FORM 10-K

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

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

         For the fiscal year ended December 31, 1998

                                       OR

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

         For the transition period from ______________ to _______________

         Commission File Number 1-13116


                    FRANCHISE FINANCE CORPORATION OF AMERICA
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

        Delaware                                                  86-0736091
------------------------                                     -------------------
(State of incorporation)                                      (I.R.S. Employer
                                                             Identification No.)
The Perimeter Center
17207 North Perimeter Drive
Scottsdale, Arizona                                                85255
----------------------------------------                         ----------
(Address of principal executive offices)                         (Zip Code)

Registrant's telephone number, including area code: (602) 585-4500

          Securities Registered Pursuant to Section 12(b) of the Act:

  TITLE OF EACH CLASS                  NAME OF EACH EXCHANGE ON WHICH REGISTERED
  -------------------                  -----------------------------------------
Common Stock, par value                        New York Stock Exchange
    $.01 per share

        Securities Registered Pursuant to Section 12(g) of the Act: None

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

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

         The aggregate  market value of the voting stock held by  non-affiliates
of the Registrant as of February 18, 1999 was $1,244,447,270.

         The number of shares of the Registrant's $.01 par value common stock as
of February 18, 1999 was 55,773,547.

                      DOCUMENTS INCORPORATED BY REFERENCE

         Part III, Items 10, 11, 12 and 13 are  incorporated by reference to the
definitive proxy statement for the  Registrant's  Annual Meeting of Shareholders
to be held on May 12, 1999, to be filed pursuant to Regulation 14A.
<PAGE>
                                     PART I

ITEM 1.  BUSINESS.

BACKGROUND

         Franchise    Finance    Corporation   of   America    ("FFCA")   is   a
self-administered  real estate  investment  trust  ("REIT")  which provides real
estate  financing  to  multi-unit  operators of chain  restaurants,  convenience
stores and automotive services and parts outlets.  FFCA offers financing through
various  products,  including  long-term  real estate  leases,  mortgage  loans,
equipment loans and construction  financing.  FFCA was incorporated in the state
of Delaware in 1993 and is successor to Franchise Finance Corporation of America
I ("FFCA I"), a Delaware  corporation,  and eleven public  limited  partnerships
which  were  merged  into  FFCA  on  June  1,  1994.  FFCA,  together  with  its
predecessors,  has been engaged in the financing of chain restaurant real estate
since 1980 and began financing  convenience  stores and automotive  services and
parts stores in 1997. At December 31, 1998, FFCA had interests in  approximately
3,600  properties  operated by over 450  operators in  approximately  100 chains
located  in 48  states  and in Canada  (though  investments  in  Canada  are not
significant).  The  common  stock of FFCA  began  trading  on the New York Stock
Exchange on June 29, 1994 under the symbol "FFA".

         During 1998,  FFCA originated  $928 million in new  sale-leaseback  and
mortgage loan  investments.  This surpassed FFCA's 1997 investment level of $504
million by 84%. Aside from the growth  generated by new  restaurant  financings,
recent  investment  growth is also  attributable  to FFCA's  expansion  into the
convenience store and automotive  services and parts industries,  which together
accounted for over $426 million,  or 46% of the new  investments  in 1998.  FFCA
invested  in over  1,200  properties  during  1998,  and  cumulative  investment
activity  now totals  over $2 billion  since the  formation  of the REIT in June
1994.

         To  continue  the growth  rate  achieved in 1998,  FFCA  increased  its
capital by completing various equity and debt transactions and expanded its line
of credit.  During 1998,  FFCA raised a total of $83 million through the sale of
3.1 million shares of common stock to three separate unit investment  trusts. On
March 13, 1998, FFCA sold  approximately  3.8 million shares of common stock for
$100 million to a real  estate-related  investment  firm.  Subsequent to yearend
1998, FFCA increased its financial  flexibility  further by completing an equity
offering in January  1999,  raising net proceeds of  approximately  $146 million
through  the  issuance  of 6.7  million  shares of FFCA  common  stock.  As 1998
progressed,  turbulence in the capital  markets began  impacting  FFCA's cost of
borrowings,  which rose despite  prevailing  lower  long-term  home mortgage and
government  borrowing  rates. In the first half of 1998, FFCA issued $17 million
in unsecured  notes due in 2007,  bearing  interest at a rate of 6.86% and $30.5
million in unsecured notes due in 2008,  bearing interest at a rate of 7.07%. In
October 1998,  FFCA issued $150 million in senior  unsecured notes due 2003 at a
rate of 8.25%.  Proceeds from the  unsecured  notes were used to pay down FFCA's
bank line of credit.  In  addition,  FFCA  entered  into a separate  $75 million
revolving loan facility in February 1999 expiring in December 2000.

                                       2
<PAGE>
         In May  1998,  FFCA  completed  its third  securitization  transaction.
Certain mortgage loans originated by FFCA totaling $335 million were securitized
and  Secured  Franchise  Loan Trust  Certificates  were sold to  investors.  The
servicing  rights on these  mortgage  loans  were  retained  by FFCA.  FFCA also
retained certain  interests in  approximately 9% of the aggregate  mortgage loan
principal balance through the purchase of subordinated  investment securities of
the securitization trust.

         In August 1998,  FFCA  entered  into a $600 million loan sale  facility
with a third party,  who  initially  committed to purchase up to $300 million of
loans from FFCA.  Because changes in the asset-backed  securities  markets could
impact FFCA's ability to originate and sell mortgage loans on an advantageous or
timely basis,  FFCA obtained the commitment of all $600 million on the loan sale
facility to increase its financial flexibility.  This loan sale facility permits
FFCA to sell  loans on a  regular  basis to a trust for an  agreed-upon  advance
rate. Upon the sale of such loans, FFCA acts as servicer for the loans.

         In September  1998, Duff & Phelps Credit Rating Co. upgraded the senior
unsecured  debt of FFCA from BBB- to BBB. The rating upgrade was based on FFCA's
continued  strong  financial  performance,  general  reduction  in operator  and
concept concentrations and improved financial flexibility.

         FFCA   successfully   implemented  its  new  accounting  and  servicing
information  system in January 1998 and its new property  management  system was
deployed  in July  1998.  The design and  implementation  of these new  systems,
including related upgrades in computer hardware, was necessary to develop a more
efficient portfolio servicing system that would permit a high level of growth in
the FFCA portfolio while containing  operating costs. FFCA invested $1.7 million
during 1998 towards the development and  installation of these systems.  The new
systems  are also  "Year  2000"  compliant  which  means that the  systems  will
appropriately address any dates that refer to the 21st century.

         Other  events  occurring  in 1998  include an  increase of 4% in FFCA's
quarterly dividend to $0.49 from $0.47 for the fourth quarter of 1998.

         As of  December  31,  1998,  FFCA  had 134  full-time  employees  and 4
part-time employees.

FACTORS AFFECTING FUTURE OPERATING RESULTS

         FFCA's Annual Report on Form 10-K includes "forward looking statements"
within the meaning of the provisions of the Private Securities Litigation Reform
Act including in particular  the statements  about FFCA's plans,  strategies and
prospects.  Although FFCA believes that its plans,  intentions and  expectations
reflected in or suggested by the forward looking statements are reasonable, FFCA
can give no  assurance  that these plans,  intentions  or  expectations  will be
achieved.  FFCA has set forth below  important  factors  that could cause actual
results to differ  materially  from the forward looking  statements  included in
this Annual Report on Form 10-K. FFCA qualifies these forward looking statements
by the cautionary statements set forth below.

                                       3
<PAGE>
         Certain  risks and  uncertainties  including  the  following may affect
FFCA's future results:

+    Investment in real estate in the chain  restaurant  industry as well as the
     convenience  store and automotive  services and parts industries is subject
     to  general  economic  market  conditions  and  conditions  unique  to each
     industry.

+    Industry risks include a decrease in demand for products,  increased  labor
     costs,  increased number of competing properties offering similar products,
     and  dependence on local  management  for the  profitable  operation of the
     properties.  The  chain  restaurant  industry  is  subject  to the  risk of
     changing  consumer  demand  and  food  preferences  and  contaminated  food
     products. The convenience store industry is subject to competition from new
     retail  facilities  offering similar products in the immediate  vicinity of
     each particular store and, to the extent applicable,  the margins available
     from the sale of  gasoline  and  availability  of  gasoline  supplies.  The
     automotive services and parts industry is subject to technological  changes
     in the production and  maintenance  of  automobiles  and changing  consumer
     preferences in transportation options.

+    FFCA invests  primarily in chain restaurant  properties and convenience and
     automotive  services  and  parts  retail  facilities.   FFCA's  success  is
     dependent upon the success of these  industries in general and the specific
     chains and retail facilities which FFCA finances.

+    FFCA intends to continue to originate and securitize  mortgage loans and to
     have responsibility for mortgage servicing.  FFCA may also own subordinated
     interests in these securitized loans. To the extent of such ownership, FFCA
     is in a "first loss"  position  with respect to third parties that purchase
     senior securities in the securitization and has a greater risk with respect
     to its investment in the nonpayment of the mortgage loans.

+    Several  factors affect FFCA's ability to complete  securitizations  of its
     loans, including conditions in the securities markets generally, conditions
     in the asset-backed  securities market specifically,  the credit quality of
     FFCA's loans, compliance of FFCA's loans with the eligibility  requirements
     established by the securitization documents and the absence of any material
     downgrading or withdrawal of ratings given to certificates issued in FFCA's
     previous securitizations.

+    FFCA invests in derivative  financial  securities and  instruments  for the
     sole  purpose of  providing  protection  against  fluctuations  in interest
     rates. These investments do not protect FFCA from all risks associated with
     changing market conditions;  therefore,  the financial  performance of FFCA
     could be adversely affected.

                                       4
<PAGE>
+    FFCA has issued  senior notes and medium term notes that are not subject to
     amortization  requirements  or  periodic  redemption  and  intends to issue
     similar  debt  securities  in the  future.  FFCA will be  subject  to risks
     associated  with debt financing and  refinancing,  including the ability to
     sell debt in the future.

+    FFCA is subject to all of the general risks  associated  with investment in
     real  estate  such  as  adverse   changes  in  general  or  local  economic
     conditions,  changes  in supply  of or  demand  for  similar  or  competing
     properties in an area,  changes in interest  rates and operating  expenses,
     changes in market  rental  rates,  inability to lease  properties  upon the
     termination  or  expiration  of  existing  leases,  the renewal of existing
     leases and inability to collect payments from operators.

+    FFCA faces competition from banks, insurance companies,  finance companies,
     leasing   companies  and  other  real  estate   investment  trusts  in  the
     acquisition,  financing and leasing of  properties,  which could  adversely
     affect its growth.

+    Even though the chain store and retail facility  operators financed by FFCA
     are  generally  required to carry  comprehensive  liability,  fire,  flood,
     extended coverage and business  interruption  insurance,  there are certain
     losses that are uninsurable.

+    Under various federal, state and local environmental laws, ordinances,  and
     regulations,  FFCA could be liable for the costs of removal or  remediation
     of  hazardous  or toxic  substances  on,  under,  in or near a chain  store
     property.  Additionally,  FFCA did not perform environmental investigations
     on  certain  properties  acquired  from its  predecessors.  While  FFCA has
     purchased environmental insurance for some of the properties, the insurance
     may not cover all the costs associated with any environmental liabilities.

+    FFCA elected to be taxed as a REIT under the Internal Revenue Code of 1986,
     which entitles FFCA to a deduction for dividends  paid to its  shareholders
     when  calculating its taxable  income.  Although FFCA intends to operate so
     that it will continue to qualify as a REIT, the complex nature of the rules
     governing REITs, the ongoing  importance of factual  determinations and the
     possibility  of  future  changes  in  FFCA's  circumstances   preclude  any
     assurance that FFCA will qualify in any given year.

+    Income  tax   treatment  of  REITs  may  be  modified,   prospectively   or
     retroactively,  by legislative,  judicial or  administrative  action at any
     time,  which,  in addition to the direct  effects such changes  might have,
     might also affect the ability of FFCA to realize its investment objectives.

+    There  can be no  assurance  that  FFCA  will be able to  raise  sufficient
     capital through borrowings,  or the issuance of debt and equity securities,
     to achieve its investment objectives.

                                       5
<PAGE>
+    FFCA invests in certain  financial  instruments that are subject to various
     forms of market risk such as interest  rate  fluctuations,  credit risk and
     prepayment  risk.  FFCA's  primary  exposure  is the risk of loss  that may
     result from the  potential  change in the value of its  mortgage  loans and
     investments held for sale as a result of changes in interest rates.

+    FFCA  is  dependent  on the  efforts  of its  directors,  officers  and key
     personnel and has no employment agreements with such persons.  There can be
     no assurance that FFCA would be able to recruit  additional  personnel with
     equivalent experience in the event of their resignation.

BUSINESS STRATEGY

         FFCA's  primary  strategy  is  to  provide  real  estate  financing  to
multi-unit  operators of chain  restaurants,  convenience  stores and automotive
services and parts outlets through  various  products  including  long-term real
estate leases, mortgage loans, equipment loans and construction financing.  FFCA
seeks  to  have  the  properties  which  it  finances  operated  by  experienced
multi-unit   operators   conducting  business  under  nationally  or  regionally
recognized  brand  names.  As a result,  FFCA  believes  it is able to achieve a
better  risk-adjusted  return for its  shareholders.  Multi-unit  operators that
include  both chain store  franchisors  and  franchisees  generally  operate the
properties  financed by FFCA.  Approximately 91% of FFCA's portfolio revenues in
1998 were derived from fast food or full service  restaurants  in chains such as
Burger King,  Hardee's,  Arby's, Jack in the Box, Wendy's,  KFC, Pizza Hut, Taco
Bell, Applebee's,  Black-eyed Pea and Fuddruckers.  Convenience stores accounted
for approximately 7% of the 1998 revenues and include 7-Eleven, Circle K and E-Z
Serve,  and  automotive  services  and parts  outlets  accounted  for 2% of 1998
revenues and include Econo Lube,  Midas Muffler Shops and Valvoline  Instant Oil
Change.

         Since 1980,  members of FFCA's  management  group have gained extensive
experience in the development and refinement of systems of operation, management
and  research  which have  enhanced  FFCA's  ability to  identify,  evaluate and
structure new investments. FFCA's experience in the real estate industry results
in  efficient  in-house  performance  of  virtually  every aspect of real estate
acquisition and management and is reflected in FFCA's eight  departments,  which
include  Accounting,  Asset  Management,  Corporate  Communications,   Corporate
Finance,  Information Systems, Legal Services,  Property Management and Research
and Underwriting.

         FFCA's principal business objective is to maximize  shareholder wealth.
FFCA intends to increase  cash flow per share (i) through  continued  investment
activity, (ii) by controlling expenses through greater economies of scale, (iii)
through the receipt of contractual  lease escalations and (iv) by increasing its
use of  internally-generated  cash  flow for  investments.  Management  seeks to
achieve growth in cash flow,  while  maintaining low portfolio  investment risk,
through  diligent  adherence  to its tested  underwriting  criteria,  investment
diversification and conservative capital structure.

         FFCA  intends  to  provide  financing  to large,  multi-unit  operating
companies  principally  through  sale-leaseback  transaction and mortgage loans.

                                       6
<PAGE>
FFCA also provides financing for equipment located at the chain store properties
for which it  provides  real estate  financing.  In  addition,  FFCA may provide
construction financing for qualified operators.  Chain store properties financed
by FFCA are anticipated to be primarily existing locations that are either being
refinanced or financed in connection with  acquisitions by operating  companies.
FFCA also  provides  financing  for new  development  which is typically  in, or
adjacent to, established  markets where the chain brand is recognized.  FFCA, in
the  course  of its  business,  from  time to time  evaluates  other  investment
opportunities  in the chain store  industry.  FFCA may consider  appropriate new
investment opportunities in the future.

         FFCA  structures  its  investments to enhance the stability of its cash
flows.  FFCA's  sale-leaseback  transactions are generally  20-year,  triple-net
leases  which  provide that the lessees are  responsible  for the payment of all
property operating expenses, including property taxes, maintenance and insurance
costs.  Therefore,  FFCA is generally not required to make  significant  capital
expenditures in the properties that it owns and leases to chain store operators.
Both FFCA's sale-leaseback and mortgage financings are generally for twenty-year
terms and mortgage  products are generally fully amortizing over the term of the
loans. The sale-leaseback  transactions entered into by FFCA are retained in its
portfolio and generally provide for base rentals plus additional  payments based
upon a  participation  in the  gross  sales  from the  properties  or  specified
contractual increases.  In addition, FFCA will purchase existing properties that
are subject to leases already in place.  The mortgage  loans  originated by FFCA
will generally be pooled and sold in securitized offerings,  with FFCA generally
retaining  or  acquiring  interests  in the  pool in the  form  of  subordinated
securities and mortgage servicing rights.

         FFCA  continually  monitors and  administers its investments to enhance
the stability of its cash flows.  Financial  data is regularly  collected on the
properties financed by FFCA to determine their profitability. Lease and mortgage
payments are generally  collected by electronic  account debits on the first day
of each month. An in-house  appraisal staff regularly inspects FFCA's properties
to monitor asset  condition.  In-house  property  management  and legal services
personnel  administer  underperforming  and non-performing  leases and loans and
also supervise the in-house  administration of property  dispositions and tenant
substitutions.  FFCA has an established record of resolving  underperforming and
non-performing  leased assets, with an average time of approximately nine months
to relet such properties.

         FFCA's  investments  are  diversified by industry,  geographic  region,
chain and  operator.  FFCA's future  investments  are  anticipated  to be funded
through a combination of debt and equity  issuances,  internally  generated cash
and the securitization of mortgage loans.

INVESTMENT CRITERIA

         Real estate investment  opportunities  undergo an underwriting  process
designed to maintain a conservative  investment profile.  The process includes a
review of the following factors:

     +    CHAIN  STORE  PROFITABILITY.  FFCA seeks to invest in chain store real
          estate where the unit level economics from operations provide adequate
          cash flow to support lease or mortgage payments related to the site.

                                       7
<PAGE>
     +    CHAIN STORE INVESTMENT AMOUNT.  FFCA seeks to invest in properties for
          amounts  that do not  exceed the sum of the fair  market  value of the
          land and the replacement cost of the building and improvements.

     +    SITE  CONSIDERATIONS.  FFCA  seeks to  invest  in high  profile,  high
          traffic real estate which it believes  exhibits strong retail property
          fundamentals.

     +    MARKET   CONSIDERATIONS.   FFCA  seeks  to  emphasize  investments  in
          properties used by chains having significant area market penetration.

     +    OPERATING EXPERIENCE. FFCA seeks to invest in properties of multi-unit
          chain store operators with strong operating and industry backgrounds.

     +    CREDIT  CONSIDERATIONS.  FFCA seeks to invest in properties  owned and
          operated  by  multi-unit   operators  with  strong  overall  corporate
          profitability.  FFCA's  investments  generally  have  full  tenant  or
          borrower  recourse.  Many of FFCA's  leases  and  mortgages  also have
          recourse to  guarantors  who are owners or affiliates of the tenant or
          borrower.  FFCA  reviews  tenant,  borrower  and  guarantor  financial
          strength to assess the availability of alternate sources of payment in
          the event  that cash flow from  operations  might be  insufficient  to
          provide the funds  necessary  to make lease or mortgage  payments.  In
          general,  FFCA  requires  all  properties  that are leased to the same
          multi-unit   chain   store   operator   or   its   affiliates   to  be
          cross-defaulted  and requires all mortgage  loans that are made to the
          same   multi-unit    operator   or   its   affiliates   to   be   both
          cross-collateralized and cross-defaulted.

     +    PHYSICAL CONDITION.  FFCA seeks to invest in well-maintained  existing
          properties  or in newly  constructed  properties.  FFCA has a staff of
          appraisal  professionals who conduct physical site inspections of each
          property financed by FFCA.

     +    CHAIN STORE SUITABILITY. FFCA seeks to primarily invest in real estate
          used by large  national and regional chain store systems having annual
          system-wide sales of more than $250 million.

