================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20594

                              --------------------
                                    FORM 10-K
                   ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                              --------------------
For the Fiscal Year Ended December 31, 1997        Commission File Number 1-7543
                           FINOVA CAPITAL CORPORATION
             (Exact Name of Registrant as Specified in Its Charter)

              Delaware                                   94-1278569
   (State or Other Jurisdiction of          (I.R.S. Employer Identification No.)
   Incorporation or Organization)

  1850 North Central Ave., P. O. Box 2209
                Phoenix, AZ                              85002-2209
 (Address of Principal Executive Offices)                (Zip Code)

        Registrant's Telephone Number, Including Area Code - 602-207-4900

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

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

                                                          Name of Each Exchange
             Title of Each Class                           on Which Registered
             -------------------                           -------------------
        $175,000,000 Principal Amount                    New York Stock Exchange
   of 9 - 1/8% Note Due February 27, 2002

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

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

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

As of March 13,  1998,  25,000  shares of Common  Stock  ($1.00 par value)  were
outstanding and held by an affiliate.

Registrant  meets the conditions set forth in General  instruction I (1) (a) and
(b) of form 10-K and is therefore  filing this form with the reduced  disclosure
format.
                       DOCUMENTS INCORPORATED BY REFERENCE
Document                                                             Part Where
--------                                                            Incorporated
                                                                    ------------
       None.
================================================================================
<PAGE>
                                TABLE OF CONTENTS
                                  Name of Item
                                  ------------
Item #                                                                      Page
--------------------------------------------------------------------------------
                                     Part I
Item 1   Business:
           Introduction                                                       1
           General                                                            1
             Business Groups                                                  1
             Portfolio Composition                                            3
             Investment in Financing Transactions                             3
             Cost and Use of Borrowed Funds                                   11
             Matched Funding Policy                                           12
             Credit Ratings                                                   13
             Residual Realization Experience                                  13
             Business Development and Competition                             14
             Credit Quality                                                   15
             Risk Management                                                  15
             Portfolio Management                                             15
             Delinquencies and Workouts                                       16
             Governmental Regulation                                          16
           Employees                                                          16
           Special Note Regarding Forward-Looking Statements                  16

Item 2   Properties                                                           17
Item 3   Legal Proceedings                                                    17
Item 4   Submission of Matters to a Vote of Security Holders                  18

                                     Part II

Item 5   Market Price of and Dividends on the Registrant's Common
                 Equity & Related Shareowner Matters                          19
Item 6   Selected Financial Data                                              20
Item 7   Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                         21
Item 8   Financial Statements & Supplementary Data                            21
Item 9   Changes in and Disagreements with Accountants
                 on Accounting & Financial Disclosure                         21

                                    Part III

Item 10  Directors & Executive Officers of the Registrant                     21
Item 11  Executive Compensation                                               22
Item 12  Security Ownership of Certain Beneficial Owners & Management         22
Item 13  Certain Relationships & Related Transactions                         22

                                     Part IV


Item 14  Exhibits, Financial Statement Schedules, and Reports on Form 8-K     22
<PAGE>
                                     PART I

ITEM 1.           BUSINESS.

INTRODUCTION

         The following  discussion relates to FINOVA Capital Corporation and its
subsidiaries (collectively "FINOVA" or the "Company").  FINOVA is a wholly owned
subsidiary of The FINOVA Group Inc. ("FINOVA Group").

GENERAL

         FINOVA Capital  Corporation is a financial  services company engaged in
providing   capital  and   collateralized   financing   products  to  commercial
enterprises focusing on midsize businesses in various market niches, principally
in the United States.

         FINOVA extends  revolving credit  facilities,  term loans and equipment
and real estate financing primarily to "middle-market" businesses with financing
needs falling generally between $500,000 and $35 million.  FINOVA operates in 16
specific  industry or market niches under three market groups.  FINOVA  selected
these  groups  because its  expertise in  evaluating  the  credit-worthiness  of
prospective customers and its ability to provide value-added services enable the
Company to differentiate itself from its competitors. That expertise and ability
also enables FINOVA to command pricing that provides a satisfactory  spread over
its borrowing costs.

         FINOVA  seeks to  maintain a high  quality  portfolio  and to  minimize
non-earning  assets and  write-offs.  FINOVA uses clearly  defined  underwriting
criteria and stringent portfolio management techniques.  The Company diversifies
its lending activities geographically and among a range of industries, customers
and financing products.

         Due to the diversity of FINOVA's portfolio,  the Company believes it is
better able to manage  competitive  changes in its markets and to withstand  the
impact of  deteriorating  economic  conditions on a regional or national  basis.
There  can  be no  assurance,  however,  that  competitive  changes,  borrowers'
performance,  economic conditions or other factors will not result in an adverse
impact on FINOVA's results of operations or financial condition.

         FINOVA generates interest income, leasing income, fees and other income
through  charges  assessed  on  outstanding  loans,  loan  servicing,   leasing,
brokerage  and other  activities.  FINOVA's  primary  expenses  are the costs of
funding the loan and lease business, including interest paid on debt, provisions
for credit losses, marketing expenses, salaries and employee benefits, servicing
and other operating expenses and income taxes.

         FINOVA is headquartered in Phoenix,  Arizona with business  development
offices throughout the U.S. and in London, U.K. and Toronto, Canada.

Business Groups

         FINOVA  operates the following  principal lines of business under three
market groups:

         Commercial Finance
               o      Business  Credit   offers  collateral-oriented   revolving
                      credit  facilities  and  term  loans  for   manufacturers,
                      distributors,  wholesalers and service companies.  Typical
                      transaction sizes range from $500,000 to $3 million.
               o      Corporate   Finance   provides   a  full  range  of   cash
                      flow-oriented  and  asset-based  term and  revolving  loan
                      products  for  manufacturers,  wholesalers,  distributors,
                      specialty  retailers and commercial  and consumer  service
                      businesses.   Typical  transaction  sizes  range  from  $2
                      million to $35 million.
               o      Inventory  Finance provides inbound and outbound inventory
                      financing, combined inventory/accounts receivable lines of
                      credit  and  purchase   order   financing   for  equipment
                      distributors,    value-added    resellers    and   dealers
                      nationwide.   Transaction   sizes   generally  range  from
                      $500,000 to $30 million.
               o      Factoring  Services  offers  full  service  factoring  and
                      accounts     receivable     management     services    for
                      entrepreneurial and larger firms, primarily in the textile
                      and  apparel  industries.  The annual  factored  volume of
                      these  companies is  generally  between $5 million and $25
                      million.
                                       1
<PAGE>
               o      Rediscount  Finance offers revolving credit  facilities to
                      the independent consumer finance industry including sales,
                      automobile,   mortgage  and  premium   finance  companies.
                      Typical  transaction  sizes  range from $1  million to $35
                      million.

         Specialty Finance

               o      Commercial  Equipment  Finance  offers  equipment  leases,
                      loans and "turnkey"  financing to a broad range of midsize
                      companies.   Specialty   markets   include  the  corporate
                      aircraft  and  emerging  growth   technology   industries,
                      primarily    biotechnology   and   electronics.    Typical
                      transaction sizes range from $500,000 to $15 million.
               o      Specialty  Real Estate  Finance  focuses on first mortgage
                      loans  for  hotel  and   resort   properties   and  equity
                      investments  in  real  estate   sale-leasebacks.   Typical
                      transaction sizes range from $5 million to $30 million.
               o      Communications  Finance  specializes  in term financing to
                      advertising and subscriber-supported businesses, including
                      radio and television  stations,  cable operators,  outdoor
                      advertising  firms  and  publishers.  Typical  transaction
                      sizes range from $1 million to $40 million.
               o      Franchise  Finance  offers  equipment,  real  estate   and
                      acquisition   financing  for   operators  of   established
                      franchise concepts. Transaction sizes generally range from
                      $500,000 to $15 million.
               o      Healthcare Finance offers a full range of working capital,
                      equipment and real estate financing  products for the U.S.
                      healthcare  industry.  Transaction  sizes  typically range
                      from $500,000 to $25 million.
               o      Public Finance provides tax-exempt term financing to state
                      and   local  governments,  non-profit   corporations   and
                      entities   using   Industrial   Revenue   and   Industrial
                      Development  Bonds.  Typical  transaction sizes range from
                      $100,000 to $5 million.
               o      Portfolio    Services   provides   customized   receivable
                      servicing and  collections  for timeshare  developers  and
                      other generators of consumer receivables.
               o      Resort Finance focuses on  construction,  acquisition  and
                      receivables  financing of timeshare  resorts  worldwide as
                      well as term financing for established  golf resort hotels
                      and  receivables  funding  for  developers  of second home
                      communities.  Typical  transaction  sizes  range  from  $5
                      million to $35 million.
               o      Transportation   Finance   structures   equipment   loans,
                      leases,  acquisition  financing and leveraged lease equity
                      investments  for commercial and cargo airlines  worldwide,
                      railroads and  operators of other  transportation  related
                      equipment. Typical transaction sizes range from $5 million
                      to $30 million.  Through FINOVA Aircraft  Investors,  LLC,
                      FINOVA also seeks to use its market expertise and industry
                      presence to purchase,  upgrade and resell used  commercial
                      aircraft.

         Capital Markets

               o      FINOVA Realty Capital  specializes  in  providing  capital
                      markets-funded  commercial real estate financing  products
                      and  commercial   mortgage   banking   services.   Typical
                      transaction sizes range from $1 million to $5 million.
               o      FINOVA  Investment  Alliance   provides  equity  and  debt
                      financing  for  midsize  businesses  in  partnership  with
                      institutional   investors  and  selected  fund   sponsors.
                      Typical  transaction  sizes  range  from $2 million to $15
                      million.

         FINOVA is a Delaware corporation.  The Company was incorporated in 1965
and is the  successor to a California  corporation  that was formed in 1954.  In
March 1992,  The Dial Corp  transferred  those  businesses  to FINOVA Group in a
spin-off. Since that time, FINOVA has increased its total assets from about $2.5
billion at December 31, 1992 to $8.8  billion at December 31, 1997.  Income from
continuing  operations increased from $36.8 million in 1992 to $143.1 million in
1997. Management believes FINOVA ranks among the largest independent  commercial
finance companies in the U.S., based on total assets. 
                                       2
<PAGE>
Portfolio Composition
         The total assets under  management  of the Company  consist of FINOVA's
net investment in financing  transactions  plus certain assets that are owned by
others but managed by the Company and are not reported on the Company's  balance
sheet (securitized assets and participations  sold). The Company's investment in
financing transactions is primarily settled in U.S. dollars.

Investment in Financing Transactions
The  following  tables  detail  FINOVA's  investment  in financing  transactions
(before reserve for credit losses) at December 31, 1997,  1996,  1995, 1994, and
1993.
                                       3
<PAGE>
                      INVESTMENT IN FINANCING TRANSACTIONS
                              BY TYPES OF FINANCING
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
                                                                                     December 31,
                                ----------------------------------------------------------------------------------------------------
                                    1997       %       1996       %        1995       %        1994        %        1993         %
                                ----------------------------------------------------------------------------------------------------
<S>                             <C>          <C>   <C>          <C>    <C>          <C>    <C>           <C>    <C>            <C> 
 Loans, conditional sale and 
 other financing contracts:
   Commercial                   $ 4,299,909  51.2  $ 3,592,193  49.2   $ 3,389,363  53.4   $2,732,734    51.1   $ 1,397,863    49.1
   Real estate                    1,656,075  19.7    1,713,485  23.5     1,534,177  24.1    1,237,488    23.2       945,892    33.2
 Factored receivables               750,399   8.9      564,430   7.7       189,486   3.0      157,862     3.0
 Operating leases                   712,927   8.5      517,690   7.1       460,798   7.3      412,782     7.7       147,222     5.2
 Leveraged leases                   619,557   7.4      514,573   7.1       366,196   5.8      287,518     5.4       283,782    10.0
 Direct financing leases            360,589   4.3      396,388   5.4       408,059   6.4      514,595     9.6        71,812     2.5
                                ----------- -----  ----------- -----   ----------- -----   ----------   -----   -----------   -----
 Total investment in
  financing transactions          8,399,456 100.0    7,298,759 100.0     6,348,079 100.0    5,342,979   100.0     2,846,571   100.0
                                            =====              =====               =====                =====                 =====
 Securitized assets                 336,607            300,000             200,000             --                    --
 Participations sold                121,360             64,546              --                 --                    --
                                -----------        -----------         -----------         ----------           -----------
 Total managed assets           $ 8,857,423        $ 7,663,305         $ 6,548,079         $5,342,979           $ 2,846,571
                                ===========        ===========         ===========         ==========           ===========
</TABLE>
                                       4
<PAGE>
                      INVESTMENT IN FINANCING TRANSACTIONS
                               BY LINE OF BUSINESS
                                DECEMBER 31, 1997
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
                                                  Revenue Accruing                         Nonaccruing
                                        --------------------------------------  -----------------------------
                                                                    Repos-                  Repos-                 Total
                                           Market                   sessed                  sessed   Lease &     Carrying
                                          Rate (1)     Impaired    Assets (2)   Impaired    Assets    Other       Amount        %
                                        --------------------------------------  -----------------------------  ------------ --------
<S>                                     <C>           <C>         <C>          <C>        <C>       <C>        <C>           <C>   
Transportation Finance (3) (4)          $  1,631,685  $           $            $          $         $          $ 1,631,685    19.4%
Resort Finance (4)                         1,166,199                  14,450       3,974    26,240               1,210,863    14.4%
Corporate Finance (4)                        791,733         981                  26,888                           819,602     9.8%
Specialty Real Estate Finance                610,711      24,120      38,055       7,648    10,853       196       691,583     8.2%
Communications Finance (4)                   628,947       8,724                  24,452                           662,123     7.9%
Commercial Equipment Finance                 614,712       1,816                  11,802               4,030       632,360     7.5%
Rediscount Finance (4)                       609,641                                 993                           610,634     7.3%
Inventory Finance(4)                         544,108                               4,333                           548,441     6.5%
Healthcare Finance                           525,846                               1,515                 666       528,027     6.3%
Franchise Finance(4)                         430,651         808                   2,171                 305       433,935     5.2%
Factoring Services                           196,843                              30,205                           227,048     2.7%
Business Credit                              195,897                               7,559                           203,456     2.4%
Public Finance                               135,826                                                               135,826     1.6%
Other (5)                                     40,347                                                  23,526        63,873     0.8%
                                        ------------  ----------  ----------   ---------  --------  --------   -----------   ------
TOTAL(4)                                $  8,123,146  $   36,449  $   52,505   $ 121,540  $ 37,093  $ 28,723   $ 8,399,456   100.0%
                                        ============  ==========  ==========   =========  ========  ========   ===========   ======
</TABLE>
--------------------
NOTES:
(1)  Represents original or renegotiated  market rate terms,  excluding impaired
     transactions.
(2)  The Company  earned  income  totaling  $4.1 million on  repossessed  assets
     during 1997,  including  $3.1 million in Specialty  Real Estate Finance and
     $1.0 million in Resort Finance.
(3)  Transportation  Finance  includes  $302.9  million  of  aircraft  financing
     business booked through the London office.
(4)  Excludes  assets  securitized  and  participations  sold which the  Company
     manages,  including  securitizations of $300.0 million in Corporate Finance
     and $36.6 million in Franchise Finance and  participations of $40.2 million
     in Corporate  Finance,  $61.0 million in  Communications  Finance,  $8.5 in
     Transportation Finance, $4.6 million in Rediscount Finance, $5.1 million in
     Resort Finance, and $1.9 million in Inventory Finance.
(5)  Primarily includes  London-based FINOVA Capital Limited and assets retained
     subsequent  to the sale of the  Manufacturer  and Dealer  Services  line of
     business which occurred in November 1996.
                              --------------------
                                       5
<PAGE>
                      INVESTMENT IN FINANCING TRANSACTIONS
                               BY LINE OF BUSINESS
                                DECEMBER 31, 1996
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
                                                Revenue Accruing                           Nonaccruing
                                    -------------------------------------   ---------------------------------   
                                                                Repos-                   Repos-                     Total
                                        Market                  sessed                   sessed      Lease &       Carrying 
                                       Rate (1)    Impaired   Assets (2)     Impaired    Assets       Other         Amount      %
                                    -------------------------------------   ---------------------------------    -------------------
<S>                                 <C>           <C>         <C>           <C>        <C>         <C>           <C>          <C>  
Transportation Finance (3)          $   1,330,578 $           $             $          $           $             $ 1,330,578   18.2
Resort Finance (4)                      1,124,462      2,963      13,878          77      25,136                   1,166,516   16.0
Corporate Finance (4)                     630,399      3,211                  14,695         335                     648,640    8.9
Specialty Real Estate Finance             700,932     30,245      46,068       6,748       9,853         940         794,786   10.9
Communications Finance (4)                535,701      8,796                  14,129       3,095                     561,721    7.7
Commercial Equipment Finance              570,574                              7,900                   6,564         585,038    8.0
Rediscount Finance (4)                    421,232                                245                                 421,477    5.8
Inventory Finance (4)                     314,446                              1,273                                 315,719    4.3
Healthcare Finance                        497,540                              1,304                   1,194         500,038    6.9
Franchise Finance                         366,202      1,104                   1,985                     996         370,287    5.0
Factoring Services                        220,701                              3,419                                 224,120    3.1
Business Credit                           160,006                             11,963                                 171,969    2.3
Public Finance                            150,361                                 13                                 150,374    2.1
Other                                      52,998                                                      4,498          57,496    0.8
                                    ------------- ----------  ----------    --------   ---------   ---------     -----------  -----
Total Continuing Operations (4)     $   7,076,132 $   46,319  $   59,946    $ 63,751   $  38,419   $  14,192     $ 7,298,759  100.0
                                    ============= ==========  ==========    ========   =========      39,143     ===========  =====
Discontinued Operations (5)                                                                        ---------    
                                                                                                   $  53,335    
TOTAL                                                                                              =========
</TABLE>
--------------------
NOTES:
(1)  Represents original or renegotiated  market rate terms,  excluding impaired
     transactions.
(2)  The Company  earned  income  totaling  $5.1 million on  repossessed  assets
     during 1996,  including  $4.4 million in Specialty  Real Estate Finance and
     $0.7 million in Resort Finance.
(3)  Transportation  Finance  includes  $160.8  million  of  aircraft  financing
     business booked through the London office.
(4)  Excludes  assets  securitized  and  participations  sold which the  Company
     manages,  including  securitizations of $300.0 million in Corporate Finance
     and participations of $24.6 million in Corporate Finance,  $27.5 million in
     Communications Finance, $4.8 million in Rediscount Finance, $4.4 million in
     Resort Finance and $3.2 million in Inventory Finance.
(5)  Reflects  assets  retained  by  FINOVA   subsequent  to  the  sale  of  the
     Manufacturer and Dealer Services' line of business.
                              --------------------
                                       6
<PAGE>
                      INVESTMENT IN FINANCING TRANSACTIONS
                               BY LINE OF BUSINESS
                                DECEMBER 31, 1995
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
                                                Revenue Accruing                          Nonaccruing
                                       ------------------------------------  ------------------------------
                                                                  Repos-                 Repos-                     Total
                                         Market                   sessed                 sessed     Lease &       Carrying 
                                        Rate (1)     Impaired    Assets (2)  Impaired    Assets      Other          Amount       %
                                       ------------------------------------  ------------------------------     --------------------
<S>                                    <C>          <C>         <C>          <C>       <C>        <C>           <C>           <C>  
Transportation Finance (3)             $   929,043  $           $            $         $          $             $    929,043   14.6
Resort Finance                             943,661       2,849     12,064       2,583     26,559                     987,716   15.6
Corporate Finance (4)                      631,295       5,274                 19,592        335                     656,496   10.3
Specialty Real Estate Finance              703,018       3,898     42,304      15,264     18,231        988          783,703   12.3
Communications Finance                     662,191       2,502      2,217      16,817      4,863                     688,590   10.8
Commercial Equipment Finance               345,039                                 69                 6,079          351,187    5.5
Rediscount Finance                         345,264                                                                   345,264    5.4
Inventory Finance                          202,879                                430                                203,309    3.2
Healthcare Finance                         451,503                                 81                 1,231          452,815    7.2
Franchise Finance                          327,356       1,462                  6,408                 1,850          337,076    5.3
Factoring Services                         188,892                                594                                189,486    3.0
Business Credit                            200,365                             12,685                                213,050    3.4
Public Finance                             121,956                                                       47          122,003    1.9
Other                                       78,645       1,275                  2,360                 6,061           88,341    1.5
                                       -----------  ----------  ---------    --------  ---------  ---------     ------------ ------
Total Continuing Operations (4)        $ 6,131,107  $   17,260  $  56,585    $ 76,883  $  49,988  $  16,256     $  6,348,079  100.0
                                       ===========  ==========  =========    ========  =========  =========     ============ ======
</TABLE>
--------------------
NOTES:
(1)  Represents original or renegotiated  market rate terms,  excluding impaired
     transactions.
(2)  The Company  earned  income  totaling  $4.2 million on  repossessed  assets
     during 1995, including $3.2 million in Specialty Real Estate Finance,  $0.6
     million in Resort Finance and $0.4 million in Communications Finance.
(3)  Transportation Finance included $144 million of aircraft financing business
     booked through the London office.  
(4)  Excludes  $200  million of  securitized assets  which are  managed  by  the
     Company. 
                              --------------------
                                       7
<PAGE>
                      INVESTMENT IN FINANCING TRANSACTIONS
                               BY LINE OF BUSINESS
                                DECEMBER 31, 1994
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
                                                     Revenue Accruing                        Nonaccruing
                                           -----------------------------------  -----------------------------
                                                                       Repos-
                                                                       sessed     Delin-     Repos-    Leases        Total
                                             Original     Rewritten    Assets     quent      sessed      &         Carrying
                                               Rate       Contracts     (1)       Loans      Assets     Other        Amount      %
                                           -----------------------------------  -----------------------------   --------------------
<S>                                        <C>            <C>         <C>       <C>       <C>        <C>        <C>           <C>  
Transportation Finance (2)                 $    706,242   $  14,620   $         $         $          $          $   720,862    13.5
Resort Finance                                  634,735       4,506      7,314     2,582     30,393                 679,530    12.7
Corporate Finance                               746,671      21,275                6,952      2,674                 777,572    14.5
Specialty Real Estate Finance                   672,522       7,237     40,510     7,622     21,519                 749,410    14.0
Communications Finance                          551,218       6,288      7,282    17,377      5,863       671       588,699    11.0
Commercial Equipment Finance                    293,609         769                                     7,589       301,967     5.6
Rediscount Finance                               99,353                                                              99,353     1.9
Inventory Finance                                58,595                              642                             59,237     1.1
Healthcare Finance                              467,131                                                 1,719       468,850     8.8
Franchise Finance                               281,890       7,632               12,242                            301,764     5.6
Factoring Services                              157,090                              772                            157,862     3.0
Business Credit                                 181,741                           12,003                            193,744     3.6
Public Finance                                   93,491                              144                             93,635     1.8
FINOVA Capital Limited (3)                       93,700       1,561                4,265          2     4,800       104,328     2.0
Other                                            36,951                            8,918                  297        46,166     0.9
                                           ------------   ---------   --------  --------  ---------  --------   -----------  ------
Total Continuing Operations                $  5,074,939   $  63,888   $ 55,106  $ 73,519  $  60,451  $ 15,076   $ 5,342,979   100.0
                                           ============   =========   ========  ========  =========  ========   ===========  ======
</TABLE>
--------------------
NOTES:
(1)  The Company  earned  income  totaling  $3.3 million on  repossessed  assets
     during 1994, including $2.0 million in Specialty Real Estate Finance,  $0.8
     million in Communications Finance and $0.5 million in Resort Finance.
(2)  Transportation  Finance included $66.9 million of aircraft finance business
     booked through the London office.
(3)  Includes   transactions  in  Europe  and  elsewhere  (including  the  U.S.)
     originated from the Company's London office. Also includes $39.2 million of
     Consumer Finance assets, of which $4.8 million were  nonaccruing.  Consumer
     Finance accounts were generally considered nonaccruing after being 180 days
     delinquent.
                              --------------------
                                       8
<PAGE>
                      INVESTMENT IN FINANCING TRANSACTIONS
                               BY LINE OF BUSINESS
                                DECEMBER 31, 1993
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
                                              Revenue Accruing                       Nonaccruing
                                    ----------------------------------  -------------------------------
                                                              Repos-
                                                              sessed      Delin-     Repos-     Leases           Total
                                      Original   Rewritten    Assets      quent      sessed        &           Carrying
                                        Rate     Contracts     (1)        Loans      Assets      Other          Amount          %
                                    ----------------------------------  -------------------------------     -----------------------
<S>                                 <C>          <C>         <C>        <C>        <C>        <C>           <C>              <C>  
 Transportation Finance (2)         $  604,416   $           $          $    841   $          $             $    605,257      21.2
 Resort Finance                        530,617        4,869    12,163     11,597      7,404        440           567,090      19.9
 Corporate Finance                     397,779       27,921                4,243      5,462        386           435,791      15.3
 Specialty Real Estate Finance         500,598        1,574    27,844      5,759     20,838                      556,613      19.6
 Communications Finance                487,890        7,989     8,949     21,730     11,564                      538,122      18.9
 Rediscount Finance                     19,439                                                                    19,439       0.7
 FINOVA Capital Limited (3)            107,486        4,430                2,720         23      9,600           124,259       4.4
                                    ----------   ----------  --------   --------   --------   --------      ------------   -------
 TOTAL                              $2,648,225   $   46,783  $ 48,956   $ 46,890   $ 45,291   $ 10,426      $  2,846,571     100.0
                                    ==========   ==========  ========   ========   ========   ========      ============   =======
</TABLE>
--------------------
NOTES:
(1)  The Company  earned income  totaling $2.7 million on  repossessed  accruing
     assets  during  1993,  including  $1.5  million in  Specialty  Real  Estate
     Finance, $0.6 million in Communications  Finance and $0.6 million in Resort
     Finance.
(2)  Transportation  Finance included $31.9 million of aircraft finance business
     booked through the London office.
(3)  Includes   transactions  in  Europe  and  elsewhere  (including  the  U.S.)
     originated from the Company's London office. Also includes $45.3 million of
     Consumer Finance assets, of which $9.6 million were  nonaccruing.  Consumer
     Finance accounts were generally considered nonaccruing after being 180 days
     delinquent.
                              --------------------
                                       9
<PAGE>
         The Company's geographic portfolio diversification at December 31, 1997
was as follows:
                      GEOGRAPHIC PORTFOLIO DIVERSIFICATION
                                December 31, 1997
                             (Dollars in thousands)

