FORM 10-K


                       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 [FEE REQUIRED]

         For the fiscal year ended December 31, 1996

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
         OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

         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 $.01 per share               New York Stock Exchange

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. [ ]

         The aggregate  market value of the voting stock held by  non-affiliates
of the Registrant as of February 3, 1997 was $1,023,754,160.

         The number of shares of the Registrant's $.01 par value common stock as
of February 3, 1997 was 40,564,076.

                       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 6, 1997, to be filed pursuant to Regulation 14A.
<PAGE>
PART I

Item 1.  Business.

Background

         Franchise  Finance  Corporation  of  America  ("FFCA")  is the  largest
independent  company in the United States dedicated  primarily to providing real
estate financing to the chain restaurant industry.  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 1981.  At December  31,  1996,  FFCA had  interests  in over 1,800
restaurant properties operated by approximately 400 restaurant operators in over
35  restaurant  chains  located in 46  states.  FFCA is a fully  integrated  and
self-administered  real estate  investment  trust ("REIT").  The common stock of
FFCA began  trading on the New York Stock  Exchange  on June 29,  1994 under the
symbol "FFA."

         In 1996,  FFCA  completed a number of  transactions  that have,  or are
expected  to  have,  an  impact  on its  results  of  operations  and  financial
condition.  In June 1996, FFCA completed its first  securitization  transaction.
Certain mortgage loans  originated by FFCA and its predecessors  totaling $178.8
million  were   securitized  on  June  27,  1996  and  Secured   Franchise  Loan
Pass-Through  Certificates  (the  "Certificates")  were sold to  investors.  The
servicing rights on these mortgage loans and any additional  payments based upon
a  participation  in the gross sales of the restaurant or specified  contractual
increases  ("Participations")  were retained by FFCA. FFCA also retained certain
interests  in  approximately  12.5% of the  aggregate  mortgage  loan  principal
balance  through  the  purchase of  subordinated  investment  securities  of the
securitization trust and, in addition,  purchased the interest-only certificate.
In order to facilitate the loan  origination and  securitization  process in the
future,  FFCA  formed  FFCA  Mortgage  Corporation  during  1996.  This  taxable
affiliate was created primarily to originate  mortgage loans which will comprise
future  securitization  pools. In response to customer needs,  FFCA expanded its
array of financial  products in 1996 with the  introduction of its variable rate
loan product and held $20 million in aggregate principal amount of variable rate
loans at December 31, 1996.

         The  statements  contained  in  this  report,  if not  historical,  are
forward-looking  statements and involve risks and uncertainties that could cause
actual results to differ materially from the results, financial or otherwise, or
other  expectations   described  in  such  forward-looking   statements.   These
statements are identified with the words "anticipated,"  "expected," or "plans".
Therefore,  forward-looking statements should not be relied upon as a prediction
of actual future results or occurrences.

Business Strategy

         FFCA's primary strategy is to finance chain restaurant properties which
are operated by  experienced  multi-unit  restaurant  operators  in  established
restaurant chains through mortgage loans
                                       2
<PAGE>
and sale-leaseback  transactions.  The sale-leasebacks  entered into by FFCA are
retained  in  its  portfolio  and  generally   provide  for  base  rentals  plus
Participations.  In  addition,  FFCA will  purchase  existing  chain  restaurant
properties  which are subject to leases already in place.  The mortgage loans to
be originated by FFCA and its  affiliates  will  generally be pooled and sold in
securitized offerings,  with FFCA retaining interests in the pool in the form of
subordinated securities, interest-only securities and mortgage servicing rights.
Restaurants  financed by FFCA are  generally  operated by  multi-unit  operators
which include both chain restaurant  franchisors and franchisees.  Approximately
90% of the restaurant  properties  financed by FFCA are fast food restaurants in
chains such as Arby's,  Burger King,  Hardee's,  Jack in the Box, Kentucky Fried
Chicken,  Pizza Hut,  Taco Bell and Wendy's.  Most of the  remaining  properties
financed  by FFCA  are  part of  midscale  and  casual  dining  chains,  such as
Applebee's and Denny's.