     +    ENVIRONMENTAL  CONSIDERATIONS.  For each property in which it invests,
          FFCA either obtains a Phase I environmental assessment (and a Phase II
          environmental  assessment or other environmental tests, if recommended
          by the related Phase I) or an  environmental  insurance  policy from a
          third-party insurance carrier.

CHAIN STORE PROPERTIES

         Although an individual  chain  store's  sales may vary by season,  FFCA
does not believe  that any aspect of its business is  significantly  seasonal in
nature. FFCA's portfolio is generally diversified by chain; however, FFCA may be

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<PAGE>
dependent to a certain  extent upon one or more of the  franchisors or operating
chains  since a failure of any of the  franchisors  or chain  systems to support
their  franchisees or chain properties could result in financial  difficulty for
such  franchisees  and affect the ability of the franchisees to make payments to
FFCA. FFCA is not affiliated with any of the franchisors or franchisees.

         FFCA's revenue is generated by a real estate investment  portfolio that
is diversified by industry,  by concept,  by geographical  area and by operator.
FFCA finances chain store real estate in three industries,  representing  nearly
3,600 locations  throughout the United States and Canada (though  investments in
Canada are not significant). During the year ended December 31, 1998, 91% of the
revenues generated by the portfolio reflect restaurant  investments,  7% reflect
convenience  store  investments  and 2% reflect  automotive  services  and parts
investments.  With the addition of the convenience store and automotive services
and parts industries in 1997,  FFCA's portfolio has expanded to include over 100
different chains.  The following table sets forth FFCA's revenues generated from
its portfolio of chain store properties during the year ended December 31, 1998.

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<PAGE>
                        CHAIN DIVERSIFICATION BY REVENUE
                      FOR THE YEAR ENDED DECEMBER 31, 1998
                             (AMOUNTS IN THOUSANDS)
 
                                                            PERCENTAGE
                                                                OF
              CHAIN                    TOTAL REVENUES*         TOTAL
              -----                    ---------------         -----
          Burger King                     $24,835               15%
          Arby's                           17,539               11%
          Hardee's                         12,758                8%
          Jack in the Box                  12,610                8%
          Wendy's                          12,012                7%
          Taco Bell                         5,684                4%
          Quincy's                          5,650                3%
          Pizza Hut                         5,458                3%
          KFC                               5,419                3%
          Applebee's                        4,575                3%
          Black-eyed Pea                    3,672                2%
          Fuddrucker's                      3,418                2%
          Perkins                           3,322                2%
          E-Z Serve                         2,779                2%
          7-Eleven                          2,453                2%
          Lee's Famous Recipe               2,240                1%
          Mrs. Winner's                     1,944                1%
          Max & Ermas                       1,753                1%
          Whataburger                       1,693                1%
          Circle K                          1,580                1%
          All other chains                 32,640               20%
                                         --------              --- 
                      TOTALS             $164,034              100%
                                         ========              === 

         * Includes rental revenue,  mortgage loan interest income,  real estate
investment  securities revenue and other miscellaneous revenue from FFCA's chain
store portfolio.

         The chain diversification shown above does not represent  concentration
of specific  operators  under lease or mortgage  loan  agreements.  The lease or
mortgage loan agreements are with over 450 operators  represented  within FFCA's
investment portfolio.  Most of these are multi-unit operators,  though no single
operator  represented 10% or more of FFCA's total portfolio revenues during 1998
and 1997. In 1996,  one  restaurant  operator,  Foodmaker,  Inc.  ("Foodmaker"),
accounted  for  approximately  10.9% of FFCA's total  rental and  mortgage  loan
interest   revenues.   Foodmaker   operates  and  franchises  Jack  in  the  Box
restaurants.  The relative  decrease in the  percentage  of FFCA's  revenue from

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<PAGE>
Foodmaker since 1996 is due to the fact that FFCA's portfolio is growing and, as
a result,  Foodmaker  is  becoming a  relatively  smaller  portion of the entire
portfolio.  As FFCA  continues  to grow,  management  expects the  portfolio  to
continue to become more diversified.

INFORMATION SYSTEMS

         To enhance its investment evaluation and origination, FFCA has invested
extensively  in  information  systems that are specific to the chain  restaurant
industry.  FFCA has also recently developed a competitive  database,  similar to
the restaurant  industry  database,  for the convenience  store industry and the
automotive services and parts industry.  FFCA's databases include specific chain
restaurant  location data for over 112,000  locations in the United States,  and
demographic  information,  traffic volumes and information regarding surrounding
retail and other commercial  development that generate  customer  traffic.  FFCA
also  maintains a database of  approximately  7,000  chain  restaurant  industry
participants, as well as databases of restaurant-level financial performance for
existing  and  prospective  clients.  FFCA  has the  ability  to  integrate  the
information  in  its  locations,  participants  and  restaurant-level  financial
databases in a geographic  information system that contains demographic,  retail
space,  traffic count and street information for every significant market in the
United  States.  FFCA has also collected  extensive  data  regarding  management
practices  within  the  chain  restaurant  industry,  franchisor  practices  and
industry trends.

         The information collected by FFCA is actively used to assess investment
opportunities,   measure   prospective   investment  risk,   evaluate  portfolio
performance and manage underperforming and non-performing assets. FFCA publishes
research on the chain restaurant industry that includes observations of industry
issues  and  trends,  areas of growth,  and the  economics  of chain  restaurant
operation.  During 1998, FFCA first published its research on convenience  store
industry  observations  and trends and is in the  process of  creating a similar
report for the automotive  services and parts industry.  FFCA employs its client
and  collections  data,   gathered  over  a  fifteen  year  period,  to  develop
statistical  models that aid in the  evaluation of potential  investments.  FFCA
intends  to  continually  develop,  improve  and use its  real  estate  industry
knowledge through research and broader application of information  technology to
lower portfolio risk, improve performance and improve its competitive advantage.

         FFCA   successfully   implemented  its  new  accounting  and  servicing
information  system in January 1998 and its new property  management  system was
deployed  in July  1998.  The design and  implementation  of these new  systems,
including related upgrades in computer hardware, was necessary to develop a more
efficient portfolio servicing system that would permit a high level of growth in
the  FFCA  portfolio  while  containing  operating  costs.  As a  result  of the
development by FFCA of its automated systems technology,  FFCA can monitor large
diversified portfolios by exception,  including lease and mortgage payments made
through  automated  bank account  debits,  property  taxes,  property  insurance
coverage and property financial performance.

         The new  systems are also "Year  2000"  compliant  which means that the
systems  will  appropriately  address any dates that refer to the 21st  century.
FFCA has taken a proactive  approach in dealing with the issues  associated with

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the Year 2000 and a five-phase process to address this challenge was approved by
FFCA's computer  steering  committee.  This plan includes:  (1) an inventory and
assessment of the systems and  electronic  devices that may be at risk;  (2) the
identification  of potential  solutions;  (3) the  implementation of upgrades or
replacements to affected systems or devices;  (4) the verification of compliance
and testing of the  revised  systems;  and (5) the  training of users on the new
systems.  To date,  FFCA has completed a review of its software and hardware and
determined, through a combination of internal testing and vendor representations
that   their   products   have  been   tested  and  are   compliant,   that  all
mission-critical  systems  (those  systems that are necessary to conduct  FFCA's
business activities) are Year 2000 compliant.  Non-mission critical software and
hardware  have also been  reviewed  and FFCA has  identified  a few  third-party
products  that are scheduled  for upgrades or  replacement  in the first half of
1999 as part of FFCA's ongoing maintenance of its information system technology.

COMPETITIVE CONDITIONS

         The  financing  of chain store real estate for  multi-unit  chain store
operating  companies is both competitive and fragmented.  Competition  exists in
every geographic  market in which FFCA seeks to invest.  Competing  participants
include banks,  insurance  companies,  finance companies,  leasing companies and
other  real  estate  investment  trusts.  FFCA  believes  that  it  has  several
competitive  advantages  that enable it to be selective with respect to its real
estate investments.  The large market  capitalization of FFCA permits it to make
both large and small real estate investments and to obtain capital from numerous
sources at competitive  rates.  FFCA's real estate  investments are comprised of
properties  that are diversified by industry,  chain store  operator,  chain and
geographic  location.  Diversification  reduces risk and has a favorable  impact
upon FFCA's access to, and cost of, capital.  FFCA's  "Preferred Client Program"
is designed to offer forward financing  commitments and a streamlined  financing
process  for  leading  chain  store  operators  in order  to build on  long-term
business  relationships  instead of the historic  industry practice of financing
real estate on an inefficient,  transaction-by-transaction  basis. FFCA believes
it offers  superior  client service  resulting from continuity of its management
and industry  specialization  and knowledge.  FFCA,  with the ability to provide
both  sale-leaseback  financing  and  mortgage  loans,  improves the chain store
operators' financing flexibility and provides a competitive advantage to FFCA in
providing financing opportunities.

THE FOOD SERVICE INDUSTRY

         The  food  service  industry,  as  defined  by the U.S.  Department  of
Commerce,  is one of the largest sectors of the nation's  economy.  During 1998,
the industry  generated an estimated $338 billion of revenue,  representing just
under 4% of the Gross Domestic  Product  ("GDP") of the United States.  The food
service  industry  grew at an estimated  inflation-adjusted  rate of 2.6% during
1998  representing  the seventh  consecutive  year of real sales  growth for the
industry.

         The food  service  industry is  composed of three major food  segments:
commercial,  institutional  and military.  The  commercial  food service  sector
includes full service and fast food restaurants,  cafeterias/buffet restaurants,
social  caterers  and ice  cream/yogurt  retail  stores.  Within the  restaurant
industry,  the  fast  food  group is  typically  defined  as  those  restaurants

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<PAGE>
perceived  by consumers as fast food or take-out  establishments  without  table
service, specializing in pizza, chicken, hamburgers and similar food items. Full
service  includes  those  restaurants  in the  family,  steak and casual  dining
sectors that do not meet the criteria for fast food. Although these segments can
be  further  differentiated  by price,  it is  consumer  perception,  as well as
average  meal  price,  that  influence  how  individual  restaurant  chains  are
categorized.   Research   indicates   that  an  average  fast  food  meal  price
approximates  $3.40,  while the cost of a full service meal averages  between $6
and $23.

         Restaurant  industry sales  increased by $27 billion from 1995 to 1997,
while expenditures on food at home increased only $15 billion. This implies that
full service and fast food  restaurants  have actually  taken business away from
grocery and other retail outlets.

         FFCA believes that the restaurant  industry will continue to experience
consolidation, as the largest chains become increasingly dominant in an industry
where cost control and economies of scale are critical.  During the past decade,
restaurant  chains have increased  market  position in comparison to independent
restaurant  companies by achieving  economies of scale and by developing  strong
brand  equity.  Much of the chains'  market  share gains in the past came at the
expense of small, independent operators, who tended to be less sophisticated and
less  focused on new  restaurant  development.  The top chains may face  greater
chain-versus-chain  competition,  however, rather than  chain-versus-independent
competition.

         During  1998,  the fast food segment in the top 100  restaurant  chains
accounted for an estimated  70.8% of total sales and 84.6% of total units.  As a
result,  FFCA's restaurant  portfolio  consists primarily of fast food concepts.
Successful  fast food operators have developed a low-cost  structure,  through a
focus on efficient meal preparation  processes and a strong retail  distribution
network that provides convenient, quality meals at affordable prices. Successful
fast food operators have relatively simple operations, which contribute to their
success as low-cost providers.  Fast food operators can differentiate themselves
from the  competition  through  marketing  efforts,  increasing  productivity by
training employees and upgrading technology, and simplifying in-store processes.

         During 1998, new store  development  in the top 100  restaurant  chains
accounted  for 2.7% of their  average  annual  system-wide  growth.  The top 100
chains  added 2,250 net new  properties  during 1998  compared to 4,879 in 1997.
Restaurant  industry  maturing  has  resulted  in a  slower  pace  of new  store
development.  As a result, FFCA principally  finances existing properties rather
than new  construction.  In  recent  years,  investments  in  newly  constructed
restaurants have been a small percentage of new business for FFCA. In 1998, 1997
and 1996, the percentage of FFCA's new business related to existing  restaurants
(as compared to new restaurant construction) was 90%, 93% and 85%, respectively.

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<PAGE>
RESTAURANT CHAINS

         According to NPD ReCount, a national consulting group which specializes
in the restaurant  industry,  restaurant  chains having three or more properties
accounted for approximately 46% of all restaurants in the United States in 1998.
The  majority  of  these  properties  are fast  food  restaurants,  with  others
generally in the full service segment.  Of the 213,000 chain restaurants  having
an identified restaurant concept as of December 31, 1998,  approximately 117,500
were within the 100 largest restaurant  chains.  Each of these restaurant chains
had 1998 projected total system-wide sales exceeding $195 million.

         FFCA believes that the largest national  restaurant chains,  along with
prominent regional chains, are best positioned to compete effectively and retain
or increase market share in the food service industry.  These chains have strong
regional or  national  presence,  which  provide  them with a brand  equity that
translates   into  resilience   within  a  mature  and   competitive   industry.
Accordingly,   FFCA  believes  that  a  diversified  portfolio  of  real  estate
investments  primarily centered in major restaurant chains will lower investment
risk.   Restaurant  chains  with  numerous  corporate  locations  and  extensive
franchisee  networks  have  effectively  become  significant  food  distribution
systems  with  distinct  competitive  advantages  over  smaller  chains and many
independent  restaurant  operators.  The establishment of such food distribution
networks  requires   significant  time  and  effort  which  results  in  certain
restaurant  chains  having   longer-term  track  records  and  more  predictable
performance patterns.  This has resulted in the larger restaurant chains gaining
greater dominance in the industry and growth in market share. However, the chain
restaurant  industry  is a  regional  market  type of  business  and  nationally
prominent restaurant chains often have definitive regional areas of strength and
weakness.  Therefore,  FFCA's  investment  policy  emphasizes  strong restaurant
operators who can successfully  manage known restaurant  chains in their markets
and also takes into account the strength of specific restaurant chains.

THE CONVENIENCE STORE INDUSTRY

         The convenience store industry is a subset of two major industries: the
food industry and the oil and gas industry. The convenience store portion of the
sector evolved  primarily out of neighborhood  grocery stores,  while the retail
gas portion is a relatively small part of the large oil and gas industry,  which
also includes  exploration  and  production of both oil and gas,  refining,  and
transportation as well as retail sales.

         Convenience  store sales have  increased  every year since the National
Association  of  Convenience  Stores  started  tracking  industry sales in 1971.
Industry sales in 1997 were $156 billion,  46% in  merchandise  sales and 54% in
gasoline sales.  Because of gasoline  margin  volatility and more strict tobacco
legislation,  many  petroleum  marketers  have added or are  adding  convenience
stores and other  ancillary  services to their  businesses,  such as car washes,
lube shops, and fast food stores to contribute more consistent margins.

         Gasoline   retailers  have  been  closing  older  and   underperforming
locations  because  of three  factors:  (i) costs  associated  with  underground
storage tank upgrades to comply with a December 1998 regulatory  deadline;  (ii)
increased costs of doing business;  and (iii) low margins. The net effect on the
industry  is a decrease in the number of  gasoline  stations  and an increase in
both the number of  convenience  stores with gasoline and the number of gasoline

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<PAGE>
dispensers available per location,  reflecting the increase in both the gasoline
demand and average station size. The number of convenience stores increased 1.6%
in 1997 to 95,700,  while the number of gasoline  stations declined 1.2% between
mid-1996 and mid-1997.

         Gasoline prices have decreased in recent months and retail margins have
tightened.  Over the past twelve months,  price decreases have been attributable
to a warm  winter,  lower  demand in Asia,  and  increased  output from OPEC and
non-OPEC producers.  However,  lower gasoline prices have caused some drivers to
use better grades of gasoline,  providing higher margins. The Energy Information
Agency  forecasts a 1.7%  increase  in  gasoline  demand in 1999 and that retail
prices should remain depressed as well.

         Increased  competition,  margin  volatility,  and the increased cost of
doing business are expected to promote further consolidation in the industry. To
improve  profitability,  several major oil companies have  announced  mergers or
have  merged  their  refining,   transportation  and  marketing  operations.  In
addition,  mergers and acquisitions are occurring among traditional  convenience
store chains. Many chains are closing  unprofitable  locations and refocusing on
core markets,  divesting  locations  outside their core area.  The largest North
American  convenience store chains are adding more units, with the top 10 adding
1,452 convenience stores in 1997 and the top 50 adding 781 convenience stores in
1997. Nine of the top 10 chains are petroleum marketers, which also dominate the
top 50, operating approximately 60% of all outlets held by the top 50 companies.

THE AUTOMOTIVE SERVICES AND PARTS INDUSTRY

         The automotive  services and parts industry refers to companies engaged
in the service,  repair,  maintenance  and sale of products  for motor  vehicles
after their sales to the public. The services sector includes fluids,  under the
car,  under  the  hood,  tires,  autobody,  and  various  combinations  of these
services,  while the parts sector is comprised of  accessories  and  replacement
parts.  Competitors  in the  automotive  services  and  parts  industry  include
automotive  dealerships,  parts stores, full service gasoline stations,  general
repair garages, tire outlets, discounters and mass merchandisers,  and specialty
shops  (mufflers,  tune-ups,  transmissions,  paint and bodywork,  fast lube oil
changes and auto glass).  While some  companies  adopt a single  service/product
line approach, others have expanded to multiple lines.

         The 1997 automotive services and parts industry reached $137 billion in
sales, a 3.3% increase over 1996 according to the Lang Marketing  Resources,  an
acknowledged  industry  expert.  Purchased  services,  i.e. all labor costs (not
including  parts)  paid by end  users,  totaled  $36  billion,  or  26.3% of the
automotive  services and parts  industry,  a 4% increase over 1996. Car products
accounted for 30.4% of the  automotive  services and parts  industry,  down from
31.6% in 1996; truck products exceeded car products for the second year at 35.5%
and other  products  accounted  for 7.8% of the  automotive  services  and parts
industry.  Products do not include autobody parts, crash parts, audio equipment,
sound accessories, fuel, tires, wheels, and other miscellaneous accessories.

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<PAGE>
         Do-it-yourselfers  ("DIY")  purchased  $19  billion  in car  and  truck
products in 1997, a 6% increase over 1990. Meanwhile,  purchased or do-it-for-me
("DIFM") services have increased nearly 80% between 1987 and 1997,  totaling $36
billion in 1997. The  implication is that DIFM services is a growth area and DIY
product sales (sold at automotive parts stores) is mature.

         The growth in the DIFM sector is attributed to two-income families with
increased time pressures, a general increase in consumer demand for convenience,
an increase in the number of foreign vehicles,  emissions testing  requirements,
increased  vehicle  sophistication,   decreasing  blue  collar  jobs,  and  most
importantly,  aging baby boomers with disposable  income.  The last trend, aging
baby  boomers,  is expected to continue to drive  growth in this sector into the
next century. In recent years, DIFM shops began to franchise and rapidly expand.
This trend is expected to continue.

         Many of these chains are growing  through the  acquisition  of smaller,
independent  operators.  Lube chains  have been  pursuing  franchisees  of other
brands to join with them.  The industry  growth rate for fast lube  services was
7.5% between 1996 and 1997.  The top 10 fast lube chains  account for over 33.4%
of all fast lube outlets and an  estimated  12.4% of all stores that change oil.
The anticipated 1998 growth rate for the top ten lube chains is 20.5%.

         The  specialty  repair  shop share of the car and light  truck  service
market grew from 12.6% in 1986 to 20.5% in 1997.  Between 1993 and 1997, product
sales growth for specialty repair shops was 47%. Specialty repair shops captured
an 18% share of  service  bays in 1997,  increasing  their  number of bays 18.5%
between  1987  and  1997,   while  the  number  of  bays   operated  by  service
stations/garages  and vehicle dealers decreased  significantly,  20.1% and 10.4%
respectively,  during the same period.  Service bays are handling more vehicles,
approximately 160 vehicles per service bay in 1997 (up from 126 vehicles per bay
in 1987),  and this ratio is  estimated  to grow to 175  vehicles per bay by the
year 2002.