                   State                          Total               Percent
           --------------------------        ----------------       ----------
           California                          $  1,386,337             15.7%
           Florida                                  928,459             10.5
           Texas                                    713,368              8.1
           New York                                 617,428              7.0
           Arizona                                  304,706              4.6
           New Jersey                               320,502              3.6
           Illinois                                 308,994              3.5
           Virginia                                 286,399              3.2
           Pennsylvania                             253,255              2.9
           Nevada                                   245,830              2.8
           Massachusetts                            214,617              2.4
           Georgia                                  174,778              2.0
           Other (1)                              3,102,750             33.7
                                               ------------         --------

                                               $  8,857,423            100.0%
                                               ============         ========
--------------------
NOTE:
(1)  Other includes all other states which,  on an individual  basis,  represent
     less than 2% of the total and international, which represents approximately
     6% of the total.
                              --------------------

         The  following is an analysis of the reserve for credit  losses for the
years ended December 31:
                            RESERVE FOR CREDIT LOSSES
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
                                                 1997        1996        1995        1994        1993
                                             -----------------------------------------------------------
<S>                                          <C>          <C>         <C>         <C>         <C>      
Balance, beginning of year                   $  148,693   $  129,077  $  110,903  $   64,280  $  69,291
Provision for credit losses                      69,200       41,751      37,568      10,439      5,706
Write-offs                                      (45,487)     (32,017)    (25,631)    (28,109)   (12,575)
Recoveries                                        2,287        3,296       2,104       1,780        717
Other (including reserves related to
acquisitions)                                     2,395        6,586       4,133      62,513      1,141
                                             ----------   ----------  ----------  ----------  ---------
Balance, end of year                         $  177,088   $  148,693  $  129,077  $  110,903  $  64,280
                                             ==========   ==========  ==========  ==========  =========
</TABLE>
                              --------------------

           Included above is a specific  impairment  reserve of $24.5 million at
December  31,  1997,  which  applies to $158.0  million of impaired  loans.  The
remaining  $152.6  million of the reserve for credit  losses is  designated  for
general purposes and represents  management's  best estimate of potential losses
in the portfolio considering  delinquencies,  loss experience and collateral. At
December  31, 1996,  the specific  impairment  reserve was $6.2  million,  which
applied to $110.1 million of impaired  loans.  Additions to general and specific
reserves are reflected in current  operations.  Management may transfer reserves
between the general and specific reserves as appropriate.
                                       10
<PAGE>
         Write-offs by line of business during the years ended December 31, were
as follows:

                         WRITE-OFFS BY LINE OF BUSINESS
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
                                                1997         1996        1995        1994         1993
                                             -----------------------------------------------------------
<S>                                          <C>          <C>         <C>         <C>          <C>      
Factoring Services (1)                       $  24,382    $   5,098   $   3,728   $   1,148    $
Corporate Finance                                6,577        9,470       4,660       4,233        3,741
Commercial Equipment Finance (1)                 3,722        3,207       2,271       1,257
Resort Finance                                   2,700        4,275       2,000       2,730
Specialty Real Estate Finance                    2,106        1,793       2,275       1,461        2,320
Healthcare Finance (1)                           1,798        1,018         314         377
Inventory Finance (1)                            1,777                      201         442
Communications Finance                             750        2,994       4,037       8,300        1,488
Franchise Finance (1)                              696        3,267       3,448       2,247
FINOVA Capital Limited (UK)                         47          895       1,523       5,140        5,026
Business Credit (1)                                                         452         774
Other                                              932                      722
                                             ---------    ---------   ---------   ---------    ---------
                                             $  45,487    $  32,017   $  25,631   $  28,109    $  12,575
                                             =========    =========   =========   =========    =========
Write-offs as a percentage               
 of average managed assets (2)                    0.56%        0.46%       0.44%       0.66%        0.48%
                                             =========    =========   =========   =========    =========
</TABLE>
--------------------                    
NOTES:
(1)  Acquired in 1994.
(2)  Excludes participations sold in which FINOVA has transferred credit risk.

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

     A further  breakdown  of the  portfolio by line of business can be found in
Annex A, Notes C and D.

Cost and Use of Borrowed Funds
           FINOVA  relies on  borrowed  funds as well as  internal  cash flow to
finance  its  operations.   It  has  also  raised  funds  through  the  sale  or
securitization of assets, but does not rely on those methods as a primary source
of capital.
                                       11
<PAGE>
         The following table reflects the approximate  average pre-tax effective
cost of borrowed funds and pre-tax equivalent rate earned on accruing assets for
FINOVA for each of the periods listed:

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                          ----------------------------------------------
                                                             1997     1996      1995     1994      1993
                                                          ----------------------------------------------
<S>                                                         <C>      <C>       <C>      <C>       <C> 
 Short-term and variable rate long-term debt (1)             6.4%     6.5%      7.2%     5.5%      4.7%
 Fixed-rate long-term debt (1)                               7.1%     7.2%      7.3%     8.1%     11.4%
 Aggregate borrowed funds (1)                                6.6%     6.8%      7.2%     6.3%      6.3%
 Rate earned on average earning assets (2) (3)              12.3%    11.8%     12.1%    11.3%     10.9%
 Spread percentage (4)                                       6.2%     5.8%      5.7%     5.9%      5.4%
</TABLE>

---------------------
NOTES:
(1)  Includes the effects of interest rate swap and hedge agreements.
(2)  Earning assets are net of average  nonaccruing  assets and average deferred
     taxes applicable to leveraged leases.
(3)  Earned amounts are net of depreciation and include gains on sale of assets.
(4)  Spread  percentages  represent  interest  margins earned as a percentage of
     average earning assets. 
                              --------------------

         The effective  costs  presented  above include costs of commitment fees
and related  borrowing  costs.  They do not necessarily  predict future costs of
funds.  For further  information  on FINOVA `s cost of funds,  refer to Annex A,
Notes E and F.

         Following  are the  ratios of  income to  combined  fixed  charges  and
preferred stock dividends ("ratio") for each of the past five years:

                                  Year Ended December 31,
        --------------------------------------------------------------------
           1997           1996          1995           1994          1993
        ----------     ----------    ----------     ----------    ----------
           1.54           1.50          1.44           1.58          1.46
        ==========     ==========    ==========     ==========    ==========

         Variations in interest rates generally do not have a substantial impact
on the ratio because  fixed-rate and floating-rate  assets are generally matched
with liabilities of similar rate and term.

         Income available for fixed charges,  for purposes of the computation of
the above ratio,  consists of income from  continuing  operations  before income
taxes and fixed  charges.  Combined fixed charges  include  interest and related
debt expense and a portion of rental expense representing interest and preferred
stock dividends grossed up to a pre-tax basis.

Matched Funding Policy
         FINOVA follows a "matched funding" policy.  Under that policy, it funds
its floating-rate  assets (loans and leases to FINOVA's borrowers) with floating
rate  liabilities   (FINOVA's  debt)  and  fixed-rate  assets  with  fixed  rate
liabilities,  to the extent  feasible.  This policy  helps  protect  FINOVA from
changes in interest rates.  For further  discussion on FINOVA's debt and matched
funding policy, see Annex A, Notes E and F. 
                                       12
<PAGE>
Credit Ratings
         FINOVA currently has investment-grade credit ratings from the following
rating agencies:

                                                      Commercial       Senior
                                                         Paper          Debt
                                                    --------------   ---------
             Duff & Phelps Credit Rating Co.              D1             A
             Fitch Investors Services, Inc.               F1             A
             Moody's Investors Service, Inc.              P2            Baa1
             Standard & Poor's Ratings Group              A2             A-


         There can be no assurance  that these ratings will be  maintained.  The
ratings can be modified at any time. A credit rating is not a recommendation  to
buy, sell or hold securities.  Each rating should be evaluated  independently of
any other rating. None of FINOVA`s subsidiaries have applied for credit ratings.

Residual Realization Experience
         Each year since its inception,  FINOVA and its predecessors have earned
total  proceeds  from the sale of assets  upon lease  terminations  (other  than
foreclosures) in excess of carrying amounts. There can be no assurance, however,
that those results can be achieved in future years.  Actual proceeds will depend
on current  market  values for those  assets at the time of sale.  While  market
values  are  generally  beyond  the  control of  FINOVA,  the  Company  has some
discretion  in the  timing  of  sales of the  assets.  Sales  proceeds  on lease
terminations  in excess of  carrying  amounts  are  reported as gains on sale of
assets when the assets are sold. 
                                       13
<PAGE>
         Income from leasing  transactions is affected by gains from asset sales
on lease  termination  and, hence,  can be somewhat less predictable than income
from non-leasing activities.  During the five years ended December 31, 1997, the
proceeds  to FINOVA from sales of assets on early  termination  of leases and at
the  expiration  of leases have  exceeded  the  carrying  amounts and  estimated
residual values as follows:

                      PROCEEDS FROM SALES OF LEASED ASSETS
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
                Early Terminations (1)                            Terminations at End of Lease Term
--------------------------------------------------------    --------------------------------------------
                                                                                           Proceeds
                                             Proceeds                        Estimated     as a % of
                              Carrying       as a % of                       Residual      Estimated
                  Sales        Amount        Carrying           Sales        Value of       Residual
     Year        Proceeds    of Assets        Amount          Proceeds        Assets         Value
--------------------------------------------------------    --------------------------------------------
<S>            <C>          <C>                <C>          <C>           <C>                 <C> 
     1997      $   114,680  $    96,656        119%         $    63,733   $     58,127        110%
     1996           87,311       75,910        115%              15,634         13,872        113%
     1995            1,402          905        155%              44,395         37,053        120%
     1994            6,477        5,865        110%              15,287         14,164        108%
     1993              ---          ---        ---                  486            248        196%

</TABLE>
--------------------
NOTE:
(1)  Excludes foreclosures for credit reasons, which are immaterial.

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

         The estimated  residual  value of direct  finance and  leveraged  lease
assets in the  accounts of FINOVA at December 31, 1997 was 31.2% of the original
cost of those  assets  (27.1%  excluding  the  original  costs of the assets and
residuals  applicable to real estate  leveraged  leases,  which  typically  have
higher  residuals  than  other  leases).  The  financing  contracts  and  leases
outstanding  at that date had initial  terms  ranging  generally  from one to 25
years. The average initial term weighted by carrying amount at inception and the
average  remaining  term  weighted by  remaining  carrying  amount of  financing
contracts  at December  31, 1997 for  financing  contracts  excluding  leveraged
leases  were 7.6 and 5.1 years,  respectively,  and for  leveraged  leases  were
approximately 17.5 and 11.9 years, respectively.  The comparable average initial
term and remaining term at December 31, 1996 for financing  contracts  excluding
leveraged leases were 7.2 and 4.6 years, respectively,  and for leveraged leases
were  approximately  18.6 and  11.9  years,  respectively.  FINOVA  uses  either
employed or outside appraisers to determine the collateral value of assets to be
leased or financed and the estimated residual or collateral value thereof at the
expiration  of each lease.  Actual  proceeds  could differ from those  appraised
values.

         For a discussion of accounting for lease  transactions,  refer to Annex
A, Notes A and C.

Business Development and Competition
         FINOVA develops business  primarily through direct  solicitation by its
own sales  force.  Customers  are also  introduced  by  independent  brokers and
referred by other financial institutions and other sources.

