 1995                     1                      1   $         2              -             -               2

   Issuance of common
      stock through initial
      public offering                4,000,000              9,200,000        58,000              -             -          58,000

   Regulatory equity
      distributions related
      to spin-off                          (1)                    (1)           (2)              -         (698)           (700)

   Grants of common stock               11,358                      -           180              -             -             180

   Net earnings                              -                      -             -              -        21,142          21,142
---------------------------------------------------------------------------------------------------------------------------------

Balance at June 30, 1996             4,011,358              9,200,000        58,180              -        20,444          78,624

   Grants of common stock                5,430                      -            90              -             -              90

   Net earnings                              -                      -             -              -         5,882           5,882

   Net change in unrealized
      gain on retained interest
      in securitized assets                  -                      -             -          2,252             -           2,252
---------------------------------------------------------------------------------------------------------------------------------

Balance at June 30, 1997             4,016,788              9,200,000        58,270          2,252        26,326          86,848

   Grants of common stock               14,694                      -            90              -             -              90

   Conversion of Class B
      common stock into
      Class A common stock             344,964              (344,964)             -              -             -               -

   Net loss                                  -                      -             -              -       (9,822)         (9,822)
   

   Net change in unrealized
      gain on retained interest
      in securitized assets                  -                      -             -          5,357             -           5,357
---------------------------------------------------------------------------------------------------------------------------------

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


See accompanying notes to consolidated financial statements.



<PAGE>


UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES
                       
Consolidated Statements of Cash Flows

Years ended June 30, 1998, 1997, and 1996

(in thousands)

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                                                     1998          1997          1996
------------------------------------------------------------------------------------------------------

Cash flows from operating activities:
<S>                                                              <C>                <C>          <C>   
   Net earnings (loss)                                           $   (9,822)        5,882        21,142
   Adjustments to reconcile net earnings (loss) to net cash
     provided (used) by operating activities:
        Loan originations in excess of liquidations                (953,252)   (1,087,065)     (982,800)
        Dealer premiums paid in excess of dealer premium
          rebates received on loans held for sale                   (40,526)      (53,461)      (50,059)
        Securitization of loans held for sale                       948,114     1,214,298       924,598
        Gain on sales of loans                                      (19,253)      (46,713)      (37,900)
        Proceeds on sale of interest only strip                      13,869        31,773        26,686
        Return of excess and servicing asset cash flows,
          net of present value effect                                23,347        24,738        37,871
        Impairment of retained interest in securitized assets        23,636        34,828            --
        Provision for estimated credit losses                         8,050         4,188         2,875
        Amortization and depreciation                                 4,689         3,979         4,395
        Spread accounts                                               3,631        (8,154)       (6,176)
        Restricted cash                                              (1,166)       (1,868)       (5,934)
        Other assets and accrued interest receivable                 (2,425)      (10,296)       (6,788)
        Amounts due to trusts                                          (557)        8,136         2,030
        Other payables and accrued expenses                          (3,383)        5,697        14,281
------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities                     (5,048)      125,962       (55,779)
------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
   Purchase of property, equipment, and leasehold improvements       (6,809)         (967)       (1,347)
------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
   Net change in warehouse credit facilities                         28,668      (143,301)      187,756
   Proceeds from issuance of senior notes                                --        65,000       110,000
   Proceeds from issuance of senior subordinated notes                   --            --        46,000
   Payment of borrowing fees                                             --        (1,352)       (3,231)
   Net proceeds from issuance of common stock                            --            --        58,000
   Net change in due to Union Federal, including
     regulatory equity distribution                                      --            --      (337,423)
------------------------------------------------------------------------------------------------------
Net cash provided (used) from financing activities                   28,668       (79,653)       61,102
------------------------------------------------------------------------------------------------------

Change in cash                                                       16,811        45,342         3,976

Cash, beginning of year                                              58,801        13,459         9,483
------------------------------------------------------------------------------------------------------

Cash, end of year                                                $   75,612        58,801        13,459
=======================================================================================================

Supplemental disclosures of cash flow information:

   Income taxes paid                                             $       22         4,288        10,680
=======================================================================================================
   Interest paid                                                 $   26,472        26,475        15,648
=======================================================================================================

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







<PAGE>

UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 1998, 1997, and 1996

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

(1)     Summary of Significant Accounting Policies

        (a)   Description of Business

       Union Acceptance Corporation ("UAC") is an Indiana  corporation formed in
        December  1993.  UAC and its  subsidiaries  (collectively,  the Company)
        engage  primarily  in  the  business  of  acquiring,  securitizing,  and
        servicing retail automobile  installment  sales contracts  originated by
        dealerships  affiliated  with  major  domestic  and  foreign  automobile
        manufacturers.  The Company  currently  acquires loans from a network of
        over 3,600 manufacturer-franchised  automobile dealerships in 32 states.
        No individual  dealer or group of affiliated  dealers accounted for more
        than 1.9% of the Company's loan acquisitions  during the year ended June
        30, 1998.

        The Company's  lending  program  focuses on acquiring two levels of loan
        quality.  Primarily,  the  Company  acquires  loans from  borrowers  who
        exhibit a favorable  credit profile ("Tier I" lending)  purchasing  late
        model used and, to a lesser extent,  new  automobiles.  The Company also
        acquires loans from borrowers with adequate credit quality who would not
        qualify for the Company's  Tier I lending  quality  criteria  ("Tier II"
        lending).  Tier II loan  acquisitions  accounted  for 2.5% of total loan
        acquisitions  during fiscal 1998 and 3.3% of loan servicing portfolio at
        June 30, 1998.

        (b)   Basis of Financial Statement Presentation

        The consolidated  financial  statements included the accounts of UAC and
        its wholly-owned subsidiaries, Union Acceptance Funding Corporation, UAC
        Securitization Corporation, Performance Funding Corporation, Performance
        Securitization   Corporation,   UAC  Boat  Funding  Corp.,  UAC  Finance
        Corporation,  Circle City Car Company, and Union Acceptance  Receivables
        Corporation.

        All  significant   intercompany  balances  and  transactions  have  been
        eliminated in the consolidation.  The consolidated  financial statements
        have been  prepared in conformity  with  generally  accepted  accounting
        principles  and  with  those in the  general  practice  of the  consumer
        finance industry. In preparing the financial  statements,  management is
        required to make  estimates  and  assumptions  that affect the  reported
        amounts  of  assets  and  liabilities  at  the  date  of  the  financial
        statements and the reported  amounts of revenues and expenses during the
        reporting period.  Actual results could differ  significantly from those
        estimates.  Material  estimates  that are  particularly  susceptible  to
        significant  change in the near term relate to the valuation of retained
        interest in securitized  assets, gain (loss) on sales of loans, net, and
        the allowance for credit losses.

        Priorto the UAC's initial  public  offering in August 1995,  the Company
        was  a  wholly-owned   subsidiary  of  Union  Federal  Savings  Bank  of
        Indianapolis  Union  Federal.  The  consolidated   financial  statements
        reflect no allocation of Union Federal's historical equity.  Earnings of
        the Company were  transferred to Union Federal  through the Due to Union
        Federal account prior to the spin-off.

        (c)   Cash

        The Company considers all investments with a maturity of three months or
        less when purchased to be cash equivalents.

        (d)   Restricted Cash

        Restricted cash primarily  consists of funds held in reserve accounts in
        compliance with the terms of the Warehouse Facility Agreements.


                                                                        (cont'd)
<PAGE>



UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

        (e)   Loans, Net

        All loans in the Company's  Tier I and Tier II  portfolios  are held for
        sale and include automobile, light-truck, van, and other loans including
        dealer  premiums  (on Tier I loans).  Such loans are  packaged  and sold
        through  asset-backed  securitization  transactions  and are  carried at
        their principal amount  outstanding  (amortized cost) which approximates
        the lower of cost or market, net of unearned discount. Interest on these
        loans is accrued and  credited to interest  income  based upon the daily
        principal  amount  outstanding.  The Company  provides an allowance  for
        credit   losses   from   the  date  of   origination   to  the  date  of
        securitization.  The  allowance  is shown as a reduction  to loans.  The
        Company accrues  interest on loans until the earlier of an account being
        charged-off or becoming 120 days delinquent.