         Automotive  parts  retail  chains,  servicing  the DIY  customer,  have
experienced  rapid  consolidation as small regional chains sell stores to larger
chains. A positive factor for this sector is that the average age of vehicles is
increasing,  while new car prices continue to climb. Aiding the overall industry
is an increase in the average  number of miles driven  annually,  an increase in
the number of drivers, and closure of full service gas stations.  However,  with
the  advent  of  vehicles  that can drive  100,000  miles  before a tune-up  and
generally  improved product  quality,  product sales are not likely to see major
increases in the next few years.  Retail automotive parts stores sell 38% of DIY
customer  purchased  products.  The  number of retail  automotive  parts  stores
increased  22% between  1990 and 1997 to 13,320,  and is expected to increase to
nearly 16,000  stores by the year 2000, a 20% increase over the 1997 count.  The
top 10 parts  retailers  accounted for over 42% of  automotive  parts stores and
experienced a 9.3% increase in outlets between early 1996 and year-end 1997.

REGULATION

         FFCA, through its ownership and financing of real estate, is subject to
a  variety  of  environmental,  health,  land-use,  fire and  safety,  and other

                                       16
<PAGE>
regulation by federal,  state and local governments that affects the development
and  regulation  of chain store  properties.  FFCA's  leases and mortgage  loans
impose the primary obligation for regulatory  compliance on the operators of the
chain store properties. Subject to the environmental discussion included in Item
2 "Properties", in most instances, FFCA does not have primary responsibility for
regulatory compliance and any obligation of FFCA would be based upon the failure
of chain store operators to comply with applicable laws and regulations.

         No portion of FFCA's business is subject to renegotiation of profits or
termination  of contracts or  subcontracts  at the election of the United States
Government.  FFCA does not  manufacture  any  products  and  therefore  does not
require any raw materials in order to conduct its business.

RECENT LEGISLATION

         FFCA,  as the owner or lender with  respect to chain store real estate,
was not materially or directly affected by recent legislation in 1998;  however,
chain store  operators under lease and loan agreements with FFCA may be affected
by recent  legislation.  Although  federal law to increase  the minimum wage was
defeated in 1998, a number of states  initiated  legislation  to increase  their
minimum wage.  Eight states currently have minimum wages that exceed the federal
minimum  wage.  To the extent that chain store  operators are unable to increase
prices to reflect higher labor costs or to more  efficiently use existing labor,
the  profitability  and cash flow of a chain store may  decrease.  The effect of
increases in minimum  wages may be minimal for those chain store  operators  who
are required to pay higher wages because of market conditions.

ITEM 2.  PROPERTIES.

         FFCA  provides real estate  financing to multi-unit  operators of chain
restaurants,  convenience  stores and  automotive  services  and parts  outlets,
primarily through  long-term real estate leases and mortgage loan financing.  At
December  31,  1998,  FFCA had  interests  in  3,592  properties  consisting  of
investments in 2,722 chain restaurants,  710 convenience  stores, 150 automotive
outlets and 10 other retail properties.

         FFCA's portfolio  included 2,109 chain store properties  represented by
investments in real estate  mortgage loans and properties  subject to leases and
1,483 properties represented by securitized mortgage loans in which FFCA holds a
residual  interest.  Of the  2,109  properties  included  in  FFCA's  investment
portfolio  at  December  31,  1998,  FFCA  has an  ownership  interest  in 1,933
properties on a fee-simple  basis in which FFCA holds title to the property (the
"owned"  properties).  The real  estate  owned by FFCA  consists of the land and
buildings comprising each chain property, except for approximately 19 properties
at  December  31,  1998 on which  FFCA  holds  title  to the land  only and made
mortgage  loans  for  the  related  buildings  (the  "hybrid  mortgages").   The
properties owned by FFCA and the land related to the hybrid mortgages are leased
to the chain  operators  under  long-term net leases.  The remaining  properties
represent  mortgage loan financing  transactions in which FFCA generally holds a
first  mortgage  on the  land  and  buildings  comprising  the  properties  (the
"financed  properties").  On approximately 150 of the financed properties,  FFCA
made mortgage loans for the buildings and  improvements  and the borrowers lease
the land from third parties under ground leases.

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<PAGE>
         FFCA's  chain store  properties  are  typically  located on  commercial
corridors with  significant  automobile  traffic and are  characterized  by high
visibility and easy access  required for retail  property.  Locations  generally
fall into five categories,  including  shopping center and mall pad or outparcel
sites,  interstate  highway  locations,  central  business  district  locations,
residential neighborhood locations and retail and commercial corridor locations.
Generally,  all  properties  owned  or  financed  by FFCA are  freestanding  and
surrounded  by paved  parking  areas.  A chain  store is  located on each of the
properties except ten, which were converted to other uses, such as a bank and an
optical retail outlet.

         The land size for a typical fast food restaurant  generally ranges from
30,000 to 45,000 square feet, with original  acquisition costs generally ranging
from $300,000 to $450,000.  Full service  restaurant  land  averages  range from
40,000 to 80,000 square feet and from  $500,000 to $900,000 in land  acquisition
costs.  The buildings are  principally  of the current  design of the restaurant
concept and are rectangular  buildings  constructed from various combinations of
stucco,  steel, wood, brick and tile. Fast food restaurant  buildings  generally
range from 1,500 to 4,000 square feet in size,  with the larger  stores having a
greater seating capacity and equipment area. Site  preparation  varies depending
upon the area in which the fast food  restaurant  is located  and on the size of
the building and site.  Building and site preparation costs generally range from
$250,000  to  $650,000  for each  property.  Full  service  restaurant  building
averages range from 5,000 to 9,000 square feet and from $950,000 to $1.7 million
in building costs.

         Convenience  store  sizes  range from 800 square feet for a gas station
with a store  that  sells  only the fast  moving  items  found in a  traditional
convenience  store  (tobacco,  beverages  and snacks) to 5,000 square feet for a
store that has a bakery, a sit down restaurant area or a pharmacy (many of these
locations also sell gasoline). The typical convenience stores generally range in
size from 2,000 to 3,000 square  feet.  The  original  investment  per new store
averages  $850,000 for a rural convenience  store  (approximately  30% land, 40%
building  and 30%  equipment)  and $1.1 million for an urban  convenience  store
(approximately 35% land, 40% building 25% equipment).

         Automotive  services and parts outlets  range in size  depending on the
type of store.  Automotive parts outlet buildings  generally range from 6,000 to
9,000 square feet with total original acquisition costs ranging from $800,000 to
$1.8 million.  Quick lube  buildings are typically  2,500 square feet and are on
17,000 to 25,000 square feet of land. Most are located within  shopping  centers
and have 2-6 bays, with total  acquisition  costs ranging  between  $500,000 and
$700,000.  Combination specialty stores (offering brakes,  mufflers, lube, etc.)
are typically  free standing,  drive-through  buildings  generally  ranging from
2,200 to 3,400  square  feet on a lot or  shopping  center pad of  approximately
15,000 to 25,000  square feet.  Total  acquisition  costs range from $550,000 to
$900,000.

         Management  believes  that its chain  store  properties  are covered by
adequate  comprehensive  liability,  fire,  flood and  extended  loss  insurance
provided by reputable  companies,  with  commercially  reasonable  and customary
deductibles  and limits.  The financing  agreements with FFCA require each chain

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<PAGE>
store  operator  to carry  certain  types and amounts of  insurance.  There are,
however,  certain types of losses (such as from wars or earthquakes) that may be
either uninsurable or not economically insurable in some or all locations.

         The properties, which FFCA either purchases or finances, are subject to
certain  requirements and potential  liabilities under federal,  state and local
environmental laws and regulations.  Certain environmental laws impose liability
on property owners for the presence of hazardous  substances on their properties
regardless  of  whether  the  owner  was  responsible  for the  release  of such
substances.  Under some environmental  laws, a lender may, under certain limited
circumstances,  be deemed to be an "owner" or "operator" of a property,  thereby
imposing  liability  upon such lender for the cost of responding to a release or
threat of a release of hazardous  substances  on or from a borrower's  property,
regardless of whether a previous owner caused the environmental damage.  Federal
and state  environmental  laws have  established  a  regulatory  program for the
detection, prevention and clean-up of leaking underground storage tanks.

         FFCA's policy with respect to  environmental  risks,  which has been in
effect since mid-1994, is that all properties which are to be either acquired or
financed shall have been the subject of (a) a Phase I  environmental  assessment
which  concludes  that no further  investigation  is  necessary  (if the Phase I
assessment recommends further investigation, a Phase II environmental assessment
which  concludes  that no  remediation or further action is required) or, (b) an
environmental insurance policy from a third-party insurance carrier.  Properties
acquired  from FFCA's  predecessors  did not have  environmental  investigations
performed  either at the time FFCA acquired the properties from its predecessors
or when such properties were acquired by the predecessor  entities.  FFCA is not
currently a party to any litigation or administrative proceeding with respect to
any property's compliance with environmental standards.  Furthermore,  FFCA does
not anticipate the need to expend any of its funds in the foreseeable  future in
connection with its operations or ownership of existing  properties  relating to
environmental  considerations  which would have a material  adverse  effect upon
FFCA.

         In  the  case  of  properties  to be  acquired  or  financed  in  which
underground  storage tanks are present and gasoline or other petroleum  products
are being dispensed, FFCA has adopted a policy that environmental insurance must
be obtained  for the  benefit of FFCA.  Such  insurance  provides  coverage  for
certain  environmental  remediation,  compliance  and clean-up costs incurred in
connection  with the  presence at, or migration  from,  the insured  property of
hazardous materials and other pollutants, as well as liability to third parties.

         In the case of properties  financed by FFCA through mortgage loans, the
environmental insurance policy term equals the full term of the related mortgage
loan.  In the event of a loss (as defined in the  policy),  the insurer must pay
the lesser of (a) the cost of remediation and other clean-up costs and expenses,
and (b) the  outstanding  principal  balance due under the  applicable  mortgage
loan, less a deductible  amount.  In the case of properties  acquired by FFCA in
sale-leaseback  or  similar  transactions,  title is  acquired  in the name of a
special  purpose  subsidiary  of FFCA  formed  solely for the purpose of holding
title to such  properties.  The  environmental  insurance  policy that is issued
where FFCA purchases the property is for a term of 20 years, subject to renewals
for ten-year periods.  In assessing the  environmental  risk associated with the
ownership  of  potentially  contaminated  real  property,  FFCA obtains from its

                                       19
<PAGE>
insurer  an  environmental  risk  assessment  upon  which it bases its  decision
whether to purchase a given  property  and the amount of coverage to obtain.  In
all  instances,  it is FFCA's policy to purchase  coverage in an amount equal to
100% of the worst-case  estimate of the cost of remediation as determined by the
environmental insurer, less the deductible amount. In certain circumstances FFCA
may permit a chain store operator to self-insure for certain types of losses. An
uninsured loss could result in a loss to FFCA of both its capital investment and
anticipated revenue from the affected property.

         FFCA's lease and mortgage loan financing  documents  require each chain
store operator to make any expenditure  necessary to comply with applicable laws
and as may be required under any applicable franchise agreement; therefore, FFCA
is generally not required to make significant capital expenditures in connection
with any property it financed.  Capital  expenditures  amounted to approximately
$120,000  in 1998 and  $16,000 in 1996.  There were no capital  expenditures  on
properties in 1997.

         As of February 18, 1999, FFCA owned or had financed 3,652 properties in
48 states and Canada and all but 20 of the properties  were being leased or were
performing under a mortgage loan agreement. Of the nonperforming properties, two
are being actively remarketed for lease and 18 are currently held for sale after
extensive efforts to remarket these properties did not produce suitable lessees.
Vacant  properties held for sale represent less than one percent of FFCA's total
real estate investment portfolio.

         FFCA invests in chain store real estate  throughout  the United States.
No  one  property  is a  principal  property  of  FFCA,  because  each  property
represents  less than one half of one percent of FFCA's total assets.  Reference
is made to the Schedule of Real Estate and  Accumulated  Depreciation  (Schedule
III) filed with this  Report for a summary of the  geographic  diversity  of the
properties  owned  by FFCA as of  December  31,  1998.  In  addition,  FFCA  has
financed,  through  mortgage  loans,  certain  chain  store  properties  located
throughout the United States and in Canada (though investments in Canada are not
significant). Reference is made to the Schedule of Mortgage Loans on Real Estate
(Schedule  IV) filed  with this  Report  for a summary  of  properties  financed
through mortgages in FFCA's held-to-maturity portfolio. FFCA has also originated
mortgage  loans held for sale which  total $163  million at December  31,  1998.
Generally,  these loans are first mortgage loans on the land,  buildings  and/or
equipment of restaurants,  convenience  stores or automotive  services and parts
outlets. The properties financed through these mortgage loans are geographically
diverse,  ranging  from 8.5%  located  in the West North  Central  region of the
United States to 15% located in the East North Central region.

         During 1998,  approximately  72% of FFCA's  revenues  were derived from
real  estate  investments  leased  to chain  store  operators.  The  leases  are
generally 15 to 20 years in length with two or four five-year  renewal  options.
The  expiration  schedule of the initial term of FFCA's leases  extends  through
2018,  with a weighted term of such  investments  of 13 years as of December 31,
1998.  Twelve percent of FFCA's  investments in properties  subject to operating
leases  have terms that expire in the year 2005 and 13% expire in the year 2018.
In all other  years,  expiring  leases  represent  less than 10% of total  lease
investments.  With expected continued investment activity, FFCA anticipates that
its exposure to annual lease expirations will become more diversified.

                                       20
<PAGE>
         FFCA also owns its  corporate  headquarters  located  at The  Perimeter
Center in Scottsdale, Arizona, consisting of approximately 60,000 square feet of
building on approximately  five acres of land. The land and building  comprising
FFCA's corporate  headquarters  serve as collateral on the related mortgage note
payable.  Beginning in December 1998, FFCA also rents approximately 3,300 square
feet  of  office  space  in  an  office  building   adjacent  to  its  corporate
headquarters.  The office  space is under a  three-year  lease at  approximately
$75,000 per year plus common area expenses.

ITEM 3.  LEGAL PROCEEDINGS.

         FFCA is not presently  involved in any material  litigation nor, to its
knowledge, is any material litigation threatened against FFCA or its properties,
other than routine litigation arising in the ordinary course of business.

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

         No matters were submitted to a vote of FFCA's  security  holders during
the fourth quarter ended December 31, 1998.

                                     PART II

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

MARKET INFORMATION

         FFCA's common stock is currently  traded on the New York Stock Exchange
("NYSE")  under the symbol FFA. FFCA began trading on the NYSE on June 29, 1994.
The following table sets forth the high and low sales prices per share as quoted
by the NYSE for the following quarters of the fiscal years indicated:

                                        SALES PRICES         DIVIDENDS
          FISCAL 1998                HIGH          LOW       DECLARED
          -----------                ----          ---       --------
          Fourth Quarter           $27.813       $21.750       $ .49
          Third Quarter             28.000        22.500         .47
          Second Quarter            28.250        24.813         .47
          First Quarter             28.625        26.188         .47
                                                               -----
                                                               $1.90 
                                                               =====
          FISCAL 1997
          Fourth Quarter           $27.875       $24.250       $ .47
          Third Quarter             27.563        24.188         .45
          Second Quarter            27.000        22.750         .45
          First Quarter             27.500        23.750         .45
                                                               -----
                                                               $1.82
                                                               =====
                                       21
<PAGE>
         Future  distributions will be dependent upon cash flow from operations,
financial position and cash requirements of FFCA. Management of FFCA anticipates
that  cash  generated  from  operations  will be  sufficient  to meet  operating
requirements  and provide  the level of  shareholder  distributions  required to
maintain its status as a REIT.

HOLDERS

         There were 17,120 holders of record of FFCA's shares of common stock as
of February 18, 1999; however, FFCA believes the total number of shareholders of
FFCA to be in excess of 69,000 since nominees hold certain shares.

DIVIDEND REINVESTMENT PLAN

         FFCA  has a  dividend  reinvestment  plan  (the  "Plan")  which  allows
shareholders to acquire  additional shares of FFCA common stock by automatically
reinvesting dividends. Shares are acquired pursuant to the Plan at a price equal
to 98% of the market price of such shares on the dividend payment date,  without
payment of any brokerage  commission or service charge.  Shareholders who do not
participate  in the Plan  continue  to receive  dividends,  as  declared.  As of
February 18,  1999,  shareholders  owning  approximately  7% of the  outstanding
shares participate in the Plan.

ITEM 6.  SELECTED FINANCIAL DATA.

         The selected  financial  data  presented in the table below  summarizes
certain  consolidated   financial  information  of  FFCA  and  its  wholly-owned
subsidiaries,  as well as that of its predecessor companies,  for the five years
in the period ended December 31, 1998. The merger of FFCA with its  predecessors
occurred on June 1, 1994 and was accounted for as a reorganization of affiliated
companies  under common  control in a manner  similar to a pooling of interests.
Under this method, the assets and liabilities of the predecessor  companies were
carried  over at their  historical  book values and their  operations  have been
recorded on a combined historical basis.

                                       22
<PAGE>
                             SELECTED FINANCIAL DATA

         Operations  data  presented  below  for  periods  prior to June 1, 1994
represent  the  operations  of the  predecessor  companies.  This  data has been
restated on a combined basis to provide  comparative  information;  however,  it
does not necessarily represent results of operations as they would have been had
FFCA operated as a REIT for all periods  presented.  The  predecessor  companies
were primarily public real estate limited  partnerships  with a declining number
of properties  in their  investment  portfolios  and no  opportunity  for growth
through acquisitions; therefore, the investment objectives of FFCA are different
than the objectives of its predecessor companies.
<TABLE>
<CAPTION>
                                                                                                  1994
                                                                                              (restated on
                                                                                               a combined
In thousands, except per share data           1998          1997         1996         1995        basis)
----------------------------------------------------------------------------------------------------------
<S>                                        <C>          <C>          <C>          <C>          <C>
OPERATIONS DATA (a)
  Total revenues                           $  169,568   $  134,988   $  121,166   $  102,583   $   91,062
  Income before gain (loss) on sale
     of property and other                     85,182       65,707       60,036       52,816       51,319
    Gain (loss) on sale of property (c)        10,535        5,471        9,899          977        2,784
  Income before extraordinary item (d)         95,717       72,897       68,539       53,793       25,905(b)
  Net income (b)                               95,717       72,897       68,539       51,329       25,905(b)
  Dividends/Distributions declared             93,004       75,004       72,846       72,471       75,913
  Earnings Per share, assuming dilution:
    Income before gain (loss) on sale of
    property
       and other costs                     $     1.78   $     1.59   $     1.48   $     1.31   $     1.27
    Income before extraordinary item (d)   $     2.00   $     1.76   $     1.69   $     1.33   $     0.64
    Net income                             $     2.00   $     1.76   $     1.69   $     1.27   $     0.64
    Dividends/Distributions declared       $     1.90   $     1.82   $     1.80   $     1.80   $     1.82
  Weighted average common and common
        equivalent shares outstanding          47,908       41,333       40,603       40,294       40,251

----------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (a)
  Real estate owned, at cost               $1,274,600   $  951,305   $  868,215   $  794,580   $  681,126
  Mortgage loans receivable                    43,343       35,184       57,808      199,486       65,980
  Mortgage loans held for sale                163,172      251,622           --           --           --
  Note receivable from affiliate (e)               --           --      147,616           --           --
  Other investments                           113,692       55,185       37,836           --           --
  Total assets                              1,460,429    1,179,198      988,776      843,504      612,228
  Notes payable                               500,168      309,360      298,956      198,702           --
  Borrowings under line of credit             188,000      302,000      150,500      110,000       59,000
  Other debt                                    8,500        8,500        8,500        8,500        8,500
  Shareholders' equity                     $  716,434   $  522,996   $  495,370   $  493,817   $  514,107
</TABLE>
----------
(a) The  information  for  periods  prior  to June 1,  1994  is,  in  effect,  a
restatement of the historical operating results of FFCA I and the public limited
partnerships  as if they had been  consolidated  since January 1, 1994.  The per
share amounts for the same periods were computed as if 40.251  million shares of
FFCA stock were outstanding.
(b) Net  income  for the year  ended  December  31,  1994 was  impacted  by REIT
transaction  costs  recognized  upon  consummation of the merger of FFCA and its
predecessor entities.
(c) Results of operations may be largely impacted by gains or losses on the sale
of properties or as a result of securitization  transactions.  Of the 1998, 1997
and 1996 gain on the sale of property, $6.2 million,  $430,000 and $7.1 million,
respectively, relates to the securitization transaction completed in that year.
(d) Income before  extraordinary  item excludes debt  extinguishment  charges of
$2.5 million in 1995.
(e) Note receivable  from FFCA's former  affiliate,  FFCA Mortgage  Corporation,
which was  dissolved  in 1997,  represents  mortgage  loans held for sale by the
affiliate.