         FINOVA is engaged in an  extremely  competitive  activity.  It competes
with  banks,  insurance  companies,  leasing  companies,  the  credit  units  of
equipment  manufacturers and other finance companies.  Some of these competitors
have substantially  greater financial  resources and are able to borrow at costs
below those of FINOVA.  FINOVA's  principal  means of  competition  is through a
combination of service,  structure and innovation in transactions,  the interest
rate charged for money and concentration in focused market niches.  The interest
rate  FINOVA  charges  for  money is a  function  of its  borrowing  costs,  its
operating costs and other factors. While many of FINOVA's larger competitors are
able to offer  lower  interest  rates based upon their  lower  borrowing  costs,
FINOVA seeks to maintain the  competitiveness of the interest rates it offers by
emphasizing  strict control of its operating  costs.  FINOVA's ability to manage
costs is, in part,  dependent on factors beyond the Company's  control,  such as
the cost of funds, outside litigation expenses and competitive salaries.
                                       14
<PAGE>
Credit Quality
         FINOVA has  maintained  a  high-quality  asset base  through the use of
clearly  defined  underwriting   standards,   portfolio  management  techniques,
monitoring of covenant compliance and active collections and workout efforts.

Risk Management
         FINOVA  generally  investigates  its  prospective  customers  through a
review of historical  financial  statements,  published  credit reports,  credit
references,  discussions  with  management,  analysis of  location  feasibility,
personal  visits and  collateral  appraisals  and  inspections.  In many  cases,
depending  upon the results of its credit  investigations  and the nature of the
financing being  provided,  FINOVA obtains  additional  collateral or guarantees
from  others.  As  part  of  its  underwriting  process,  FINOVA  considers  the
management,  industry,  financial  position and  collateral  being provided by a
proposed borrower or lessee. The purpose,  term,  amortization and amount of any
proposed  transaction  generally must be clearly defined and within  established
corporate guidelines. In addition, FINOVA attempts to avoid undue concentrations
in any one customer, industry or geographic region.

    o    Management.  FINOVA  considers the reputation,  experience and depth of
         management;  quality of product or  service;  adaptability  to changing
         markets and demand; and prior banking, finance and trade relationships.

    o    Industry.  FINOVA evaluates critical  aspects of each industry to which
         it  lends,  including  general  trend,   seasonality  and  cyclicality;
         governmental  regulation;  the effects of taxes;  the economic value of
         goods  or  services  provided;  and  potential  environmental  or other
         liabilities.

    o    Financial. FINOVA's review  of a prospective borrower normally includes
         a thorough  analysis of the  borrower's  financial  performance.  Items
         considered  include net worth;  composition of assets and  liabilities;
         debt service coverage;  liquidity;  sales growth and earning power; and
         cash flow generation and reliability.

    o    Collateral.  FINOVA  regards collateral  as  an  important  factor in a
         credit  evaluation  and, for  collateral  dependent  transactions,  has
         established  maximum loan to value ratios,  normally ranging from 60% -
         90%, for each of its lines of business.

         The underwriting  process includes,  in addition to the analysis of the
factors noted above, the design and implementation of transaction structures and
strategies  to  mitigate  identified  risks;  a review  of  transaction  pricing
relative to product-specific return requirements and acknowledged risk elements;
a multi-step,  interdepartmental review and approval process with varying levels
of   authority   based   on  the   size  of  the   transaction;   and   periodic
interdepartmental reviews and revision of underwriting guidelines.

         FINOVA also  monitors  portfolio  concentrations  in the areas of total
exposure to a single borrower and related entities,  within a given geographical
area and with  respect to an industry  and/or  product  type within an industry.
FINOVA  has  established  concentration  guidelines  for each line of  business.
Geographic  concentrations  are reviewed  periodically  and  evaluated  based on
historic loan experience and prevailing market and economic conditions.

         FINOVA's financing  contracts and leases generally require the customer
to pay taxes, license fees and insurance premiums and to perform maintenance and
repairs at the customer's  expense.  Contract payment rates are based on several
factors,   including   the   cost  of   borrowed   funds,   term  of   contract,
credit-worthiness of the prospective customer, type and nature of collateral and
other  security  and,  in leasing  transactions,  the timing of tax  effects and
estimated  residual  values.  In  direct  finance  lease  transactions,  lessees
generally  are granted an option to  purchase  the  equipment  at the end of the
lease  term at its then fair  market  value or, in some  cases,  are  granted an
option to renew the lease at its then fair  rental  value.  The  extent to which
lessees  exercise their options to purchase leased equipment varies from year to
year, depending on, among other factors, the state of the economy, the financial
condition of the lessee, interest rates and technological developments.

Portfolio Management
         In addition to the review at the time of original underwriting,  FINOVA
attempts to preserve and enhance the earnings  quality of its portfolio  through
proactive  management  of its  financing  relationships  with its clients.  This
process  includes the periodic  appraisal or  verification  of the collateral to
determine loan exposure and residual values;  sales of residuals and warrants to
generate  supplemental income; and review and management of covenant compliance.
The Portfolio  Management  department or dedicated personnel within the business
units  regularly  review  financial  statements  to  assess  customer  cash flow
performance and trends; periodically confirm operations of the customer; conduct
periodic reappraisals of the underlying
                                       15
<PAGE>
collateral;  seek to  identify  issues  concerning  the  vulnerabilities  of the
customer;  seek to resolve  outstanding  issues with the  borrower;  and prepare
periodic  summaries of the aggregate  portfolio quality and  concentrations  for
management review.

         Evaluation for loan  impairment is performed as a part of the portfolio
management  review  process.  When  a  loan  is  determined  to be  impaired,  a
write-down  is  taken  or an  impairment  reserve  is  established  based on the
difference between the recorded balance of the loan ("carrying  amount") and the
fair value of the asset.

Delinquencies and Workouts
         FINOVA monitors the timing of payments on its accounts.  For term loans
and  leases,  when an invoice is 10 days past due,  the  customer  is  generally
contacted,  and a determination is made as to the extent of the problem, if any.
A  commitment  for  immediate  payment is pursued  and the  account is  observed
closely.  If  satisfactory  results are not obtained in  communication  with the
customer, the guarantor(s) are contacted to advise them of the situation and the
potential  obligation  under the guarantee  agreement.  If an invoice becomes 31
days past due, it is reported as  delinquent.  A notice of default is  generally
sent prior to an invoice  becoming 45 days past due and,  between 60 and 90 days
past the due  date,  if  satisfactory  negotiations  are not  underway,  outside
counsel is generally  retained to help protect FINOVA's rights and to pursue its
remedies.

         When accounts  become more than 90 days past due income  recognition is
usually suspended, and FINOVA vigorously pursues its legal remedies.  Foreclosed
or repossessed  assets are considered to be  nonperforming,  and are reported as
such unless the assets  generate  sufficient cash to result in a reasonable rate
of return. Those accounts are continually reviewed, and write-downs are taken as
deemed  necessary.  While  pursuing  collateral and obligors,  FINOVA  generally
continues to negotiate  the  restructuring  or other  settlement of the debt, as
appropriate.

         Management  believes that collateral values  significantly  reduce loss
exposure  and that the reserve for credit  losses is  adequate.  For  additional
information regarding the reserve for credit losses, see Annex A, Note D.

Governmental Regulation
         FINOVA's   domestic   activities,   including   the  financing  of  its
operations,  are subject to a variety of federal and state  regulations  such as
those  imposed by the Federal  Trade  Commission,  the  Securities  and Exchange
Commission, the Consumer Credit Protection Act, the Equal Credit Opportunity Act
and the Interstate Land Sales Full Disclosure Act.  Additionally,  a majority of
states have  ceilings on interest  rates  chargeable  to  customers in financing
transactions.  Some of FINOVA's s financing  transactions  and  mortgage  broker
activities  are  subject  to  additional  government  regulation.  For  example,
aircraft   leasing  is  regulated  by  the  Federal  Aviation   Authority,   and
communications  finance is  regulated by the Federal  Communication  Commission.
FINOVA's  international  activities  are also  subject  to a variety of laws and
regulations of the countries in which the business is conducted.

EMPLOYEES

         At December 31, 1997, the Company had 923 employees  compared to 864 at
December 31, 1996.  None of the employees were covered by collective  bargaining
agreements. FINOVA believes its employee relations are satisfactory.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         Certain statements in this report are  "forward-looking,"  in that they
do  not  discuss   historical   fact  but  instead  note  future   expectations,
projections,   intentions  or  other  items   relating  to  the  future.   These
forward-looking  statements  include  matters  in the  sections  of this  report
captioned  "Business"  and  "Management's  Discussion  and Analysis of Financial
Condition  and  Results  of  Operations."   They  are  also  made  in  documents
incorporated  in this  report  by  reference,  or in which  this  report  may be
incorporated, such as a prospectus.

Forward-looking statements are subject to known and unknown risks, uncertainties
and other  factors that may cause  FINOVA's  actual  results or  performance  to
differ  materially from those  contemplated by the  forward-looking  statements.
Many of  those  factors  are  noted  in  conjunction  with  the  forward-looking
statements in the text. Other important  factors that could cause actual results
to differ include:
                                       16
<PAGE>
      o       The  results  of  FINOVA's   efforts  to  implement  its  business
              strategy.  Failure to fully implement its business  strategy might
              result in decreased market penetration, adverse effects on results
              of operations and other adverse results.
      o       The effect of economic conditions  and the performance of FINOVA's
              borrowers.  Economic conditions in general or in particular market
              segments could impact the ability of FINOVA's borrowers to operate
              or expand  their  businesses,  which  might  result  in  decreased
              performance  for repayment of their  obligations  or reduce demand
              for additional financing needs.
      o       Actions of FINOVA's  competitors and  FINOVA's  ability to respond
              to  those  actions.   As  noted  in  "Business   Development   and
              Competition,"   FINOVA   seeks  to  remain   competitive   without
              sacrificing prudent lending standards.  Doing business under those
              standards becomes more difficult,  however, when competitors offer
              financing with less stringent  criteria.  FINOVA seeks to maintain
              credit quality at the risk of growth in assets, if necessary.
      o       The cost  of FINOVA's capital.  That cost depends on many factors,
              some of which are beyond FINOVA's  control,  such as its portfolio
              quality, ratings, prospects and outlook.
      o       Changes in government  regulations, tax rates and similar matters.
              For example,  government  regulations could significantly increase
              the  cost  of  doing  business  or  could  eliminate  certain  tax
              advantages of some of FINOVA's financing products.
      o       Other risks detailed in FINOVA's other SEC reports or filings.

ITEM 2.           PROPERTIES.

         FINOVA's  principal  executive  offices are located in premises  leased
from Viad Corp  (formerly The Dial Corp) in Phoenix,  Arizona.  FINOVA  operates
various  additional  offices  in the  United  States,  one in Canada  and one in
Europe.  All these  properties  are leased.  Alternative  office  space could be
obtained  without  difficulties in the event leases are not renewed.  FINOVA has
entered into a lease  agreement  for new  executive  offices which are presently
under construction. Those facilities are expected to be completed in 1999.


ITEM 3.           LEGAL PROCEEDINGS.

         FINOVA is a party either as plaintiff or defendant to various  actions,
proceedings and pending claims,  including legal actions,  some of which involve
claims for  compensatory,  punitive  or other  damages in  significant  amounts.
Litigation  often  results  from the  FINOVA's  attempts  to enforce its lending
agreements against borrowers and other parties to those transactions. Litigation
is  subject to many  uncertainties,  and it is  possible  that some of the legal
actions,  proceedings or claims could be decided  against  FINOVA.  Although the
ultimate  amount  for  which  FINOVA  may  be  held  liable,   if  any,  is  not
ascertainable, FINOVA believes that any resulting liability would not materially
affect its financial position or results of operations.
                                       17
<PAGE>
ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         Omitted


OPTIONAL ITEM.    EXECUTIVE OFFICERS OF REGISTRANT.

         Omitted


                                     PART II

ITEM 5.           MARKET PRICE  OF AND  DIVIDENDS  ON  THE  REGISTRANT'S  COMMON
                  EQUITY & RELATED SHAREOWNER MATTERS.

         There is no market for the  Company's  common  stock as the  Company is
wholly  owned by  FINOVA  Group.  The  preferred  stock was  redeemed  through a
contribution from FINOVA Group in March 1994 and none has been outstanding since
that time.  Dividends paid on common stock for the first through fourth quarters
of 1997 were $6,588,000,  $6,506,000,  $7,619,000 and $7,871,000,  respectively.
Dividends paid on the common stock for the first through fourth quarters of 1996
were $6,012,000, $6,020,000, $6,596,000 and $6,602,000, respectively.

         The  agreements   pertaining  to  senior  debt  and  revolving   credit
agreements  of FINOVA  include  various  restrictive  covenants  and require the
maintenance of certain defined  financial ratios with which FINOVA has complied.
Under one such  covenant,  dividend  payments  from  FINOVA to FINOVA  Group are
limited to 50 percent of  accumulated  earnings  after  December 31, 1991. As of
December  31,  1997,  FINOVA had  $126,400,000  of excess  accumulated  earnings
available for distribution.


ITEM 6.           SELECTED FINANCIAL DATA.

         Omitted.


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

         See pages 1 - 6 of Annex A.


ITEM 8.           FINANCIAL STATEMENTS & SUPPLEMENTARY DATA.

         1.       Financial Statements - See Item 14 hereof and Annex A.
         2.       Supplementary Data - See Condensed  Quarterly Results included
                  in   Supplemental   Selected   Financial   Data  of  Notes  to
                  Consolidated Financial Statements included in Annex A.

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

         NONE.


                                    PART III

                                       18
<PAGE>
ITEM 10.          DIRECTORS & EXECUTIVE OFFICERS OF THE REGISTRANT.

         Omitted.

ITEM 11.          EXECUTIVE COMPENSATION.

         Omitted.

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT.

         Omitted.

ITEM 13.          CERTAIN RELATIONSHIPS & RELATED TRANSACTIONS.

         Omitted.

                                     PART IV

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

(a)      Documents filed.
         1.     Financial Statements.
                (i) The following financial statements of FINOVA are included in
                Annex A:
                                                                       Annex
                                                                       Page
                                                                 ---------------

          Management's Discussion and Analysis of Financial
            Condition and Results of Operations                        1-6
          Report of Management and Independent Auditors' Report        7-8 
          Consolidated Balance Sheet                                   9-10
          Statement of Consolidated Income                              11  
          Statement of Consolidated Shareowner's Equity                 12  
          Statement of Consolidated Cash Flows                          13  
          Notes to Consolidated Financial Statements                  14-28
          Supplemental Selected Financial Data                        29-30

         2.     All Schedules have been omitted  because they are not applicable
                or the required information is shown in the financial statements
                or related notes.

         3.     Exhibits.

            Exhibit No.
            -----------

            (3.A)          Certificate of Incorporation,  as amended through the
                           date of this filing  (incorporated  by reference from
                           FINOVA's  report  on Form  10-K  for the  year  ended
                           December 31, 1994 (the "1994 10-K"), Exhibit 3.A).

            (3.B)          Bylaws,  as amended  through  the date of this filing
                           (incorporated  by reference  from FINOVA's  report on
                           Form 10-K for the year ended  December  31, 1995 (the
                           "1995 10-K") Exhibit 3.B).

            (4.A)          Form   of   FINOVA's    Common   Stock    Certificate
                           (incorporated  by  reference  from   the  1994  10-K,
                           Exhibit 4.B).
                                       19
<PAGE>
            Exhibit No.
            -----------

            (4.B)          Relevant   portions   of  FINOVA's   Certificate   of
                           Incorporation and Bylaws included in Exhibits 3.A and
                           3.B above are incorporated by reference.

            (4.C)          Long-term debt instruments with principal amounts not
                           exceeding 10% of FINOVA's total  consolidated  assets
                           are not filed as exhibits to this report. FINOVA will
                           furnish  a copy of those  agreements  to the SEC upon
                           its request.

            (4.D)          Form of  Indenture  dated  as of  September  1,  1992
                           between   FINOVA  and  the  Trustee   named   therein
                           (incorporated   by  reference   from  the   Greyhound
                           Financial Corporation  Registration Statement on Form
                           S-3, Registration No. 33-51216, Exhibit 4).

            (4.E)          Form of Indenture dated as of October 1, 1995 between
                           FINOVA and the Trustee named therein (incorporated by
                           reference  from  FINOVA's  report  on Form 8-K  dated
                           October 25, 1995, Exhibit 4.1).

            (4.F)          Form of Indenture  between  FINOVA,  FINOVA Group and
                           The  First   National  Bank  of  Chicago  as  Trustee
                           (incorporated  by  reference  from  FINOVA and FINOVA
                           Group's   registration   statement   on   Form   S-3,
                           Registration No. 333-38171, Exhibit 4.8).
                                       20
<PAGE>
            Exhibit No.
            -----------

            (10.A)         Sixth Amendment and  Restatement  dated as of May 16,
                           1994 of the Credit Agreement dated as of May 31, 1976
                           among FINOVA and the lender parties thereto, and Bank
                           of America  National  Trust and Savings  Association,
                           Bank of Montreal,  Chemical Bank, Citibank,  N.A. and
                           National   Westminister  Bank  USA,  as  agents  (the
                           "Agents") and Citibank, N.A., as Administrative Agent
                           (incorporated  by reference  from FINOVA's  report on
                           Form 8-K dated May 23, 1994, Exhibit 10.1).

            (10.A.1)       First  Amendment  dated as of September  30, 1994, to
                           the Sixth  Amendment and  Restatement,  noted in 10.A
                           above  (incorporated by reference from the 1994 10-K,
                           Exhibit 10.A.1).

            (10.A.2)       Second  Amendment  dated  as of May  11,  1995 to the
                           Sixth Amendment and  Restatement  noted in 10.A above
                           (incorporated  by reference  from FINOVA's  Quarterly
                           Report on Form 10-Q for the period  ending  September
                           30, 1995 ( the "3Q95 10-Q"), Exhibit 10.A).

            (10.A.3)       Third Amendment dated as of November 1, 1995 to Sixth
                           Amendment  noted  in  10.A  above   (incorporated  by
                           reference from the 3Q95 10-Q, Exhibit 10.B).

            (10.A.4)       Fourth  Amendment  dated as of May 15, 1996, to Sixth
                           Amendment  noted  in  10.A  above   (incorporated  by
                           reference from the 1996 10-K, Exhibit 10.A.4).

            (10.A.5)       Fifth  Amendment  dated  as of May 20,  1997 to Sixth
                           Amendment  noted  in  10.A  above   (incorporated  by
                           reference from FINOVA Group's Report on Form 10-K for
                           the year ended  December 31, 1997 (the "FINOVA  Group
                           1997 10-K"), Exhibit 10.A.5).

            (10.B)         Credit  Agreement  (Short-Term  Facility) dated as of
                           May 16, 1994 among FINOVA Capital, the Lender parties
                           thereto,   the  Agents   and   Citibank,   N.A.,   as
                           Administrative  Agent (incorporated by reference from
                           FINOVA's  report  on Form  8-K  dated  May 23,  1994,
                           Exhibit 10.2).

            (10.B.1)       First Amendment dated as of September 30, 1994 to the
                           Credit Agreement noted in 10.B above (incorporated by
                           reference from the 1994 10-K, Exhibit 10.B.1).

            (10.B.2)       Second Amendment to Short-Term Facility noted in 10.B
                           above  (incorporated by reference from the 3Q95 10-Q,
                           Exhibit 10.C).