         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 chain restaurant 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  Finance,
Information Systems, Investor Relations, Legal Services, Property Management and
Research and Underwriting.

         FFCA's principal  business objective is 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 a conservative  capital
structure.

         FFCA intends to provide real estate capital to large,  multi-unit chain
restaurant operating companies principally through  sale-leaseback  transactions
and mortgage  loans.  FFCA also  occasionally  provides  financing for equipment
located  at  the  restaurant  properties  for  which  it  provides  real  estate
financing.  Consistent with its experience  between June 1994 and December 1996,
chain  restaurant  properties  financed by FFCA are  anticipated to be primarily
existing  locations which are either being  refinanced or financed in connection
with acquisitions by restaurant operating companies.  FFCA also provides capital
for  new  restaurant   development  which  is  typically  in,  or  adjacent  to,
established markets where the restaurant chain brand is recognized.

         FFCA  structures  its  investments to enhance the stability of its cash
flows.  FFCA's  sale-leaseback  transactions are 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 which it owns and leases to chain restaurant  operators.  Both FFCA's
sale-leaseback
                                       3
<PAGE>
and  mortgage  financings  are  generally  for  twenty-year  terms and  mortgage
products are generally fully amortizing over the term of the loans.

         FFCA  continually  monitors and  administers its investments to enhance
the  stability  of its  cash  flows.  FFCA's  eight  departments  include  Asset
Management,  Legal  Services and Property  Management  which  together  serve to
monitor all aspects of portfolio  performance.  FFCA's  properties are regularly
inspected by an in-house  appraisal staff to monitor asset condition.  Financial
data is regularly  collected  on the  restaurant  locations  financed by FFCA to
determine their profitability.  Asset Management staff monitor payment receipts,
as well as property tax and insurance  compliance.  Lease and mortgage  payments
are generally  collected by electronic  account  debits on the first day of each
month.  Underperforming and non-performing  leases and loans are administered by
Property Management and Legal Services personnel who also supervise the in-house
administration of property  dispositions and tenant  substitutions.  FFCA has an
established   record  of   identifying   and   resolving   underperforming   and
non-performing  leased assets,  with an average time of approximately six months
to relet or sell such properties.

         FFCA's  investments  are diversified by geographic  region,  restaurant
operator and restaurant chain.  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.

Information Systems

         To enhance its investment evaluation and origination, FFCA has invested
extensively  in information  systems which are specific to the chain  restaurant
industry.  FFCA's databases include specific chain restaurant  location data for
over 100,000 locations in the United States,  including demographic information,
traffic  volumes  and  information   regarding   surrounding  retail  and  other
commercial development that generate customer traffic for restaurants. 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 mapping system which 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.

         FFCA has internally  developed  portfolio  management systems suited to
its  specialized  focus on the  chain  restaurant  industry.  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 information collected by FFCA is actively used to assess investment
opportunities,   measure   prospective   investment  risk,   evaluate  portfolio
performance and manage underperforming
                                       4
<PAGE>
and  non-performing  assets.  FFCA  publishes  research on the chain  restaurant
industry which includes  observations  of industry  issues and trends,  areas of
growth, and the economics of chain restaurant operation.  FFCA has also employed
its client and collections  data from over fifteen years to develop  statistical
models which aid in the  evaluation  of potential  investments.  FFCA intends to
continually  develop,  improve and use its restaurant industry knowledge through
research and broader  application of information  technology to lower  portfolio
risk, improve performance and improve its competitive advantage.