                                       23
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

GENERAL

         Franchise    Finance    Corporation   of   America    ("FFCA")   is   a
self-administered  real estate  investment  trust  ("REIT")  which provides real
estate  financing  to  multi-unit  operators of chain  restaurants,  convenience
stores and automotive services and parts outlets.  FFCA offers financing through
various  products,  including  long-term  real estate  leases,  mortgage  loans,
equipment  loans and  construction  financing.  At December 31,  1998,  FFCA had
interests  in  3,592  properties   representing   over  $1.6  billion  in  gross
investments in chain store properties  located  throughout the United States and
in Canada. In addition to this geographic diversification, the portfolio is also
represented  by more than 450 different  operators in  approximately  100 retail
chains.  FFCA's portfolio  included 2,109 chain store properties  represented by
investments in real estate  mortgage loans and properties  subject to leases and
1,483 properties represented by securitized mortgage loans in which FFCA holds a
residual interest.

LIQUIDITY AND CAPITAL RESOURCES

         During 1998,  FFCA originated  $928 million in new  sale-leaseback  and
mortgage loan  investments.  This surpassed FFCA's 1997 investment level of $504
million by 84%,  while the 1997  investment  level  represented  an  increase of
nearly 50% over 1996's  investments of $340 million.  With over 1,200 properties
financed  during  1998,  FFCA's  portfolio  represents  nearly  3,600  locations
throughout  the United States and in Canada and cumulative  investment  activity
now totals over $2 billion since the formation of the REIT in June 1994.  FFCA's
rate of investment  growth has increased  beginning with the introduction of its
mortgage loan financing  products in 1995 and 1996. By 1998,  mortgage loans had
grown to  represent  nearly 60% of new  investments  as compared to 48% in 1995.
Aside from growth  generated by new  restaurant  financings,  recent  investment
growth is also  attributable to FFCA's expansion into the convenience  store and
automotive  services  and parts  industries  that  accounted  for 46% (over $426
million) of the investments made during 1998 as compared to 18% ($93 million) in
1997.  These  industries were targeted by FFCA because they meet FFCA's existing
investment criteria and the real estate they require is similar in many respects
to the locations chosen by chain restaurants.

         FFCA initially  funds its  investments in chain store  properties  with
cash generated from operations and draws on its unsecured credit facility.  This
revolving  credit  facility bears interest at a spread above the one-month LIBOR
rate for a weighted  average  interest  rate of 6.57% in 1998 as  compared  to a
weighted average interest rate of 6.63% in 1997 and 7.12% in 1996. The revolving
credit  facility  is used as a  warehousing  line  for  properties  pending  the
issuance of additional debt or equity  securities of FFCA. This facility is also
used to warehouse  mortgage loans until a sufficiently large and diverse pool is
accumulated to warrant the sale of the mortgage  loans through a  securitization
transaction  or other  loan sale  arrangement.  Borrowings  under the  revolving
credit  facility  totaled  $738  million in 1998 (as compared to $503 million in
1997 and $254 million in 1996).  During 1998,  borrowings  were repaid through a

                                       24
<PAGE>
combination  of cash proceeds  from the issuance of common stock ($191  million)
and unsecured notes ($190 million) and from  securitization  transactions  ($540
million)  including the use of a new loan sale facility.  Cash proceeds from the
sale of property,  the collection of mortgage loan and note  principal  payments
and the receipt of mortgage  loan and note  payoffs,  aggregating  approximately
$101  million in 1998 (as  compared  to $64  million in 1997 and $52  million in
1996), were also available to fund new investments.

         To accommodate  FFCA's portfolio growth,  FFCA increased its capital in
1998 by entering  into  various  equity  transactions.  During the first half of
1998,  FFCA raised a total of $83 million through the sale of 3.1 million shares
of common stock to three  separate  unit  investment  trusts (as compared to $23
million  raised  in 1997 from the sale of nearly  one  million  shares to a unit
investment  trust). In March 1998, FFCA sold approximately 3.8 million shares of
common stock to an affiliate of Colony Capital,  Inc. ("Colony"),  a Los Angeles
based real  estate-related  investment firm. Colony made the $100 million equity
investment  in newly  issued  shares of FFCA  common  stock,  making  Colony the
largest  shareholder  of FFCA and  adding to FFCA's  financial  flexibility  and
capabilities.  In  addition,  Colony has  warrants  to  purchase  an  additional
1,476,908  shares of FFCA's  common  stock  and has the right to  designate  for
nomination a member to FFCA's Board of  Directors.  FFCA used the cash  proceeds
from the sale of stock to reduce  amounts  outstanding  on its revolving  credit
facility.

         As 1998  progressed,  turbulence in the capital markets began impacting
FFCA's cost of borrowings,  which rose despite  prevailing  lower long-term home
mortgage and government  borrowing rates. In the first half of 1998, FFCA issued
$17 million in unsecured notes due in 2007,  bearing interest at a rate of 6.86%
and $30.5 million in unsecured notes due in 2008,  bearing interest at a rate of
7.07%.  In October 1998, in the midst of the turbulent  conditions,  FFCA issued
$150 million in senior unsecured notes due 2003 at a rate of 8.25%.

         In August 1998,  FFCA  entered  into a $600 million loan sale  facility
with a third party,  who  initially  committed to purchase up to $300 million of
loans from FFCA. Then  conditions in the securities  markets,  specifically  the
asset-backed  securities  markets,  became less  favorable than they were in the
first half of 1998.  These  changes in market  conditions  could  impact  FFCA's
ability to originate and sell mortgage loans on an advantageous or timely basis.
Accordingly, to increase its financial flexibility, FFCA obtained the commitment
of all $600 million on the loan sale facility.  This loan sale facility  permits
FFCA to sell  loans on a  regular  basis to a trust for an  agreed-upon  advance
rate. Upon the sale of such loans, FFCA acts as servicer for the loans. The loan
sale  facility is available  through  October  1999. In the first five months of
this facility,  FFCA sold mortgage loans with an aggregate  principal balance of
$264 million and received $225 million in cash proceeds plus trust  certificates
representing  the remaining 15% of the loan sale price.  The trust  certificates
are held until the loans are sold by the trust at which  time FFCA will  receive
subordinated  certificates  of the  subsequent  securitization  and  any  excess
proceeds received by the trust from the loan sale.

         In September  1998,  Duff & Phelps  Credit Rating Co.  upgraded  FFCA's
senior  unsecured  debt from BBB- to BBB. The rating upgrade was based on FFCA's
continued  strong  financial  performance,  general  reduction  in operator  and

                                       25
<PAGE>
concept  concentrations  and  improved  financial  flexibility.  This  financial
flexibility  gave FFCA the ability to efficiently  access capital at a time when
some of its competitors were unable to do so.

         Subsequent  to  1998,  FFCA  increased  its  liquidity  to  ensure  the
availability of capital for the funding of new  investments.  FFCA  successfully
completed  an  equity  offering  in  January  1999,   raising  net  proceeds  of
approximately  $146 million  through the issuance of 6.7 million  shares of FFCA
common  stock.  Then in  February  1999,  FFCA  entered  into a new $75  million
revolving  loan  facility  with a bank  on  substantially  the  same  terms  and
conditions as the existing $350 million revolving loan facility.  As of February
18, 1999, FFCA had $393 million available on $425 million of bank revolving loan
facilities and $327 million available on its $600 million loan sale facility.

         FFCA's   anticipated    investments   include   commitments    totaling
approximately  $625 million at December 31, 1998. These commitments were made to
several large operators who operate chain  restaurants,  convenience  stores and
automotive  services and parts outlets, to acquire or finance (subject to FFCA's
customary underwriting procedures) approximately 545 chain store properties over
the next year.  Due to the  increase  in FFCA's  borrowing  costs  caused by the
turbulence in the capital markets in mid 1998, FFCA renegotiated its commitments
at more favorable rates.  FFCA anticipates  funding these specific  commitments,
and other  investments in chain store  properties,  through amounts available on
its revolving credit and loan sale facilities,  issuance of additional unsecured
debt, issuance of mortgage-backed  securities through securitization or issuance
of additional equity securities of FFCA.

         FFCA has a  dividend  reinvestment  plan that  allows  shareholders  to
acquire  additional  shares of FFCA  stock by  automatically  reinvesting  their
quarterly dividends.  As of February 18, 1999, shareholders owning approximately
7% of the  outstanding  shares of FFCA common stock  participate in the dividend
reinvestment  plan and  dividends  reinvested  during 1998 totaled $6 million as
compared  to $5.8  million  in 1997 and $4.9  million  in 1996.  For the  fourth
quarter,  the Board of Directors  approved raising FFCA's quarterly  dividend to
$0.49 from $0.47.  This dividend is payable on February 19, 1999 to shareholders
of record on February 10, 1999. Management  anticipates that cash generated from
operations  will be sufficient to meet  operating  requirements  and provide the
level of shareholder dividends required in maintaining FFCA's status as a REIT.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         FFCA  invests  in certain  financial  instruments  that are  subject to
various forms of market risk such as interest rate fluctuations, credit risk and
prepayment  risk.  FFCA's  primary  exposure is the risk of loss that may result
from the  potential  change in the value of its mortgage  loans and  investments
held for sale as a result of changes in interest rates.

         FFCA manages its exposure to changes in interest  rates through the use
of interest rate  agreements  (primarily  interest rate swap  contracts)  and by
optimizing the use of  variable-rate  and fixed-rate  debt. FFCA initially funds
its investments in chain store  properties with borrowings on its  variable-rate

                                       26
<PAGE>
credit facility.  Investments in fixed-rate leases are then match-funded through
the issuance of fixed-rate  debt. The credit  facility is also used to warehouse
mortgage  loans until a  sufficiently  large and diverse pool is  accumulated to
warrant the sale of the mortgage loans through a  securitization  transaction or
other loan sale arrangement.  Generally, from the time fixed-rate mortgage loans
are  originated   until  the  time  they  are  sold  through  a   securitization
transaction,  FFCA hedges against fluctuations in interest rates through the use
of  derivative  financial  instruments.  FFCA does not hold or issue  derivative
financial instruments for speculative trading purposes. The instruments used are
interest rate agreements that are non-leveraged  and involve little  complexity.
FFCA  is  exposed  to  credit  loss  in  the  event  of  nonperformance  by  the
counterparties to the interest rate contracts. FFCA minimizes its credit risk on
these  transactions  by  only  dealing  with  leading,  credit-worthy  financial
institutions and, therefore, does not anticipate nonperformance.

         At December 31, 1998, FFCA had interest rate swap contracts outstanding
with a notional  amount  aggregating  $28 million.  Under the interest rate swap
contracts,  two parties agree to swap payments over a specified period where one
party agrees to make  payments at a specified  fixed rate and the other party to
the contract  agrees to make  payments  based on a floating  rate.  The notional
amount serves solely as a basis for the  calculation of payments to be exchanged
and is not a measure of the  exposure of FFCA  through  its use of  derivatives.
FFCA intends to terminate these contracts upon  securitization of the fixed-rate
mortgage loans in 1999, at which time FFCA would generally expect to receive (if
rates rise) or pay (if rates fall) an amount  equal to the present  value of the
difference between the fixed rate set at the beginning of the interest rate swap
contract and the then-current  market fixed rate at the time of termination.  At
that  time,  both  the  gain  or loss on the  securitization  of the  fixed-rate
mortgage loans and the gain or loss on the termination of the interest rate swap
agreements will be measured and recognized in the statement of operations.

         FFCA  estimates that a  hypothetical  one percentage  point increase or
decrease  in  long-term  interest  rates at December  31, 1998 would  impact the
financial  instruments  described  above and result in a change to net income of
approximately  2%.  This  sensitivity   analysis  contains  certain  simplifying
assumptions (for example,  it does not consider the impact of prepayment risk or
credit  spread  risk).  Therefore,  although  it gives an  indication  of FFCA's
exposure to interest  rate changes at December  31, 1998,  it is not intended to
predict future results and FFCA's actual results will likely vary.

         FFCA is subject to credit risk on its  portfolio of mortgage  loans and
real estate investment securities held to maturity.  FFCA addresses its exposure
to credit risk by maintaining diversity in its portfolio by industry, geographic
area, chain and operator. In addition,  FFCA maintains disciplined  underwriting
standards and actively manages its portfolio.

                                       27
<PAGE>
YEAR 2000 READINESS

         FFCA'S  STATE  OF  READINESS.  FFCA  successfully  implemented  its new
accounting and servicing information system in January 1998 and its new property
management  system was deployed in July 1998. The design and  implementation  of
these  new  systems,  including  related  upgrades  in  computer  hardware,  was
necessary  to develop a more  efficient  portfolio  servicing  system that would
permit a high level of growth in the FFCA portfolio while  containing  operating
costs.  FFCA invested  $1.7 million  during 1998,  $1.6 million  during 1997 and
$70,000 during 1996 towards the development  and  installation of these systems.
The new systems are also "Year 2000" compliant which means that the systems will
appropriately address any dates that refer to the 21st century. FFCA has taken a
proactive  approach in dealing with the issues associated with the Year 2000 and
a five-phase  process to address this challenge was approved by FFCA's  computer
steering committee.  This plan includes:  (1) an inventory and assessment of the
systems and electronic  devices that may be at risk; (2) the  identification  of
potential  solutions;  (3) the  implementation  of upgrades or  replacements  to
affected  systems or devices;  (4) the verification of compliance and testing of
the revised systems;  and (5) the training of users on the new systems. To date,
FFCA has completed a review of its software and hardware and determined, through
a combination of internal testing and vendor representations that their products
have been tested and are  compliant,  that all  mission-critical  systems (those
systems that are necessary to conduct FFCA's business  activities) are Year 2000
compliant.  Non-mission  critical  software and hardware have also been reviewed
and FFCA has  identified  a few  third-party  products  that are  scheduled  for
upgrades  or  replacement  in the first  half of 1999 as part of FFCA's  ongoing
maintenance of its information system technology.

         THE  COSTS TO  ADDRESS  FFCA'S  YEAR  2000  ISSUES.  Based  on  current
estimates and plans, FFCA believes the costs of addressing Year 2000 issues will
not be material.

         THE RISKS OF FFCA'S YEAR 2000 ISSUES. FFCA believes the most reasonably
likely worst case  scenario will be indirect in nature  involving  third parties
such as clients,  vendors and suppliers  which may not have  successfully  dealt
with their Year 2000 issues. FFCA continues to assess the key third parties that
it relies upon; however,  FFCA has not yet been assured that all of the computer
systems of its clients,  vendors and suppliers will be Year 2000 compliant.  For
example, if suppliers of FFCA's energy or telecommunications fail to become Year
2000  compliant,  such failure  possibly  could have an adverse effect on FFCA's
ability to conduct  daily  operations  or to  communicate  with its  clients and
vendors.  While FFCA  continues  to analyze  these  risks,  it is possible  that
information  relevant to such  analysis  will not be made  available to FFCA, or
that potential solutions will not be within FFCA's control.  In addition,  there
can be no guarantee that FFCA's  efforts will prevent a material  adverse impact
on its results of operations,  financial condition and cash flows. FFCA believes
that its readiness  program,  including the contingency  plans discussed  below,
should significantly reduce the adverse effect any disruptions may have.

         FFCA'S  CONTINGENCY  PLANS.  FFCA will continue to monitor and evaluate
its key clients,  vendors and  suppliers  to  determine  the extent that FFCA is
vulnerable  to those  third  parties'  possible  failure  to  become  Year  2000
compliant.  FFCA expects to develop  contingency plans throughout 1999, on an as
needed basis to address these concerns,  where  reasonable to do so. These plans

                                       28
<PAGE>
may include  identifying and securing alternate  suppliers of services and other
measures considered appropriate by management.  Once developed,  the contingency
plans will be continually refined, as additional information becomes available.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEARS ENDED DECEMBER 31, 1997 AND 1996

         FFCA had net  income  of  $95.7  million  ($2.00  per  share,  assuming
dilution)  in 1998 as  compared to $72.9  million  ($1.76 per share) in 1997 and
$68.5 million  ($1.69 per share) in 1996.  The increases in net income each year
resulted  from  increased  revenues due to the  continued  growth in FFCA's real
estate  investment  portfolio.  Revenues  rose to $170 million in 1998 from $135
million in 1997 and $121 million in 1996.

         FFCA's  primary  source of  revenues  continues  to be rental  revenues
generated  by its  portfolio  of  chain  store  properties  that are  leased  to
operators  on a  triple-net  basis.  Rental  revenues  represented  72% of total
revenues  in  1998  as  compared  to 75% in  1997  and  79% in  1996.  With  the
introduction  of FFCA's mortgage  financing  products in 1995, the proportion of
total revenues generated by lease financing has decreased, though lease revenues
generated each year continue to be higher than in the previous year. Most of the
increases in rental  revenues each year resulted from new  investment  activity.
New investments in property  subject to operating leases totaled $365 million in
1998,  $140  million  in 1997 and $129  million  in  1996.  Generally,  property
purchases occur throughout the year,  resulting in weighted average balances for
these new  investments  of $145  million  in 1998,  $43  million in 1997 and $60
million in 1996.  Weighted  average base lease rates on the new investments were
9.9% in 1998 as compared to 9.3% in 1997 and 10.5% in 1996. Partially offsetting
the revenue  increases  generated by the new investments  were decreases in rent
revenues related to properties sold.

         A large  number of the leases in FFCA's  portfolio  provide  for a base
rental plus  contingent  rentals based on a percentage of the gross sales of the
related chain stores.  Such  contingent  rentals totaled $7.6 million in 1998 as
compared to $6.4 million in 1997 and $5 million in 1996.  The  increases  relate
primarily to increases in  individual  store-level  sales volumes and to lessees
whose sales  levels  have,  for the first time,  exceeded  the  threshold  where
contingent  rentals are due.  Generally,  the remaining  leases provide for rent
increases  during the lease term based on increases in the consumer  price index
or other rent escalation features.

         A portion of FFCA's revenues  relates to the origination and subsequent
sale of mortgage loans through  securitization  transactions.  In 1997, mortgage
investment  activity  was  split  between  FFCA  and an  unconsolidated  taxable
affiliate, FFCA Mortgage Corporation (Mortgage Corp.). When considered together,
the mortgage  interest  income from FFCA's direct  investments in mortgage loans
and related party  interest  income from indirect  investments in mortgage loans
(through  Mortgage  Corp.) totaled 15% of revenues in 1998,  1997 and 1996. FFCA
originated $534 million in mortgage loans in 1998, $362 million in 1997 and $180
million in 1996.  Rates  achieved on the loans  originated  during 1998 averaged
8.9% as compared to 9.2% achieved during 1997 and 9.4% in 1996. This decrease in
rates is  reflective of the overall  decrease in the interest  rate  environment
over the years.  The amount of mortgage  interest income generated each year has

                                       29
<PAGE>
been,  and will continue to be,  impacted by the amount of loans  originated for
sale each year and the timing of the sale of these loans through  securitization
transactions. Although FFCA no longer receives mortgage interest income from the
mortgages  it sold during  1996,  1997 and 1998,  it retains  certain  interests
through the purchase of subordinated  investment securities that FFCA intends to
hold to maturity.  These securities generate revenues that are included in "Real
Estate Investment  Securities Income" in the accompanying  financial  statements
and represented 8% of total revenues in 1998 as compared to 6% in 1997 and 2% in
1996.