            (10.B.3)       Third Amendment to Short-Term  Facility noted in 10.B
                           above  (incorporated by reference from the 3Q95 10-Q,
                           Exhibit 10.D).

            (10.B.4)       Fourth Amendment to Short-Term Facility noted in 10.B
                           above  (incorporated  by  reference  from 1996  10-K,
                           Exhibit B.4).

            (10.B.5)       Fifth Amendment to Short-Term  Facility noted in 10.B
                           above  (incorporated  by  reference  from the  FINOVA
                           Group 1997 10-K, Exhibit 10.B.5).

            (10.C)         Exhibits  relating  to  management  compensation  are
                           omitted due to the reduced disclosure format, but can
                           be found as exhibits to the FINOVA Group 1997 10-K.
                                       21
<PAGE>
            (10.D)         Tax Sharing  Agreement  dated February 19, 1992 among
                           FINOVA,  The Dial Corp and  others  (incorporated  by
                           reference from the 1992 10-K, Exhibit 10.KK).

            (12)           Computation  of Ratio of  Income  to  Combined  Fixed
                           Charges and Preferred Stock Dividends.*

            (23)           Independent Auditors' Consent.*

            (24)           Powers of Attorney.*

            (27)           Financial Data Schedule.*

                           *Filed with this report.
                           +Relating to management compensation

            (b)            Reports on Form 8-K

            A report on  Form 8-K, dated  January 20, 1998, was  filed by FINOVA
which  reported  under  Item  5 and 7 the  revenues,  net  income  and  selected
financial  data and ratios for the fourth  quarter and year ended  December  31,
1997 (unaudited).
                                       22
<PAGE>
SIGNATURES


         Pursuant to the  requirements of Section 13 of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf  by  the  undersigned,   thereunto  duly  authorized  in  the  capacities
indicated, in Phoenix, Arizona on the 17th day of March, 1998.


                              THE FINOVA GROUP INC.



         By:                 /s/ Samuel L. Eichenfield
            -----------------------------------------------------------
                              Samuel L. Eichenfield
                 Chairman, President and Chief Executive Officer
                            (Chief Executive Officer)




         By:                /s/ Bruno A. Marszowski
            -----------------------------------------------------------
                               Bruno A. Marszowski
         Senior Vice President - Controller and Chief Financial Officer
                    (Chief Accounting and Financial Officer)

                                       23
<PAGE>
         Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated:




                   *                        /s/ Samuel L. Eichenfield 
--------------------------------------      ------------------------------------
     W. Carroll Bumpers (Director)              Samuel L. Eichenfield (Chairman)
            March 17, 1998                              March 17, 1998





                   *                                           *
--------------------------------------          --------------------------------
   Robert J. Fitzsimmons (Director)               Gregory C. Smalis (Director)
            March 17, 1998                              March  17, 1998





         * Signed  pursuant to Powers of  Attorney  dated  February  17, 1998 or
February 26, 1998 as appropriate.

                             /s/ Bruno A. Marszowski
                       ----------------------------------
                               Bruno A. Marszowski
                                Attorney-in-Fact
                                 March 17, 1998

                                       24
<PAGE>
                                     ANNEX A
<PAGE>
                           FINOVA CAPITAL CORPORATION
                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                    Page
                                                                                                    ----
<S>                                                                                                   <C>
Management's Discussion and Analysis of Financial Condition and Results of Operations..................1
Management's Report on Responsibility for Financial Reporting..........................................7
Independent Auditors' Report...........................................................................8
Consolidated Balance Sheet.............................................................................9
Statement of Consolidated Income......................................................................11
Statement of Consolidated Shareowner's Equity.........................................................12
Statement of Consolidated Cash Flows..................................................................13
Notes to Consolidated Financial Statements............................................................14
Supplemental Selected Financial Data..................................................................29
</TABLE>
                                       ii
<PAGE>
                           FINOVA CAPITAL CORPORATION

MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS

         The following  discussion relates to FINOVA Capital Corporation and its
subsidiaries (collectively, "FINOVA" or the "Company"). FINOVA is a wholly owned
subsidiary of The FINOVA Group Inc.("FINOVA Group").

Results of Operations

         The following table summarizes FINOVA's operating results for the years
ended December 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                   For the Year Ended December 31,      For the Year Ended December 31,
                                   -------------------------------      -------------------------------
                                                           Percent                              Percent
(Dollars in millions)               1997         1996      Change       1996          1995       Change
--------------------------------------------------------------------------------------------------------
<S>                              <C>          <C>            <C>     <C>           <C>             <C>
Interest margins earned          $  455.6     $  369.1        23%    $  369.1      $  309.1        19%
Provision for credit losses         (69.2)       (41.8)       66%       (41.8)        (37.6)       11%
Gains on sale of assets              30.3         12.9       134%        12.9          10.9        19%
Selling, administrative and                                         
  other operating expenses         (190.5)      (154.5)       23%      (154.5)       (131.6)       17%
Income taxes                        (83.1)       (69.3)       20%       (69.3)        (57.0)       22%
                                                                    
Income from continuing                                        23%   
 operations                         143.1        116.5                  116.5          93.8        24%
Income and gain from                                                
 discontinued operations              --           0.5        n/a         0.5           3.8        n/a
                                 --------     --------               --------      --------           
Net Income                       $  143.1     $  117.0        22%    $  117.0      $   97.6        20%
                                 ========     ========               ========      ========
                                                                    
--------------------------------------------------------------------------------------------------------
</TABLE>
                                                                    
1997 Compared to 1996
         Net income for 1997 increased 22% to $143.1 million from $117.0 million
in 1996. The increase reflected growth in managed assets,  increased fee-related
business,  higher gains on sale of assets and a lower effective income tax rate,
partially offset by higher provisions for credit losses and increased  operating
expenses. Income from continuing operations for 1997 increased to $143.1 million
from  $116.5  million  in  1996.  Continuing  operations  in 1996  excluded  the
operating results of FINOVA's  discontinued  Manufacturer & Dealer Services line
of business  ("MDS") and FINOVA Medical  Systems and a $6 million gain resulting
from the sale of MDS. See Note B of Notes to Consolidated  Financial  Statements
for further discussion.

         Interest Margins Earned.  Interest margins earned,  which represent the
difference  between (a)  interest,  fee and other income  earned from  financing
transactions  and operating lease income and (b) interest  expense and operating
lease depreciation,  increased 23% to $455.6 million in 1997 from $369.1 million
in 1996 due  primarily  to a higher  level of  average  earning  assets  and the
expansion of the fee-based businesses.

         Average  earning  assets,   which  represent  FINOVA's   investment  in
financing  transactions  less  nonaccruing  assets and deferred taxes related to
leveraged  leases,  increased  16% to $7.36 billion in 1997 from $6.32 billion a
year earlier. This increase primarily resulted from a 21% increase in funded new
business of $3.31 billion  compared to $2.74  billion in 1996,  and, to a lesser
extent,  from portfolios  purchased  during 1997 (totaling $122 million).  These
increases were partially offset by the normal  amortization of the portfolio and
prepayments during the year.

         The  Company's  interest  margins  earned as a  percentage  of  average
earning  assets  ("spread")  also  increased  during 1997,  to 6.2% from 5.8%. A
portion of the increase in spread was due to a 54% growth in fee-based  business
(to $4.53 billion from $2.94 billion in 1996), which provides interest,  fee and
other income while  requiring less  investment in 
                                       1
<PAGE>
                           FINOVA CAPITAL CORPORATION

earning  assets  than term loans and  leases.  Contributing  to the  increase in
fee-based  business was FINOVA Realty Capital ("FRC," formerly Belgravia Capital
Corporation),  a commercial mortgage banking  organization which was acquired in
October 1997 (and which has  historically  had its highest  volume in the fourth
quarter). Excluding the impact of the FRC acquisition,  FINOVA's spread improved
to 6.1% in 1997.  The  increase in interest  margins  earned was also  partially
attributable to lower  aggregate  borrowing costs and lower debt leverage during
1997 compared to 1996.

         Provision for Credit Losses.  The provision for credit losses increased
66% to $69.2  million in 1997  compared to $41.8 million in 1996. In addition to
growth in FINOVA's  managed  assets,  the increase in the  provision  for credit
losses  primarily  resulted  from an increase in  write-offs to $45.5 million in
1997 from $32.0 million in 1996.  The higher  write-offs in 1997 were  primarily
attributable  to FINOVA's  Factoring  Services  line of business,  due to credit
problems  experienced among the line of business'  wholesale textile  customers.
Currently,   Factoring  Services  is  refocusing  its  portfolio  toward  retail
businesses  and new  industries.  Total  write-offs  for FINOVA's other lines of
business were lower in 1997 than in 1996.

         FINOVA's  total  write-offs  during 1997  represented  0.56% of average
managed assets (excluding  participations) compared to 0.46% in 1996. Details of
write-offs  and other  changes in the reserve for credit  losses can be found in
Note D of Notes to Consolidated Financial Statements.

         Gains on Sale of Assets.  Gains on sale of assets totaled $30.3 million
in 1997,  higher  than the $12.9  million in 1996.  In  addition  to the sale of
assets coming off lease,  FINOVA  recognized a  significant  gain from the early
termination of a real estate  leveraged lease  transaction in 1997. While FINOVA
has consistently  recognized gains on the sale of assets it holds, the gains are
sporadic  in their  timing and  amount.  There can be no  assurance  FINOVA will
recognize such gains in the future,  depending, in part, on market conditions at
the time of sale.

         Selling,   Administrative  and  Other  Operating   Expenses.   Selling,
administrative and other operating expenses  ("operating  expenses") were higher
in 1997 than in 1996,  primarily  as a result of  increased  costs  necessary to
manage FINOVA's larger portfolio. Also contributing to the increase in operating
expenses were incentives paid to employees based on performance criteria such as
new  business,  profitability  and the increased  value of FINOVA  Group's stock
(which  increased  by 54.7% to $49.69 per share at  year-end).  The Company also
incurred  additional  costs in  administering  problem  loan  accounts  in 1997,
including an increase with respect to the Factoring Services line of business.

         As a percentage of interest margins earned, operating expenses declined
slightly to 41.8% in 1997 from 41.9% in 1996. FINOVA's acquisition of FRC in the
fourth  quarter  of  1997  is  expected  to  increase  operating  expenses  as a
percentage of interest margins earned in future periods.  See Note M of Notes to
Consolidated Financial Statements for further detail of operating expenses.

         Income Taxes.  Income taxes were higher in 1997 than in 1996 due to the
increase  in pre-tax  income.  Partially  offsetting  the  increase  was a lower
effective  tax rate in 1997 of  36.7%  compared  to  37.3% in 1996,  principally
caused by FINOVA's  ability to use certain capital loss  carryforwards  in 1997.
See Note I of Notes to Consolidated  Financial Statements for further discussion
of income taxes.

1996 Compared to 1995
      Income from continuing operations for 1996 increased 24% to $116.5 million
from $93.8 million in 1995.  Continuing operations exclude the operating results
and a $6 million gain, after taxes and allocation of related costs and expenses,
resulting  from the sale of  FINOVA's  Manufacturer  & Dealer  Services  line of
business,  and the  operating  results  of  FINOVA  Medical  Systems,  which was
liquidated in 1996.  Net income for 1996  increased to $117.0 million from $97.6
million in 1995.

      Interest  Margins Earned.  Interest margins earned were $369.1 million for
1996, compared with $309.1 million in 1995, an increase of 19%. The increase was
primarily  due to a 17%  increase in managed  assets  (investment  in  financing
transactions plus securitizations and participations sold),  resulting primarily
from $2.7 billion in funded new business in 1996,  up from $2.3 billion in 1995,
and  $2.9 billion in fee-based volume in 1996, compared to $2.0 billion in 1995.
In 
                                       2
<PAGE>
                           FINOVA CAPITAL CORPORATION

addition,  FINOVA added funds  employed of  approximately  $318 million  through
acquisitions  in 1996.  These  increases  were  partially  offset by the  normal
amortization  of the portfolio as well as  significantly  higher  prepayments in
1996,  partially due to consolidation in the  communications  industry resulting
from changes in regulation at the federal level.

      Interest  margins  earned  as  a  percentage  of  average  earning  assets
increased  to 5.8% for 1996  compared to 5.7% for 1995.  This  increase  was the
result of FINOVA's  ability to maintain  rates and fees charged on its financing
transactions  while  benefiting from reduced  interest  expense due to generally
declining  interest  rates,  improved credit ratings and the maturity of certain
interest rate hedges.

      Provision for Credit Losses.  The provision for credit losses increased to
$41.8 million in 1996 from $37.6 million in 1995,  primarily due to the increase
in managed assets.  FINOVA's  reserves remained at 2.0% of ending managed assets
(excluding participations),  while the credit quality of the portfolio continued
to improve. Reserves as a percentage of nonaccruing assets increased to 95.6% at
December 31, 1996 from 90.2% a year earlier.  Nonaccruing assets as a percentage
of ending managed assets (excluding participations) declined to 2.0% at December
31, 1996 from 2.2% at the end of 1995.  Details of write-offs  and other changes
in the reserve for credit losses can be found in Note D of Notes to Consolidated
Financial Statements.

      Gains on Sale of Assets.  Gains on sale of assets were higher in 1996 than
1995, primarily due to the amount and type of assets coming off lease during the
respective  years.  While the Company has  consistently  recognized gains on the
sale of assets it holds,  the amount and  timing of such  gains is  sporadic  in
nature.

      Selling,   Administrative   and   Other   Operating   Expenses.   Selling,
administrative  and other  operating  expenses  were 17%  higher in 1996 than in
1995, due primarily to the growth in managed  assets and  incentives  related to
FINOVA's  improved results and stock  performance.  However,  as a percentage of
interest  margins earned,  these expenses  decreased to 41.9% in 1996 from 42.6%
during  1995.  See Note M of  Notes to  Consolidated  Financial  Statements  for
additional detail.

      Income Taxes.  Income taxes  increased  during the year ended December 31,
1996,  primarily due to the increase in pre-tax  income,  partially  offset by a
lower  effective tax rate. The lower tax rate,  which decreased to 37.3% in 1996
from 37.8% in 1995,  was  primarily  related to lower  foreign  tax  effects and
increased  tax  exempt  municipal  and  ESOP  income.  See  Note I of  Notes  to
Consolidated Financial Statements for further discussion of income taxes.

Financial Condition, Liquidity and Capital Resources

         Managed assets at December 31, 1997 increased 16% to $8.86 billion from
$7.66  billion  at  December  31,  1996.  The  increase  was the result of a 21%
increase  in funded new  business  of $3.31  billion in 1997  compared  to $2.74
billion in 1996,  partially  offset by normal  loan and lease  amortization  and
approximately  $0.7 billion in  prepayments  during 1997. In addition,  an early
termination  of a leveraged  lease occurred in the Specialty Real Estate line of
business,  which experienced a reduction in managed assets of approximately $103
million.  The major  causes of this  reduction  were the sale of this  leveraged
lease combined with the business  decision not to aggressively  pursue new deals
at the cost of compromising rate and/or underwriting standards.

         FINOVA recorded $4.53 billion in fee-based  volume during 1997 compared
to $2.94 billion in 1996. The 54% increase in fee-based volume was due to growth
in FINOVA's on-going  fee-based lines of business and the addition of FRC in the
fourth quarter of 1997.

         FINOVA's  reserve  for credit  losses  increased  to $177.1  million at
December 31, 1997 compared to $148.7 million at year-end 1996 primarily due to a
provision for credit losses of $69.2 million during the year,  partially  offset
by  write-offs  totaling  $45.5  million.  At  December  31,  1997  the  reserve
represents  2.0% of managed assets  (excluding  participations  sold),  the same
level as one year ago.  Nonaccruing  assets have  increased to $187.4 million at
December 31, 1997 which  represents  2.1% of ending managed  assets  compared to
$155.5 million in nonaccruing  assets as of December 31, 1996 which  constituted
2.0% of ending  managed  assets.  At December 31, 1997,  the reserve  represents
94.5% of nonaccruing 
                                       3
<PAGE>
                           FINOVA CAPITAL CORPORATION

assets  compared to 95.6% at December  31,  1996.  The  increase in  nonaccruing
assets is primarily in the Factoring  Services  line of business.  See Note D of
Notes to Consolidated Financial Statements for more information on the reserves,
write-offs and nonaccruing assets.

         The Company had total debt outstanding of $6.76 billion at December 31,
1997 or 5.37  times its equity of $1.26  billion.  At  December  31,  1996,  the
Company had debt  leverage of 5.47 ($5.85  billion  debt  outstanding  and $1.07
billion of equity).  The Company  also had $277.6  million in deferred  taxes at
year-end 1997 compared to $264.4 million at year-end 1996.

         Growth in managed assets is generally financed by internally  generated
cash flow and borrowings.  During 1997, FINOVA issued $1.1 billion in new senior
debt and increased its commercial paper and other short-term  borrowings by $650
million.  These funds were used to finance new  business,  redeem or retire $818
million of debt and acquire a $122 million inventory finance  portfolio.  During
1997,  FINOVA Group also issued  approximately  1.7 million shares of its common
stock as the primary  consideration  for the  acquisition  of FRC (see Note B of
Notes to  Consolidated  Financial  Statements for further  detail).  In December
1996,  FINOVA  Group  issued  $111.6  million  (net  of  transaction  costs)  in
company-obligated   mandatory   redeemable   convertible   preferred  securities
("TOPrS") through FINOVA Finance Trust. The FRC assets and the proceeds from the
issuance of the TOPrS were contributed by FINOVA Group to the Company.  See Note
G of Notes to Consolidated Financial Statements for additional discussion.

      FINOVA  satisfies a significant  portion of its cash  requirements  from a
diversified  group of worldwide  funding sources and is not dependent on any one
lender.  FINOVA  also  relies on the  issuance  of  commercial  paper as a major
funding  source.  During 1997,  FINOVA issued $15.1 billion of commercial  paper
(with an average of $2.9  billion  outstanding  during the year) and raised $1.1
billion,  as noted  above,  through new  long-term  financing  of one to 10 year
durations.  At December 31, 1997 and 1996,  commercial paper and short-term bank
borrowings  totaled  $3.1  billion  and  $2.5  billion,  respectively,  and were
supported by available unused revolving credit lines which, if not renewed,  are
convertible to long-term debt at FINOVA's option.

         FINOVA currently  maintains a five-year  revolving credit facility with
numerous lenders in the aggregate principal amount of $1.0 billion.  Separately,
FINOVA also has a 364-day revolving credit facility with the same lenders in the
aggregate  principal  amount of $1.0  billion,  two  five-year  facilities  with
numerous  lenders for $700 million each and one 364-day facility with one lender
for $200  million.  These $3.6  billion of credit  facilities  support  FINOVA's
outstanding commercial paper and short-term borrowings. FINOVA intends to borrow
under the domestic revolving credit agreements to refinance commercial paper and
short-term bank loans if it encounters significant  difficulties in rolling over
its  outstanding  commercial  paper and  short-term  bank loans.  FINOVA  rarely
borrows  under  these  facilities.  The 364 day $1.0  billion  and $200  million
revolving  credit  agreements will be subject to renewal in 1998,  while the two
$700 million and the other $1.0 billion credit facilities are subject to renewal
in 2002. 