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:

o    Restaurant  Profitability.  FFCA  seeks to invest in restaurant real estate
     where the underlying operations provide adequate cash flow to support lease
     or mortgage payments.

o    Restaurant  Investment  Amount.  FFCA  seeks  to invest in  properties  for
     amounts which are not in excess of their fair market value.

o    Site  Considerations.  FFCA  seeks to invest in high profile,  high traffic
     real estate which it believes exhibits strong retail property fundamentals.

o    Market  Considerations.  FFCA seeks  to emphasize investments in properties
     used by restaurant systems having significant area market penetration.

o    Operating  Experience.  FFCA  seeks to invest in  properties  of multi-unit
     restaurant operators with strong restaurant industry backgrounds.

o    Credit  Considerations.  FFCA's  investments  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  restaurant  operations  might be  insufficient  to  provide  lease or
     mortgage payments.

o    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.

o    Restaurant  Chain  Suitability.  FFCA  seeks to  primarily  invest in  real
     estate used by large national and regional chain restaurant  systems having
     annual system-wide sales of more than $250 million.
                                       5
<PAGE>
o    Environmental  Considerations.   FFCA  engages   outside  professionals  to
     independently  conduct  Phase  I  environmental  assessments  for  all  new
     financings.  Phase II environmental assessment reports are also prepared if
     recommended by the Phase I assessments. FFCA will not finance a property if
     a Phase II report indicates evidence of significant environmental concerns.

Chain Restaurants

         Although an individual restaurant'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 restaurant concept;  however, FFCA
may be  dependent  to a certain  extent upon one or more of the  franchisors  or
restaurant  concepts  since a failure of any of the  franchisors  or  restaurant
systems to support their  franchisees or  restaurants  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.

         The following table sets forth the interests held by FFCA in restaurant
concepts as of December 31, 1996. The restaurant chain  distribution shown below
does not  represent  concentration  of specific  tenants under lease or mortgage
loan  agreements.  These agreements are with the restaurant  operators,  not the
restaurant  chains,  and there  are over 400  restaurant  operators  represented
within FFCA's investment portfolio.
                                       6
<PAGE>
 Restaurant Chain Distribution by Number of Restaurants as of December 31, 1996
<TABLE>
<CAPTION>

                                                                  Number of Restaurants
                                               -------------------------------------------------------------
                                                                  FFCA                                         Percentage
                                                                Mortgage         Securitized                       of
                    Chain                         FFCA        Corporation       Interests (2)      Total         Total
                                                                  (1)
----------------------------------------------- ---------- ------------------- ----------------- ----------- ---------------
<S>                                             <C>              <C>                <C>           <C>            <C> 

Arby's                                             189            40                 79             308           16%
Burger King                                        170            88                 35             293           16%
Hardee's                                           163             1                 19             183           10%
Jack in the Box                                    170             1                                171            9%
Wendy's                                            146             8                                154            8%
Kentucky Fried Chicken                              70             2                 28             100            5%
Taco Bell                                           69             5                  3              77            4%
Mrs. Winner's                                        9                               66              75            4%
Applebee's                                          22            11                  5              38            2%
Black Eyed Pea                                      38                                               38            2%
Lee's Chicken                                       38                                               38            2%
Fuddruckers                                         24                                               24            1%
Perkins                                             23                                               23            1%
Whataburger                                         21                                               21            1%
Denny's                                             11             7                                 18            1%
Pizza Hut                                           13                                               13            1%
Bojangles                                           11                                               11            1%
Non-restaurant properties                            7                                                7            1%
All other restaurant concepts                      238            31                  8             277           15%
                                                ----------------------------------------------------------------------------
                    Totals                       1,432           194                243           1,869          100%
                                                ============================================================================
</TABLE>
----------

(1) FFCA Mortgage  Corporation is an affiliate of FFCA which originates mortgage
loans held for sale.
(2)  Represents   securitized  mortgage  loans  in  which  FFCA  holds  residual
interests.