        Loans, net includes dealer premiums which are incentives paid to dealers
        in  connection  with the  acquisition  of  loans.  Dealer  premiums  are
        deferred in accordance with Statement of Financial  Accounting Standards
        No. 91,  Accounting for  Nonrefundable  Fees and Costs  Associated  with
        Originating  or Acquiring  Loans and Initial  Direct Costs of Leases.  A
        portion of the dealer  premiums  are  refundable  to the  Company in the
        event of loan prepayment or default.

        On  January  1,  1997,  the  Company  adopted   Statement  of  Financial
        Accounting  Standards No. 125, Accounting for Transfers and Servicing of
        Financial  Assets and  Extinquishments  of  Liabilities  (SFAS 125). The
        adoption of SFAS 125 had the effect of reducing fiscal 1997 net earnings
        by $1,311,000  or $0.10 per share and  increasing  retained  earnings by
        $941,000.

        (f)   Accrued Interest Receivable

         Accrued  interest   receivable   represents  interest  earned  but  not
         collected on loans held for sale.

        (g)   Property, Equipment, and Leasehold Improvements, Net

        Property,  equipment,  and leasehold  improvements are recorded at cost.
        Depreciation  is  determined on  accelerated  methods over the estimated
        useful lives of the respective assets.

        (h) Retained Interest in Securitized  Assets and Gain (Loss) on Sales of
        Loans

        The Company acquires loans with the primary  intention of reselling them
        as   asset-backed   securities   through    securitizations.    In   the
        securitization transactions, the Company sells a portfolio of loans to a
        wholly  owned  subsidiary  ("SPS")  which has been  established  for the
        limited  purpose of buying and reselling the  Company's  loans.  The SPS
        transfers the same loans to a trust vehicle (the "Trust"),  which issues
        interest-bearing  asset-backed  securities  (the  "Certificates").   The
        Certificates  are generally sold to investors in the public market.  The
        Company provides credit  enhancement for the benefit of the investors in
        the form of a  specific  cash  account  ("Spread  Account")  held by the
        Trust.  The Spread  Account is required by the servicing  agreement (the
        Company's  servicing  agreements  are  collectively  referred  to as the
        "Pooling  and  Servicing  Agreements")  to be  maintained  at  specified
        levels.


                                                                        (cont'd)
<PAGE>

UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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


        At the closing of each  securitization,  the Company allocates its basis
        in  the  loans  between  the  portion  of the  loans  sold  through  the
        certificates   and  the   portion  of  the  loans   retained   from  the
        securitizations  ("Residuals"  and  "Servicing  Assets")  based  on  the
        relative fair values of those portions at the date of the sale. The fair
        value is based upon the cash  proceeds  received  for the loans sold and
        the  estimated  fair  value  of  the  Residuals  and  Servicing  Assets.
        Residuals  consist  of (a) the  fair  value of cash  held in the  Spread
        Account  and  (b)  the  excess  servicing  receivables  ("ESRs").   ESRs
        represent the  discounted  cash flows to be received by the Trust in the
        future  and dealer  premium  rebates  less a  discounted  allowance  for
        estimated  credit losses.  Servicing  Assets represent the present value
        benefit derived from retaining the right to service loans securitized in
        excess  of  adequate  servicer  compensation.  The  excess  of the  cash
        received over the basis  allocated to the loans sold,  less  transaction
        costs,  and  hedging  gains and  losses,  equals the net gain on sale of
        loans recorded by the Company.

        The Company  recognizes  unrealized gains or losses  attributable to the
        change  in the fair  value  of the  Residuals,  which  are  recorded  as
        "available-for-sale"  securities,  net  of  related  income  taxes  as a
        separate component of shareholders'  equity until realized.  The Company
        is not aware of an active  market for the purchase or sale of residuals,
        and accordingly,  the Company determines the estimated fair value of the
        Residuals by  discounting  the  expected  cash flows  released  from the
        Spread  Account  (the cash out method)  using a discount  rate which the
        Company  believes is commensurate  with the risks involved.  The Company
        has  utilized  discount  rates  ranging  from  9.00%  to  11.50%  on the
        estimated  cash  flows  released  from the  Spread  Account to value the
        Residuals.

        The Annual  Percentage  Rate ("APR") on the loans is relatively  high in
        comparison  to the pass through rate on the  certificates,  accordingly,
        the Residuals described above are a significant asset of the Company. In
        determining the fair value of the Residuals described above, the Company
        must estimate the future rates of prepayments,  delinquencies,  defaults
        and  default  loss  severity as they impact the amount and timing of the
        estimated cash flows.  The Company  estimates  prepayments by evaluating
        historical prepayment  performance of comparable loans and the impact of
        trends in the economy.  The Company has used annual prepayment estimates
        ranging from 20.0% to 26.5%. The Company estimates  defaults and default
        loss severity using available  historical loss data for comparable loans
        and the specific  characteristics of the loans purchased by the Company.
        The  Company  used  default  losses of 3.0% to 6.3% for Tier I loans and
        12.0%  to  15.0%  for Tier II  loans  as a  percentage  of the  original
        principal balance over the life of the loans.

        The Company receives  periodic base servicing fees for the servicing and
        collection  of the loans.  In  addition,  the Company is entitled to the
        cash flows from the Residuals that represent collections on the loans in
        excess of the amounts  required  to pay the  Certificate  principal  and
        interest,  the base servicing fees and certain other fees such as credit
        enhancement fees. In general,  at the end of each collection period, the
        aggregate  cash  collections  from the loans are allocated  first to the
        base servicing fees, then to the  Certificateholders for interest at the
        pass-through  rate on the certificates  plus principal as defined in the
        Pooling and Servicing Agreements,  and finally to the credit enhancement
        fees. If the amount of cash required for the above  allocations  exceeds
        the amount  collected  during the  collection  period,  the shortfall is
        drawn from the Spread Account.  If the cash collected  during the period
        exceeds the amount necessary for the above allocations,  and the related
        Spread Account is not at the required  level,  the excess cash collected
        is retained in the Spread Account until the specified level is achieved.
        The cash in the Spread  Accounts is restricted  from use by the Company.
        Once the  required  Spread  Account  level is  achieved,  the  excess is
        released to the  Company.  Cash held in the various  Spread  Accounts is
        invested in high quality liquid investment  securities,  as specified in
        the Pooling and Servicing  Agreements.  The specified credit enhancement
        levels are defined in the Pooling and Servicing Agreements as the Spread
        Account  balance  expressed  generally  as a  percentage  of the current
        collateral principal balance.



                                                                        (cont'd)
<PAGE>
UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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


        An other than temporary  impairment  adjustment to the carrying value of
        the  Residuals  may be required if the  present  value of an  individual
        Residual (the pool by pool  method),  discounted at a risk free rate, is
        less  than  its  carrying   value.   Other  than  temporary   impairment
        adjustments are recorded as a component of gain on sales of loans, net.

        (i)   Servicing Assets

        Servicing  Assets are the Company's  present value benefit  derived from
        retaining the right to service loans  securitized  in excess of adequate
        servicer compensation. Servicing Assets are recognized as a component of
        gain on sales of loans,  net.  Accretion of related  discount to present
        value is recognized as a component of interest income.

        Servicing  Assets are carried at their amortized cost and is included in
        other assets.  Impairment is measured  using  relative fair value of the
        individual   Servicing   Assets  and  recognized   through  a  valuation
        allowance. Impairment adjustments are recorded as a component of gain on
        sales of loans, net.

        (j)   Common Stock

        In  election  of  directors,  the  holders  of Class B Common  Stock are
        entitled to five votes per share and Class A Common  Stock are  entitled
        to one vote per  share.  On all  matters  other  than  the  election  of
        directors,  holders of Class B and A have one vote per share and vote as
        a single class.