         FFCA's revenue is generated by a real estate investment  portfolio that
is diversified by industry,  by concept,  by geographical  area and by operator.
FFCA finances chain store real estate in three industries,  representing  nearly
3,600 locations  throughout the United States and Canada (though  investments in
Canada are not significant). During the year ended December 31, 1998, 91% of the
revenues generated by the portfolio reflect restaurant  investments,  7% reflect
convenience  store  investments  and 2% reflect  automotive  services  and parts
investments.  With the addition of the convenience store and automotive services
and parts industries in 1997,  FFCA's portfolio has expanded to include over 100
different chains, including such well-known chains as Applebee's, Arby's, Burger
King, Checker Auto Parts, Chevron,  Circle K, Citgo, Hardee's,  Jack in the Box,
Midas Muffler Shops, Pizza Hut, 7-Eleven,  Taco Bell, Texaco,  Valvoline Instant
Oil  Change  and  Wendy's.  The  lease  or  mortgage  loan  agreements  are with
approximately 450 operators represented within FFCA's investment portfolio. Most
of these are multi-unit operators,  though no single operator represented 10% or
more of FFCA's  total  portfolio  revenues  during 1998 and 1997.  In 1996,  one
restaurant operator, Foodmaker, Inc. ("Foodmaker"),  accounted for approximately
10.9% of FFCA's total  rental and mortgage  loan  interest  revenues.  Foodmaker
operates and franchises Jack in the Box  restaurants.  The relative  decrease in
the percentage of FFCA's  revenue from  Foodmaker  since 1996 is due to the fact
that  FFCA's  portfolio  is growing  and, as a result,  Foodmaker  is becoming a
relatively  smaller portion of the entire portfolio.  As FFCA continues to grow,
management expects the portfolio to continue to become more diversified.

         With the growth  achieved in FFCA's real estate  investment  portfolio,
expenses  grew to $84.4 million in 1998 as compared to $69.3 million in 1997 and
$61.1 million in 1996, primarily due to increases in interest expense each year.
Interest  expense  rose by $8.1  million in 1998 and $8.8 million in 1997 due to
the use of borrowings for investments in chain store properties.  FFCA's average
debt  balance  increased  to $590  million in 1998 from $470 million in 1997 and
$335 million in 1996. In addition,  FFCA's  borrowing  rate has changed over the
past  several  years due to  changes in FFCA's  debt  structure,  together  with
overall changes in the interest rate  environment.  FFCA's  effective  borrowing
rate  changed from 7.15% during 1996 to 6.93% during 1997 and 7.01% during 1998.
FFCA issued its first unsecured  medium-term  notes totaling $100 million during
1996 at a weighted average interest rate of 6.98% and in 1997 FFCA issued $10.15
million in  unsecured  notes at a rate of 6.86%.  During the first half of 1998,
FFCA issued  $47.5  million in  unsecured  notes at a weighted  average  rate of
6.99%.  As discussed  earlier,  changes in the capital markets during the second
half of 1998 caused an increase in FFCA's cost of borrowings  from an average of
6.85% in the first  quarter of 1998 to 7.29% during the fourth  quarter of 1998.
In June 1998,  FFCA  entered  into an interest  rate  agreement  with a notional
amount of $100 million to hedge  exposure to  fluctuations  in interest rates on

                                       30
<PAGE>
anticipated  debt. In October 1998, FFCA terminated this interest rate agreement
upon the issuance of $150 million in senior  unsecured  notes due 2003 at a rate
of 8.25%, at which time FFCA deferred (and amortizes into interest  expense) the
payment of  approximately $7 million it made in settlement of this interest rate
agreement.

         Despite  the growth in  revenues  of 40% from 1996 to 1998,  operating,
general and  administrative  expenses increased only 24% during this same period
and remained constant at a level of approximately 8% of revenue. The increase in
operating expenses between 1996 and 1998 resulted primarily from the addition of
personnel  needed to expand  FFCA's line of  financial  products and to increase
FFCA's investment  origination and servicing capacity.  FFCA's recent investment
in computer  system  technology has increased the efficiency of its  information
and portfolio  servicing systems,  which enables FFCA to expand its revenue base
while containing operating costs. Property costs, which are primarily related to
vacant or underperforming  properties,  have remained relatively unchanged since
1996 at approximately 1% of revenues.

         During 1998,  FFCA  continued to originate  loans held for sale through
securitization  transactions.  Certain  mortgage  loans  originated by FFCA, its
predecessors  and affiliate  totaling $335 million in 1998, $261 million in 1997
and  $179  million  in  1996  were   securitized  and  Secured   Franchise  Loan
Pass-Through and Trust  Certificates were sold to investors through a trust. The
majority of each  securitized  loan pool was sold to third  parties,  while FFCA
retained the subordinated  investment securities ranging from 9% to 12.5% of the
mortgage loan pools' balance. In the 1996 securitization transaction,  FFCA also
purchased the  interest-only  certificate  (carrying  amount  approximately  $17
million  and $21 million at December  31, 1998 and 1997,  respectively).  During
1998,  FFCA also sold loans totaling $264 million through its loan sale facility
and retained trust certificates representing  approximately 15% of the loan sale
price.

         The retained  securities,  totaling $113.7 million and $55.2 million at
December 31, 1998 and 1997, respectively,  generated $14.4 million, $7.7 million
and  $2.7  million  of  revenue  in  1998,  1997  and  1996,  respectively.  The
subordinated  investment  securities held by FFCA are the last of the securities
to be repaid from the loan pool, so that if any of the underlying mortgage loans
default,  these  securities take the first loss. Any future credit losses in the
securitized  loan pool would be  concentrated in these  subordinated  investment
securities  retained by FFCA;  however,  FFCA  originates and services  mortgage
loans and has the infrastructure in place to deal with potential defaults on the
securitized  portfolio  (as it  does  with  the  mortgage  loans  it  holds  for
investment).  To date,  there have been no losses  from  defaults  in any of the
securitized loan pools.  FFCA also retained the servicing rights on the mortgage
loans it sold.

         FFCA recorded net gains of $10.5 million on the sale of property during
1998 as compared to $5.5 million  during 1997 and $9.9 million in 1996. Of these
gains, the sale of mortgages generated gains totaling approximately $6.2 million
in 1998,  $430,000  in 1997 and $7.1  million in 1996.  The gains on the sale of
mortgages  represent the difference  between the carrying amount of the mortgage
loans sold and their adjusted sales price. The gains on the sale of the mortgage
loans were reduced by establishing  reserves for estimated probable losses under
the subordination provisions of the securitization  transactions.  The remaining
gains represent the net effect of gains and losses from sales of property, which

                                       31
<PAGE>
occur primarily  through the lessee's  exercise of purchase  options and through
the  disposition  of  underperforming  properties.  During  1998,  FFCA  sold 57
properties  and  related  equipment  (nine of which were  through  the  lessees'
exercise of their  purchase  options on the  properties).  Mortgage  prepayments
received in 1998  represented  another 49 properties.  During 1997, FFCA sold 55
properties and related equipment (12 of which were through the lessees' exercise
of their purchase  options on the  properties) as compared to 79 properties sold
in  1996.  Also  during  1997,  FFCA  received  a $20  million  mortgage  payoff
representing 60 chain store properties.

         Approximately two-thirds of FFCA's land and building leases provide for
purchase  options  and  approximately  one-half of these  options are  currently
exercisable; however, only nine properties were sold through purchase options in
1998  and  only  12  and  15  such  properties  were  sold  in  1997  and  1996,
respectively.  Where  applicable,  the lessee  also has the  option to  purchase
equipment  at the  end of the  related  equipment  lease  term.  Generally,  the
purchase  options  are  exercisable  at fair  market  value  (but not less  than
original cost in most cases). FFCA expects that the exercise of purchase options
will continue to be insignificant.

         FFCA  periodically  reviews its real estate  portfolio  for  impairment
whenever events or changes in circumstances indicate that the carrying amount of
the  property  may not be  recoverable,  such  as may be the  case  with  vacant
properties.  If an  impairment  loss is  indicated,  the loss is measured as the
amount by which the carrying  amount of the asset  exceeds the fair value of the
asset. Gain on the sale of property on the consolidated statements of income for
the years ended  December 31,  1998,  1997 and 1996 is net of  approximately  $4
million, $1.9 million and $3.3 million,  respectively, of loss related to vacant
and underperforming  properties.  Vacant properties held for sale represent less
than 1% of FFCA's total real estate investment  portfolio.  The vacancy level in
the  portfolio  is currently at one-half of one percent and has remained at less
than 2% since FFCA became a REIT in 1994.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         This item is  incorporated  by  reference  from  Item 7.  "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Quantitative and Qualitative Disclosures About Market Risk".

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The consolidated financial statements and related financial information
required to be filed are attached to this Report.  Reference is made to page F-1
of this Report for an index to the consolidated financial statements.

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

         None.
                                       32
<PAGE>
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         This item is incorporated by reference from the Registrant's definitive
proxy statement for the Annual Meeting of Shareholders presently scheduled to be
held on May 12, 1999, to be filed pursuant to Regulation 14A.

ITEM 11. EXECUTIVE COMPENSATION.

         This item is incorporated by reference from the Registrant's definitive
proxy statement for the Annual Meeting of Shareholders presently scheduled to be
held on May 12, 1999, to be filed pursuant to Regulation 14A.

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

         This item is incorporated by reference from the Registrant's definitive
proxy statement for the Annual Meeting of Shareholders presently scheduled to be
held on May 12, 1999, to be filed pursuant to Regulation 14A.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         This item is incorporated by reference from the Registrant's definitive
proxy statement for the Annual Meeting of Shareholders presently scheduled to be
held on May 12, 1999, to be filed pursuant to Regulation 14A.

                                     PART IV

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

     (a)  The following documents are filed as part of this Report:

          1.   FINANCIAL  STATEMENTS.  See Index to Financial Statements on page
               F-1 of this Report.

          2.   FINANCIAL STATEMENT SCHEDULES.  See Index to Financial Statements
               on page F-1 of this Report. All other schedules are omitted since
               they  are  not  required,  are  inapplicable,   or  the  required
               information  is included  in the  financial  statements  or notes
               thereto.

          3.   EXHIBITS.

               The  following  is a complete  list of exhibits  filed as part of
               this Form 10-K. For electronic  filing purposes only, this report
               contains Exhibit 27, the Financial Data Schedule. Exhibit numbers
               correspond  to the  numbers in the  Exhibit  Table of Item 601 of
               Regulation S-K.

                                       33
<PAGE>
EXHIBIT NO.                            DESCRIPTION
-----------                            -----------
3.01    Second Amended and Restated  Certificate of  Incorporation  of Franchise
        Finance Corporation of America (1)

3.02    Second Amended and Restated Bylaws of Franchise  Finance  Corporation of
        America (2)

4.01    Indenture dated as of November 21, 1995 (3)

4.02    Specimen of Common Stock Certificate (4)

4.03    Officers'  Certificate  relating to the 7% Senior Notes Due 2000 and the
        7-1/8%  Senior  Notes  Due  2005 of  Franchise  Finance  Corporation  of
        America(5)

4.04    Officers'  Certificate relating to the Medium-Term Notes due Nine Months
        or  More  from  Date  of  Issue  of  Franchise  Finance  Corporation  of
        America(6)

4.05    Form of Medium-Term  Fixed Rate Note and Floating Rate Note of Franchise
        Finance Corporation of America(7)

4.06    Officers'  Certificate  relating to the 8.25%  Senior  Notes Due 2003 of
        Franchise Finance Corporation of America(8)

10.01   Acquisition,  Construction and Term Loan Agreement, dated as of December
        29, 1988, by and between  Franchise  Finance  Corporation of America and
        Scottsdale Land Trust Limited Partnership (4)

10.02   Promissory Note dated December 29, 1988,  executed by Franchise  Finance
        Corporation  of  America  in  favor of  Scottsdale  Land  Trust  Limited
        Partnership in the principal amount of $8,500,000 (4)

10.03   1995 Stock Option and Incentive Plan of Franchise Finance Corporation of
        America (9)

10.04   Stock  Purchase  Agreement  between  Franchise  Finance  Corporation  of
        America and Colony Investors III, L.P. dated February 13, 1998 (10)

21.01   Subsidiaries of the Registrant*

23.01   Consent of Arthur Andersen LLP*

99.01   Second  Amended and Restated  Credit  Agreement  dated December 29, 1997
        among  Franchise  Finance  Corporation of America,  Certain  Lenders and
        NationsBank of Texas, N.A. (11)

99.02   First  Amendment  to the Second  Amended and Restated  Credit  Agreement
        among  Franchise  Finance  Corporation of America,  Certain  Lenders and
        NationsBank N.A., dated as of June 30, 1998.*

99.03   Sale and  Servicing  Agreement  dated as of August 14, 1998,  among FFCA
        Franchise Loan Owner Trust 1998-1, FFCA Loan Warehouse Corporation, FFCA
        Acquisition  Corporation,  Franchise Finance  Corporation of America and
        LaSalle National Bank. (12)

                                       34
<PAGE>
99.04   Loan Purchase  Agreement dated as of August 14, 1998,  between FFCA Loan
        Warehouse Corporation and FFCA Acquisition Corporation. (12)

99.05   Indenture dated as of August 14, 1998, between FFCA Franchise Loan Owner
        Trust 1998-1 and LaSalle National Bank. (12)

99.06   Indenture Supplement dated as of August 14, 1998, between FFCA Franchise
        Loan Owner Trust 1998-1 and LaSalle National Bank. (12)

99.07   Note  Purchase  Agreement  dated  as of  August  14,  1998,  among  FFCA
        Franchise Loan Owner Trust 1998-1,  FFCA Acquisition  Corporation,  FFCA
        Loan Warehouse  Corporation,  and Morgan Stanley  Securitization Funding
        Inc. (12)

99.08   Credit Agreement dated as of February 11, 1999, among Franchise  Finance
        Corporation of America, Certain Lenders and NationsBank N.A.*

----------
* Filed herewith.
(1)     Incorporated by reference from the Registrant's Quarterly Report on Form
        10-Q for the fiscal  quarter  ended  March 31,  1997,  as filed with the
        Securities and Exchange Commission.
(2)     Incorporated by reference from the Registrant's Quarterly Report on Form
        10-Q for the fiscal  quarter  ended  March 31,  1998,  as filed with the
        Securities and Exchange Commission.
(3)     Incorporated by reference from the  Registrant's  Current Report on Form
        8-K,  dated November 24, 1995, as filed with the Securities and Exchange
        Commission.
(4)     Incorporated by reference from the Registrant's  Registration  Statement
        on Form S-4 and amendments thereto  (Registration  Number 33-65302),  as
        filed with the Securities and Exchange Commission.
(5)     Incorporated  by reference from the  Registrant's Current Report on Form
        8-K, dated November 24, 1995, as filed with the Securities and Exchange 
        Commission.
(6)     Incorporated  by reference from the  Registrant's Current Report on Form
        8-K, dated February 14, 1996, as filed with the Securities and Exchange 
        Commission.
(7)     Incorporated  by reference from the  Registrant's Current Report on Form
        8-K, dated April 16, 1998, as filed with the Securities and Exchange 
        Commission.
(8)     Incorporated  by reference from the  Registrant's Current Report on Form
        8-K, dated October 27, 1998, as filed with the Securities and Exchange 
        Commission.
(9)     Incorporated  by reference from the  Registrant's  Annual Report on Form
        10-K for the fiscal  year ended  December  31,  1995,  as filed with the
        Securities and Exchange Commission.
(10)    Incorporated  by reference from the  Registrant's  Annual Report on Form
        10-K for the fiscal  year ended  December  31,  1997,  as filed with the
        Securities and Exchange Commission.
(11)    Incorporated by reference from the  Registrant's  Current Report on Form
        8-K,  dated December 29, 1997, as filed with the Securities and Exchange
        Commission.
(12)    Incorporated by reference from the  Registrant's  Current Report on Form
        8-K,  dated August 14, 1998, as filed with the  Securities  and Exchange
        Commission.

                                       35
<PAGE>
     (b)  REPORTS ON FORM 8-K.

          During the quarter ended  December 31, 1998,  FFCA filed the following
          reports on Form 8-K:

          Form 8-K dated August 14, 1998,  filed October 9, 1998,  reporting the
          $600  million  loan sale  facility  between  FFCA and  Morgan  Stanley
          Securitization  Funding  Inc.,  an affiliate  of Morgan  Stanley & Co.
          Incorporated,  under  Item 5,  Other  Events,  and  Item 7,  Financial
          Statements and Exhibits.

          Form 8-K dated October 27, 1998, filed October 29, 1998, reporting the
          purchase  agreement  with respect to the issue and sale by FFCA of its
          8.25%  Senior Notes Due 2003 under Item 5, Other  Events,  and Item 7,
          Financial Statements and Exhibits.

                                       36
<PAGE>
                                   SIGNATURES

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

                                     FRANCHISE FINANCE CORPORATION OF AMERICA


Date:  March 15, 1999                By /s/ M. H. Fleischer
                                        -------------------------------------
                                        M. H. Fleischer, President and
                                        Chief Executive Officer

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


Date: March 15, 1999                 By /s/ M. H. Fleischer
                                        -------------------------------------
                                        M. H. Fleischer, Chairman of the Board,
                                        President, and Chief Executive Officer

Date: March 15, 1999                 By /s/ John Barravecchia
                                        -------------------------------------
                                           John Barravecchia, Executive Vice
                                           President, Chief Financial Officer
                                           and Treasurer

Date: March 15, 1999                 By /s/ Catherine F. Long
                                        -------------------------------------
                                           Catherine F. Long, Senior Vice
                                           President-Finance and Principal
                                           Accounting Officer

Date: March 15, 1999                 By /s/ Willie R. Barnes
                                        -------------------------------------
                                           Willie R. Barnes, Director

Date: March 15, 1999                 By /s/ Kelvin L. Davis
                                        -------------------------------------
                                           Kelvin L. Davis, Director

Date: March 15, 1999                 By /s/ Robert W. Halliday
                                        -------------------------------------
                                           Robert W. Halliday, Director

                                       37
<PAGE>
Date: March 15, 1999                 By /s/ Donald C. Hannah
                                        -------------------------------------
                                        Donald C. Hannah, Director

Date: March 15, 1999                 By /s/ Dennis E. Mitchem
                                        -------------------------------------
                                        Dennis E. Mitchem, Director

Date: March 15, 1999                 By /s/ Louis P. Neeb
                                        -------------------------------------
                                        Louis P. Neeb, Director

Date: March 15, 1999                 By /s/ Kenneth B. Roath
                                        -------------------------------------
                                        Kenneth B. Roath, Director

Date: March 15, 1999                 By /s/ Casey J. Sylla
                                        -------------------------------------
                                        Casey J. Sylla, Director

Date: March 15, 1999                 By /s/ Shelby Yastrow
                                        -------------------------------------
                                        Shelby Yastrow, Director

                                       38
<PAGE>
                  INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

Report of Independent Public Accountants                                   F-2

Consolidated Balance Sheets - December 31, 1998 and 1997                   F-3

Consolidated Statements of Income For The Years Ended
         December 31, 1998, 1997 and 1996                                  F-4

Consolidated Statements of Changes in Shareholders' Equity
         For The Years Ended December 31, 1998, 1997 and 1996              F-5

Consolidated Statements of Cash Flows For The Years Ended
         December 31, 1998, 1997 and 1996                                  F-6

Notes to Consolidated Financial Statements                                 F-7

Schedule III - Schedule of Real Estate and Accumulated
         Depreciation as of December 31, 1998                              F-16

Schedule IV - Schedule of Mortgage Loans on Real Estate
         as of December 31, 1998                                           F-18

                                       F-1
<PAGE>
                      [LETTERHEAD OF ARTHUR ANDERSEN LLP]


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors of
Franchise Finance Corporation of America:


We have  audited  the  accompanying  consolidated  balance  sheets of  FRANCHISE
FINANCE  CORPORATION OF AMERICA (a Delaware  corporation) and subsidiaries as of
December 31, 1998 and 1997, and the related  consolidated  statements of income,
changes in  shareholders'  equity and cash flows for each of the three  years in
the period ended December 31, 1998. These financial statements and the schedules
referred  to below  are the  responsibility  of the  Company's  management.  Our
responsibility  is to  express  an opinion  on these  financial  statements  and
schedules based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Franchise Finance  Corporation
of America and subsidiaries as of December 31, 1998 and 1997, and the results of
their  operations and their cash flows for each of the three years in the period
ended  December 31, 1998,  in  conformity  with  generally  accepted  accounting
principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
financial  statements taken as a whole. The schedules listed in the index of the
financial statements are presented for purposes of complying with the Securities
and  Exchange  Commission's  rules  and are  not  part  of the  basic  financial
statements.  These  schedules  have been  subjected to the  auditing  procedures
applied in our audits of the basic  financial  statements  and, in our  opinion,
fairly  states in all material  respects the  financial  data required to be set
forth therein in relation to the basic financial statements taken as a whole.