         One restaurant operator,  Foodmaker,  Inc.  ("Foodmaker"),  contributed
10.9% of FFCA's  total  rental and  mortgage  loan  interest  revenues  in 1996.
Foodmaker  accounted  for 12.5% and 14% of FFCA's total rental and mortgage loan
interest  revenues  in 1995  and  1994,  respectively.  Foodmaker  operates  and
franchises Jack in the Box  restaurants.  The relative  decrease in revenue from
Foodmaker  between  1994 and 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.  This decrease is expected to continue. For information on
Foodmaker,  see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Tenant Concentration" in Item 7 below.
                                       7
<PAGE>
Competitive Conditions

         The  financing of chain  restaurant  real estate for  multi-unit  chain
restaurant   operating  companies  is  both  competitive  and  fragmented,   and
competition  exists in every  geographic  market in which  FFCA seeks to invest.
Other  competing  participants  include  banks,  insurance  companies,   finance
companies and leasing companies.  FFCA is the largest independent company in the
United  States  dedicated  primarily to providing  real estate  financing to the
chain restaurant  industry,  even though it has less than a two percent share of
the chain restaurant real estate market.

         FFCA believes that it has several  competitive  advantages which enable
it  to  be  selective  with  respect  to  its  real  estate   investments.   The
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  comprise  properties  which are  diversified by
restaurant operator,  restaurant 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
restaurant  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 also  believes that its ability to provide
both sale-leaseback financing and mortgage loans (including a variable-rate loan
product  introduced  in  1996)  improves  the  restaurant  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 1996,
the  industry  generated  an  estimated  $308  billion of revenue,  representing
approximately  4.1% of the Gross Domestic  Product ("GDP") of the United States.
The food service industry grew at an estimated  inflation-adjusted  rate of 1.7%
during 1996, as compared to a 2.5%  increase in the GDP for the same year.  This
was the second consecutive year of declining real growth rates for the industry,
after three consecutive years of real growth increases.

         FFCA management  anticipates that slow new restaurant  development will
have a minimal  impact on its ability to  generate  new  investments.  In recent
years, investments in newly-constructed restaurants have been a small percentage
of new business for FFCA. In 1996 and 1995,  the percentage of FFCA new business
related to existing restaurants (as compared to new restaurant construction) was
85% and 90%  respectively.  Although the number of total restaurants in the U.S.
may not expand  significantly,  the dynamics at each chain are different.  While
one chain may close many restaurants, other chains may expand significantly. For
new acquisitions,  FFCA plans to target chains which are expanding, and plans to
do very little new  restaurant  development  for chains which are  decreasing in
size or experiencing low growth rates.
                                       8
<PAGE>
         The food  service  industry is  composed of three major food  segments:
commercial,  institutional  and military.  The commercial food service sector of
the food  service  industry  includes a  category  identified  as "Total  Eating
Places,"  which  represents  fast food,  midscale  and  upscale  restaurants  in
addition to commercial cafeterias, social caterers and ice cream, frozen-custard
and yogurt retail outlets.  Within the restaurant industry,  the fast food group
is typically defined as those restaurants perceived by consumers as fast food or
take-out  establishments without table service,  specializing in pizza, chicken,
hamburgers and similar food items. The upscale group typically represents casual
and fine dining  restaurants  that accept major credit cards,  offer an improved
level of table  service and provide  full liquor  service.  The  midscale  group
comprises  those  restaurants  that do not meet the  criteria  for fast  food or
upscale.  Although these segments can be further  differentiated by price, it is
consumer  perception,  as  well as  average  meal  ticket,  that  influence  how
individual restaurant chains are categorized. Research indicates that an average
fast food meal ticket  approximates  $3, a midscale meal ticket averages between
$5 and $18, and an upscale meal ticket is usually in excess of $18.