         FINOVA,  through  one  of  its  subsidiaries,   maintains  a  five-year
multi-currency  facility  with a group  of  lenders  for $100  million.  Through
another  subsidiary,  FINOVA maintains two five-year revolving credit facilities
with two separate lenders in Canada for $25 million Canadian each. FINOVA is the
guarantor  of these  credit  facilities,  which are  subject to renewal in 2002.
FINOVA also maintains one $10 million Canadian 364-day revolving credit facility
with a lender. That agreement will be subject to renewal in 1998.

      In  1997,  FINOVA  and  FINOVA  Group  jointly  filed  a  universal  shelf
registration  statement  with the SEC allowing for the issuance of $2 billion of
senior debt securities,  common stock,  preferred stock,  depositary  shares and
warrants to purchase  common  stock or debt  securities,  all of which  remained
available as of December 31, 1997.

      The agreements  pertaining to long-term debt include  various  restrictive
covenants and require the maintenance of certain defined  financial  ratios with
which FINOVA and FINOVA Group have complied.  Under one such covenant,  dividend
payments  by FINOVA to FINOVA  Group are  limited to 50  percent of  accumulated
earnings after December 31, 1991.
                                        4
<PAGE>
                           FINOVA CAPITAL CORPORATION

         FINOVA's  aggregate cost of funds  decreased to 6.6% for 1997 from 6.8%
for 1996 as a result of declining interest rates,  higher credit ratings and the
elimination  of costs  associated  with $250 million of maturing  interest  rate
hedges.  FINOVA's cost of and access to capital is dependent,  in large part, on
its credit ratings. FINOVA has maintained  investment-grade  ratings since 1976.
FINOVA currently has investment-grade ratings from the following agencies:

                                                     Commercial       Senior
                                                        Paper          Debt
                                                    -------------    ---------
        Duff & Phelps Credit Rating Co.                  D1              A
        Fitch Investors Services, Inc.                   F1              A
        Moody's Investors Service, Inc.                  P2             Baa1
        Standard & Poor's Ratings Group                  A2              A-

      None of FINOVA's subsidiaries have applied for credit ratings.

Derivative Financial Instruments
      FINOVA enters into interest rate and basis swap  agreements as part of its
interest  rate  risk   management   policy  of  match  funding  its  assets  and
liabilities.  The  derivative  instruments  used  are  straightforward.   FINOVA
continually monitors its derivative position and uses derivative instruments for
non-trading and non-speculative purposes only.

      At December 31, 1997,  FINOVA had  outstanding  interest  rate  conversion
agreements with notional  principal  amounts  totaling $2.6 billion.  Agreements
with notional  principal  amounts of $550 million were  arranged to  effectively
convert  certain  floating  interest rate  obligations  into fixed interest rate
obligations.  These agreements require interest payments on the stated principal
amount at rates  ranging  from  6.21% to 9.10%  (remaining  terms of one to four
years) in  return  for  receipts  calculated  on the same  notional  amounts  at
floating interest rates. In addition, agreements with notional principal amounts
of $1.4 billion were arranged to effectively convert certain fixed interest rate
obligations  into floating  interest  rate  obligations.  They require  interest
payments on the stated  principal  amount at the three month or six month London
interbank  offered  rates  ("LIBOR")  (remaining  terms of one to nine years) in
return for receipts  calculated on the same notional  amounts at fixed  interest
rates of 5.51% to 7.71%. FINOVA has also entered into basis swap agreements with
notional  principal amounts of $628 million and remaining terms of one year. See
Note F of Notes to Consolidated  Financial  Statements for further discussion of
FINOVA's derivatives.

Year 2000 Date Conversion
         FINOVA continues to implement changes necessary to assure accurate date
recognition and data processing with respect to the year 2000.  Primary internal
activities related to this issue are modifications to existing computer programs
and conversions to new programs. The Company is also communicating with software
vendors,  financial  institutions,  clients  and  others  with whom it  conducts
business  to  determine   the  nature  of  any  impact  on  FINOVA.   If  needed
modifications  and  conversions are not  accomplished  in a timely manner,  this
issue could have a material effect on the operations of FINOVA. As of this time,
however,  management  believes that  necessary  corrections  will be achieved on
time. Costs related to this issue, which have been immaterial to date, are being
expensed as incurred and are not expected to have a material  impact on FINOVA's
financial position.

Recent Developments and Business Outlook
      FINOVA  continues to seek new business by  emphasizing  customer  service,
providing  competitive  interest  rates and focusing on selected  market niches.
Additionally,  FINOVA continues to evaluate potential acquisition  opportunities
that it believes are consistent with its business strategies.

      In  October  1997,  FINOVA  acquired  Belgravia  Capital  Corporation,   a
commercial mortgage banking  organization  headquartered in Irvine,  California.
Consideration for the acquisition  included  approximately 1.7 million shares of
FINOVA Group's
                                       5
<PAGE>
                           FINOVA CAPITAL CORPORATION

common stock, $10 million in cash and the agreement to pay additional amounts up
to approximately $30 million per year for the next three years,  based on future
results  of  the  operations.   Historically,   Belgravia   originated  mid-size
commercial  mortgage loans which were funded by third parties who typically sold
or securitized the loans.

         In October  1997,  FINOVA  also  announced  the  reorganization  of its
businesses into three operating groups.  The Commercial  Finance Group comprises
FINOVA's  asset-based  lending  businesses  such as Business  Credit,  Corporate
Finance,  Factoring  Services,  Inventory  Finance and Rediscount  Finance.  The
Specialty  Finance  Group  contains  FINOVA's   Commercial   Equipment  Finance,
Specialty  Real  Estate  Finance,  Communications  Finance,  Franchise  Finance,
Healthcare  Finance,  Portfolio  Services,  Public  Finance,  Resort Finance and
Transportation  Finance  businesses.  The new Capital  Markets Group consists of
FINOVA Realty Capital and the bridge financing,  mezzanine debt and equity funds
formed under the FINOVA Investment Alliance program.

         In February  1998,  FINOVA  announced  the  formation of a $125 million
investment alliance with Credit Suisse First Boston PTG known as FINOVA Aircraft
Investors,  LLC. The alliance  will use FINOVA's  market  expertise and industry
presence to purchase, upgrade and resell used commercial aircraft.

New Accounting Standards
         In June 1997, the Financial  Accounting Standards Board ("FASB") issued
Statement  of  Financial   Accounting  Standard  ("SFAS")  No.  130,  "Reporting
Comprehensive  Income,"  which is  effective  for fiscal years  beginning  after
December  15,  1997.  The  statement  changes  the  reporting  of certain  items
currently  reported in the shareowner's  equity section of the balance sheet and
establishes  standards for reporting of comprehensive  income and its components
in a full set of general purpose financial statements. Adoption of this standard
will  require  additional  disclosure  only.  FINOVA  will adopt  this  standard
effective January 1, 1998, as required.

         In June 1997,  the FASB also issued SFAS No.  131,  "Disclosures  About
Segments of an  Enterprise  and Related  Information,"  which is  effective  for
fiscal years beginning after December 15, 1997. This standard  requires  certain
information  regarding segments of a business enterprise to be reported based on
the way  management  organizes and evaluates  segments  within the company.  The
standard also requires disclosures regarding products and services, geographical
areas and major  customers.  Adoption of this  standard  will require  FINOVA to
include  additional detail in its disclosures,  including certain  disaggregated
operating information. FINOVA will adopt this standard in 1998, as required, but
is not currently  planning to elect early adoption for interim financial periods
during the year. At this time,  management  anticipates  that FINOVA's  reported
segments will be composed of its three operating groups:
Specialty Finance, Commercial Finance and Capital Markets.
                                       6
<PAGE>
                           FINOVA CAPITAL CORPORATION

MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING

      The  management  of FINOVA  Capital  Corporation  is  responsible  for the
preparation,  integrity and  objectivity  of the financial  statements and other
financial  information  included in this Annual Report. The financial statements
are  presented in  accordance  with  generally  accepted  accounting  principles
reflecting, where applicable, management's best estimates and judgments.

      FINOVA's  management  has  established  and maintains a system of internal
controls to reasonably assure the fair presentation of the financial statements,
the  safeguarding  of  FINOVA's  assets  and  the  prevention  or  detection  of
fraudulent financial  reporting.  The internal control structure is supported by
careful selection and training of personnel, policies and procedures and regular
review by both internal auditors and the independent auditors.

      The Board of Directors of FINOVA Group, through its Audit Committee,  also
oversees  the  financial  reporting of FINOVA and its  adherence to  established
procedures and controls.  Periodically,  the Audit Committee meets,  jointly and
separately,  with management, the internal auditors and the independent auditors
to review auditing, accounting and financial reporting matters.

      FINOVA's financial  statements have been audited by Deloitte & Touche LLP,
independent auditors. Management has made available to Deloitte & Touche LLP all
of FINOVA's  financial  records and related data and has made valid and complete
written and oral representations and disclosures in connection with the audit.

      Management  believes it is essential to conduct its business in accordance
with the highest ethical  standards,  which are  characterized  and set forth in
FINOVA's  written  Code of Conduct.  These  standards  are  communicated  to and
acknowledged by all of FINOVA's employees.


/s/ Samuel L. Eichenfield
Samuel L. Eichenfield
Chairman, President and Chief Executive Officer



/s/ Bruno A. Marszowski
Bruno A. Marszowski
Senior Vice President - Controller and Chief Financial Officer



/s/ Derek C. Bruns
Derek C. Bruns
Senior Vice President - Internal Audit
                                       7
<PAGE>
                           FINOVA CAPITAL CORPORATION

INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareowner of FINOVA Capital Corporation

      We have  audited the  accompanying  consolidated  balance  sheet of FINOVA
Capital  Corporation and  subsidiaries as of December 31, 1997 and 1996, and the
related  consolidated  statements of income,  shareowner's equity and cash flows
for each of the  three  years in the  period  ended  December  31,  1997.  These
financial  statements  are  the  responsibility  of  FINOVA's  management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

      In our opinion, such consolidated  financial statements present fairly, in
all material respects,  the financial position of FINOVA Capital Corporation and
subsidiaries at December 31, 1997 and 1996, and the results of their  operations
and their cash flows for each of the three  years in the period  ended  December
31, 1997, in conformity with generally accepted accounting principles.



/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Phoenix, Arizona
February 11, 1998
                                        8
<PAGE>
                           FINOVA CAPITAL CORPORATION

                           CONSOLIDATED BALANCE SHEET
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
                                                  ASSETS

--------------------------------------------------------------------------------------------------------
December 31,                                                                   1997           1996
--------------------------------------------------------------------------------------------------------
<S>                                                                        <C>           <C>         
Cash and cash equivalents                                                  $     33,193  $     31,285

Investment in financing transactions:
 Loans and other financing contracts                                          5,955,984     5,305,678
 Factored receivables                                                           750,399       564,430
 Operating leases                                                               712,927       517,690
 Leveraged leases                                                               619,557       514,573
 Direct financing leases                                                        360,589       396,388
--------------------------------------------------------------------------------------------------------
                                                                              8,399,456     7,298,759

 Less reserve for credit losses                                                (177,088)     (148,693)
--------------------------------------------------------------------------------------------------------

     Investment in financing transactions - net                               8,222,368     7,150,066

Goodwill and other assets                                                       502,362       370,575
--------------------------------------------------------------------------------------------------------

                                                                           $  8,757,923  $  7,551,926
========================================================================================================
</TABLE>
                 See notes to consolidated financial statements.
                                        9
<PAGE>
                           FINOVA CAPITAL CORPORATION

<TABLE>
<CAPTION>
                                   LIABILITIES AND SHAREOWNER'S EQUITY

--------------------------------------------------------------------------------------------------------
December 31,                                                                     1997           1996
--------------------------------------------------------------------------------------------------------
<S>                                                                          <C>           <C>         
Liabilities:
 Accounts payable and accrued expenses                                       $    124,491  $     97,080
 Due to clients                                                                   278,571       218,494
 Interest payable                                                                  52,643        52,677
 Senior debt                                                                    6,764,581     5,850,223
 Deferred income taxes                                                            277,569       264,409
--------------------------------------------------------------------------------------------------------
                                                                                7,497,855     6,482,883
--------------------------------------------------------------------------------------------------------



Shareowner's equity:
 Common stock $1.00 par value, 100,000 shares authorized, 25,000 shares issued         25            25
 Additional capital                                                               870,485       792,948
 Retained income                                                                  389,568       275,062
 Cumulative translation adjustments                                                   (10)        1,008
--------------------------------------------------------------------------------------------------------
                                                                                1,260,068     1,069,043
--------------------------------------------------------------------------------------------------------

                                                                             $  8,757,923  $  7,551,926
========================================================================================================
</TABLE>
                 See notes to consolidated financial statements.
                                       10
<PAGE>
                           FINOVA CAPITAL CORPORATION

                        STATEMENT OF CONSOLIDATED INCOME
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                1997        1996        1995
--------------------------------------------------------------------------------------------------------
<S>                                                                 <C>          <C>         <C>       
Interest, fees and other income                                     $   750,755  $  640,132  $  568,115
Financing lease income                                                   77,049      61,985      49,310
Operating lease income                                                  116,920      95,817      84,691
--------------------------------------------------------------------------------------------------------
Income earned from financing transactions                               944,724     797,934     702,116
Interest expense                                                        416,093     366,543     337,814
Operating lease depreciation                                             72,989      62,286      55,218
--------------------------------------------------------------------------------------------------------
Interest margins earned                                                 455,642     369,105     309,084
Provision for credit losses                                              69,200      41,751      37,568
--------------------------------------------------------------------------------------------------------
Net interest margins earned                                             386,442     327,354     271,516
Gains on sale of assets                                                  30,261      12,949      10,889
--------------------------------------------------------------------------------------------------------
                                                                        416,703     340,303     282,405
Selling, administrative and other operating
 expenses                                                               190,525     154,481     131,571
--------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes                   226,178     185,822     150,834
Income taxes                                                             83,088      69,329      57,036
--------------------------------------------------------------------------------------------------------
Income from continuing operations                                       143,090     116,493      93,798
Income and gain from sale of discontinued operations, net of tax                        507       3,831
--------------------------------------------------------------------------------------------------------
NET INCOME                                                          $   143,090  $  117,000  $   97,629
========================================================================================================
</TABLE>
                 See notes to consolidated financial statements.
                                       11
<PAGE>
                           FINOVA CAPITAL CORPORATION

                  STATEMENT OF CONSOLIDATED SHAREOWNER'S EQUITY
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Years Ended December 31,                                            1997          1996         1995
--------------------------------------------------------------------------------------------------------
<S>                                                             <C>           <C>          <C>        
COMMON STOCK:
 Balance                                                        $        25   $        25  $        25
--------------------------------------------------------------------------------------------------------
ADDITIONAL CAPITAL:
 Balance, beginning of year                                         792,948       677,948      677,947
 Contributions from The FINOVA Group, Inc.                           77,537       115,000            1
--------------------------------------------------------------------------------------------------------
 Balance, end of year                                               870,485       792,948      677,948
--------------------------------------------------------------------------------------------------------
RETAINED INCOME:
 Balance, beginning of period                                       275,062       183,292      108,740
 Net income                                                         143,090       117,000       97,629
 Dividends                                                          (28,584)      (25,230)     (23,077)
--------------------------------------------------------------------------------------------------------
 Balance, end of period                                             389,568       275,062      183,292
--------------------------------------------------------------------------------------------------------
CUMULATIVE TRANSLATION ADJUSTMENTS:
 Balance, beginning of period                                         1,008        (5,686)      (4,726)
 Unrealized translation (loss) gain                                  (1,018)        6,694         (960)
--------------------------------------------------------------------------------------------------------
 Balance, end of year                                                   (10)        1,008       (5,686)
--------------------------------------------------------------------------------------------------------
SHAREOWNER'S EQUITY                                             $ 1,260,068   $ 1,069,043  $   855,579
========================================================================================================
</TABLE>
                 See notes to consolidated financial statements.
                                       12
<PAGE>
                           FINOVA CAPITAL CORPORATION

                      STATEMENT OF CONSOLIDATED CASH FLOWS
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                       1997          1996          1995
-------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>           <C>          <C>        
OPERATING ACTIVITIES:
 Net income                                                                 $   143,090   $   117,000  $    97,629
 Adjustments to reconcile net income to net cash provided
  by operating activities:
   Provision for credit losses                                                   69,200        41,751       37,568
   Depreciation and amortization                                                 90,396        76,471       70,017
   Gains on sale of assets                                                      (30,261)      (12,949)     (10,889)
   Gains on dispositions of discontinued operations, net                                       (3,521)
   Deferred income taxes                                                         13,160        31,272       17,617
Change in assets and liabilities, net of effects from subsidiaries purchased:
   Increase in other assets                                                     (81,611)      (64,280)     (55,204)
   Increase (decrease) in accounts payable and accrued expenses                  20,922       (17,563)     (11,583)
   (Decrease) increase in interest payable                                          (34)        5,853        7,843
 Other                                                                              954         7,971          361
-------------------------------------------------------------------------------------------------------------------
     Net cash provided by operating activities                                  225,816       182,005      153,359
-------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
 Proceeds from sales of assets                                                  178,413       102,945       50,028
 Proceeds from sales of securitized assets                                       36,565       100,000      200,000
 Principal collections on financing transactions                              2,087,619     1,781,985    1,088,420
 Expenditures for financing transactions                                     (2,507,822)   (2,221,363)  (1,853,330)
 Net change in short-term financing transactions                               (844,584)     (624,952)    (442,405)
 Acquisitions, net of cash acquired                                            (120,883)       (7,455)    (261,868)
 Sale of discontinued operation                                                               616,434
 Other                                                                            2,399         3,296        2,104
-------------------------------------------------------------------------------------------------------------------
     Net cash used for investing activities                                  (1,168,293)     (249,110)  (1,217,051)
-------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
 Net borrowings under commercial paper and short-term loans                     649,653        62,156      373,566
 Long-term borrowings                                                         1,080,625       564,988    1,272,450
 Repayment of long-term borrowings                                             (817,892)     (681,401)    (570,002)
 Net advances and contributions from parent                                      20,088       119,691      (16,578)
 Dividends                                                                      (28,584)      (25,230)     (23,077)
 Net change in due to clients                                                    40,495       (32,143)      64,909
-------------------------------------------------------------------------------------------------------------------
     Net cash provided by financing activities                                  944,385         8,061    1,101,268
-------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents                                  1,908       (59,044)      37,576
Cash and cash equivalents, beginning of year                                     31,285        90,329       52,753
-------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                                      $    33,193   $    31,285  $    90,329
===================================================================================================================
</TABLE>
                 See notes to consolidated financial statements.
                                       13
<PAGE>
                           FINOVA CAPITAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1997, 1996 and 1995
                        (Dollars in Thousands in Tables)


NOTE A            SIGNIFICANT ACCOUNTING POLICIES

         Basis  of  Presentation   and  Principles  of   Consolidation   --  The
consolidated  financial  statements present the financial  position,  results of
operations and cash flows of FINOVA  Capital  Corporation  and its  subsidiaries
(collectively,  "FINOVA" or the "Company").  FINOVA is a wholly owned subsidiary
of The FINOVA Group Inc. ("FINOVA Group").