                                          /s/ Arthur Andersen LLP

Phoenix, Arizona,
 January 25, 1999.

                                      F-2
<PAGE>
                    FRANCHISE FINANCE CORPORATION OF AMERICA

            CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1998 AND 1997
                    (Amounts in thousands except share data)

                                                           1998          1997
                                                           ----          ----
                                     ASSETS
Investments:
  Investments in Real Estate, at cost (Note 3):
    Land                                               $  496,286    $  382,637
    Buildings and Improvements                            759,444       545,629
    Equipment                                              18,870        23,039
                                                       ----------    ----------
                                                        1,274,600       951,305
    Less-Accumulated Depreciation                         185,580       175,263
                                                       ----------    ----------
        Net Real Estate Investments                     1,089,020       776,042

  Mortgage Loans Held for Sale (Note 4)                   163,172       251,622
  Mortgage Loans Receivable, net of allowances
     of $3,600 in 1998 and $2,600 in 1997 (Note 5)         43,343        35,184
  Real Estate Investment Securities (Note 6)              113,692        55,185
  Other Investments (Note 5)                               14,231        27,118
                                                       ----------    ----------
        Total Investments                               1,423,458     1,145,151

Cash and Cash Equivalents                                   3,881         7,130
Accounts Receivable, net of allowances
of $720 in 1998 and $1,900 in 1997                          9,491         7,581
Other Assets (Note 12)                                     23,599        19,336
                                                       ----------    ----------

        Total Assets                                   $1,460,429    $1,179,198
                                                       ==========    ==========

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
  Dividends Payable                                    $   24,041    $   19,640
  Notes Payable (Note 7)                                  500,168       309,360
  Borrowings Under Line of Credit (Note 8)                188,000       302,000
  Mortgage Payable to Affiliate (Note 12)                   8,500         8,500
  Accrued Expenses and Other                               23,286        16,702
                                                       ----------    ----------

        Total Liabilities                                 743,995       656,202
                                                       ----------    ----------
Commitments (Note 15)

Shareholders' Equity (Notes 9 and 11):
  Preferred Stock, par value $.01 per share,
   10 million shares authorized, none issued
   or outstanding                                              --            --
  Common Stock, par value $.01 per share,
   authorized 200 million shares, issued and
   outstanding 49,063,133 shares in 1998 and
   41,787,543 shares in 1997                                  491           418
  Capital in Excess of Par Value                          773,708       583,056
  Cumulative Net Income                                   297,823       202,106
  Cumulative Dividends                                   (355,588)     (262,584)
                                                       ----------    ----------

        Total Shareholders' Equity                        716,434       522,996
                                                       ----------    ----------

        Total Liabilities and Shareholders' Equity     $1,460,429    $1,179,198
                                                       ==========    ==========

                 The accompanying notes are an integral part of
                       these consolidated balance sheets.

                                      F-3
<PAGE>
                    FRANCHISE FINANCE CORPORATION OF AMERICA

                        CONSOLIDATED STATEMENTS OF INCOME
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  (Amounts in thousands except per share data)


                                                   1998       1997       1996
                                                   ----       ----       ----
Revenues:
 Rental                                         $121,490   $101,292   $ 95,612
 Mortgage Loan Interest                           26,118     10,987     15,738
 Real Estate Investment Securities
  Income (Note 6)                                 14,350      7,680      2,745
 Investment Income and Other                       7,610      5,992      4,210
 Interest (Related Party) (Note 12)                   --      9,037      2,861
                                                --------   --------   --------

                                                 169,568    134,988    121,166
                                                --------   --------   --------
Expenses:
 Depreciation and Amortization                    24,518     20,784     20,654
 Operating, General and Administrative            14,244     11,106     11,488
 Property Costs                                    1,778      1,641      2,041
 Interest                                         42,846     34,764     25,974
 Interest (Related Party) (Note 12)                1,000        986        973
                                                --------   --------   --------

                                                  84,386     69,281     61,130
                                                --------   --------   --------
Income Before Gain on Sale of Property
 and Other Costs                                  85,182     65,707     60,036

Gain on Sale of Property                          10,535      5,471      9,899
Equity in Net Income (Loss) of
 Affiliate (Note 12)                                  --      1,719     (1,396)
                                                --------   --------   --------

Net Income                                      $ 95,717   $ 72,897   $ 68,539
                                                ========   ========   ========

Basic Net Income Per Share                      $   2.01   $   1.78   $   1.70
                                                ========   ========   ========
Diluted Net Income Per Share                    $   2.00   $   1.76   $   1.69
                                                ========   ========   ========
Number of Common Shares Used in
    Basic Net Income Per Share                    47,554     40,968     40,423
Incremental Shares from Assumed
    Conversion of Options                            354        365        180
                                                --------   --------   --------
Number of Common Shares Used in
    Diluted Net Income Per Share (Note 2)         47,908     41,333     40,603
                                                ========   ========   ========

                 The accompanying notes are an integral part of
                         these consolidated statements.

                                      F-4
<PAGE>
                    FRANCHISE FINANCE CORPORATION OF AMERICA

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                  (Amounts in thousands except per share data)
<TABLE>
<CAPTION>
                                    Common Stock Issued  Capital in
                                    -------------------  Excess of  Cumulative  Cumulative
                                     Shares    Amount    Par Value  Net Income  Dividends     Total
                                     ------    ------    ---------  ----------  ---------     -----
<S>                                <C>        <C>     <C>         <C>        <C>         <C>
BALANCE, December 31, 1995           40,295     $403      $547,478   $ 60,670   $(114,734)  $ 493,817
Capital contributions--dividend
reinvestment plan                       220        2         4,897         --          --       4,899
Exercise of stock options                49        1           960         --          --         961
Net income                               --       --            --     68,539          --      68,539
Dividends declared--$1.80 per share      --       --            --         --     (72,846)    (72,846)
                                     ------     ----      --------   --------   ---------   ---------

BALANCE, December 31, 1996           40,564      406       553,335    129,209    (187,580)    495,370
Capital contributions -
Issuance of common stock                957       10        23,297         --          --      23,307
Dividend reinvestment plan              235        2         5,792         --          --       5,794
Exercise of stock options                32       --           632         --          --         632
Net income                               --       --            --     72,897          --      72,897
Dividends declared--$1.82 per share      --       --            --         --     (75,004)    (75,004)
                                     ------     ----      --------   --------   ---------   ---------

BALANCE, December 31, 1997           41,788      418       583,056    202,106    (262,584)    522,996
Capital contributions -
Issuance of common stock              6,939       70       182,586         --          --     182,656
Dividend reinvestment plan              234        2         6,069         --          --       6,071
Exercise of stock options               102        1         1,997         --          --       1,998
Net income                               --       --            --     95,717          --      95,717
Dividends declared--$1.90 per share      --       --            --         --     (93,004)    (93,004)
                                     ------     ----      --------   --------   ---------   ---------

BALANCE, December 31, 1998           49,063     $491      $773,708   $297,823   $(355,588)  $ 716,434
                                     ======     ====      ========   ========   =========   =========
</TABLE>
                 The accompanying notes are an integral part of
                         these consolidated statements.

                                      F-5
<PAGE>
                    FRANCHISE FINANCE CORPORATION OF AMERICA

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                             (Amounts in thousands)

                                                    1998      1997       1996
                                                    ----      ----       ----
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income                                     $  95,717  $  72,897  $  68,539
 Adjustments to net income:
   Depreciation and amortization                   24,518     20,784     20,654
   Gain on sale of property                       (10,535)    (5,471)    (9,899)
   Equity in net (income) loss of affiliate            --     (1,719)     1,396
   Provision for uncollectible mortgage loans       1,118        791      1,400
   Other                                            1,482     (4,153)     2,637
                                                ---------  ---------  ---------

     Net cash provided by operating activities    112,300     83,129     84,727
                                                ---------  ---------  ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Acquisition of property                         (366,836)  (140,218)  (128,713)
 Investment in mortgage loans                    (537,665)  (310,811)   (49,102)
 Investment in notes receivable                   (33,819)   (17,460)   (17,280)
 Proceeds from securitization transactions        540,372    103,975    151,720
 Proceeds from sale of property                    33,764     26,425     34,015
 Receipt of mortgage loan and note payoffs         56,415     30,198     12,265
 Collection of mortgage loan and note principal    10,601      7,520      6,089
 Collection of investment security principal        3,184      1,463        715
 Collection of (investment in) related party
  notes receivable                                     --    100,706   (147,616)
 Purchase of investment securities                     --    (15,946)        --
 Dividend received from (investment in)
  affiliate                                            --      9,822     (9,500)
                                                ---------  ---------  ---------

     Net cash used in investing activities       (293,984)  (204,326)  (147,407)
                                                ---------  ---------  ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Dividends paid                                   (88,603)   (73,618)   (72,725)
 Proceeds from issuance of common stock           190,725     29,733      5,860
 Proceeds from bank borrowings                    738,000    503,000    254,000
 Proceeds from issuance of notes                  190,313     60,150    100,000
 Payment of bank borrowings                      (852,000)  (352,288)  (215,172)
 Payment of other unsecured notes                      --    (50,000)        --
                                                ---------  ---------  ---------

     Net cash provided by financing activities    178,435    116,977     71,963
                                                ---------  ---------  ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS                                        (3,249)    (4,220)     9,283

CASH AND CASH EQUIVALENTS, beginning of year        7,130     11,350      2,067
                                                ---------  ---------  ---------

CASH AND CASH EQUIVALENTS, end of year          $   3,881  $   7,130  $  11,350
                                                =========  =========  =========

                 The accompanying notes are an integral part of
                         these consolidated statements.

                                      F-6
<PAGE>
                    FRANCHISE FINANCE CORPORATION OF AMERICA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997

(1) ORGANIZATION AND OPERATION:

         Franchise  Finance   Corporation  of  America   ("FFCA"),   a  Delaware
corporation,  is a self-administered real estate investment trust ("REIT") which
provides real estate financing to chain store operators  (including operators of
restaurants,  convenience stores and automotive service and parts stores).  FFCA
offers   financing   through   various   products,    including   sale-leaseback
transactions,  mortgage loans,  equipment loans and construction  financing.  At
December 31, 1998, FFCA had interests in 3,592 properties representing over $1.6
billion in gross  investments in chain store properties  located  throughout the
United  States  and  in  Canada   (although   investments   in  Canada  are  not
significant).  In addition to this geographic diversification,  the portfolio is
also  represented  by more than 450  different  operators in  approximately  100
retail  chains.  No single  operator  represented  10% or more of  FFCA's  total
portfolio  revenues  during 1998.  FFCA's  portfolio  included 2,109 chain store
properties   consisting  of  investments  in  real  estate  mortgage  loans  and
properties  subject to leases and 1,483  properties  consisting  of  securitized
mortgage loans in which FFCA holds a residual interest.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

         CONSOLIDATION   AND  EQUITY  METHOD   INVESTMENTS  -  The  accompanying
consolidated   financial  statements  include  the  accounts  of  FFCA  and  its
wholly-owned  subsidiaries,  FFCA Acquisition  Corporation (and its wholly-owned
subsidiary FFCA Loan Warehouse  Corporation),  FFCA Capital Holding Corporation,
FFCA  Residual  Interest  Corporation,  FFCA Secured  Assets  Corporation,  FFCA
Secured  Lending   Corporation  and  FFCA  Institutional   Advisors,   Inc.  All
intercompany transactions have been eliminated.

         FEDERAL INCOME TAXES - FFCA has elected to be taxed as a REIT under the
Internal Revenue Code of 1986, as amended, as of June 1, 1994. As a result, FFCA
generally will not be subject to federal income  taxation at the corporate level
provided it meets  certain  tests which,  among other  things,  require that its
assets consist  primarily of real estate,  its income be derived  primarily from
real estate and at least 95% of its taxable  income be  distributed  annually to
its shareholders.  The tax basis of the assets and liabilities has been recorded
based upon the value of the consideration exchanged upon the merger of FFCA with
its  predecessor  companies  and,  accordingly,  the tax basis of the net assets
exceeds the book basis by  approximately  $223 million at December 31, 1998.  In
1998,  excess inclusion income related to the  securitization  transactions (see
Note 6) resulted in  unrelated  business  taxable  income of $.018 per share for
FFCA's tax-exempt investors.

         REAL  ESTATE - FFCA  records  the  acquisition  of real estate at cost,
which includes  miscellaneous  acquisition  and closing costs.  Depreciation  is
computed using the straight-line  method over the estimated useful life of 24 to
30 years for buildings and  improvements  and 7 to 8 years for  equipment.  FFCA
periodically reviews its real estate portfolio for impairment whenever events or
changes in  circumstances  indicate that the carrying amount of the property may
not be  recoverable,  such as may be the  case  with  vacant  properties.  If an
impairment  loss is  indicated,  the loss is measured as the amount by which the
carrying amount of the asset exceeds the estimated fair value of the asset. Gain
on sale of property in the consolidated statements of income for the years ended
December 31, 1998,  1997 and 1996 is net of  approximately  $4.0  million,  $1.9
million and $3.3 million,  respectively,  of impairment  loss related to certain
vacant properties. Vacant properties held for sale represent less than 1% of the
total real estate investment portfolio at December 31, 1998.

         LOAN ORIGINATION FEES AND COSTS - FFCA generally receives a fee related
to activities  performed to process a client's  request for and  origination  of
credit.  Direct costs  associated  with these  activities are offset against the
related fees  received and the balance is deferred  and  amortized  into revenue
over the term of the related loan.  Loan  origination  fees and costs related to
mortgage loans held for sale are deferred until the related loan is sold.

                                      F-7
<PAGE>
         CASH AND CASH EQUIVALENTS - Cash and cash equivalents  include all cash
and highly liquid investment  securities with maturities at acquisition of three
months or less.  Such  investment  securities  are carried at cost plus  accrued
interest, which approximates fair market value.

         DERIVATIVE  FINANCIAL  INSTRUMENTS  - FFCA  uses  derivative  financial
instruments  to  manage  interest  rate  exposures  that  exist as a part of its
ongoing business operations. The portfolio of fixed-rate mortgage loans held for
sale through  securitization  is funded on an interim  basis by FFCA's  variable
rate bank credit  facility.  FFCA hedges against  fluctuations in interest rates
that could  adversely  affect the value of the mortgage  loans to be sold.  FFCA
does not hold or issue derivative financial  instruments for speculative trading
purposes.   The  instruments  used  are  interest  rate  contracts,   which  are
non-leveraged  and involve little  complexity.  FFCA intends to terminate  these
contracts upon  securitization  of the fixed-rate  mortgage loans, at which time
both  the  gain or loss on the  sale of the  loans  and the  gain or loss on the
termination  of the interest rate  contracts  will be measured and recognized in
the statement of operations.

         FFCA would be exposed to credit loss in the event of  nonperformance by
the  counterparties  to the interest rate  contracts.  FFCA minimizes its credit
risk on these transactions by only dealing with leading, credit-worthy financial
institutions and, therefore, does not anticipate non-performance.

         RENTAL  REVENUE  RECOGNITION  -  FFCA  leases  its  real  estate  under
long-term net leases which are  classified as operating  leases.  Rental revenue
from operating leases is recognized as it is earned.

         EARNINGS PER SHARE - Stock options to purchase  970,000 weighted shares
of common stock  (representing  options  granted in January  1998,  May 1998 and
January 1997) at a range of $26.375 to $27.625 per share were outstanding during
1998, but were not included in the  computation  of diluted  earnings per share,
because the options' exercise price was greater than the average market price of
the common  shares.  A warrant to purchase  1,476,908  shares of common stock at
$31.64 per share was also excluded from the  computation  of earnings per share.
In early  1999,  FFCA sold 6.7  million  shares of its common  stock in a public
offering at a price of $23 per share.

         USE OF  ESTIMATES - The  preparation  of the  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 at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting period.  Although management believes
its estimates are reasonable, actual results could differ from those estimates.

         NEW PRONOUNCEMENTS - In June 1998, the Financial  Accounting  Standards
Board (FASB) issued SFAS No. 133  "Accounting  for  Derivative  Instruments  and
Hedging  Activities".  SFAS No. 133 requires  companies to record derivatives on
the balance  sheet as assets or  liabilities,  measured at fair value.  Gains or
losses  resulting  from  changes  in the  values of those  derivatives  would be
accounted  for depending on the use of the  derivative  and whether it qualifies
for hedge accounting.  This standard is effective for FFCA's fiscal year 2000 at
which time FFCA plans to adopt it. FFCA is currently  assessing the method to be
utilized  for  adoption  and the  impact of the  adoption  on  FFCA's  financial
statements.  It is not expected,  however,  that adoption of this statement will
have a material effect on FFCA's results of operations,  financial  condition or
cash flows.

         In  October  1998,  the  FASB  issued  SFAS  No.  134  "Accounting  for
Mortgage-Backed  Securities  Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage  Banking  Enterprise".  This standard  requires that
after the  securitization  of mortgage loans held for sale, an entity engaged in
mortgage banking activities classify the resulting mortgage-backed securities or
other retained  interests  based on its ability and intent to sell or hold those
investments.  FFCA elected early  adoption of this standard in October 1998 and,
accordingly,  all retained interests except the interest-only certificate (which
is classified as  available-for-sale)  were reclassified to the held-to-maturity
category  based on FFCA's  intent and ability to hold these  investments.  There
were no  unrecognized  holding gains or losses at the time of  reclassification.
The adoption of this new accounting  standard did not have a material  effect on
FFCA's 1998 financial statements.

                                      F-8
<PAGE>
(3) INVESTMENTS IN REAL ESTATE:

         FFCA's real estate portfolio is comprised of property leased to tenants
under long-term net operating leases. The lease agreements generally provide for
base  monthly  rentals plus  additional  rentals  based on a  percentage  of the
lessees' gross sales or based on other contractual  increases in rent during the
lease term.  The terms of the leases are  generally  15 to 20 years for land and
buildings and seven or eight years for equipment (if any).  The initial terms of
FFCA's leases extend through 2018 with a weighted  average  remaining term of 13
years as of December 31, 1998.  Land and building leases  generally  provide for
two or four five-year renewal options.  Generally,  the lessee has the option to
purchase  equipment at the end of the lease term and land and buildings  anytime
after the first ten years of the lease at fair  market  value (but not less than
original  cost). A majority of leases entered into after 1994 provide for 90-day
option windows at various dates during the lease term.  Approximately two-thirds
of  FFCA's  land  and  building   leases   provide  for  purchase   options  and
approximately one-half of these options are currently exercisable.

         Minimum  future  rentals under  noncancellable  operating  leases as of
December 31, 1998, are as follows (amounts in thousands):

         Year ending December 31,
         ------------------------
                  1999                                        $  128,500
                  2000                                           126,100
                  2001                                           124,200
                  2002                                           119,600
                  2003                                           115,500
                  Thereafter                                     931,400
                                                              ----------
                  Total minimum future rentals                $1,545,300
                                                              ==========

         The above table  assumes  that all leases which expire are not renewed;
therefore,  neither  renewal  rentals nor rentals from  replacement  lessees are
included. In addition,  minimum future rentals do not include contingent rentals
that may be received  under the leases based upon a  percentage  of the lessee's
gross sales.  These  percentage  rentals totaled  approximately  $7.6 million in
1998,  $6.4 million in 1997 and $5 million in 1996.  FFCA  recognizes  estimated
contingent rentals ratably throughout the year when it is probable that a lessee
will exceed the sales threshold where percentage  rentals are due.  Verification
of the actual  amount of  percentage  rentals due is received from the lessee at
various times during the year, based on the lessee's reporting requirements. Had
FFCA adopted a policy of  deferring  recognition  of  contingent  rentals  until
receiving verification that the lessee reached its sales targets,  approximately
$850,000 of the  percentage  rental revenue would have been deferred at December
31, 1998.