         Restaurant  industry  growth has exceeded  total food service  industry
growth during the past ten years,  as the  percentage of food consumed away from
home, as compared to total food consumption, has increased significantly.  Sales
in the  restaurant  industry have  increased by $59 billion  during the past ten
years, while total expenditures on food and beverages  everywhere have increased
only $55 billion.  This means that full service and fast food  restaurants  have
actually taken business away from grocery and other retail  outlets,  which have
had  declining  revenues  from food in the past ten years.  The full service and
fast food groups now comprise 65% of the food service industry.

         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.
In fact, in comparison to the restaurant industry as a whole, the top 100 chains
have shown an increase in their  percentage of restaurants  since 1980, from 25%
to 32% of total U.S. restaurants,  and their revenues have increased from 40% to
48% of total U.S.  revenues  during the same period.  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.

         The fast food group  generated an  estimated  32% of total food service
industry revenues,  and 47% of total restaurant industry revenues,  during 1996.
Nominal sales growth for the fast food group  averaged 7.4% per year during 1985
to 1995. Growth in the fast food group, driven by value and convenience factors,
should  continue  to  outpace  growth in most  other  parts of the food  service
industry during 1997.

         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
                                       9
<PAGE>
convenient,  quality meals at affordable prices.  Successful fast food operators
have relatively  simple operations which contribute to their success as low-cost
providers.  Computerization has resulted in more efficient  scheduling of labor;
slightly more than 25% of table service operators used computers when scheduling
employees in 1990, compared with almost 50% in 1996.

         Over 90% of FFCA's  portfolio is represented  by fast food  restaurants
which include, but are not limited to, Arby's,  Burger King,  Hardee's,  Jack in
the Box, Kentucky Fried Chicken,  Pizza Hut, Taco Bell, Whataburger and Wendy's.
Midscale  restaurant chains represented in FFCA's portfolio include  Applebee's,
Black Eyed Pea, Denny's, T.G.I. Friday's and Fuddruckers.  FFCA anticipates that
its  investment  emphasis  will  continue  to  emphasize  fast food  properties,
although the proportion of midscale and upscale establishments may increase.

Restaurant Chains

         In  addition  to  the  concentration  on  real  estate  for  fast  food
restaurants,  FFCA's  investment  focus has been on real estate which is used by
the national and regional restaurant chains.  According to Restaurant Consulting
Group, a national consulting group which specializes in the restaurant industry,
restaurant  chains having three or more properties  accounted for  approximately
45% of all  restaurants  in the United  States in 1995.  The  majority  of these
properties  are fast food  restaurants,  with others  generally  in the midscale
segment.  Of the slightly  more than 180,000  restaurants  having an  identified
restaurant concept as of December 31, 1995, approximately 91,500 were within the
40 largest restaurant chains. Each of these restaurant chains had 1995 projected
total system-wide sales exceeding $500 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" which
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.
                                       10
<PAGE>
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
regulation by federal,  state and local governments that affects the development
and regulation of chain restaurant properties.  FFCA's leases and mortgage loans
impose the primary obligation for regulatory  compliance on the operators of the
restaurant  properties.  Subject to the environmental  discussion below, in most
instances,  FFCA does not have primary  responsibility for regulatory compliance
and any  obligation  of FFCA  would be  based  upon the  failure  of  restaurant
operators to comply with applicable laws and regulations.

         Under  various   federal,   state  and  local  laws,   ordinances   and
regulations,  an owner or operator of real  property  may become  liable for the
costs of removal or remediation of certain hazardous  substances  released on or
within its property. Such liability may be imposed without regard to whether the
owner or operator knew of, or caused the release of the hazardous substances. In
addition to liability for cleanup costs, the presence of hazardous substances on
a property could result in the owner or operator incurring liability as a result
of a claim by an employee or another person for personal injury or a claim by an
adjacent property owner for property damage.

         Environmental assessments have been performed on each property financed
by FFCA since  1994,  as is the current  practice  in the real estate  industry.
Properties acquired from FFCA's  predecessors did not have environmental  audits
performed  either at the time FFCA acquired the properties from its predecessors
or when such properties were acquired by such 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 is not
aware of nor does it  anticipate  any such action,  or the need to expend any of
its  funds in the  foreseeable  future  in  connection  with its  operations  or
ownership of existing properties which would have a material adverse effect upon
FFCA.