        The  Company's  charter  provides  that  shares of Class B Common  Stock
        convert   automatically   to  shares  of  Class  A  Common  Stock  on  a
        share-for-share  basis  upon  transfer  outside  a  prescribed  group of
        initial  holders and  certain  affiliates.  Pursuant to such  provision,
        344,964 shares of Class B Common Stock were converted to shares of Class
        A Common Stock during fiscal 1998.

        (k)   Income Taxes

        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 basis.  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.

        (l)   Amounts Due to Trusts

        Amounts due to trusts  represent  monies  collected  but not paid to the
        trustee  for  principal  and  interest  remittances  as well as recovery
        payments in respect of securitized  loans. All amounts  collected by the
        Company are  remitted  to the  trustee  within two  business  days,  and
        subsequently distributed by the trustee to the investors,  servicer, and
        credit enhancers on a monthly basis.

        (m)   Servicing Fees, Net

        Servicing fees, net include the contractual  fee,  typically one percent
        of  loans  serviced,  earned  from  each  trust  plus the  accretion  of
        discounted retained interest in securitized assets.


                                                                        (cont'd)
<PAGE>

UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

        (n)   Hedging

        Loan  production  is  hedged  periodically  to  such  time  as the  next
        securitization  is  estimated  to occur.  Securitizations  of the Tier I
        portfolio occur  approximately  every three months.  The primary hedging
        vehicle  is  a  short  sale  of   Treasury   Notes   having  a  maturity
        approximating  the average  maturity of the loan  production  during the
        relevant  period.  At such time as a  securitization  is committed,  the
        hedge is covered by the  purchase of a like  volume of  Treasury  Notes.
        Gains or losses on the hedge are recognized  concurrently  with the gain
        or loss at securitization.

        (o)   Earnings Per Share

        In February  1997,  the  Financial  Accounting  Standards  Board  issued
        Statement of Financial  Accounting  Standard No. 128, Earnings Per Share
        (SFAS 128). SFAS 128 provides computation,  presentation, and disclosure
        requirements for earnings per share and supersedes Accounting Principles
        Board  Opinion 15. Basic EPS for fiscal 1998,  1997,  and 1996 have been
        computed on the basis of the weighted  average  number of common  shares
        outstanding.  The  effect of stock  options  not  exercised  during  the
        periods  presented  are  anti-dilutive  and  therefore  not  included in
        diluted earnings per share.

        The initial  public  offering was  completed  on August 7, 1995.  Shares
        outstanding  from  August 7, 1995,  through  September  30,  1995,  were
        assumed to be  outstanding  for the entire three months ended  September
        30, 1995.

        (p)   Comprehensive Income

        In June 1997, the Financial  Accounting Standards Board issued Statement
        of Financial Accounting Standard No. 130, Reporting Comprehensive Income
        (SFAS 130),  which  establishes  standards for reporting and  displaying
        comprehensive  income and its  components in the  financial  statements.
        Comprehensive income is the total of net income and all nonowner changes
        in equity.  The Statement is effective for fiscal years  beginning after
        December  15,  1997 with  earlier  application  permitted.  The  Company
        elected to adopt SFAS 130 as of June 30, 1998,  and the Statement had no
        impact on the financial condition or results of operations.

        (q)   Reclassification

         Certain amounts for the prior periods have been reclassified to conform
         to the current presentation.


                                                                        (cont'd)
<PAGE>
UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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


(2)   Loans, Net

      Loans, net are as follows (in  thousands, except average loan balance) at:

--------------------------------------------------------------------------------
                                                                June 30,
                                                       -------------------------
                                                           1998          1997
--------------------------------------------------------------------------------

   Principal balance of Tier I loans held for sale,
      net of unearned discount                          $ 108,159        90,331
   Principal balance of Tier II loans held for sale,
      net of unearned discount                              7,624        19,829
   Other loans held for sale                                  171         6,227
   Loans in process                                          (154)        1,189
   Dealer premiums                                          4,375         4,360
   Allowance for credit losses                             (1,916)         (780)
--------------------------------------------------------------------------------
                                                        $ 118,259       121,156
--------------------------------------------------------------------------------

        Activity in the  allowance  for credit losses on loans held for sale (in
        thousands):

--------------------------------------------------------------------------------
                                                       Year ended June 30,
                                              ----------------------------------
                                                   1998       1997       1996
-------------------------------------------------------------------------------

  Balance at the beginning of the period      $      780      1,099        453
     Charge-offs                                 (10,635)    (7,361)    (4,556)
     Recoveries                                    3,721      2,854      2,327
     Provision for estimated credit losses         8,050      4,188      2,875
-------------------------------------------------------------------------------

  Balance at the end of the period             $   1,916        780      1,099
-------------------------------------------------------------------------------

                                                                        (cont'd)
<PAGE>


        Loans serviced are as follows (in thousands) at:

--------------------------------------------------------------------------------
                                                           June 30,
                                                --------------------------------
                                                     1998            1997
--------------------------------------------------------------------------------

        Loans held for sale:
           Tier I (net of unearned discount)     $    108,159     $   90,331
           Tier II (net of unearned discount)           7,624         19,829
           Other                                          171          6,227
--------------------------------------------------------------------------------

                                                      115,954        116,387
--------------------------------------------------------------------------------

        Securitized loan:
           Tier I                                   1,870,750      1,769,903
           Tier II                                     59,231         48,460
--------------------------------------------------------------------------------

                                                    1,929,981      1,818,363
--------------------------------------------------------------------------------

        Other loans serviced                            1,482          2,526
--------------------------------------------------------------------------------

                                                  $ 2,047,417     $1,937,276
================================================================================

        Certain characteristics of loans serviced are as follows at:


--------------------------------------------------------------------------------
                                                           June 30,
                                                --------------------------------
                                                     1998            1997
--------------------------------------------------------------------------------
        Weighted average interest rate (Tier I)         13.09%         13.18%
        Weighted average interest rate (Tier II)        19.03          19.62%
        Average loan balance (Tier I)                $ 10,755        $10,710
        Average loan balance (Tier II)               $ 10,637        $11,276
--------------------------------------------------------------------------------

        During fiscal 1998, loan  acquisitions  relating to borrowers who reside
        in Texas, California, and North Carolina totaled 12.5%, 11.6%, and 9.1%,
        respectively,  of all loans  acquired.  At June 30, 1998,  borrowers who
        reside in Texas,  California,  and North Carolina totaled 15.0%,  11.0%,
        and 10.5%, respectively,  of the loan servicing portfolio. A significant
        adverse change in the economic climate in Texas,  California,  and North
        Carolina or other  states  could result in fewer loans held for sale and
        potentially less revenue.

         Notional  amounts and unrealized  losses related to outstanding  hedges
         follow (in thousands) at:


--------------------------------------------------------------------------------
                                                           June 30,
                                                --------------------------------
                                                     1998            1997
--------------------------------------------------------------------------------
       Notional amounts outstanding                 $ 210,000       $204,000
       Unrealized losses on hedging transactions          394            909
--------------------------------------------------------------------------------


                                                                        (cont'd)
<PAGE>
UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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



        Notional amounts of $210 million were expected to be closed in September
        1998 for the amounts outstanding at June 30, 1998, and $180 million, $18
        million and $6 million were closed in September 1997, December 1997, and
        March 1998, respectively, for amounts outstanding at June 30, 1997.

        Hedging realized losses were approximately $2,669,000,  $6,293,000,  and
        $2,733,000 during fiscal 1998, 1997, and 1996, respectively.