         FINOVA Capital  Corporation is a financial  services company engaged in
providing   capital  and   collateralized   financing   products  to  commercial
enterprises   focusing  on  mid-size   businesses  in  various   market  niches,
principally in the United States.

         These consolidated financial statements are prepared in accordance with
generally accepted accounting  principles.  Described below are those accounting
policies  particularly  significant  to FINOVA,  including  those  selected from
acceptable alternatives:

         Use  of  Estimates  --  The  preparation  of  financial  statements  in
conformity with generally accepted accounting  principles requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities  and disclosure of contingent  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 from those estimates.

         Revenue Recognition -- For loans and other financing contracts,  earned
income is recognized over the life of the contract, using the interest method.

         For operating  leases,  earned income is recognized on a  straight-line
basis over the lease term and  depreciation  is taken on a  straight-line  basis
over the estimated useful lives of the leased assets.

         Leases that are  financed by  nonrecourse  borrowings  and meet certain
other  criteria  are  classified  as leveraged  leases.  For  leveraged  leases,
aggregate rentals receivable are reduced by the related nonrecourse debt service
obligation including interest ("net rentals receivable"). The difference between
(a) the net  rentals  receivable  and (b) the cost of the asset  less  estimated
residual  value at the end of the lease term is  recorded  as  unearned  income.
Earned  income is  recognized  over the life of the lease at a constant  rate of
return on the positive net  investment,  which  includes the effects of deferred
income taxes.

         For  leases  classified  as direct  financing  leases,  the  difference
between (a) aggregate  lease rentals and (b) the cost of the related assets less
estimated  residual  value at the end of the lease term is  recorded as unearned
income.  Earned  income is recognized  over the life of the contracts  using the
interest method.

         Fees  received in  connection  with loan  commitments  are  deferred in
accounts  payable and accrued  expenses  until the loan is advanced and are then
recognized  over the term of the loan as an  adjustment  of the  yield.  Fees on
commitments that expire unused are recognized at expiration.

         Income recognition is generally  suspended for leases,  loans and other
financing  contracts at the earlier of the date at which payments become 90 days
past due or when,  in the opinion of  management,  a full recovery of income and
principal becomes doubtful.  Income recognition is resumed when the loan becomes
contractually  current and  performance  is  demonstrated  to be resumed or when
foreclosed or repossessed assets generate a reasonable rate of return.

         Cash Equivalents -- FINOVA  classifies  highly liquid  investments with
original  maturities  of three  months  or less from  date of  purchase  as cash
equivalents.

         Marketable  Securities  -- As  discussed in Note J, FINOVA owns certain
marketable   securities  which  are  considered  trading   securities.   Trading
securities  are stated at fair value with gains or losses  recorded in income in
the period they occur.
                                       14
<PAGE>
                           FINOVA CAPITAL CORPORATION

         Reserve for Credit Losses -- The reserve for credit losses is available
to absorb credit losses. The provision for credit losses is the charge to income
to increase the reserve for credit losses to the level that management estimates
to be adequate considering delinquencies,  loss experience and collateral. Other
factors  considered  include changes in geographic and product  diversification,
size of the  portfolio  and current  economic  conditions.  Accounts  are either
written-off  or   written-down   when  the  loss  is  considered   probable  and
determinable,  after giving  consideration to the customer's financial condition
and the  value of the  underlying  collateral,  including  any  guarantees.  Any
deficiency  between the  carrying  amount of an asset and the net sales price of
repossessed  collateral is charged to the reserve for credit losses.  Recoveries
of amounts  previously  written-off as uncollectible are credited to the reserve
for credit losses.

         Repossessed  Assets --  Repossessed  assets are carried at the lower of
cost or fair value less estimated selling expenses.

         Residual  Values -- FINOVA has a  significant  investment  in  residual
values in its leasing  portfolios.  These residual values represent estimates of
the value of leased  assets at the end of the contract  terms and are  initially
recorded based upon  appraisals and estimates.  Actual  residual values realized
could differ from these estimates.  Residual values are periodically reviewed to
determine that recorded amounts are appropriate.

         Goodwill -- FINOVA  amortizes the excess of cost over the fair value of
net assets acquired  ("goodwill") on a straight-line  basis primarily over 20 to
25 years.  Goodwill at December 31, 1997 and 1996 was $288.2  million and $179.5
million (net of amortization),  respectively. Amortization totaled $10.1 million
($6.3 million after-tax), $9.6 million ($5.7 million after-tax) and $8.2 million
($4.9 million  after-tax) for the years ended December 31,  1997, 1996 and 1995,
respectively. FINOVA periodically evaluates the carrying value of its intangible
assets for  impairment.  This  evaluation  is based  principally  on  projected,
undiscounted  cash flows  generated by the  underlying  assets.  At December 31,
1997, approximately $272.0 million of goodwill was deductible for federal income
tax purposes over 15 years under Section 197 of the Internal Revenue Code.

         Pension and Other Benefits -- Trusteed,  noncontributory  pension plans
cover substantially all employees. Benefits are based primarily on final average
salary and years of service.  Funding  policies provide that payments to pension
trusts  shall be at least equal to the minimum  funding  required by  applicable
regulations.

         Other  postretirement  benefit costs are recorded during the period the
employees  provide service to FINOVA.  FINOVA funds its  postretirement  benefit
obligation as benefits are paid.

         FINOVA records postemployment benefit costs at the time employees leave
active service.  Postemployment  benefits are any benefits other than retirement
benefits.

         Savings Plan -- FINOVA  participates  in The FINOVA Group Inc.  Savings
Plan (the  "Savings  Plan"),  a qualified  401(k)  program.  The Savings Plan is
available to  substantially  all  employees.  Voluntary  wage  reductions may be
elected by the  employee  ranging  from 0% to 15% of taxable  compensation.  The
Company's   matching   contributions   are  based  on  employee  pre-tax  salary
reductions, up to a maximum of 100% of the first 6% of salary contributions, the
first 3% of which are matched in FINOVA Group stock  through the Employee  Stock
Ownership Plan, discussed below.

         Employee  Stock  Ownership  Plan -- Employees of FINOVA are eligible to
participate  in  FINOVA  Group's  Employee  Stock  Ownership  Plan in the  month
following the first 12 consecutive  month period during which they have at least
1,000 hours of service with FINOVA.  Company  contributions are made in the form
of  matching  stock  contributions  of 100% of the first 3% of salary  reduction
contributions made by participants of the Savings Plan.
                                       15
<PAGE>
                           FINOVA CAPITAL CORPORATION

         Expenses under the Savings Plan and Employee Stock  Ownership Plan were
$2.5  million,   $2.1  million  and  $1.7  million  in  1997,   1996  and  1995,
respectively.

         Income Taxes -- Deferred tax assets and  liabilities are recognized for
the  estimated  future tax  effects  attributable  to  differences  between  the
financial  statement  carrying  amounts of existing  assets and  liabilities and
their  respective tax bases.  Deferred tax assets and  liabilities  are measured
using enacted tax law.

         Derivative Financial  Instruments -- As more fully described in Note F,
FINOVA uses derivative  financial  instruments as part of its interest rate risk
management  policy of match funding its assets and  liabilities.  The derivative
instruments  used  include  interest  rate swaps which are  accounted  for using
settlement or matched swap accounting.

         Each  derivative  used as a hedge is matched with an asset or liability
with which it has a high correlation.  The swap agreements are generally held to
maturity and FINOVA does not use derivative financial instruments for trading or
speculative purposes.  Upon early termination of the designated matched asset or
liability,  the related  derivative  is matched to another  appropriate  item or
marked to fair market value.

         Securitizations  --  Effective  January 1,  1997,  FINOVA  adopted  the
provisions of SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" which requires  receivable  transfers
occurring  after  December 31, 1996 to be accounted  for as sales when legal and
effective control over the transferred receivables is surrendered.

         Reclassifications  -- Certain  reclassifications  have been made to the
1996  and  1995  financial  statements  to  conform  to the  1997  presentation.


NOTE B            ACQUISITIONS AND DISPOSITIONS

         During  1997  and  1996,  FINOVA,  in  transactions  accounted  for  as
purchases,  acquired  various  businesses  and  portfolios  having initial funds
employed totaling $122 million and $318 million,  respectively. In October 1997,
FINOVA Group also purchased Belgravia Capital Corporation, a commercial mortgage
banking  organization,  for $77.5  million of FINOVA  Group's  common stock (1.7
million  shares),  $10.0  million  in cash and an  agreement  to pay  additional
amounts up to  approximately  $30  million  per year for the next  three  years,
contingent upon future results of the operations.  The acquisition was comprised
of $91.5 million in assets, including $88.0 million in goodwill and $4.0 million
in liabilities and acquisition  costs. The results of these operations have been
included in FINOVA's results since the date of acquisition.  Goodwill related to
this transaction is being amortized over 25 years.

         In 1996, the company sold its Manufacturer & Dealer Services operations
for $616.4  million,  recognizing a gain on sale, net of taxes,  of $6.0 million
after allocation of related costs and expenses. In connection with the sale, the
Company  retained a portfolio of leases relating to one vendor program.  Also in
1996, the Company closed FINOVA Medical  Systems,  a  remanufacturer  of medical
equipment,  recognizing a loss on disposal of approximately $2.5 million, net of
tax. Income (losses) from these operations,  net of tax, for the two years ended
December 31, 1996 and 1995 were ($3.0  million) and $3.8 million,  respectively.
Assumptions used to calculate these results were similar to those used by FINOVA
to evaluate its other lines of business and included the  allocation of interest
expense  based  on  certain  leverage  ratios  and the  allocation  of  indirect
operating  expenses.  Results  for 1995 have been  restated  to  classify  these
operations as discontinued.
                                       16
<PAGE>
                           FINOVA CAPITAL CORPORATION

NOTE C            INVESTMENT IN FINANCING TRANSACTIONS

         FINOVA  provides  secured  financing  to  commercial  and  real  estate
enterprises  principally  under  financing  contracts  (such as loans  and other
financing contracts, direct financing leases, operating leases, leveraged leases
and factored receivables). At December 31, 1997 and 1996, the carrying amount of
the investment in financing transactions, including the estimated residual value
of leased  assets upon lease  termination,  was $8.4  billion  and $7.3  billion
(before reserve for credit losses), respectively, and consisted of the following
percentage of carrying amount by line of business:

--------------------------------------------------------------------------------
                                                            Percent of Total
                                                            Carrying Amount
--------------------------------------------------------------------------------
                                                          1997          1996
--------------------------------------------------------------------------------
Transportation Finance                                      19.4%         18.2%
Resort Finance                                              14.4          16.0
Corporate Finance                                            9.8           8.9
Specialty  Real Estate Finance                               8.2          10.9
Communications Finance                                       7.9           7.7
Commercial Equipment Finance                                 7.5           8.0
Rediscount Finance                                           7.3           5.8
Inventory Finance                                            6.5           4.3
Healthcare Finance                                           6.3           6.9
Franchise Finance                                            5.2           5.0
Factoring Services                                           2.7           3.1
Business Credit                                              2.4           2.3
Public Finance                                               1.6           2.1
Other                                                        0.8           0.8
--------------------------------------------------------------------------------
                                                           100.0%        100.0%
================================================================================
                                       17
<PAGE>
                           FINOVA CAPITAL CORPORATION

         Aggregate  installments on loans and other financing contracts,  direct
financing leases, operating leases, leveraged leases and factored receivables at
December 31, 1997 (excluding  repossessed  assets of $37.1 million and estimated
residual values) are  contractually due during each of the years ending December
31, 1998 to 2002 and thereafter as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                                                                There-
                                 1998         1999         2000         2001        2002        after
--------------------------------------------------------------------------------------------------------
<S>                            <C>        <C>          <C>          <C>         <C>         <C>        
Loans and other financing 
 contracts:
Commercial:
   Fixed interest rate           332,773  $   376,445  $   270,568  $  306,517  $  150,631  $   405,615
   Floating interest rate        640,324      538,160      545,215     417,486     220,807       95,437
Real estate:
   Fixed interest rate            90,091       93,535       40,530      50,152      31,311      130,954
   Floating interest rate        447,377      349,907      132,069     144,931      37,301       70,755
Factored receivables             750,399
Leases, primarily at
 fixed interest rates:
 Operating leases                127,053      143,946      103,196      71,510      39,513      112,453
 Leveraged leases                 31,582       25,456       15,859      13,010       8,073      402,266
 Direct financing leases         100,174       74,040       48,073      33,378      23,401       88,714
--------------------------------------------------------------------------------------------------------
                               2,519,773  $ 1,601,489  $ 1,155,510  $1,036,984  $  511,037  $ 1,306,194
========================================================================================================
</TABLE>

         The  investment  in  operating  leases at December 31  consisted of the
following:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                                                  1997           1996
--------------------------------------------------------------------------------------------------------
<S>                                                                          <C>           <C>         
Cost of assets                                                               $    855,670  $    646,918
Accumulated depreciation                                                         (142,743)     (129,228)
--------------------------------------------------------------------------------------------------------
Investment in operating leases                                               $    712,927  $    517,690
========================================================================================================
</TABLE>
                                                                    
         The net investment in leveraged  leases at December 31 consisted of the
following:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                                            1997             1996
--------------------------------------------------------------------------------------------------------
<S>                                                                    <C>             <C>           
Rentals receivable                                                     $    2,287,233  $    1,898,996
Less principal and interest payable on nonrecourse debt                    (1,790,987)     (1,486,249)
--------------------------------------------------------------------------------------------------------
Net rentals receivable                                                        496,246         412,747
Estimated residual values                                                     575,234         479,850
Less unearned income                                                         (451,923)       (378,024)
--------------------------------------------------------------------------------------------------------
Investment in leveraged leases                                                619,557         514,573
Less deferred taxes arising from leveraged leases                            (249,710)       (246,075)
--------------------------------------------------------------------------------------------------------
Net investment in leveraged leases                                     $      369,847  $      268,498
========================================================================================================
</TABLE>
                                       18
<PAGE>
                           FINOVA CAPITAL CORPORATION

         The  components of income from leveraged  leases,  after the effects of
interest on  nonrecourse  debt and other related  expenses,  for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                                           1997       1996        1995
--------------------------------------------------------------------------------------------------------
<S>                                                                     <C>        <C>        <C>      
Lease and other income, net                                             $  41,605  $  30,230  $  12,080
Income tax expense                                                         19,476     11,321      4,201
--------------------------------------------------------------------------------------------------------
</TABLE>

         The investment in direct  financing  leases at December 31 consisted of
the following:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                                                 1997           1996
--------------------------------------------------------------------------------------------------------
<S>                                                                          <C>           <C>         
Rentals receivable                                                           $    367,780  $    398,928
Estimated residual values                                                         120,020       100,039
Unearned income                                                                  (127,211)     (102,579)
--------------------------------------------------------------------------------------------------------
Investment in direct financing leases                                        $    360,589  $    396,388
========================================================================================================
</TABLE>
                                                                   
         FINOVA has a substantial  number of loans and leases with payments that
fluctuate  with changes in index rates,  primarily  prime interest rates and the
London  interbank  offered rates  ("LIBOR").  The investment in loans and leases
with floating  interest rates (excluding  nonaccruing  contracts and repossessed
assets)  was $4.34  billion  and $3.70  billion at  December  31, 1997 and 1996,
respectively.

         Interest  earned from  financing  transactions  with floating  interest
rates was  approximately  $491  million in 1997,  $436  million in 1996 and $402
million in 1995.  The  adjustments  which arise from  changes in index rates can
have a  significant  effect on  interest  earned  from  financing  transactions;
however, the effects on interest margins earned and net income are substantially
offset by related  interest  expense changes on debt  obligations  with floating
interest rates.  FINOVA's matched funding policy is more fully described in Note
F.

         At December 31, 1997, FINOVA had a committed backlog of new business of
approximately  $1.6 billion  compared to $1.5 billion at December 31, 1996.  The
committed  backlog  includes  lines of credit  totaling  $666  million  and $702
million at December 31, 1997 and 1996,  respectively.  Historically,  FINOVA has
booked a substantial portion of its backlog,  although there can be no assurance
that the  trend  will  continue.  Loan  commitments  and  lines of  credit  have
generally  the  same  credit  risk  as  extending  loans  to  borrowers.   These
commitments  are  generally  subject to the same credit  quality and  collateral
requirements  involved in lending  transactions.  Commitments  generally  have a
fixed expiration and usually require payment of a fee.

         Securitizations  - On a limited  basis,  FINOVA  sells  receivables  in
transactions  subject to limited recourse  provisions and remains a servicer for
which it is paid a fee. Normal  servicing fees are earned on a level yield basis
over the remaining terms of the related receivables sold.

         In 1996 and 1995,  FINOVA,  under a  securitization  agreement,  sold a
total of $300 million in undivided  proportionate  interests in a revolving loan
portfolio totaling  approximately  $736.2 million as of December 31, 1997. Under
this agreement,  there is recourse to FINOVA based on the outstanding balance of
the  proportionate  interest  sold.  In 1997,  under a  separate  securitization
agreement,  FINOVA sold $36.6 million of loan receivables with limited recourse.
FINOVA will service these loan  contracts for the  transferee and has deferred a
portion of the proceeds to be  recognized as service fee income over the term of
the agreements.
                                       19
<PAGE>
                           FINOVA CAPITAL CORPORATION

NOTE D            RESERVE FOR CREDIT LOSSES

         The  following is an analysis of the reserve for credit  losses for the
years ended December 31:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                                      1997         1996         1995
--------------------------------------------------------------------------------------------------------
<S>                                                               <C>          <C>           <C>       
Balance, beginning of year                                        $   148,693  $   129,077   $  110,903
Provision for credit losses                                            69,200       41,751       37,568
Write-offs                                                            (45,487)     (32,017)     (25,631)
Recoveries                                                              2,287        3,296        2,104
 Other (including reserves related to acquisitions)                     2,395        6,586        4,133
--------------------------------------------------------------------------------------------------------
Balance, end of year                                              $   177,088  $   148,693   $  129,077
========================================================================================================
</TABLE>

         Write-offs by lines of business  during the years ended December 31 are
as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                                        1997        1996         1995
--------------------------------------------------------------------------------------------------------
<S>                                                                  <C>         <C>         <C>       
Factoring Services                                                   $   24,382  $    5,098  $    3,728
Corporate Finance                                                         6,577       9,470       4,660
Commercial Equipment Finance                                              3,722       3,207       2,271
Resort Finance                                                            2,700       4,275       2,000
Specialty Real Estate Finance                                             2,106       1,793       2,275
Healthcare Finance                                                        1,798       1,018         314
Inventory Finance                                                         1,777                     201
Communications Finance                                                      750       2,994       4,037
Franchise Finance                                                           696       3,267       3,448
FINOVA Capital Limited (UK)                                                  47         895       1,523
Business Credit                                                                                     452
Other                                                                       932                     722
--------------------------------------------------------------------------------------------------------
                                                                     $   45,487  $   32,017  $   25,631
========================================================================================================
Write-offs as a percentage of average managed assets (excluding
participations)                                                           0.56%       0.46%       0.44%
========================================================================================================
</TABLE>

         An  analysis  of  nonaccruing  assets  included  in the  investment  in
financing transactions at December 31 is as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                                                    1997        1996
--------------------------------------------------------------------------------------------------------
<S>                                                                              <C>         <C>       
Contracts                                                                        $  150,263  $  117,086
Repossessed assets                                                                   37,093      38,419
--------------------------------------------------------------------------------------------------------
Total nonaccruing assets                                                         $  187,356  $  155,505
========================================================================================================
Nonaccruing assets as a percentage of managed assets (excluding participations)         2.1%        2.0%
========================================================================================================
</TABLE>

         In  addition to the  repossessed  assets  included in the above  table,
FINOVA had repossessed  assets with a total carrying amount of $52.5 million and
$60.0 million at December 31, 1997 and 1996,  respectively,  which earned income
of $4.1 million and $5.1 million during 1997 and 1996, respectively.
                                       20
<PAGE>
                           FINOVA CAPITAL CORPORATION

         At December 31, 1997, the total  carrying  amount of impaired loans was
$158.0  million,  of which $36.4  million were revenue  accruing.  A reserve for
credit  losses  of $24.5  million  has been  established  for $39.0  million  of
nonaccruing  impaired  loans. At December 31, 1996, the total carrying amount of
impaired loans was $110.1 million, of which $46.3 million were revenue accruing.
At  December  31,  1996,  a  reserve  for  credit  losses  of $6.2  million  was
established for $14.1 million of nonaccruing impaired loans. For the three years
ended December 31, 1997, 1996 and 1995, the average  carrying amount of impaired
loans was $130.3 million, $85.1 million and $93.2 million, respectively.  Income
earned on accruing  impaired loans was  approximately  $4.0 million in all three
years. Income earned on impaired loans is recognized in the same manner as it is
on other accruing loans.  Cash collected on all nonaccruing  loans is applied to
the carrying amount.