(4) MORTGAGE LOANS HELD FOR SALE:

         Mortgage  loans  held for sale are  stated at the lower of cost or fair
market value,  determined in the aggregate.  The loans  represent first mortgage
loans on the land and/or buildings and/or equipment of 162 properties comprising
$115  million  in  fixed-rate  loans  and $1  million  in  variable-rate  loans.
Variable-rate  construction  loans totaled $47 million at December 31, 1998. The
fixed-rate  loans carry a weighted average interest rate of 9.4% and mature 5 to
20 years from the date of origination.  The  variable-rate  loans carry interest
rates that adjust monthly based on 30-day LIBOR plus a margin (average  interest
rate was 8.8% at December 31,  1998).  Total  principal  and  interest  payments
aggregate  approximately  $1.2 million per month. The fixed-rate  mortgage loans
generally prohibit  prepayment for certain periods or condition  prepayment upon
receipt of prepayment  penalties from the borrower.  The variable-rate  mortgage
loans generally have no prepayment restrictions.

(5) OTHER MORTGAGE LOANS AND NOTES RECEIVABLE:

         At December 31, 1998, FFCA held first mortgage loans on the land and/or
buildings and/or equipment of  approximately  165 properties  represented by $24
million in  participating  fixed-rate  loans (net of reserve of $3.6  million in
1998) and $19 million in variable-rate loans. These loans are held for long-term
investment.  Generally,  the fixed-rate  loans carry interest rates ranging from
10% to 13.5% per annum and mature 5 to 20 years from the date of origination.

                                      F-9
<PAGE>
         In addition,  these loans  generally  provide for  additional  interest
payments based on a percentage of the mortgagor's gross sales. The variable-rate
loans carry interest  rates which adjust  monthly based on 30-day LIBOR,  plus a
margin  and  carry an  average  interest  rate of 10.3% at  December  31,  1998.
Principal and interest  payments on the mortgage  loans are due in level amounts
with payments aggregating approximately $8.5 million per year to maturity.

         FFCA also held various secured and unsecured notes totaling $14 million
at December 31, 1998 and $27 million at December 31, 1997 (net of  allowances of
$460,000 in 1998 and 1997).  Generally,  the notes carry  interest rates ranging
from 10% to 12% per annum and mature 5 to 10 years from the date of origination.

(6) REAL ESTATE INVESTMENT SECURITIES:

         Certain  mortgage  loans  originated  for  sale by FFCA  totaling  $335
million in 1998 and $261 million in 1997 were securitized and Secured  Franchise
Loan Trust  Certificates  were sold to investors.  Upon sale, the mortgage loans
receivable  were  removed  from  the  balance  sheet  and a gain on the sale was
recognized for the difference  between the carrying amount of the mortgage loans
and the adjusted sales price.  The servicing rights on these mortgage loans have
been  retained  by FFCA;  such  amounts are  included  in "Other  Assets" in the
accompanying  financial statements and are not significant at December 31, 1998.
Generally,  the majority of each securitized loan pool is sold to third parties,
while FFCA retains the subordinated  investment  securities  (ranging from 9% to
12.5% of the aggregate  mortgage loan principal  balance,  to date). In the 1996
securitization  transaction,  FFCA also purchased the interest-only certificate.
The aggregate investment securities, totaling $74.4 million and $55.2 million at
December  31,  1998 and 1997,  respectively,  were  recorded by  allocating  the
previous  carrying  amount of the  mortgages  between  the  assets  sold and the
retained  interests,  based on their  relative  fair values and are  included in
"Real Estate  Investment  Securities" in the accompanying  consolidated  balance
sheets.  FFCA's  investment  securities  are  classified  as  held  to  maturity
securities,   except  for  its   interest-only   certificate   (carrying  amount
approximately  $17  million  and $21  million  at  December  31,  1998 and 1997,
respectively) which is classified as  available-for-sale.  At December 31, 1998,
the estimated fair market value of FFCA's investments  approximated the carrying
amount and the weighted average remaining term was approximately 18 years.

         In 1998,  FFCA entered into a $600  million loan sale  facility  with a
third party.  This  facility  permits FFCA to sell loans on a regular basis to a
trust for an agreed upon advance rate. Upon the sale of such loans, FFCA acts as
servicer for the loans.  As of December  31,  1998,  FFCA sold 460 loans with an
outstanding  aggregate  principal  balance  of $264  million  to the  trust  and
received cash proceeds of $225 million plus trust certificates  representing the
remaining  15% of the loan sale  price.  The  retained  subordinated  investment
securities,  totaling $39.3 million,  were accounted for as the sale of mortgage
loans and the  purchase of trust  certificates  and are included in "Real Estate
Investment  Securities" in the accompanying  consolidated  balance sheets. These
trust certificates are classified as trading securities and their estimated fair
market value approximates their carrying amount at December 31, 1998.

(7) NOTES PAYABLE:

         A  summary  of FFCA's  unsecured  notes  payable  follows  (amounts  in
thousands):

                                                            1998         1997
                                                            ----         ----
   7% Senior Notes due 2000, net of unamortized
     discount of $465 in 1998 and $709 in 1997            $149,535     $149,291
   8.25% Senior Notes due 2003, net of unamortized
     discount of $146 and related costs of $6,800          143,054           --
   7.875% Senior Notes due 2005, net of unamortized
     discount of $71 in 1998 and $81 in 1997                49,929       49,919
   6.78% Notes due 2002                                     30,000       30,000
   7.02% Notes due 2003                                     30,000       30,000
   7.1% Notes due 2026, callable by holder in 2004          40,000       40,000
   6.95% Notes due 2007                                     10,150       10,150
   6.86% Notes due 2007                                     17,000           --
   7.07% Notes due 2008                                     30,500           --
                                                          --------     --------
                                                          $500,168     $309,360
                                                          ========     ========

                                      F-10
<PAGE>
         Interest  on  the  notes  is  payable  semi-annually  in  arrears  with
principal due at maturity.  The aggregate  weighted average interest rate on the
notes was 7.26% in 1998 and 7.05% in 1997. With the exception of the $40 million
notes  due  2026,  the  notes  may not be  redeemed  prior to  their  respective
maturities.  The note agreements  contain certain  covenants which,  among other
restrictions, limit the incurrence of additional debt if FFCA's debt exceeds 60%
of total assets (as defined in the note  agreements),  or if FFCA's debt service
coverage is less than 1.5 to 1. As of December 31, 1998,  FFCA was in compliance
with its note covenants.

         Amortization  of debt issuance  costs for the years ended  December 31,
1998,  1997 and 1996  amounted  to $1.4  million,  $1.3  million  and  $994,000,
respectively,  which is  included  in  "Interest  Expense"  in the  accompanying
financial statements.

         In 1998,  FFCA entered into an interest rate  agreement with a notional
amount of $100 million to hedge  exposure to  fluctuations  in interest rates on
anticipated debt. FFCA terminated this interest rate agreement upon the issuance
of its senior  unsecured notes in October 1998, at which time FFCA deferred (and
amortizes into interest expense) the payment of approximately $7 million it made
in settlement of this interest rate agreement.

(8) BORROWINGS UNDER LINE OF CREDIT:

         The  following is a summary of  borrowings  under FFCA's line of credit
(amounts in thousands):

                                                           1998            1997
                                                           ----            ----
   Borrowings at LIBOR Bid Rate, weighted average
     interest rate of 6.37% and 6.69% at December 31,
     1998 and 1997, respectively                         $ 47,000       $ 56,000
   Borrowings at 30-day LIBOR plus 1%, weighted
     average interest rate of 6.59% and 6.96% at
     December 31, 1998 and 1997, respectively              35,000        210,000
   Borrowings at Base Rate, 7.75% and 8.50% at
     December 31, 1998 and 1997, respectively,
     subsequently converted to LIBOR loans                106,000         36,000
                                                         --------       --------
                                                         $188,000       $302,000
                                                         ========       ========

         At December  31,  1998,  FFCA had  outstanding  $188  million on a $350
million revolving loan facility with  participating  banks used to provide funds
for the  acquisition  or financing of chain store  properties.  Interest on this
unsecured loan facility is due in periodic  installments with a weighted average
rate of 6.57% in 1998 and 6.63% in 1997.  FFCA has the  option  under  this loan
facility to borrow at rates that are  competitively  bid among the participating
banks. The loan facility  provides for a fee on the unused  commitment amount of
 .20% per annum,  payable  quarterly  in arrears.  The  revolving  loan  facility
expires in December 2000, with the possibility of annual extensions.  The credit
agreement contains covenants,  which, among other restrictions,  require FFCA to
maintain a fixed  charge  coverage  ratio of 2 to 1 and a debt to  adjusted  net
worth ratio of no more than .9 to 1, as defined.  As of December 31, 1998,  FFCA
was in compliance with its debt covenants.

         Amortization  of loan fees  related to the facility for the years ended
December  31,  1998,  1997 and 1996  amounted to  approximately  $880,000,  $1.2
million and $1.4 million, respectively,  which is included in "Interest Expense"
in the accompanying consolidated financial statements.

(9) STOCK-BASED COMPENSATION PLANS:

         On May  10,  1995,  FFCA  shareholders  approved  a  stock  option  and
incentive plan which permits the issuance of options, restricted stock and other
stock-based  awards  to key  employees,  the  Board  of  Directors  and  certain
independent  contractors of FFCA. This plan reserves  3,018,804 shares of common
stock for grant and provides  that the term of each award be  determined  by the
compensation  committee of the Board of Directors.  In 1998,  FFCA issued 29,886
shares of restricted  stock,  which awards are conditioned upon years of service
requirements,   and  recognized   compensation  expense  totaling  approximately
$150,000.  Stock options granted under the plan may be either  non-qualified  or
incentive stock  options and the  exercise price,  determined by  the committee,

                                      F-11
<PAGE>
may not be less than the fair  market  value of a share of  common  stock on the
grant date.  Options  granted to FFCA's  non-employee  directors are immediately
exercisable,  while the remaining options vest over a three-year period from the
date of grant. The options expire ten years after the date of grant.

         FFCA  measures the  compensation  cost of its stock  option  grants and
restricted  stock awards using the  intrinsic  value based method of  accounting
prescribed  in APB  Opinion  25,  "Accounting  for Stock  Issued to  Employees".
Accordingly,  no compensation  cost has been recognized for stock options issued
under the plan.  Had FFCA's  compensation  cost been  determined  using the fair
value based method of accounting prescribed by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation",  FFCA's net income
and  earnings  per share  would  have been  changed to the  following  pro forma
amounts (in thousands, except per share data):

                                             1998        1997         1996
                                             ----        ----         ----
     Net income:
       As reported                          $95,717     $72,897      $68,539
       Pro forma                            $94,950     $70,718      $67,605
     Earnings per share of common stock:
       As reported:
         Basic                              $  2.01     $   1.78     $  1.70
         Assuming dilution                  $  2.00     $   1.76     $  1.69
       Pro forma:
         Basic                              $  2.00     $   1.73     $  1.67
         Assuming dilution                  $  1.98     $   1.71     $  1.67

         The fair value of each option  grant is  estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1998, 1997 and 1996, respectively: dividend yield
of 6.5%, 6.4% and 8.2%;  expected stock price  volatility of 18.53%,  18.47% and
20.13%;  risk-free  interest  rates of 5.57%,  5.65% and 5.59%;  and an expected
option term of seven years.

         A summary of the status of FFCA's stock option and incentive plan as of
December 31, 1998,  1997 and 1996, and changes  during the years then ended,  is
presented below:
<TABLE>
<CAPTION>
                                           1998                  1997                  1996
                                   -------------------    ------------------    ------------------
                                              Weighted              Weighted              Weighted
                                              Average               Average               Average
                                              Exercise              Exercise              Exercise
                                     Shares    Price      Shares     Price       Shares    Price
                                     ------    -----      ------     -----       ------    -----
<S>                                <C>         <C>       <C>         <C>       <C>         <C>
Outstanding, beginning of year     2,425,245   $22.14    1,705,181   $20.23    1,227,989   $19.50
Granted                              258,003   $27.58      774,730   $26.32      526,091   $21.87
Exercised                           (102,435)  $19.50      (32,166)  $19.62      (48,899)  $19.63
Cancellations                             --    --         (22,500)  $24.38           --       --
                                   ---------             ---------             ---------
Outstanding, end of year           2,580,813   $22.79    2,425,245   $22.14    1,705,181   $20.23
                                   =========             =========             =========
Options exercisable, end of year   1,691,130   $21.17      956,071   $20.07      400,181   $19.64
Weighted average fair value of                                                
 each option granted during year   $    2.91             $    2.88             $    2.05
</TABLE>                                                                    

         As of  December  31,  1998,  options  outstanding  under  the  plan had
exercise prices ranging from $19.50 to $27.625 with a weighted  average price of
$22.79,  and expiration  dates ranging from May 2005 to May 2008 with a weighted
average remaining term of approximately seven years.

         The FFCA  401K  Plan  was  established  as a  savings  plan for  FFCA's
employees who have been employed by FFCA for a minimum of six months.  This plan
allows  employees to make their own  contributions  through payroll  deductions.
FFCA matches  participating  employees'  contributions  up to six percent of the
participating  employees' salaries.  Employer matching contributions are made in
FFCA  stock,  which  is  purchased  on the  open  market,  and  are  subject  to
years-of-service  vesting requirements.  Employer contributions totaled $277,000
in 1998, $256,000 in 1997 and $213,000 in 1996.

                                      F-12
<PAGE>
         In 1997, FFCA  established an employee stock purchase plan.  Under this
plan,  employees can purchase stock through payroll  deductions at a price equal
to 85% of the fair  market  value of the stock,  as  defined  in the  agreement.
Employee  purchases  are  limited to 10% of their  salary each year and were not
significant in 1998 or 1997.

(10) DERIVATIVE FINANCIAL INSTRUMENTS:

         At December 31, 1998, FFCA had interest rate swap contracts outstanding
with a notional  amount  aggregating  $28 million.  Under the interest rate swap
contracts,  two parties agree to swap payments over a specified period where one
party agrees to make  payments at a specified  fixed rate and the other party to
the contract  agrees to make  payments  based on a floating  rate.  The notional
amount serves solely as a basis for the  calculation of payments to be exchanged
and is not a measure of the  exposure of FFCA  through  its use of  derivatives.
FFCA intends to terminate these contracts upon  securitization of the fixed-rate
mortgage loans in 1999, at which time FFCA would generally expect to receive (if
rates rise) or pay (if rates fall) an amount  equal to the present  value of the
difference between the fixed rate set at the beginning of the interest rate swap
contract  and the  then-current  market  fixed rate at the time of  termination.
Based  on  the  level  of  interest  rates  prevailing,  FFCA  would  have  paid
approximately $250,000 if it had terminated these swap contracts at December 31,
1998. Under the contracts,  no cash payments would be required until the earlier
of the securitization transaction or July 1999.

(11) DIVIDENDS AND CAPITAL STOCK:

         FFCA  declared  a fourth  quarter  1998  dividend  of $0.49 per  share,
payable on February 19, 1999,  to  shareholders  of record on February 10, 1999.
The  dividend   payments  made  by  FFCA  to  its   shareholders  for  1998  are
characterized as ordinary income of $1.88 per share.  Dividend  payments made by
FFCA to its shareholders for 1997 are  characterized as ordinary income of $1.68
per share and capital gain of $0.12 per share. Dividend payments made by FFCA to
its  shareholders  for 1996 are  characterized  as ordinary  income of $1.58 per
share and capital gain of $0.22 per share.

         At December 31, 1998,  a warrant to purchase  1,476,908  shares of FFCA
common stock was outstanding.  The warrant is immediately  exercisable as to all
1,476,908   shares  and  expires  on  March  13,  2005  except,   under  certain
circumstances (as described in the warrant agreement), the warrant expires as to
738,454  shares on September 13, 2001 and the remaining  738,454 shares on March
13, 2005.

(12) RELATED PARTY TRANSACTIONS:

         INVESTMENT IN AFFILIATE - FFCA Mortgage  Corporation  (Mortgage  Corp.)
was  formed  in  1996  to  originate  mortgage  loans  to  be  held  for  future
securitization transactions. FFCA, as owner of all of the issued and outstanding
nonvoting  preferred stock of Mortgage Corp., was entitled to receive 95% of all
dividends paid by Mortgage Corp.  prior to the  dissolution of Mortgage Corp. on
December  31,  1997.  At  dissolution,  cash  dividends  were paid to the common
stockholder and the remaining assets were distributed to FFCA in satisfaction of
its note receivable  from Mortgage Corp.  FFCA recorded 95% of Mortgage  Corp.'s
net  income  (loss)  for  1997 and  1996 as  "Equity  in Net  Income  (Loss)  of
Affiliate" in the accompanying financial statements.

         Investments  in companies in which FFCA has  significant  influence but
less than a  controlling  voting  interest  are  accounted  for using the equity
method.  Under the equity method, only FFCA's investment in and amounts due from
the equity investee are included in the consolidated  balance sheet, only FFCA's
share of the  investee's  earnings  is included  in the  consolidated  operating
results, and only the cash investment, loans or other cash paid to the investee,
less any dividends,  cash distributions,  loan repayments or other cash received
from the investee, are included in the consolidated cash flows.

         Prior  to  Mortgage  Corp.'s  dissolution,  FFCA  provided  funding  to
Mortgage  Corp.  for the  origination of mortgage  loans.  Under  revolving loan
agreements  with Mortgage  Corp.,  FFCA was entitled to receive a draw fee of 1%
and  interest  at a rate  equal  to  LIBOR or a Base  rate  (as  defined  in the
agreement),  plus a margin ranging from 2.5% to 3%. FFCA also provided temporary
working  capital  advances to Mortgage  Corp.  bearing an interest rate of LIBOR
plus 3%.

                                      F-13
<PAGE>
         A summary of  selected  financial  information  as reported by Mortgage
Corp.  as of, and for the years ended  December 31, 1997 and 1996,  is set forth
below (amounts in thousands):

                                               1997              1996
                                               ----              ----
         Revenues                             $9,632         $  2,336
         Interest expense                      9,037            2,861
         Net income (loss)                     1,809           (1,470)
         Mortgage loans held for sale             --          140,967
         Total assets                             --          156,928
         Notes payable to FFCA                    --          147,616
         Total liabilities                        --          148,398
         Total shareholders' equity               --            8,530

         MORTGAGE  PAYABLE TO AFFILIATE - In 1988, a  partnership  managed by an
affiliate  of FFCA  provided  financing  for  land  purchased  by FFCA  from the
partnership  and for the  construction  of the  corporate  headquarters  of FFCA
(together,  the FFCA Premises).  The mortgage loan on the FFCA Premises provides
for payments of interest  only, at the rate of 10% per year,  until May 2000, at
which time the entire  principal  amount is due. The loan also  provides for the
payment of additional interest upon maturity based upon the increase, if any, in
the value of the FFCA Premises, as defined in the loan agreement.  Under certain
circumstances,  FFCA may be required to prepay the loan.  The loan is secured by
land and land improvements,  the FFCA Premises and the guaranty of an affiliate.
The FFCA Premises,  including  equipment,  amounted to $11.8 million in 1998 and
$10.5 million in 1997 (net of accumulated  depreciation  of $4.1 million in 1998
and $3.2 million in 1997) and is included in "Other Assets" in the  accompanying
financial statements.

         ADMINISTRATIVE  SERVICES  AGREEMENTS  WITH  AFFILIATES - FFCA  provides
certain accounting,  computer, investor and other administrative services to its
affiliates  under service  agreements which provide for a monthly fee based upon
the amount of services used by each affiliate. Fees for such services aggregated
approximately $590,000 in 1998, $1.4 million in 1997 and $1.6 million in 1996.