(3)     Property, Equipment, and Leasehold Improvements, Net

        Property, equipment, and leasehold improvements,  net are as follows (in
        thousands) at:

--------------------------------------------------------------------------------
                                                                  June 30,
                                                         -----------------------
                                                             1998       1997
--------------------------------------------------------------------------------

        Property, equipment, and leasehold improvements   $ 11,410      4,724
        Accumulated depreciation                            (3,489)    (2,574)
--------------------------------------------------------------------------------

                                                         $   7,921      2,150
================================================================================


(4)     Retained Interest in Securitized Assets

        The carrying  amount of retained  interest in  securitized  assets is as
        follows (in thousands) at:

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------
                                                                             June 30,
                                                                      --------------------------
                                                                         1998           1997
-----------------------------------------------------------------------------------------------
<S>                                                                   <C>              <C>    
        Estimated fair value of excess servicing receivable,
           net of estimated prepayments                               $ 175,164        145,872
        Estimated dealer premium rebates                                 25,718         26,447
        Allowance for estimated credit losses on securitized loans      (90,203)       (79,923)
        Discount to present value                                       (33,117)        (9,941)
-----------------------------------------------------------------------------------------------
                                                                         77,562         82,455

        Spread accounts                                                  68,113         71,744
        Accrued interest on securitized loans                            13,606         12,807
        Unrealized gain                                                  12,312          3,785
-----------------------------------------------------------------------------------------------

                                                                      $ 171,593        170,791
===============================================================================================

        Outstanding balance of securitized loans serviced           $ 1,929,981      1,818,363
-----------------------------------------------------------------------------------------------

        Allowance for estimated credit losses as a
           percentage of securitized loans serviced                        4.67%          4.40%
-----------------------------------------------------------------------------------------------
</TABLE>


                                                                        (cont'd)
<PAGE>
UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

        Retained  interest  in  securitized  assets  activity  is as follows (in
thousands):

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                                                                                 Year ended June 30,
                                                                                        -----------------------------------
                                                                                           1998          1997        1996
---------------------------------------------------------------------------------------------------------------------------

<S>                                                                                     <C>            <C>         <C>    
        Balance at beginning of period                                                  $ 170,791      147,024     118,036

        Amounts capitalized (including estimated dealer rebates)                           49,071       68,922      56,436
        Return of excess cash flows, net of present value effect                          (22,457)     (24,619)    (37,871)
        Change in spread accounts                                                          (3,631)       8,154       6,176
        Change in accrued interest on securitized loans                                       799        2,353       4,247
        Impairment of retained interest in securitized assets                             (23,636)     (34,828)     -
        Change in method of estimating fair value of excess
           servicing receivable                                                            (7,871)      -           -
        Change in unrealized gain                                                           8,527        3,785      -
---------------------------------------------------------------------------------------------------------------------------

        Balance at end of period                                                        $ 171,593      170,791     147,024
===========================================================================================================================
</TABLE>

        Because of current  trends with respect to credit loss and  delinquency,
        and  their  effects  on  the  valuation  of  the  retained  interest  in
        securitized assets, the Company recorded a pre-tax charge of $23,636,000
        and  $34,828,000  for  the  impairment  of  the  retained   interest  in
        securitized assets during fiscal 1998 and 1997, respectively. During the
        fourth  quarter  of fiscal  1998,  the  Company  changed  the  method of
        estimating the fair value of the retained interest in securitized assets
        from  "cash  in"  to  "cash  out."  This  change  in  method,  which  is
        inseparable from the change in estimate,  reduced the retained  interest
        in  securitized  assets by $7,871,000  as of June 30, 1998,  and had the
        effect of reducing  fiscal 1997 net earnings by  $4,864,000 or $0.37 per
        share. The change in estimate  adjustment was recorded as a component of
        gain on sales of loans, net.

        The weighted  average yield,  net of fees, on spread  accounts was 4.85%
        and 4.97% at June 30, 1998 and 1997, respectively.


(5)     Other Assets

        Other assets are as follows (in thousands) at:

-------------------------------------------------------------------------
                                                          June 30,
                                                  -----------------------
                                                      1998       1997
-------------------------------------------------------------------------

        Repossessed assets                        $   5,934      5,048
        Accrued servicing fees                        3,228      2,511
        Servicing assets                              2,743      1,374
        Deferred borrowing fees                       1,981      3,078
        Income tax receivable                         1,577      5,735
        Advance of delinquent interest                1,387      1,056
        Other                                         2,430      1,679
-------------------------------------------------------------------------

                                                   $ 19,280     20,481
=========================================================================

                                                                        (cont'd)
<PAGE>
UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

(6)     Amounts Due Under Warehouse Facilities

        At June 30,  1998 and  1997,  the  Company,  through  its  wholly  owned
        special-purpose   subsidiaries,   had  borrowing   arrangements  with  a
        financial  institution  which provided for two and three,  respectively,
        revolving  Warehouse  Facilities  (the  Facilities)  with  an  aggregate
        borrowing  capacity  of $400  million  and $450  million,  respectively.
        Borrowings  under these facilities are  collateralized  by certain loans
        held for sale.  There are separate  Facilities for the funding of Tier I
        auto,  Tier II auto,  and until  March 1998,  marine loan  acquisitions.
        Outstanding  borrowings of the Facilities at June 30, 1998 and 1997, was
        $73,123,000 and $44,455,000,  respectively. The weighted average cost of
        funds, net of income earned,  of the Facilities for the years ended June
        30, 1998 and 1997, was 6.92% and 5.94%, respectively.

        The cost of funds includes a variable  interest rate on the  outstanding
        commercial   paper,  fees  on  the  used  and  unused  portions  of  the
        Facilities,  and the amortization of prepaid warehouse fees. The largest
        portion of the cost of funds  related to the  Facilities is the variable
        rate interest on the commercial  paper issued by the financing  conduit.
        Upfront  warehouse fees are  non-recurring  costs related to the initial
        set-up of the Facilities. The Company recognized $6,622,000, $9,991,000,
        and  $12,491,000  of  interest  expense  during the years ended June 30,
        1998,  1997,  and  1996,  respectively,  related  to  amounts  due under
        Warehouse Facilities.

        The Facilities  agreements  specify a term of one year and are renewable
        annually.  Both the Tier I auto and Tier II auto  Facilities  have  been
        renewed  for an  additional  year,  and  expire  in June and July  1999,
        respectively.


(7)     Long-term Debt

        In connection with the Company's  initial public  offering,  the Company
        issued, in a private  placement,  $110 million principal amount of 8.53%
        Senior  Notes  due  2002.  Interest  on  the  Senior  Notes  is  payable
        semi-annually  on February 1 and August 1 of each year, and commenced on
        February 1, 1996, with annual principal reductions  commencing on August
        1, 1998.  The Senior Notes are  redeemable,  in whole or in part, at the
        option of the Company,  in a principal  amount not less than $1 million,
        together with accrued and unpaid  interest to the date of redemption and
        a yield-maintenance premium as defined in the note agreement.

        In April 1996, the Company issued, in a private  placement,  $46 million
        9.99%  Senior  Subordinated  Notes  due  2003.  Interest  on the  Senior
        Subordinated  Notes is payable quarterly on March 30, June 30, September
        30 and December 30 of each year,  and  commenced  on June 30, 1996.  The
        Senior  Subordinated  Notes are redeemable,  in whole or in part, at the
        option of the Company,  in a principal  amount not less than $1 million,
        together with accrued and unpaid  interest to the date of redemption and
        a yield-maintenance premium as defined in the note agreement.

        In March 1997, the Company issued, in a private  placement,  $50 million
        Series A 7.75%  Senior  Notes  due 2002 and $15  million  Series B 7.97%
        Senior  Notes  due  2002.  Interest  on  the  Senior  Notes  is  payable
        semi-annually  on March 15 and  September  15 of each  year,  commencing
        September 15, 1997,  with a principal  reduction  occurring on March 15,
        2002.  The  Senior  Notes are  redeemable,  in whole or in part,  at the
        option of the Company,  in a principal  amount not less than $1 million,
        together with accrued and unpaid  interest to the date of redemption and
        a yield-maintenance premium as defined in the note agreement.

        The Company  recognized  $19,485,000,  $15,697,000,  and  $9,784,000  of
        interest  expense during the years ended June 30, 1998,  1997, and 1996,
        respectively, related to long-term debt.