         Had all nonaccruing  assets  outstanding at December 31, 1997, 1996 and
1995 remained accruing,  income earned would have increased by approximately $22
million, $19 million and $17 million, respectively.

NOTE E            DEBT

         FINOVA  satisfies  its  short-term  financing   requirements  from  the
issuance of commercial paper supported by bank lines of credit, other bank loans
and public notes.  FINOVA's  commercial paper borrowings are supported by unused
long-term  revolving  bank  credit  agreements  totaling  $3.6  billion.  FINOVA
currently maintains a five-year revolving credit facility with numerous lenders,
in the aggregate principal amount of $1.0 billion. Separately, FINOVA also has a
364-day  revolving  credit  facility  with the  same  lenders  in the  aggregate
principal amount of $1.0 billion, two five-year facilities with numerous lenders
for $700 million each and one 364-day facility with one lender for $200 million.
FINOVA  intends to borrow  under the domestic  revolving  credit  agreements  to
refinance   commercial   paper  and  short-term  bank  loans  if  it  encounters
significant  difficulties in rolling over its outstanding  commercial  paper and
short-term bank loans.  FINOVA rarely borrows under these facilities.  Under the
terms of these agreements,  FINOVA has the option to periodically  select either
domestic dollars or Eurodollars as the basis of borrowings. Interest is based on
the lenders' prime rate for domestic dollar advances or London interbank offered
rates  ("LIBOR") for  Eurodollar  advances.  The  agreements  also provide for a
commitment fee on the unused  credit.  The 364-day $1.0 billion and $200 million
revolving  credit  agreements will be subject to renewal in 1998,  while the two
$700 million and the other $1.0 billion credit facilities are subject to renewal
in 2002.

         FINOVA,  through  one  of  its  subsidiaries,   maintains  a  five-year
multi-currency  facility with a small group of lenders for $100  million.  Under
the terms of this  agreement,  the  subsidiary  has the  option to  periodically
select multiple currencies as the basis of borrowings.  Interest is based on the
Eurocurrency  rate per annum for deposits in the relevant  designated  currency.
Through another  subsidiary,  FINOVA  maintains two five-year  revolving  credit
facilities  with two separate  lenders in Canada for $25 million  Canadian each.
Under the terms of these  agreements,  the  subsidiary  has the option to borrow
Canadian  dollars  through either  bankers'  acceptances or prime rate advances.
Interest is based on the lenders'  bankers'  acceptance  rates or prime rate for
prime advances.  FINOVA is the guarantor of these credit  facilities,  which are
subject to renewal in 2002.  FINOVA  also  maintains  one $10  million  Canadian
364-day revolving credit facility with one lender. That credit agreement will be
subject to renewal in 1998.
                                       21
<PAGE>
                           FINOVA CAPITAL CORPORATION

         The  following   information  pertains  to  all  short-term  financing,
primarily commercial paper, issued by FINOVA for the years ended December 31:

<TABLE>
<CAPTION>
 -------------------------------------------------------------------------------------------------------
                                                                 1997           1996            1995
 -------------------------------------------------------------------------------------------------------
<S>                                                         <C>              <C>           <C>        
 Maximum amount of short-term debt outstanding
  during year                                               $    3,284,118   $  3,087,876  $ 2,518,733
 Average short-term debt outstanding during year                 2,886,668      2,551,316    2,210,329
 Weighted average short-term interest rates
  at end of year:
   Short-term borrowings                                               5.6%           5.4%         5.9%
   Commercial paper*                                                   5.7%           5.6%         6.0%
 Weighted average interest rate on short-term debt
  outstanding during year*                                             5.7%           5.6%         6.1%
 -------------------------------------------------------------------------------------------------------
</TABLE>

*  Exclusive  of the cost of  maintaining  bank lines in support of  outstanding
commercial paper and the effects of interest rate conversion agreements.

         Senior debt at December 31 was as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                                                 1997          1996
--------------------------------------------------------------------------------------------------------
<S>                                                                          <C>           <C>         
 Commercial paper and short-term bank loans supported by unused long-term
  bank revolving credit agreements, less unamortized discount                $  3,132,109  $  2,482,496
 Medium-term notes due to 2005, 6.1% to 10.3%                                   1,343,148     1,414,500
 Term loans payable to banks due  to 1999, 6.0%                                   190,000       180,000
 Senior notes due to 2007, 6.1% to 16.0%, less unamortized discount             2,083,761     1,758,176
 Nonrecourse installment notes due to 2002, 10.6% (assets of
   $58,064 and $24,656, respectively, pledged as collateral)                       15,563        15,051
--------------------------------------------------------------------------------------------------------
Total senior debt                                                            $  6,764,581  $  5,850,223
========================================================================================================
</TABLE>

         Annual  maturities of senior debt  outstanding at December 31, 1997 due
through  June 2007  (excluding  the amount  supported  by the  revolving  credit
agreements  expected to be renewed)  approximate  $687.3 million (1998),  $707.8
million  (1999),  $721.8 million (2000),  $476.2 million (2001),  $539.7 million
(2002) and $499.7 million (thereafter).

         The  agreements   pertaining  to  senior  debt  and  revolving   credit
agreements include various restrictive  covenants and require the maintenance of
certain defined financial ratios with which FINOVA has complied.  Under one such
covenant, dividend payments by FINOVA are limited to 50% of accumulated earnings
after  December 31, 1991. As of December 31, 1997,  FINOVA had $126.4 million of
excess accumulated earnings available for distribution.

         Total  interest  paid  is not  significantly  different  from  interest
expense.

NOTE F            DERIVATIVE FINANCIAL INSTRUMENTS

         FINOVA enters into  interest rate and basis swap  agreements as part of
its  interest  rate risk  management  policy of match  funding  its  assets  and
liabilities.  The derivative  instruments used are straightforward.  The Company
continually monitors its derivative position and uses derivative instruments for
non-trading and non-speculative purposes only.

         FINOVA  uses  derivative   instruments  to  minimize  its  exposure  to
fluctuations  in interest  rates.  FINOVA  strives to minimize  its overall debt
costs while  limiting the short-term  variability of interest  expense and funds
required for debt service.  To achieve this  objective,  FINOVA  diversifies its
borrowing  sources  (short- and long-term  debt with a fixed or a variable rate)
and seeks to  maintain
                                       22
<PAGE>
                           FINOVA CAPITAL CORPORATION

a portfolio that is matched funded.  FINOVA's  matched funding policy  generally
requires that floating-rate  assets be financed with  floating-rate  liabilities
and fixed-rate assets be financed with fixed-rate liabilities.  FINOVA's matched
funding  policy  also  requires  that  the  difference   between   floating-rate
liabilities  and  floating-rate  assets,  measured as a percent of total assets,
should  not  vary  by more  than  3% for any  extended  period.  The  amount  of
derivatives  used is a function of this 3% gap policy with the maturities of the
derivatives being correlated to the maturities of the assets being financed.

         The notional amounts of derivatives do not represent  amounts exchanged
by the parties and, thus, are not a measure of FINOVA's exposure through its use
of  derivatives.  The amounts  exchanged  are  determined  by  reference  to the
notional amounts and the other terms of the derivatives.

         Under  interest  rate swaps,  FINOVA  agrees to exchange with the other
party, at specified  intervals,  the payment  streams  calculated on a specified
notional  amount,  with at least one stream based on a floating  interest  rate.
Generic swap notional amounts do not change for the life of the contract.  Basis
swaps involve the exchange of floating-rate indices, such as the prime rate, the
commercial  paper  composite  rate and LIBOR and are used  primarily  to protect
FINOVA's margins on floating-rate  transactions by locking in the spread between
FINOVA's lending and borrowing rates.

         FINOVA's  off-balance sheet derivative  instruments  involve credit and
interest rate risks.  The credit risk would be the  nonperformance  by the other
parties  to the  financial  instruments.  All  financial  instruments  have been
entered  into with major  financial  institutions,  which are  expected to fully
perform under the terms of the  agreements,  thereby  mitigating the credit risk
from  the  transactions,  although  there  can be no  assurance  that  any  such
institution  will  perform  under  its  agreement.  FINOVA's  derivative  policy
stipulates that the maximum  exposure to any one counter party,  relative to the
derivative  products,  is limited on a net basis to 10% of FINOVA's  outstanding
debt at the time of that  transaction.  Interest rate risks relate to changes in
interest rates and the impact on earnings.  FINOVA mitigates interest rate risks
through its matched funding policy.

         The use of derivatives  decreased  interest  expense by $1.0 million in
1997,  a decrease in the  aggregate  cost of funds of 0.03%,  whereas the use of
derivatives  increased  interest expense by $3.0 million in 1996, an increase in
the  aggregate  cost of funds of 0.05%, and $9.8 million in 1995, an increase in
the  aggregate  cost of funds of 0.2%.  These  changes in interest  expense from
off-balance sheet derivatives  effectively alter on-balance sheet costs and must
be viewed as total  interest rate  management.  There were no deferred  gains or
losses associated with derivatives.
                                       23
<PAGE>
                           FINOVA CAPITAL CORPORATION

         The following  table provides  annual  maturities and  weighted-average
interest rates for each significant derivative product type in place at December
31, 1997.  The rates  presented  are as of December 31, 1997. To the extent that
rates change, variable interest information will change:
<TABLE>
<CAPTION>
 -------------------------------------------------------------------------------------------------------
                                                             Maturities of Derivative Products
                                  December 31, ---------------------------------------------------------
 (Dollars in Millions)               1997        1998    1999      2000     2001       2002 Thereafter
 -------------------------------------------------------------------------------------------------------
<S>                               <C>         <C>       <C>     <C>       <C>       <C>       <C>     
 Receive fixed-rate swaps:
  Notional value                  $ 1,402     $   325   $ 377   $   150   $  150    $   200   $    200
  Weighted average receive rate      6.77%       6.82%   6.45%     7.24%    6.66%      6.51%      7.26%
  Weighted average pay rate          5.82%       5.78%   5.79%     5.78%    5.83%      5.80%      5.98%
 Pay fixed-rate swaps:
  Notional value                  $   550     $   200   $ 150   $   100   $  100
  Weighted average receive rate      5.81%       5.86%   5.80%     5.74%    5.77%
  Weighted average pay rate          7.14%       7.30%   7.06%     7.38%    6.70%
 Basis swaps:
  Notional value                  $   628     $   628
  Weighted average receive rate      5.75%       5.75%
  Weighted average pay rate          6.04%       6.04%
 -------------------------------------------------------------------------------------------------------
 TOTAL NOTIONAL VALUE             $ 2,580     $ 1,153   $ 527   $   250   $  250    $   200   $    200
 =======================================================================================================
 Total weighted average rates 
   on swaps:
   Receive rate                      6.32%       6.07%   6.26%     6.64%    6.30%      6.51%      7.26%
 =======================================================================================================
   Pay rate                          6.15%       6.19%   6.15%     6.42%    6.18%      5.80%      5.98%
 =======================================================================================================
</TABLE>

         For the benefit of its customers,  FINOVA enters into interest rate cap
agreements.  The total notional amount of these  agreements at December 31, 1997
was  $41.9  million,  none of  which  was in a pay or  receive  position.  These
agreements will mature as follows: $16.9 million in 1998, $15.9 million in 1999,
$1.5 million in 2000 and $7.6 million in 2001.

         At  December  31,  1996,  FINOVA  was a party to a  short-term  foreign
currency forward exchange  agreement with a notional amount of approximately $73
million to mitigate its foreign currency risk. The exchange agreement expired in
1997.
                                       24
<PAGE>
                           FINOVA CAPITAL CORPORATION

         Derivative product activity for the three years ended December 31, 1997
is as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                              Pay                  Interest
                                 Receive        Pay       Fixed-Rate                 Rate
                                Fixed-Rate   Fixed-Rate   Amortizing     Basis       Hedge
(Dollars in Millions)             Swaps        Swaps         Swaps       Swaps    Agreements    TOTAL
--------------------------------------------------------------------------------------------------------
<S>                            <C>          <C>          <C>           <C>       <C>           <C>     
Balance, January 1, 1995       $     1,190  $       780  $        242  $    254  $       750   $  3,216
Expired                                (40)         (30)         (152)     (126)                   (348)
Additions                              150           50             5       750                     955
--------------------------------------------------------------------------------------------------------
Balance, December 31, 1995           1,300          800            95       878          750      3,823
Expired                               (100)        (325)          (95)                  (750)    (1,270)
Additions                              150          350                                             500
--------------------------------------------------------------------------------------------------------
Balance, December 31, 1996           1,350          825            --       878           --      3,053
Expired                               (275)        (275)                   (250)                   (800)
Additions                              327                                                          327
--------------------------------------------------------------------------------------------------------
Balance, December 31, 1997     $     1,402  $       550  $         --  $    628  $        --   $  2,580
========================================================================================================
</TABLE>

NOTE G            REDEEMABLE PREFERRED STOCK

         In December 1996,  FINOVA Finance Trust, a subsidiary  trust  sponsored
and  wholly-owned  by FINOVA Group,  issued (a) 2,300,000  shares of convertible
trust originated  preferred  securities to the public for gross proceeds of $115
million  (before  transaction  costs of $3.5  million) and (b) 71,135  shares of
common  securities to FINOVA Group.  The gross proceeds from these  transactions
were invested by the trust in $118.6  million  aggregate  principal  amount of 5
1/2%  convertible  subordinated  debentures  due 2016 (the  "Debentures")  newly
issued by FINOVA Group. The Debentures represent all of the assets of the trust.
The proceeds  from the issuance of the  Debentures  were  contributed  by FINOVA
Group to FINOVA,  which used the  proceeds to repay  commercial  paper and other
indebtedness.

NOTE H            STOCK OPTIONS

         FINOVA  Group  sponsors the 1992 Stock  Incentive  Plan in which FINOVA
participates.  Consequently,  any compensation related to that plan is reflected
in  FINOVA's  operating  results.  The plan  provides  for the grant of options,
restricted stock and stock  appreciation  rights relating to FINOVA Group common
stock. Those awards are granted to directors, officers and employees.

         FINOVA applies APB Opinion 25 and related Interpretations in accounting
for its plans.  Accordingly,  no  compensation  cost has been recognized for its
fixed stock option plans.  The  compensation  cost that has been charged against
income for its  performance-based  plan was $7.9 million,  $2.9 million and $1.6
million for 1997, 1996 and 1995,  respectively.  Had  compensation  cost for the
Company's stock based compensation plans been determined based on the fair value
at the grant dates for awards  under those plans  consistent  with the method of
FASB Statement 123,  FINOVA's net income would have been $139.6 million,  $115.0
million and $97.0 million for 1997, 1996 and 1995, respectively.

         The fair value of the options was  estimated on the date of grant using
the  Black-Scholes  option  pricing  model with the  following  weighted-average
assumptions  used for grants in 1997,  1996 and 1995:  dividend  yield of 1.92%,
expected  volatility of 43%, risk-free interest rates of 6.2% and expected lives
of five to seven years.

NOTE I            INCOME TAXES

         The  consolidated  provision for income taxes consists of the following
for the years ended December 31:

--------------------------------------------------------------------------------
                                                    1997       1996       1995
--------------------------------------------------------------------------------
Current:
 United States:
   Federal                                       $  34,936  $  28,658  $  32,225
   State                                            13,973      7,654      7,194
 Foreign                                             3,626      1,745
--------------------------------------------------------------------------------
                                                    52,535     38,057     39,419
--------------------------------------------------------------------------------
Deferred:
 United States:
   Federal                                          31,051     26,210     12,278
   State                                              (498)     5,062      4,535
 Foreign                                                                     804
--------------------------------------------------------------------------------
                                                    30,553     31,272     17,617
--------------------------------------------------------------------------------
Provision for income taxes                       $  83,088  $  69,329  $  57,036
================================================================================
                                       25
<PAGE>
                           FINOVA CAPITAL CORPORATION

         Income  taxes paid in 1997,  1996 and 1995  amounted  to  approximately
$30.3 million, $31.3 million and $47.9 million, respectively.

         The significant components of deferred tax liabilities and deferred tax
assets at December 31, 1997 and 1996 consisted of the following:

--------------------------------------------------------------------------------
                                                           1997         1996
--------------------------------------------------------------------------------
Deferred tax liabilities:
 Deferred income from leveraged leases                $    308,764  $   274,224
 Deferred income from lease financing                       89,196       68,542
 Goodwill                                                   24,343       10,776
 Other                                                       1,207       15,468
--------------------------------------------------------------------------------
Gross deferred tax liability                               423,510      369,010
--------------------------------------------------------------------------------
Deferred tax assets:
Reserve for credit losses                                   75,670       61,083
Foreign                                                     16,802       24,159
Alternative minimum tax                                     26,153
Accrued expenses                                             9,739       14,230
Net operating loss carryforward                              4,875
Other                                                       12,702        5,129
--------------------------------------------------------------------------------
Gross deferred tax asset                                   145,941      104,601
--------------------------------------------------------------------------------
Net deferred tax liability                            $    277,569  $   264,409
================================================================================

         The federal  statutory  income tax rate is  reconciled to the effective
income tax rate as follows:

--------------------------------------------------------------------------------
                                                      1997      1996      1995
--------------------------------------------------------------------------------
Federal statutory income tax rate                     35.0%      35.0%     35.0%
State income taxes                                     2.6        4.4       5.1
Foreign tax effects                                   (0.1)      (0.9)     (0.5)
Municipal and ESOP income                             (2.0)      (2.2)     (1.7)
Other                                                  1.2        1.0      (0.1)
--------------------------------------------------------------------------------
Provision for income taxes                            36.7%      37.3%     37.8%
================================================================================

NOTE J            PENSION AND OTHER BENEFITS

         Net periodic  pension  costs were $1.9  million,  $1.7 million and $1.3
million for the years ended  December  31,  1997,  1996 and 1995,  respectively.
FINOVA's  pension  costs were  accrued at $2.8  million at December 31, 1997 and
prepaid by $0.6 million at December 31, 1996.