(13) FINANCIAL INSTRUMENTS:

         The carrying value of FFCA's financial  instruments  approximates  fair
value,  except for differences with respect to mortgage loans  receivable,  real
estate investment  securities and long-term,  fixed-rate debt (Notes Payable and
Mortgage  Payable to  Affiliate).  The fair value of a financial  instrument  is
generally  determined  by  reference  to its quoted  market  price or, if quoted
market prices are not available,  to the market price of a financial  instrument
with similar characteristics.

         The fair value of FFCA's mortgage loans is estimated by discounting the
future  cash flows  using the  current  interest  rates for  similar  loans with
similar  maturities  at December  31,  1998.  The  estimated  fair values of the
mortgage  loans held for long-term  investment  and the mortgage  loans held for
sale  exceeded  their   carrying   amounts  by  $1  million  and  $6.9  million,
respectively.  Based on market  prices of similar  investments  at December  31,
1998, the carrying amount of FFCA's real estate investment  securities  exceeded
its fair value by $600,000. The carrying amount of FFCA's long-term,  fixed-rate
debt  exceeded  its fair value by $9.9  million  based on the level of  interest
rates prevailing at December 31, 1998.

         The fair value of FFCA's  interest rate swap  contracts is based on the
theoretical cost to unwind or terminate the swap  transactions.  FFCA would have
paid  approximately  $250,000  if it  had  terminated  its  interest  rate  swap
contracts at December 31, 1998.

         The combined fair value differences of these financial instruments,  is
equivalent  to an  unrealized  gain  of $17  million;  however,  changes  in the
unrealized  gains or  losses  on  mortgage  loans,  the real  estate  investment
securities,  fixed-rate  debt and the interest rate swap contracts do not result
in the  realization or expenditure of cash unless the  investments  are actually
sold or the debt is retired.

                                      F-14
<PAGE>
(14) ADDITIONAL FINANCIAL INFORMATION:

         Additional  information  with respect to cash flows follows (amounts in
thousands):

                                                  1998       1997        1996
                                                  ----       ----        ----
  Investment in securities resulting from
   securitization                                $61,162     $11,303    $30,763
  Mortgage loans obtained as part of property
   sale proceeds, net of deferred gain             1,447         997        825
  Acquisition of property and equipment
   through foreclosure                                --          --      1,245
  Mortgage loans received from affiliate              --      46,910         --
  Interest paid, net of amounts capitalized       38,980      32,296     23,692
  Income taxes paid                                   98         119         27

         Cash flows from derivative financial instruments that are accounted for
as hedges of identifiable transactions or events, including anticipatory hedges,
are  classified  in the same  category  as the cash flows  from the items  being
hedged.

(15) COMMITMENTS:

         In the normal  course of  business,  FFCA makes  commitments  to extend
credit to meet the  financing  needs of its  clients  in the  chain  restaurant,
convenience store and automotive  service and parts  industries.  FFCA evaluates
each client's credit and, based on management's evaluation of the client and the
proposed  property  site,  determines  the amount of credit to be  extended  and
collateral  obtained.  The commitments  generally have fixed expiration dates or
other  termination  clauses  and  require  payment  of a fee by the  client.  At
December 31, 1998,  FFCA's  outstanding  commitments to extend credit aggregated
approximately $625 million.

(16) QUARTERLY FINANCIAL INFORMATION (UNAUDITED):

                                             Quarter Ended
                            ----------------------------------------------------
                            March 31,    June 30,   September 30,   December 31,
                            ---------    --------   -------------   ------------
                               (amounts in thousands, except per share data)
  1998
  Revenues                  $39,390      $40,366       $42,983         $46,829
  Net income                 18,574       28,384        23,837          24,922
  Net income per share,
      assuming dilution        0.42         0.58          0.48            0.51
  Dividends per share       $  0.47      $  0.47       $  0.47         $  0.49
  Weighted average shares    44,060       49,026        49,236          49,276

  1997
  Revenues                  $32,775      $34,648       $32,861         $34,704
  Net income                 18,215       21,570        16,457          16,655
  Net income per share,
      assuming dilution        0.44         0.53          0.40            0.40
  Dividends per share       $  0.45      $  0.45       $  0.45         $  0.47
  Weighted average shares    40,977       40,973        41,247          42,121

                                      F-15
<PAGE>
                                                                    SCHEDULE III
                                                                     Page 1 of 2
                    FRANCHISE FINANCE CORPORATION OF AMERICA
              SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
                             AS OF DECEMBER 31, 1998
                          (Dollar amounts in thousands)

<TABLE>
<CAPTION>
                                  Initial Cost to Company and
                               Gross Amount At December 31, 1998           Accumulated Depreciation
                            -----------------------------------------   --------------------------------
                No. of
U.S. Region   Properties    Land    Buildings   Equipment     Total     Buildings   Equipment    Total
-----------   ----------    ----    ---------   ---------     -----     ---------   ---------    -----
<S>            <C>       <C>         <C>         <C>       <C>          <C>          <C>        <C>     
E.N. Central     286     $ 69,304    $129,441    $ 4,404   $  203,149   $ 28,425     $ 4,385    $ 32,810
Mideast          260       76,365     114,548        755      191,668     17,484         755      18,239
Mountain         203       51,255      96,493      1,545      149,293     10,787       1,545      12,332
Northeast        119       29,500      44,738        671       74,909      8,488         671       9,159
Pacific          143       44,679      41,879        285       86,843     12,683         285      12,968
Southeast        505      130,069     185,265      3,477      318,811     47,702       3,477      51,179
Southwest        263       66,364      99,240      4,638      170,242     25,158       4,638      29,796
W.N. Central     154       28,750      47,840      3,095       79,685     16,072       3,025      19,097
               -----     --------    --------    -------   ----------   --------     -------    --------

TOTAL          1,933     $496,286    $759,444    $18,870   $1,274,600   $166,799     $18,781    $185,580
               =====     ========    ========    =======   ==========   ========     =======    ========
</TABLE>

                                      F-16
<PAGE>
                                                                    SCHEDULE III
                                                                     Page 2 of 2

                    FRANCHISE FINANCE CORPORATION OF AMERICA
              SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
                             AS OF DECEMBER 31, 1998
                             (Amounts in thousands)

NOTES:
(1)  The properties  consist of restaurants,  convenience  stores and automotive
     service and parts properties.
(2)  There are no encumbrances on properties.

(3)  The aggregate  cost for Federal income tax purposes is  approximately  $1.3
     billion.
(4)  Depreciation  is computed over the estimated  useful life of 24 to 30 years
     for the buildings and improvements and 7 to 8 years for the equipment.
(5)  Transactions  in real estate and  equipment  and  accumulated  depreciation
     during 1998, 1997, and 1996 are summarized as follows:

                                                                  Accumulated
                                                     Cost         Depreciation
                                                     ----         ------------
Balance, December 31, 1995                       $   794,580       $ 176,232
   Acquisitions                                      128,713              --
   Cost of real estate sold                          (42,447)        (12,705)
   Cost of equipment sold                            (10,591)        (10,122)
   Foreclosed property                                 1,245              --
   Impairment loss                                    (3,285)             --
   Depreciation expense                                   --          19,536
                                                 -----------       ---------

Balance, December 31, 1996                           868,215         172,941
   Acquisitions                                      140,218              --
   Cost of real estate sold                          (31,321)         (9,531)
   Cost of equipment sold                             (8,059)         (8,016)
   Construction in progress transferred to
   mortgage loans held for sale                      (15,819)             --
   Impairment loss                                    (1,929)             --
   Depreciation expense                                   --          19,869
                                                 -----------       ---------

Balance, December 31, 1997                           951,305         175,263
   Acquisitions                                      367,509              --
   Cost of real estate sold                          (36,030)         (8,877)
   Cost of equipment sold                             (4,169)         (4,156)
   Impairment loss                                    (4,015)             --
   Depreciation expense                                   --          23,350
                                                 -----------       ---------

   Balance, December 31, 1998                    $ 1,274,600       $ 185,580
                                                 ===========       =========

                                      F-17
<PAGE>
                                                                     SCHEDULE IV
                                                                     Page 1 of 2
                    FRANCHISE FINANCE CORPORATION OF AMERICA
                    SCHEDULE OF MORTGAGE LOANS ON REAL ESTATE
                             AS OF DECEMBER 31, 1998
                          (Dollar amounts in thousands)

                                     No. of
                                    Financed      Interest
U.S. Region  Original Loan Amount  Properties    Rate Range
-----------  --------------------  ----------    ----------
Southeast         under $500           27       10.0% - 13.5%
                 $501-$1,000            2       10.0% - 10.5%
                 over $1,000            1               11.4%
                                    
Mideast           under $500            5       11.0% - 12.5%
                 $501-$1,000            1               10.5%
                 over $1,000            1               10.0%
                                    
Northeast         under $500           23      11.25% - 11.5%
                 over $1,000            3               11.5%
                                    
E.N. Central      under $500            5       11.0% - 12.5%
                 $501-$1,000            9              11.25%
                                    
W.N. Central      under $500           17       11.0% - 13.5%
                 $501-$1,000            1               10.5%
                                    
Southwest         under $500           18      10.25% - 12.5%
                 $501-$1,000            8               9.05%
                 over $1,000            1               9.05%
                                    
Mountain          under $500           11      10.25% - 11.3%
                 $501-$1,000            6       9.05% - 11.5%
                                    
Pacific           under $500            2      10.25% - 11.0%
                 $501-$1,000            1               11.5%
                                    
                                                              Principal Amount
                                        Face     Carrying    of Loans Subject to
                   Maturity Date      Amount of  Amount of  Delinquent Principal
U.S. Region           Range           Mortgages  Mortgages      or Interest
-----------        -------------      ---------  ---------      -----------
Southeast      Jul. 2000 - Jan. 2005  $ 4,146     $ 2,366          $  419
               Jul. 2002 - Jul. 2014    1,291         810              --
                           Jul. 2000   15,525      10,425              --
                                      -------     -------          ------
                                       20,962      13,601             419
                                      -------     -------          ------

Mideast        Aug. 1999 - Feb. 2003    1,112         608              --
                           Nov. 2011      750         381              --
                           Jun. 1999    1,290         630              --
                                      -------     -------          ------
                                        3,152       1,619              --
                                      -------     -------          ------

Northeast      Apr. 2003 - Apr. 2004    4,392       2,483           2,314
               Sep. 2003 - Nov. 2015    4,126       2,698           2,698
                                      -------     -------          ------
                                        8,518       5,181           5,012
                                      -------     -------          ------

E.N. Central   Sep. 1999 - Dec. 2004    1,345         500              --
                 May 2002 - May 2015    6,596       4,998              --
                                      -------     -------          ------
                                        7,941       5,498              --
                                      -------     -------          ------

W.N. Central   Sep. 2001 - May. 2010    1,555         427              --
                           Jan. 2009      778         641              --
                                      -------     -------          ------
                                        2,333       1,068              --
                                      -------     -------          ------

Southwest      Jun. 1999 - Jun. 2016    4,189       3,010              38
               Jan. 2000 - Jul. 2005    6,310       6,279              --
                           Jan. 2000    1,060       1,060              --
                                      -------     -------          ------
                                       11,559      10,349              38
                                      -------     -------          ------

Mountain       Feb. 2000 - Aug. 2005    3,487       2,247              --
               Jul. 1999 - Dec. 2002    3,749       2,993              --
                                      -------     -------          ------
                                        7,236       5,240              --
                                      -------     -------          ------

Pacific         Jan. 2004 - May 2005      439         402              --
                          Sept. 2002      549         385              --
                                      -------     -------          ------
                                          988         787              --
                                      -------     -------          ------

                               TOTAL  $62,689     $43,343          $5,469
                                      =======     =======          ======

                                      F-18
<PAGE>
                                                                     SCHEDULE IV
                                                                     Page 2 of 2

                    FRANCHISE FINANCE CORPORATION OF AMERICA
                    SCHEDULE OF MORTGAGE LOANS ON REAL ESTATE
                             AS OF DECEMBER 31, 1998
                             (Amounts in thousands)

NOTES:
(1)  Generally,  loans  are  first  mortgages  on  the  land,  buildings  and/or
     equipment of  restaurants,  convenience  stores and automotive  service and
     parts properties.
(2)  Principal and interest are payable at level amounts to maturity.
(3)  For mortgages  where the land is under a ground lease,  there are generally
     no provisions  for  prepayment  of the mortgage  loans in whole or in part,
     except upon sale of the related property.
(4)  There are no prior liens.
(5)  The aggregate  cost for Federal  income tax purposes is  approximately  $48
     million.
(6)  Transactions  in mortgage  loans on real estate during 1998,  1997 and 1996
     are summarized as follows:

Balance, December 31, 1995                                         $ 199,486
   Additions during period:
   New mortgage loans                                                 50,592
   Recognition of deferred gain, net of additional
   deferred gains in 1996                                              5,145
   Net loan fees recognized                                            1,490
   Deductions during period:
   Collections of principal                                           (4,867)
   Mortgage loan payoffs                                            (190,769)
   Reserve for mortgage loan losses                                   (1,400)
   Foreclosures                                                       (1,869)
                                                                   ---------

Balance, December 31, 1996                                            57,808
   Additions during period:
   New mortgage loans                                                  6,760
   Deferred gain, net of gain recognized                                (192)
   Unamortized loan fees, net of amortization                           (496)
   Deductions during period:
   Collections of principal                                           (3,217)
   Mortgage loan payoffs                                             (24,265)
   Reserve for mortgage loan losses                                   (1,214)
                                                                   ---------

Balance, December 31, 1997                                            35,184
   Additions during period:
   New mortgage loans                                                 22,948
   Recognition of deferred gain, net of additional
   deferred gains in 1998                                                750
   Net loan fees recognized                                              496
   Deductions during period:
   Collections of principal                                           (1,741)
   Mortgage loan payoffs                                             (13,176)
   Reserve for mortgage loan losses                                   (1,118)
                                                                   ---------

   Balance, December 31, 1998                                      $  43,343
                                                                   =========

                                      F-19
<PAGE>
                    FRANCHISE FINANCE CORPORATION OF AMERICA

                                  EXHIBIT INDEX

The  following is a complete  list of exhibits  filed as part of this Form 10-K.
For  electronic  filing  purposes  only,  this report  contains  Exhibit 27, the
Financial  Data  Schedule.  Exhibit  numbers  correspond  to the  numbers in the
Exhibit Table of Item 601 of Regulation S-K.

EXHIBIT NO.                       DESCRIPTION
-----------                       -----------

3.01    Second Amended and Restated  Certificate of  Incorporation  of Franchise
        Finance Corporation of America (1)

3.02    Second Amended and Restated Bylaws of Franchise  Finance  Corporation of
        America (2)

4.01    Indenture dated as of November 21, 1995 (3)

4.02    Specimen of Common Stock Certificate (4)

4.03    Officers'  Certificate  relating to the 7% Senior Notes Due 2000 and the
        7-1/8%  Senior  Notes  Due  2005 of  Franchise  Finance  Corporation  of
        America(5)

4.04    Officers'  Certificate relating to the Medium-Term Notes due Nine Months
        or  More  from  Date  of  Issue  of  Franchise  Finance  Corporation  of
        America(6)

4.05    Form of Medium-Term  Fixed Rate Note and Floating Rate Note of Franchise
        Finance Corporation of America(7)

4.06    Officers'  Certificate  relating to the 8.25%  Senior  Notes Due 2003 of
        Franchise Finance Corporation of America(8)

10.01   Acquisition,  Construction and Term Loan Agreement, dated as of December
        29, 1988, by and between  Franchise  Finance  Corporation of America and
        Scottsdale Land Trust Limited Partnership (4)

10.02   Promissory Note dated December 29, 1988,  executed by Franchise  Finance
        Corporation  of  America  in  favor of  Scottsdale  Land  Trust  Limited
        Partnership in the principal amount of $8,500,000 (4)

10.03   1995 Stock Option and Incentive Plan of Franchise Finance Corporation of
        America (9)

10.04   Stock  Purchase  Agreement  between  Franchise  Finance  Corporation  of
        America and Colony Investors III, L.P. dated February 13, 1998 (10)

21.01   Subsidiaries of the Registrant*

23.01   Consent of Arthur Andersen LLP*

99.01   Second  Amended and Restated  Credit  Agreement  dated December 29, 1997
        among  Franchise  Finance  Corporation of America,  Certain  Lenders and
        NationsBank of Texas, N.A. (11)

99.02   First  Amendment  to the Second  Amended and Restated  Credit  Agreement
        among  Franchise  Finance  Corporation of America,  Certain  Lenders and
        NationsBank N.A., dated as of June 30, 1998.*
<PAGE>
99.03   Sale and  Servicing  Agreement  dated as of August 14, 1998,  among FFCA
        Franchise Loan Owner Trust 1998-1, FFCA Loan Warehouse Corporation, FFCA
        Acquisition  Corporation,  Franchise Finance  Corporation of America and
        LaSalle National Bank. (12)

99.04   Loan Purchase  Agreement dated as of August 14, 1998,  between FFCA Loan
        Warehouse Corporation and FFCA Acquisition Corporation. (12)

99.05   Indenture dated as of August 14, 1998, between FFCA Franchise Loan Owner
        Trust 1998-1 and LaSalle National Bank. (12)

99.06   Indenture Supplement dated as of August 14, 1998, between FFCA Franchise
        Loan Owner Trust 1998-1 and LaSalle National Bank. (12)

99.07   Note  Purchase  Agreement  dated  as of  August  14,  1998,  among  FFCA
        Franchise Loan Owner Trust 1998-1,  FFCA Acquisition  Corporation,  FFCA
        Loan Warehouse  Corporation,  and Morgan Stanley  Securitization Funding
        Inc. (12)

99.08   Credit Agreement dated as of February 11, 1999, among Franchise  Finance
        Corporation of America, Certain Lenders and NationsBank N.A.*
----------
* Filed herewith.
(1)     Incorporated by reference from the Registrant's Quarterly Report on Form
        10-Q for the fiscal  quarter  ended  March 31,  1997,  as filed with the
        Securities and Exchange Commission.
(2)     Incorporated by reference from the Registrant's Quarterly Report on Form
        10-Q for the fiscal  quarter  ended  March 31,  1998,  as filed with the
        Securities and Exchange Commission.
(3)     Incorporated by reference from the  Registrant's  Current Report on Form
        8-K,  dated November 24, 1995, as filed with the Securities and Exchange
        Commission.
(4)     Incorporated by reference from the Registrant's  Registration  Statement
        on Form S-4 and amendments thereto  (Registration  Number 33-65302),  as
        filed with the Securities and Exchange Commission.
(5)     Incorporated  by reference from the  Registrant's Current Report on Form
        8-K, dated November 24, 1995, as filed with the Securities and Exchange 
        Commission.
(6)     Incorporated  by reference from the  Registrant's Current Report on Form
        8-K, dated February 14, 1996, as filed with the Securities and Exchange 
        Commission.
(7)     Incorporated  by reference from the  Registrant's Current Report on Form
        8-K, dated April 16, 1998, as filed with the Securities and Exchange 
        Commission.
(8)     Incorporated  by reference from the  Registrant's Current Report on Form
        8-K, dated October 27, 1998, as filed with the Securities and Exchange 
        Commission.
(9)     Incorporated  by reference from the  Registrant's  Annual Report on Form
        10-K for the fiscal  year ended  December  31,  1995,  as filed with the
        Securities and Exchange Commission.
(10)    Incorporated  by reference from the  Registrant's  Annual Report on Form
        10-K for the fiscal  year ended  December  31,  1997,  as filed with the
        Securities and Exchange Commission.
(11)    Incorporated by reference from the  Registrant's  Current Report on Form
        8-K,  dated December 29, 1997, as filed with the Securities and Exchange
        Commission.
(12)    Incorporated by reference from the  Registrant's  Current Report on Form
        8-K,  dated August 14, 1998, as filed with the  Securities  and Exchange
        Commission.