                                                                        (cont'd)
<PAGE>
UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

        Scheduled  contractual  maturities  of  long-term  debt at June 30, 1998
        follows:

--------------------------------------------------------------------------
        1999                                              $   22,000,000
        2000                                                  22,000,000
        2001                                                  22,000,000
        2002                                                  43,666,667
        2003                                                 111,333,333
--------------------------------------------------------------------------

        Total                                              $ 221,000,000
==========================================================================

(8)     Other Revenue and Expenses

        Other revenue and expenses follow (in thousands):

--------------------------------------------------------------------------------
                                                     Year ended June 30,
                                           -------------------------------------
                                                1998        1997       1996
--------------------------------------------------------------------------------

        Other revenues:
           Late charges                     $   3,283       2,618      1,922
           Origination fees                       637       1,019      1,072
           Other                                  167         183        102
--------------------------------------------------------------------------------

                                            $   4,087       3,820      3,096
================================================================================

        Other expenses:
           Loan expenses                        2,691       2,948      2,202
           Outside services                     3,223       2,767      2,515
           Office, telephone and postage        2,522       2,626      2,207
           Occupancy                            1,769       1,433        891
           Equipment                            1,190       1,013        839
           Other                                4,724       4,042      3,202
--------------------------------------------------------------------------------

                                             $ 16,119      14,829     11,856
================================================================================


(9)     Income Taxes

        The composition of income tax expense (benefit) follows (in thousands):


--------------------------------------------------------------------------------
                                                Year ended June 30,
                                         ---------------------------------------
                                             1998       1997      1996
--------------------------------------------------------------------------------

        Current tax expense (benefit)     $ (9,863)    (1,644)    9,096
        Deferred tax expense                 2,007      5,810     5,310
--------------------------------------------------------------------------------

                                          $ (7,856)     4,166    14,406
================================================================================

                                                                        (cont'd)
<PAGE>
UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

        The  effective  income  tax  rate  differs  from the  statutory  federal
corporate tax rate as follows:

--------------------------------------------------------------------------------
                                                          Year ended June 30,
                                                     ---------------------------
                                                       1998       1997      1996
--------------------------------------------------------------------------------
                                                    
        Statutory rate                                 35.0%      35.0      35.0
             State income taxes                         3.2        5.5       5.5
             Change in commercial domicile              4.9        -         -
             Other                                      1.3        1.0       -
--------------------------------------------------------------------------------
                                                    
        Effective rate                                 44.4%      41.5      40.5
================================================================================
                                                
        The  composition  of  deferred  income  taxes  payable is as follows (in
thousands):

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
                                                                                   June 30,
                                                                        ------------------------
                                                                            1998          1997
------------------------------------------------------------------------------------------------

        Deferred tax assets:
<S>                                                                      <C>              <C>  
           Net operating losses carryforward                             $ 11,304         1,841
           Allowance for estimated credit losses                              732           316
           Mark to market and allowance for credit losses                   5,713         2,073
------------------------------------------------------------------------------------------------

                                                                           17,749         4,230
------------------------------------------------------------------------------------------------

        Deferred tax liabilities:
           Retained interest in securitized assets                         22,619        16,556
           Unrealized gain on retained interest in securitized assets       4,703         1,533
------------------------------------------------------------------------------------------------

                                                                           27,322        18,089
------------------------------------------------------------------------------------------------

        Deferred income taxes payable                                   $   9,573        13,859
===============================================================================================
</TABLE>



       The Company believes the deferred tax assets will more likely than not be
       realized  due to the reversal of deferred  tax  liabilities  and expected
       future  taxable  income.  Accordingly,  no deferred  tax asset  valuation
       allowance has been established.


(10)    Estimated Fair Value of Financial Instruments

        Loans  held for  sale--Cost  approximates  fair  value as loans are sold
        shortly after origination.

        Accrued interest receivable--Cost approximates fair value.

        Retained interest in securitized assets--Amount carried at fair value.

        Spread  accounts--Cost  approximates  fair  value as the  interest  rate
        earned is at a variable rate.

        Repossessed assets--Cost approximates fair market value.


                                                                        (cont'd)
<PAGE>
UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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


        All liabilities, except long-term debt--Cost approximates fair value.

        Long-term  debt--Carrying  amount of  $221,000,000  at June 30, 1998 and
        1997,  has  been  calculated  to  have a  fair  value  of  approximately
        $195,000,000  and   $221,000,000,   respectively,   by  discounting  the
        scheduled  loan payments to maturity using rates that are believed to be
        currently available for debt of similar terms and maturities.


(11)    Commitments and Contingencies

        Future minimum payments under noncancelable operating leases on premises
and equipment with terms of one year or more as of June 30, 1998 are as follows:

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

        1999                                               $ 1,341,000
        2000                                                 1,161,000
        2001                                                   954,000
        2002                                                   911,000
        2003                                                   759,000
        Thereafter                                             -
--------------------------------------------------------------------------------

        Total                                              $ 5,126,000
================================================================================


        These agreements include, in certain cases,  various renewal options and
        contingent rental agreements.  Rental expense for premises and equipment
        amounted to approximately $1,900,000, $1,572,000, and $1,015,000 for the
        years ended June 30, 1998,  1997 and 1996,  respectively.  A majority of
        the  rental  expense  relates  to the lease of the  Company's  principal
        offices with a company owned by the majority shareholders of UAC.

        The Company is party to litigation  in the ordinary  course of business,
        often involving  claims by consumers under the consumer  protection laws
        described  above.  Other claims  brought are  primarily  allegations  of
        wrongdoing by the motor vehicle dealer which  originated the contract or
        sold the  vehicle  financed  by the  Company.  The Company is named as a
        co-defendant  in such  actions  because  of its  status as holder of the
        contract. Such litigation is common for industry participants.

        The Company is currently a defendant in an action commenced  October 23,
        1997,  in the  Common  Pleas  Court  of  Cuyahoga  County,  Ohio,  Civil
        Division,  by plaintiff Barohda Rucker. Suit was initially filed against
        the Company and Jackshaw  Chevrolet,  Inc.  ("Jackshaw"),  alleging that
        Jackshaw  committed  unfair,   deceptive  and  unconscionable   acts  in
        connection  with the sale of a vehicle,  and further  alleging  that the
        Company  committed  disclosure  and other  violations of the Ohio Retail
        Installment  Sales Act.  Plaintiff  seeks  rescission  of the  contract,
        injunctive relief and damages.  Although the suit was considered routine
        when  initiated,  the plaintiff  has now sought to amend the  complaint,
        asserting class action claims and seeking  monetary  damages.  The class
        claims relate to the claims set forth in the original  complaint and new
        claims  under or related to the Ohio  Mortgage  Loan Act.  The court has
        not, at this time, granted the motion to amend.

        The Company is also a  defendant  in an action  brought in the  District
        Court for Boulder  County,  Colorado,  on April 10,  1998,  by plaintiff
        Cristy  Waggoner.  The suit alleges  usury,  contending  that the retail
        installment  contracts  purchased by the Company were,  in fact,  direct
        loans by the Company subject to a lower usury limitation.  The complaint
        seeks  certification of a class of Colorado residents  similarly injured
        but no class has been certified at this time.

                                                                        (cont'd)
<PAGE>

UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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


        The Company is a defendant in an adversary  action brought in the United
        States Bankruptcy Court for the Northern  District of Illinois,  Eastern
        Division  on August  23,  1998,  by  plaintiff,  Keith D.  Ferrell.  The
        plaintiff alleges the Company  overstated the value of its collateral in
        connection with his Chapter 13 bankruptcy proceedings. The plaintiff has
        also  asserted  claims  on  behalf of a class  consisting  of  similarly
        situated debtors involved in Chapter 13 proceedings. The plaintiff seeks
        injunctive relief, actual and punitive damages and attorney fees.

        Management  of the Company,  based on advice of outside  legal  counsel,
        does not expect any pending proceeding to have a material adverse effect
        on the Company, and such proceedings are being vigorously defended.