         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  restaurant  real
estate,  was not materially or directly affected by recent  legislation in 1996.
However,  restaurant  operators under lease and loan agreements with FFCA may be
affected by recent  legislation.  This  legislation  includes  the Minimum  Wage
Increase Act of 1996, which increased the federal minimum wage to $4.25 per hour
through September 1996, to $4.75 per hour from October 1996 through August 1997,
and not less than $5.15 per hour  beginning  September  1997. To the extent that
restaurant 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
restaurant  may  decrease.  The effect of the
                                       11
<PAGE>
increase in minimum wages may be minimal for those restaurant  operators who are
required to pay higher wages because of market conditions.

Item 2.  Properties.

         FFCA and its affiliates have provided financing to the chain restaurant
industry   primarily   through   sale-leaseback   and  mortgage  loan  financing
transactions.  At December 31,  1996,  FFCA had  interests  in 1,869  restaurant
properties  through  various   investments.   FFCA's  portfolio  included  1,432
restaurant  properties  represented  by  investments in real estate and mortgage
loans receivable,  243 properties  represented by securitized  mortgage loans in
which FFCA holds a residual interest and 194 properties  represented by mortgage
loans originated and held by FFCA's affiliate, FFCA Mortgage Corporation. Of the
1,432 restaurant  properties included in FFCA's investment portfolio at December
31, 1996,  FFCA has an ownership  interest in 1,351  restaurant  properties on a
fee-simple  basis in which  FFCA holds  title to the  restaurant  property  (the
"owned"  properties).  FFCA also  holds  title to the  restaurant  equipment  on
approximately  one-fourth  of these  properties.  The real estate  owned by FFCA
consists of the land and buildings  comprising each chain  restaurant  property,
except for  approximately 26 properties at December 31, 1996 on which FFCA holds
title  to the land  only and made  mortgage  loans  for the  related  restaurant
buildings  (the  "hybrid  mortgages").  In  addition to the base  interest,  the
mortgage loan  agreements  generally  provide for additional  interest  payments
based on a percentage of the mortgagor's  gross restaurant  sales. The remaining
restaurant  properties  represent mortgage loan financing  transactions in which
FFCA holds a first mortgage on the land and buildings  comprising the restaurant
properties  (the "financed  properties").  The properties  owned by FFCA and the
land  related to the hybrid  mortgages  are leased to the  restaurant  operators
under long-term net leases.

         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.

         FFCA's chain restaurant  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.
A  restaurant  is located on each of the  properties  except  seven,  which were
converted to other uses, such as a bank and an optical retail outlet.

         Generally,  all restaurants owned or financed by FFCA are free-standing
and  surrounded  by paved  parking  areas.  The land  size for a  typical  chain
restaurant  generally  ranges from 15,000 to 50,000  square feet,  with original
acquisition  costs  generally  ranging from $75,000 to $700,000.  The restaurant
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.  Buildings  generally  range  from 1,500 to 4,000
square  feet in size,  with the  larger  restaurants  having a  greater
                                       12
<PAGE>
seating capacity and equipment area. Site preparation  varies depending upon the
area in which the  restaurant  is located  and on the size of the  building  and
site.  Building and site  preparation  costs  generally  range from  $150,000 to
$750,000 for each restaurant.

         Management believes that its chain restaurant 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.  Certain types and amounts of insurance are required to
be carried by each restaurant operator under the financing agreements with FFCA.
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.  In certain  circumstances  FFCA may permit a restaurant  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
restaurant 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 in 1996 amounted
to approximately $16,000 and amounted to approximately $40,000 each year in 1995
and 1994.