         Net  periodic  postretirement  benefit  costs were $0.5  million,  $0.7
million and $0.6 million for each of the years ended December 31, 1997, 1996 and
1995,  respectively.  FINOVA's  accrued  postretirement  benefit costs were $2.8
million at December 31, 1997 and $2.2 million at December 31, 1996.

         FINOVA's   investment   of  $47  million  in  trust  for   nonqualified
compensation  plans  consists of securities  held for trading and is recorded at
market.
                                       26
<PAGE>
                           FINOVA CAPITAL CORPORATION

NOTE K            LITIGATION AND CLAIMS

         FINOVA is party either as  plaintiff  or defendant to various  actions,
proceedings and pending claims,  including legal actions,  some of which involve
claims for compensatory,  punitive or other damages in significant amounts. Such
litigation  often  results  from  FINOVA's   attempts  to  enforce  its  lending
agreements against borrowers and other parties to those transactions. Litigation
is  subject  to many  uncertainties  and it is  possible  that some of the legal
actions,  proceedings  or claims  referred  to above  could be  decided  against
FINOVA.  Although  the ultimate  amount for which FINOVA may be held liable,  if
any, is not ascertainable,  FINOVA believes that any resulting  liability should
not materially affect FINOVA's financial position or results of operations.

NOTE L            FAIR VALUE OF FINANCIAL INSTRUMENTS

         The  following  disclosure  of the  estimated  fair value of  financial
instruments has been determined by FINOVA using market  information  obtained by
FINOVA and the valuation  methodologies  described below. However,  considerable
judgment is required in  interpreting  market data to develop the  estimates  of
fair value. Accordingly, the estimates presented herein may not be indicative of
the amounts that FINOVA could realize in a current market  exchange.  The use of
different  market  assumptions  or valuation  methodologies  may have a material
effect on the estimated fair value amounts.

         The carrying  amounts and estimated  fair values of FINOVA's  financial
instruments are as follows for the years ended December 31:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                               1997                       1996
--------------------------------------------------------------------------------------------------------
                                                      Carrying      Estimated    Carrying     Estimated
                                                       Amount      Fair Value     Amount      Fair Value
--------------------------------------------------------------------------------------------------------
<S>                                                <C>            <C>          <C>          <C>         
Balance Sheet -                               
 Financial Instruments:                       
 Assets:                                      
  Loans and other financing contracts              $  5,744,846   $  5,872,082 $  5,143,562 $  5,417,865
 Liabilities:                                 
  Senior debt                                         6,764,581      6,832,327    5,850,223    5,952,108
                                              
Off-Balance Sheet -                           
  Financial Instruments:                      
    Interest rate swaps                                    ---          15,893          ---        1,462
                                              
--------------------------------------------------------------------------------------------------------
</TABLE>
                                       
         The carrying values of cash and cash equivalents, factored receivables,
accounts  payable and accrued  expenses,  due to clients  and  interest  payable
(including  accrued  amounts  related to interest  rate swaps and interest  rate
hedge  agreements)  approximate  fair values due to the  short-term  maturity of
these items.

         The methods and  assumptions  used to estimate the fair values of other
financial instruments are summarized as follows:

         Loans and other financing contracts:
                  The fair  value of loans and  other  financing  contracts  was
         estimated by discounting expected cash flows using the current rates at
         which loans of similar  credit  quality,  size and  remaining  maturity
         would be made as of  December  31, 1997 and 1996.  Management  believes
         that the  risk  factor  embedded  in the  entry  value  interest  rates
         applicable  to  performing  loans for which  there are no known  credit
         concerns  results in a fair  valuation  of such loans on an entry value
         basis.  As of December 31, 1997 and 1996, the fair value of nonaccruing
         impaired  contracts with a carrying  amount of $121.5 million and $63.8
         million, respectively, was not estimated because it is not practical to
         reasonably  assess the credit  adjustment  that would be applied in the
         marketplace  for such  loans.  As of December  31,  1997 and 1996,  the
         carrying  amount  of  loans  and  other  financing  contracts  excludes
         repossessed  assets with a total  carrying  amount of $89.6 million and
         $98.4 million, respectively.
                                       27
<PAGE>
                           FINOVA CAPITAL CORPORATION

         Senior debt:
                  The fair value of senior  debt was  estimated  by  discounting
         future cash flows using rates  currently  available for debt of similar
         terms and remaining maturities. The carrying values of commercial paper
         and borrowings under revolving credit facilities,  if any, were assumed
         to approximate fair values due to their short maturities.

         Interest rate swaps:
                  The fair  values of  interest  rate  swaps are based on quoted
         market prices obtained from participating banks and dealers.

         The fair value  estimates  presented  herein were based on  information
obtained by FINOVA as of December 31, 1997 and 1996.  Although management is not
aware of any factors that would significantly  affect the estimated fair values,
such values have not been updated since  December 31, 1997 and 1996.  Therefore,
current  estimates  of fair  value may  differ  significantly  from the  amounts
presented herein.

NOTE M            SELLING, ADMINISTRATIVE AND OTHER OPERATING EXPENSES

         The following  represents a summary of the major components of selling,
administrative  and other operating  expenses for the three years ended December
31:

--------------------------------------------------------------------------------
                                                   1997       1996        1995
--------------------------------------------------------------------------------
Salaries and employee benefits                $   112,980  $  94,272   $  74,884
Depreciation and amortization                      17,407     14,185      14,799
Travel and entertainment                           11,917      8,953       8,030
Problem account costs                              11,586      7,753       7,941
Occupancy expenses                                  8,368      7,104       6,253
Professional services                               7,654      5,738       6,121
--------------------------------------------------------------------------------

NOTE N            NEW ACCOUNTING STANDARDS

         In June 1997, the Financial  Accounting Standards Board ("FASB") issued
SFAS No. 130,  "Reporting  Comprehensive  Income," which is effective for fiscal
years beginning after December 15, 1997. The statement  changes the reporting of
certain  items  currently  reported in the  shareowner's  equity  section of the
balance sheet and establishes  standards for reporting of  comprehensive  income
and its  components  in a full  set of  general  purpose  financial  statements.
Adoption of this standard will require  additional  disclosure only. FINOVA will
adopt this standard effective January 1, 1998, as required.

         In June 1997,  the FASB also issued SFAS No.  131,  "Disclosures  About
Segments of an  Enterprise  and Related  Information,"  which is  effective  for
fiscal years beginning after December 15, 1997. This standard  requires  certain
information  regarding segments of a business enterprise to be reported based on
the way management  organizes and evaluates segments within FINOVA. The standard
also requires  disclosures  regarding products and services,  geographical areas
and major  customers.  Adoption of this standard will require  FINOVA to include
additional detail in its disclosures,  including certain disaggregated operating
information.  FINOVA will adopt this standard in 1998,  as required,  but is not
currently  planning to elect early adoption for interim financial periods during
the year. At this time,  management  anticipates that FINOVA's reported segments
will be composed of its three operating groups:  Specialty  Finance,  Commercial
Finance and Capital Markets.
                                       28
<PAGE>
                           FINOVA CAPITAL CORPORATION

                      SUPPLEMENTAL SELECTED FINANCIAL DATA
                     CONDENSED QUARTERLY RESULTS (UNAUDITED)
                             (Dollars in Thousands)

         The following  represents the condensed quarterly results for the three
years ended December 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                            First      Second       Third      Fourth
                                                           Quarter     Quarter     Quarter     Quarter
--------------------------------------------------------------------------------------------------------
<S>                                                      <C>         <C>         <C>         <C>       
 Interest earned from financing transactions:
  1997                                                   $  217,077  $  228,487  $  237,356  $  261,804
  1996                                                      190,652     192,635     204,972     209,675
  1995                                                      161,369     170,475     176,802     193,470
--------------------------------------------------------------------------------------------------------
 Interest expense:
  1997                                                       97,172     101,883     105,592     111,446
  1996                                                       88,224      89,718      91,629      96,972
  1995                                                       78,275      83,248      85,544      90,747
--------------------------------------------------------------------------------------------------------
 Gains on sale of assets:
  1997                                                        3,233      10,468       8,706       7,854
  1996                                                        6,730       1,315         397       4,507
  1995                                                        1,710         728       2,557       5,894
--------------------------------------------------------------------------------------------------------
 Non-interest expenses:
  1997                                                       70,327      82,522      84,500      95,365
  1996                                                       66,489      56,989      65,480      69,560
  1995                                                       47,581      52,832      54,605      69,339
--------------------------------------------------------------------------------------------------------
 Income from continuing operations:
  1997                                                       32,813      34,697      35,867      39,713
  1996                                                       26,756      28,852      30,489      30,396
  1995                                                       22,205      22,279      24,417      24,897
--------------------------------------------------------------------------------------------------------
Net income:
  1997                                                       32,813      34,697      35,867      39,713
  1996                                                       27,121      28,121      29,763      31,995
  1995                                                       22,368      23,629      25,150      26,482
--------------------------------------------------------------------------------------------------------
</TABLE>
                                       29
<PAGE>
                           FINOVA CAPITAL CORPORATION
     AVERAGE BALANCES/INTEREST MARGINS/AVERAGE ANNUAL RATES (UNAUDITED) (1)
                             (Dollars in Thousands)
<TABLE>
<CAPTION>
The following represents the breakdown of FINOVA's average  balance sheet, interest margins and  average annual rates for the  years
ended December 31, 1997 and 1996:
-----------------------------------------------------------------------------------------------------------------------------------
                                                                 1997                                           1996
-----------------------------------------------------------------------------------------------------------------------------------
                                                   Average                     Average       Average                    Average
                                                   Balance     Interest         Rate        Balance       Interest        Rate
------------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>          <C>              <C>          <C>          <C>       <C>   <C>   
ASSETS
 Cash and cash equivalents                       $    36,899  $                            $     38,853  $
 Investment in financing transactions              7,764,224    871,735  (4)   11.85% (2)     6,716,996    735,648 (4)  11.63% (2)
 Less reserve for credit losses                     (160,241)                                  (138,896)
------------------------------------------------------------------------------------------------------------------------------------
 Investment in financing transactions - net        7,603,983                                  6,578,100
 Goodwill and other assets                           415,573                                    340,056
 Investment in discontinued operations                 2,704                                    487,915
------------------------------------------------------------------------------------------------------------------------------------
                                                 $ 8,059,159                               $  7,444,924
====================================================================================================================================
   LIABILITIES AND SHAREOWNER'S EQUITY
Liabilities:
 Other liabilities                               $   389,998  $                             $   341,370  $
 Senior debt                                       6,253,588    416,093         6.65%         5,944,599    366,543 (5)   6.17% (5)
 Deferred income taxes                               274,811                                    249,164
------------------------------------------------------------------------------------------------------------------------------------
                                                 $ 6,918,397                                $ 6,535,133
Shareowner's equity                                1,140,762                                    909,791
------------------------------------------------------------------------------------------------------------------------------------
                                                 $ 8,059,159                                $ 7,444,924
====================================================================================================================================
Interest income/average earning assets (2)                    $ 871,735        11.85%                    $ 735,648      11.63%
Interest expense/average earning assets (2) (3)                 416,093         5.66%                      366,543       5.80%
------------------------------------------------------------------------------------------------------------------------------------
Interest margins earned (3)                                   $ 455,642         6.19%                    $ 369,105       5.83%
====================================================================================================================================
</TABLE>
1)   Averages are calculated based on monthly balances.
2)   The average rate is calculated based on average earning assets  ($7,356,845
     and  $6,324,545 for 1997 and 1996,  respectively)  which are net of average
     deferred taxes on leveraged leases and average nonaccruing assets.
3)   For the year ended December 31, 1997,  excluding the impact of derivatives,
     interest  expense  would have been  $417,140  or 5.67% of  average  earning
     assets and interest  margins  earned  would have been  $454,595 or 6.18% of
     average earning assets. For the year ended December 31, 1996, excluding the
     impact of derivatives,  interest  expense would have been $363,526 or 5.75%
     of average  earning  assets and  interest  margins  earned  would have been
     $372,122 or 5.88% of average earning assets.
(4)  Interest income is shown net of operating lease depreciation.
(5)  Interest  expense  for 1996  excludes  expense  related  to MDS  which  was
     classified  as  discontinued  operations.  The average rate would have been
     6.77% if the expense had not been reclassified.
                                       30
<PAGE>
                           FINOVA CAPITAL CORPORATION
                          COMMISSION FILE NUMBER 1-7543
                                  EXHIBIT INDEX
                           DECEMBER 31, 1997 FORM 10-K

            Exhibit No.
            -----------

            (3.A)          Certificate of Incorporation,  as amended through the
                           date of this filing  (incorporated  by reference from
                           FINOVA's  report  on Form  10-K  for the  year  ended
                           December 31, 1994 (the "1994 10-K"), Exhibit 3.A).

            (3.B)          Bylaws,  as amended  through  the date of this filing
                           (incorporated  by reference  from FINOVA's  report on
                           Form 10-K for the year ended  December  31, 1995 (the
                           "1995 10-K") Exhibit 3.B).

            (4.A)          Form   of   FINOVA's   Common    Stock    Certificate
                           (incorporated  by  reference  from   the  1994  10-K,
                           Exhibit 4.B).

            (4.B)          Relevant   portions   of  FINOVA's   Certificate   of
                           Incorporation and Bylaws included in Exhibits 3.A and
                           3.B above are incorporated by reference.

            (4.C)          Long-term debt instruments with principal amounts not
                           exceeding 10% of FINOVA's total  consolidated  assets
                           are not filed as exhibits to this report. FINOVA will
                           furnish  a copy of those  agreements  to the SEC upon
                           its request.

            (4.D)          Form of  Indenture  dated  as of  September  1,  1992
                           between   FINOVA  and  the  Trustee   named   therein
                           (incorporated   by  reference   from  the   Greyhound
                           Financial Corporation  Registration Statement on Form
                           S-3, Registration No. 33-51216, Exhibit 4).

            (4.E)          Form of Indenture dated as of October 1, 1995 between
                           FINOVA and the Trustee named therein (incorporated by
                           reference  from  FINOVA's  report  on Form 8-K  dated
                           October 25, 1995, Exhibit 4.1).
                                       31
<PAGE>
            Exhibit No.
            -----------

            (4.F)          Form of Indenture  between  FINOVA,  FINOVA Group and
                           The  First   National  Bank  of  Chicago  as  Trustee
                           (incorporated  by  reference  from  FINOVA and FINOVA
                           Group's   registration   statement   on   Form   S-3,
                           Registration No. 333-38171, Exhibit 4.8).

            (10.A)         Sixth Amendment and  Restatement  dated as of May 16,
                           1994 of the Credit Agreement dated as of May 31, 1976
                           among FINOVA and the lender parties thereto, and Bank
                           of America  National  Trust and Savings  Association,
                           Bank of Montreal,  Chemical Bank, Citibank,  N.A. and
                           National   Westminister  Bank  USA,  as  agents  (the
                           "Agents") and Citibank, N.A., as Administrative Agent
                           (incorporated  by reference  from FINOVA's  report on
                           Form 8-K dated May 23, 1994, Exhibit 10.1).

            (10.A.1)       First  Amendment  dated as of September  30, 1994, to
                           the Sixth  Amendment and  Restatement,  noted in 10.A
                           above  (incorporated by reference from the 1994 10-K,
                           Exhibit 10.A.1).

            (10.A.2)       Second  Amendment  dated  as of May  11,  1995 to the
                           Sixth Amendment and  Restatement  noted in 10.A above
                           (incorporated  by reference  from FINOVA's  Quarterly
                           Report on Form 10-Q for the period  ending  September
                           30, 1995 ( the "3Q95 10-Q"), Exhibit 10.A).

            (10.A.3)       Third Amendment dated as of November 1, 1995 to Sixth
                           Amendment  noted  in  10.A  above   (incorporated  by
                           reference from the 3Q95 10-Q, Exhibit 10.B).

            (10.A.4)       Fourth  Amendment  dated as of May 15, 1996, to Sixth
                           Amendment  noted  in  10.A  above   (incorporated  by
                           reference from the 1996 10-K, Exhibit 10.A.4).

            (10.A.5)       Fifth  Amendment  dated  as of May 20,  1997 to Sixth
                           Amendment  noted  in  10.A  above   (incorporated  by
                           reference from FINOVA Group's Report on Form 10-K for
                           the year ended  December 31, 1997 (the "FINOVA  Group
                           1997 10-K"), Exhibit 10.A.5). 
                                       32
<PAGE>
            Exhibit No.
            -----------

            (10.B)         Credit  Agreement  (Short-Term  Facility) dated as of
                           May 16, 1994 among FINOVA Capital, the Lender parties
                           thereto,   the  Agents   and   Citibank,   N.A.,   as
                           Administrative  Agent (incorporated by reference from
                           FINOVA's  report  on Form  8-K  dated  May 23,  1994,
                           Exhibit 10.2).

            (10.B.1)       First Amendment dated as of September 30, 1994 to the
                           Credit Agreement noted in 10.B above (incorporated by
                           reference from the 1994 10-K, Exhibit 10.B.1).

            (10.B.2)       Second Amendment to Short-Term Facility noted in 10.B
                           above  (incorporated by reference from the 3Q95 10-Q,
                           Exhibit 10.C).

            (10.B.3)       Third Amendment to Short-Term  Facility noted in 10.B
                           above  (incorporated by reference from the 3Q95 10-Q,
                           Exhibit 10.D).

            (10.B.4)       Fourth Amendment to Short-Term Facility noted in 10.B
                           above  (incorporated  by  reference  from 1996  10-K,
                           Exhibit B.4).

            (10.B.5)       Fifth Amendment to Short-Term  Facility noted in 10.B
                           above  (incorporated  by  reference  from the  FINOVA
                           Group 1997 10-K, Exhibit 10.B.5).

            (10.C)         Exhibits  relating  to  management  compensation  are
                           omitted due to the reduced disclosure format, but can
                           be found as exhibits  to the FINOVA  Group 1997 10-K.
                                       33
<PAGE>
            Exhibit No.
            -----------

            (10.D)         Tax Sharing  Agreement  dated February 19, 1992 among
                           FINOVA,  The Dial Corp and  others  (incorporated  by
                           reference from the 1992 10-K, Exhibit 10.KK).

            (12)           Computation  of Ratio of  Income  to  Combined  Fixed
                           Charges and Preferred Stock Dividends.*

            (23)           Independent Auditors' Consent.*

            (24)           Powers of Attorney.*

            (27)           Financial Data Schedule.*

                           *Filed with this report.
                           +Relating to management compensation
                                       34