(12)    Stock-Based Compensation

        The Company has one stock-based  compensation  plan,  which is described
        below.  The Company  applies APB  Opinion No. 25,  Accounting  for Stock
        Issued to Employees and related  Interpretations in accounting for these
        plans. Had compensation  cost been determined based on the fair value at
        the grant date for awards under those plans  consistent  with the method
        of Statement of Financial  Accounting  Standards No. 123, Accounting for
        Stock-Based  Compensation  (SFAS  123),  the  Company's  net  income and
        earnings  per share  would have been  reduced  to the pro forma  amounts
        indicated below (in thousands, except share data):

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------
                                                                               June 30,
                                                                   --------------------------------
                                                                      1998       1997      1996
--------------------------------------------------------------------------------------------------
<S>                                                                <C>           <C>       <C>   
        Net earnings (loss):
           As reported                                             $ (9,822)     5,882     21,142
           Pro forma                                                (10,951)     4,543     19,449
        Net earnings (loss) per common share (basic and diluted):
           As reported                                                (0.74)      0.45       1.60
           Pro forma                                                  (0.83)      0.34       1.47
==================================================================================================
</TABLE>


        The Union  Acceptance  Corporation  1994 Incentive Stock Plan (Incentive
        Stock Plan) is the Company's  long-term  incentive  plan for  directors,
        executive  officers and other key  employees.  The Incentive  Stock Plan
        authorizes  the  Company's  Compensation  Committee  to award  executive
        officers  and other key  employees  incentive  and  non-qualified  stock
        options  and  restricted  shares  of  Class A Common  Stock.  A total of
        500,000  shares of Class A Common Stock have been  reserved for issuance
        under the Incentive  Stock Plan, of which options for 271,875  shares of
        Class A Common  Stock were granted at an issue price of $16 per share to
        senior  officers  upon  consummation  of the  Company's  initial  public
        offering of the Class A Common Stock.

        Options or other  grants to be received by  executive  officers or other
        employees  in the  future are within  the  discretion  of the  Company's
        Compensation  Committee and are not determinable.  Stock options granted
        under the Incentive  Stock Plan are exercisable at such times (not after
        ten years and one day from the date of the grant)  and at such  exercise
        prices (not less than 85% of the fair market value of the Class A Common
        Stock at date of grant) as the Committee  determines and will, except in
        limited circumstances,  terminate if the grantee's employment terminates
        prior to exercise.  The outstanding  options' maximum term is ten years.
        Such options vest over a period of five years,  with one-fifth  becoming
        exercisable on each anniversary of the option grant.

                                                                        (cont'd)
<PAGE>
UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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


        The fair value of each option  grant is  estimated  on the date of grant
        using  the  Black-Scholes  options  pricing  model  with  the  following
        weighted  average  assumptions  used for grants in 1998, 1997, and 1996;
        dividend yield of 0.0% for all three years;  expected volatility of 100%
        for all three years; weighted average risk-free interest rates of 5.45%,
        6.50%, and 6.41%, respectively;  and expected lives of ten years for all
        three years.

        A summary of the status of the  Company's  stock option plans as of June
        30,  1998 and 1997  changes  during  the years  ended on those  dates is
        presented below:

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------------------
                                                        1998                      1997                       1996
                                               ----------------------    -----------------------    -------------
                                                           Weighted                   Weighted                    Weighted
                                                            average                    average                     average
                                                           exercise                   exercise                    exercise
                                                Shares       price        Shares        price        Shares         price
-----------------------------------------------------------------------------------------------------------------------------------

        Options outstanding at
<S>                                            <C>         <C>             <C>        <C>                        <C>  
             beginning of year                 314,485     $ 16.02         276,915    $ 16.03          -         $   -
        Options granted                         74,000        9.69          39,750      16.00        280,600        16.04
        Options exercised                        -            -              -           -             -             -
        Options canceled                        19,810       14.63           2,180      17.48          3,685        16.31
-----------------------------------------------------------------------------------------------------------------------------------

        Options outstanding at
             end of year                       368,675     $ 14.86         314,485    $ 16.02        276,915      $ 16.03
-----------------------------------------------------------------------------------------------------------------------------------

        Weighted average fair value of
             options granted during the year         $ 8.86                      $14.71                   $ 14.79
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

        The  following  table   summarizes   information   about  stock  options
        outstanding at June 30, 1998:


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                 Options outstanding                     Options exercisable
                    ----------------------------------------------   -----------------------------
                    Weighted prices    Weighted
                       average        remaining        Average                         Average
                       number        contractual       exercise         Number         exercise
                     outstanding         life           price        exercisable        price
--------------------------------------------------------------------------------------------------

<C>                     <C>              <C>           <C>                <C>         <C>     
$  9.69                 67,500           9.10          $  9.69            3,500       $   9.69
  16.00                298,375           7.27            16.00          109,288          16.00
  17.88                  2,800           7.53            17.88            1,120          17.88
---------------------------------------------------------------------------------------------------
                       368,675           7.67          $ 14.86          113,908        $ 15.90
---------------------------------------------------------------------------------------------------
</TABLE>

        In addition  to the options  outstanding  at June 30,  1998,  there were
        99,843  shares of Class A Common Stock were  available for future grants
        or awards.

        The Incentive Stock Plan also provides that each director of the Company
        who is not an executive officer is automatically granted shares of Class
        A Common Stock with a fair market value of $15,000 following each annual
        meeting of  shareholders.  Shares so granted have a six-month  period of
        restriction  during which they may not be  transferred.  Shares  granted
        under this section of the Incentive  Stock Plan totaled  14,694,  5,430,
        and  11,358  in  fiscal  1998,   1997,  and  1996,   respectively,   and
        compensation  cost charged  against income was $90,000 in 1998 and 1997,
        and $180,000 in 1996.

                                                                        (cont'd)
<PAGE>
UNION ACCEPTANCE CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

(13)    Restatement of Consolidated Financial Statements

     The Company  determined  in August 1998 that it should have been  measuring
     other than temporary impairment of Retained Interest in Securitized Assets,
     previously  captioned  Excess  Servicing,  on  a  disaggregate  basis  (the
     pool-by-pool  method) as opposed to its  historical  method which  measured
     impairment  on an  aggregate  basis.  The  adjustments  resulting  from the
     measurement of other than temporary impairment on a disaggregate basis were
     of  sufficient  significance  to require  restatement  of the  consolidated
     financial statements since the implementation of SFAS 125. This restatement
     had the effect of reducing  fiscal  1997  earnings  by  $1,890,000  (net of
     income taxes of  $1,288,000)  or $0.14 per share.  The  restatement  had no
     effect on  shareholders  equity at June 30, 1997.  In  connection  with the
     restatement,   the  Company   made  other   adjustments,   which  were  not
     individually  significant,  that  increased  fiscal  1997 net  earnings  by
     $372,000 (net of income taxes of $259,000) or $0.03 per share and increased
     shareholders' equity at June 30, 1997 by $733.000.

(14)    Quarterly Financial Information (unaudited)

        Quarterly  financial  information  is as follows (in  thousands,  except
        share data):

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------
                              First          Second          Third           Fourth         Total                        
Year ended June 30, 1998
--------------------------------------------------------------------------------------------------
<S>                            <C>            <C>             <C>             <C>           <C>         
Interest on loans        $     6,627        $ 6,473         $ 7,133         $ 7,638        $27,871       
Interest on spread           
   accounts and              
   restricted cash             1,572          1,461           1,443           1,380          5,856
Interest expense              (6,053)        (6,167)         (6,990)         (6,897)       (26,107)
Provision for                
   estimated credit          
   losses on loans           
   held for sale              (1,505)        (1,770)         (1,900)         (2,875)        (8,050)
--------------------------------------------------------------------------------------------------
Net interest margin          
   (deficit)                 
   after provision               641             (3)           (314)           (754)          (430)
Gain (loss) on sales of      
   loans, net                (10,847)         2,020           3,113          (6,212)       (11,926)
Servicing fees, net            6,286          6,533           6,529           6,789         26,137
Other revenues                 1,020            985           1,065           1,017          4,087
--------------------------------------------------------------------------------------------------
Total revenues                (2,900)         9,535          10,393             840         17,868
--------------------------------------------------------------------------------------------------
Salaries and benefits          4,610          4,871           4,815           5,131         19,427
Other expenses                 4,013          4,165           4,007           3,934         16,119
--------------------------------------------------------------------------------------------------
Operating expenses             8,623          9,036           8,822           9,065         35,546
--------------------------------------------------------------------------------------------------
Provision (benefit) for      
   income taxes               (4,656)          (711)            654          (3,143)        (7,856)
--------------------------------------------------------------------------------------------------
Net earnings (loss)      $    (6,867)       $ 1,210        $    917        $ (5,082)       $(9,822)        
==================================================================================================
Net earnings (loss)          
   per common                
   share (basic and          
   diluted)                    (0.52)          0.09            0.07           (0.38)         (0.74)
==================================================================================================
Weighted average common      
   shares outstanding    $13,216,788     13,227,010      13,231,482       13,231,482    13,226,651
==================================================================================================

</TABLE>

                                                                        (cont'd)
<PAGE>



Item 9.           Changes in and Disagreements with Accountants on
                  ------------------------------------------------
                  Accounting and Financial Disclosure
                  -----------------------------------

Not Applicable
PART III

Item 10.          Directors and Executive Officers of the Registrant
                  --------------------------------------------------

         The  information  required by this item with  respect to  directors  is
incorporated  by  reference  to the  information  contained  under  the  caption
"Election of  Directors"  in the  Company's  1998 Proxy  Statement  for its 1998
Annual Shareholder Meeting (the "1998 Proxy Statement").

Item 11.          Executive Compensation
                  ----------------------

         Only the  information  required by this item to be  included  with this
report is  incorporated  by reference  to the  information  contained  under the
caption "Compensation" in the 1998 Proxy Statement.

Item 12.          Security Ownership of Certain Beneficial Owners and Management
                  --------------------------------------------------------------

         The  information  required by this item is incorporated by reference to
the information  contained under the captions  "Voting  Securities and Principal
Holders Thereof" and "Election of Directors" in the 1998 Proxy Statement.

Item 13.          Certain Relationships and Related Transactions
                  ----------------------------------------------

         The  information  required by this item is incorporated by reference to
the information  contained under the caption "Certain  Transactions with Related
Persons" in the 1998 Proxy Statement.

PART IV

Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K
            ---------------------------------------------------------------

(a)         List the following documents filed as part of the report:

            Financial Statements -- Included Under Item 8:

            Report of KPMG Peat Marwick LLP, Independent Auditors

            Consolidated Balance Sheets as of June 30, 1998 and 1997

            Consolidated Statements of Earnings for the Years Ended
            June 30, 1998, 1997, 1996

            Consolidated Statements of Cash Flows for the Years Ended
            June 30, 1998, 1997, 1996

            Consolidated Statement of Shareholders' Equity for the Years
            Ended June 30, 1998 and 1997

(b)         Reports on Form 8-K

            Registrant  filed no reports on Form 8-K during the quarter  
            ended June 30, 1998

(c)         The exhibits filed herewith or incorporated  by reference  herein
            are set forth  following the signature page which appears on page
            62.

<PAGE>
                                  EXHIBIT INDEX

Exhibit No.           Description                                 Page (Ex. No.
                                                             Cross Reference)(1)
-------------------------------------------------------------------------------
3.1         Registrant's  Articles of  Incorporation,  as amended       S-1, 3.1
            and restated.

3.2         Registrant's   Code  of   By-Laws,   as  amended  and       S-1, 3.2
            restated.

3.3         Form of Share Certificate for Class A Common Stock.         S-1, 3.3

4.1         Articles  V and VI of the  Registrant's  Articles  of       S-1, 4.1
            Incorporation  respecting  the  terms * of  shares of
            Common Stock,  are  incorporated  by reference to the
            Registrant's    Articles   of   Incorporation   filed
            hereunder as Exhibit 3.1

4.2         Article III -  "Shareholder  Meetings,"  Article VI -       S-1, 4.2
            "Certificates  for Shares,"  Article VII - "Corporate
            Books  and  Records  -  Section  3" and  Article  X -
            "Control   Share   Acquisitions   Statute"   of   the
            Registrant's  Code of  By-Laws  are  incorporated  by
            reference  to  the  Registrant's   Restated  Code  of
            By-Laws filed herewith as Exhibit 3.2.

4.3         Transfer   and    Administration    Agreement   among      S-1, 4.3
            Enterprise  Funding  Corporation,   Union  Acceptance
            Funding Corporation and Union Acceptance Corporation,
            dated as of June 27, 1995 ("UAFC Transfer and
            Administration Agreement").

4.3(a)      Amendment  No. 1  to UAFC Transfer and  Administration      10Q 9/95
            Agreement dated September 8, 1995                             4.3(a)

4.3(b)      Amendment  No. 2  to UAFC Transfer and  Administration      10Q 9/95
            Agreement dated September 29, 1995                            4.3(b)

4.3(c)      Letter    Agreement    regarding  UAFC  Transfer   and      10K 1996
            Administration Agreement dated November 13, 1995              4.3(c)

4.3(d)      Amendment  No. 3  to  UAFC Transfer and  Administration     10K 1996
            Agreement dated March 1, 1996                                 4.3(d)

4.3(e)      Letter  Agreement UAFC regarding  UAFC  Transfer  and       10K 1996
            Administration Agreement dated May 30, 1996                   4.3(e)

4.3(f)      Amendment No. 4  to UAFC Transfer and  Administration       10K 1996
            Agreement dated September 5, 1996                             4.3(f)

4.3(g)      Amendment No. 5 to UAFC Transfer  and  Administration       10K 1997
            Agreement dated October 31, 1996                              4.3(g)

4.3(i)      Amendment No. 6  to UAFC Transfer and  Administration      10Q 12/96
            Agreement dated December 23, 1996                                4.1

4.3(h)      Amendment No. 7  to UAFC Transfer and  Administration       10K 1997
            Agreement dated March 31, 1997                                4.3(h)

4.3(j)      Letter  Agreement  No. 3 with respect to UAFC Transfer      10K 1997
            and Administration Agreement, dated April 28, 1997            4.3(j)

4.4         Note  Purchase  Agreement  between  Union  Acceptance       10K 1995
            Corporation and certain lenders dated as of August 7,            4.4
            1995.

4.4(a)      Amendment  No.  1 to Note  Purchase  Agreement  dated      10Q 12/95
            November 22, 1995                                             4.4(a)

4.5         Transfer   and    Administration    Agreement   among       S-1, 4.5
            Enterprise Funding  Corporation,  Performance Funding
            Corporation and Union Acceptance  Corporation,  dated
            as of July 24, 1995.


<PAGE>

4.5(a)      Amendment  No.  1  to  Transfer  and   Administration      10Q 12/95
            Agreement dated September 8, 1995                             4.5(a)

4.5(b)      Letter    Agreement     regarding     Transfer    and       10K 1996
            Administration Agreement dated October 12, 1995               4.5(b)

4.5(c)      Amendment  No.  2  to  Transfer  and   Administration       10K 1996
            Agreement dated May 10, 1996                                  4.5(c)

4.5(d)      Letter    Agreement     regarding     Transfer    and       10K 1996
            Administration Agreement dated July 11, 1996                  4.5(d)

4.5(e)      Letter    Agreement     regarding     Transfer    and       10K 1996
            Administration Agreement dated August 20, 1996                4.5(e)

4.5(f)      Amendment  No.  3  to  Transfer  and   Administration      10Q 12/96
            Agreement,  dated  December  23, 1996                            4.2

4.5(g)      Letter    Agreement  No. 4  to   Transfer  and              ____
            Administration Agreement dated April 25, 1997

4.5(h)      Amendment  No.  5  to  Transfer  and   Administration       ____
            Agreement dated June 6, 1997

4.5(i)      Letter   Agreement   with  regard  to  Transfer   and       ____
            Administration Agreement dated June 24, 1997

4.5(j)      Amendment No. 6 to Transfer and Administration Agreement    ____
            dated as of July 29, 1997

4.6         Note  Purchase  Agreement  dated as of April 3,  1996       10Q 3/96
            among  Union   Acceptance   Corporation  and  several            4.1
            purchasers of Senior Subordinated Notes due 2003

4.7         Note Purchase Agreement,  dated March 24, 1997, among       10Q 3/97
            Union Acceptance  Corporation and certain  purchasers           10.1
            of Senior Notes, due 2002.

4.8(a)      Note  Purchase  Agreement,  dated April 3, 1997 among       ____
            UAC   Boat   Funding   Corp.,    Enterpirse   Funding
            Corporation and NationsBank, N.A.

4.8(b)      Security Agreement, dated April 3, 1997, among UAC Boat     ____
            Funding Corp., Enterpirse Funding Corp., et. al.

9(a)        Voting Trust Agreement  among Richard D.  Waterfield,      S-1, 9(a)
            as trustee,  and  certain  existing  shareholders  of
            Union Holding Company, Inc., dated June 10, 1994.

9(b)        First  Amendment to Voting Trust Agreement dated June      S-1, 9(b)
            1, 1995.

10.1        Remittance  Processing Agreement by and between Union     S-1, 10.5
            Federal  Savings  Bank  of  Indianapolis   and  Union
            Acceptance Corporation dated June 29, 1994.

10.2        Mail and Printing  Services  Agreement by and between     S-1, 10.6
            Union Federal Savings Bank of Indianapolis  and Union
            Acceptance Corporation dated June 29, 1994.

10.3        Telephone  Equipment  Lease  Agreement by and between     S-1, 10.7
            Union Federal Savings Bank of Indianapolis  and Union
            Acceptance Corporation dated June 29, 1994.

10.4        Telecommunications  Agreement  by and  between  Union     S-1, 10.8
            Federal  Savings  Bank  of  Indianapolis   and  Union
            Acceptance Corporation dated June 29, 1994.

10.5        Communications  Equipment and Software License by and     S-1, 10.9
            between  Union Federal  Savings Bank of  Indianapolis
            and Union Acceptance Corporation dated June 29, 1994.


<PAGE>

10.6        Software  License and  Maintenance  Agreement  by and    S-1, 10.10
            between  Union Federal  Savings Bank of  Indianapolis
            and Union Acceptance Corporation dated June 29, 1994.

10.7        Loan Servicing Agreement by and between Union Federal    S-1, 10.11
            Savings  Bank of  Indianapolis  and Union  Acceptance
            Corporation dated June 29, 1994.

10.8        General  Subservicing  Agreement by and between Union    S-1, 10.12
            Federal  Savings  Bank  of  Indianapolis   and  Union
            Acceptance Corporation dated as of January 1, 1995.

10.9        Loan  Collection   Agreement  by  and  between  Union    S-1, 10.13
            Federal  Savings  Bank  of  Indianapolis   and  Union
            Acceptance Corporation dated June 29, 1994.

10.10       Letter  respecting  Terms of Bank Accounts from Union    S-1, 10.14
            Federal   Savings  Bank  of   Indianapolis  to  Union
            Acceptance Corporation dated May 25, 1994.

10.11       Supplement  to Account  Agreement  Re:  Drafts by and    S-1, 10.15
            between  Union Federal  Savings Bank of  Indianapolis
            and Union Acceptance Corporation dated June 29, 1994.

10.12       Tax Allocation Agreement by and between Union Holding    S-1, 10.16
            Company,  Inc. and its subsidiaries dated February 1,
            1991, as amended.

10.13       Form of Remote  Outsourcing  Agreement by and between    S-1, 10.18
            Systematics   Financial  Services,   Inc.  and  Union
            Acceptance Corporation.

10.13(a)    Letter Agreement by and among  Systematics  Financial  S-1, 10.18(a)
            Services,   Inc.,   Union  Federal  Savings  Bank  of
            Indianapolis and Union Acceptance  Corporation  dated
            July 13, 1994 respecting Provision of Data Processing
            Services.

10.13(b)    Memorandum respecting Billing Procedure in connection  S-1, 10.18(b)
            with Remote  Outsourcing  Agreement from  Systematics
            System  Financial  Services,  Inc.  to Union  Federal
            Savings  Bank of  Indianapolis  and Union  Acceptance
            Corporation dated October 25, 1994.

10.14       Union  Acceptance  Corporation  Annual Bonus Plan For     S-1, 10.23
            Senior Officers.


<PAGE>

10.15   Union Acceptance Corporation Incentive Stock Plan.            S-1, 10.24

10.16   Letter  respecting  Access  to  Records  from  Union          S-1, 10.25
        Acceptance Corporation to Union Federal Savings Bank
        of Indianapolis dated September 13, 1994.

10.17   Letter   Agreement  by  and  between  Union  Federal         S-1,  10.26
        Savings Bank of  Indianapolis  and Union  Acceptance
        Corporation  dated  December  14, 1994  amending and
        initiating    terms   of    certain    Inter-Company
        Agreements.

10.18   Letter  respecting  terms  and  conditions  of  bank          S-1, 10.27
        accounts   from  Union   Federal   Savings  Bank  of
        Indianapolis to Union Acceptance  Corporation  dated
        December 16, 1994.

10.19   Lease Agreement between Waterfield Mortgage Company,           10Q 12/95
        Incorporated, and Union Acceptance Corporation dated               10.19
        as of November 1, 1995

10.20   Purchase  Agreement among Union  Acceptance  Funding            10Q 3/96
        Corporation,  Union Acceptance Corporation and Union                10.1
        Federal  Savings  Bank of  Indianapolis  dated as of
        January 18, 1996

10.21   Sublease    Agreement   between   Union   Acceptance            10K 1996
        Corporation   and  Union  Federal  Savings  Bank  of               10.26
        Indianapolis dated as of August 1, 1996

21      Subsidiaries of the Registrant                                     _____

23      Consent of KPMG Peat Marwick LLP.                                  _____

27      Financial Data Schedule                                            _____

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

(1)  Exhibits  set  forth  above  that are not  included  with this  filing  are
     incorporated by reference to the Registrant's previously filed registration
     statement or reports (and the indicated exhibit number) as indicated in the
     right hand column above, as follows:

     S-1 -- Refers to Registrant's  Registration Statement on Form S-1 (Reg. No.
     33-82254

     10K 1995 -- Refers to  Registrant's  Form 10-K for the year  ended June 30,
     1995

     10K 1996 -- Refers to  Registrant's  Form 10-K for the year  ended June 30,
     1996

     10Q (month/year) -- Refers to Registrant's  Form 10-Q for the quarter ended
     at the end of such month in such calendar year




<PAGE>

SIGNATURES

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

                                     UNION ACCEPTANCE CORPORATION

September 28, 1998                   By:  /S/   John M. Stainbrook
                                          John M. Stainbrook
                                          President and Chief Executive Officer

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

<TABLE>
<CAPTION>
<S>     <C>                                        <C>                         <C>      <C>   
         Signature                                   Title                              Date

(1)      Principal Executive Officer:                                           )
                                                                                )
         /s/  John M. Stainbrook                     President and Chief        )
         --------------------------------------      Executive Officer          )
         John M. Stainbrook                                                     
                                                                                )
(2)      Principal Financial/Accounting Officer:                                )
                                                                                )
                                                     Treasurer and              )
         /s/ Rick A. Brown                           Chief Financial            )
         --------------------------------------      Officer                    )
         Rick A. Brown                                                          )
                                                                                )
(3)      A Majority of the Board of Directors:                                  )
                                                                                )
         /s/ Howard L. Chapman                       Director                   )
         --------------------------------------                                 )
         Howard L. Chapman                                                      )
                                                                                )
         /s/ John M. Davis                           Director                   )        September 28, 1998
         --------------------------------------                                 )
         John M. Davis                                                          )
                                                                                )
         /s/ Fred M. Fehsenfeld                      Director                   )
         --------------------------------------                                 )
         Fred M. Fehsenfeld                                                     )
                                                                                )
         /s/ Donald A. Sherman                       Director                   )
         --------------------------------------                                 )
         Donald A. Sherman                                                      )
                                                                                )
         /s/ John M. Stainbrook                      Director                   )
         --------------------------------------                                 )
         John M. Stainbrook                                                     )
                                                                                )
                                                     Director                   )
         --------------------------------------                                 )
         Jerry D. Von Deylen                                                    )
                                                                                )
                                                     Director                   )
         --------------------------------------                                 )
         Richard D. Waterfield                                                  )
                                                                                )
         /s/ Thomas M. West                          Director                   )
         --------------------------------------                                 )
         Thomas M. West                                                         )
                                                                                )
</TABLE>