         As of February 3, 1997,  FFCA and its affiliates  owned or had financed
1,870 properties in 46 states and all but 28 of the properties were being leased
or were  performing  under a mortgage  loan  agreement.  Of these  nonperforming
properties, ten are being actively remarketed 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  restaurant  real estate  throughout  the United
States. No one property is a principal  property of FFCA,  because each property
represents  less than 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, 1996. In addition,  FFCA has financed,  through
mortgage  loans,  certain chain  restaurant  properties  located  throughout the
United  States.  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.

         During 1996, approximately 80% of FFCA's revenues were derived from net
lease equity real estate  investments.  The leases have been  originated by FFCA
and its  predecessors  since 1981.  The leases are  generally 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 2017, with a weighted term of such
investments of 11.5 years as of December 31, 1996.  Approximately  20% of FFCA's
lease revenues are derived from leases which expire in 2005, with 12% and 11% of
FFCA's lease  revenues  being derived from leases which expire in 2015 and 2016,
respectively.  In all other years,
                                       13
<PAGE>
the lease  expirations are less than 10% of total lease revenues.  With expected
continued  investment  activity,  FFCA  anticipates  that its exposure to annual
lease expirations will become more diversified.

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, 1996.

                                     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           Distributions
                                         ------------           -------------
         Fiscal 1996                   High          Low
         -----------                   ----          ---
         Fourth Quarter              $27.812       $22.500           $ .45
         Third Quarter                24.500        22.250             .45
         Second Quarter               23.125        18.750             .45
         First Quarter                23.500        19.250             .45
                                                                     -----
                                                                     $1.80
                                                                     =====
         Fiscal 1995
         -----------
         Fourth Quarter                23.375        19.750          $ .45
         Third Quarter                 22.500        20.375            .45
         Second Quarter                21.750        17.750            .45
         First Quarter                $20.000       $17.250            .45
                                                                     -----
                                                                     $1.80
                                                                     =====
---------------

         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.
                                       14
<PAGE>
Holders

         There were 20,300 holders of record of FFCA's shares of common stock as
of February 3, 1997; however,  FFCA believes the total number of shareholders of
FFCA to be in excess of 75,000 since certain shares are held by nominees.

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 3, 1997,  shareholders  owning  approximately  7.2% 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, 1996. 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 public limited partnerships
and  FFCA I were  carried  over  at  their  historical  book  values  and  their
operations have been recorded on a combined historical basis.
                                       15
<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>

 In thousands, except per share data                     1996          1995         1994         1993         1992
                                                                                  (as restated on a combined basis)
-----------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>           <C>         <C>            <C>          <C>    
 Operations Data(a)
     Total revenues                                      $121,166      $102,583    $91,062        $93,789      $95,572
     Income before gain (loss) on sale of property and
           other costs                                     60,036        52,816     51,319         53,867       53,044
     Gain on Sale of Property (c)                           9,899           977      2,784           (156)      (2,858)
     Income before extraordinary item(d)                   68,539        53,793     25,905(b)      53,711       50,186
     Net income (b)                                        68,539        51,329     25,905(b)      53,711       50,186
     Funds from operations(e)                              79,492        73,539     73,720         76,571       78,080
     Dividends/Distributions  declared                     72,846        72,471     75,913         75,200       77,901
     Per share:
           Income before gain (loss) on sale of property
              and other costs                               $1.48         $1.31      $1.27          $1.34        $1.32
           Income before extraordinary item(d)              $1.69         $1.33      $0.64          $1.33        $1.25
           Net income                                       $1.69         $1.27      $0.64          $1.33        $1.25
           Dividends/Distributions  declared                $1.80         $1.80      $1.82          $1.86        $1.94
     Weighted average common and common
           equivalent  shares outstanding                  40,603        40,294     40,251         40,251       40,251

 ----------------------------------------------------------------------------------------------------------------------
 Balance Sheet Data(a)
     Real estate owned, at cost                          $868,215      $794,580   $681,126       $661,576     $685,338
     Mortgage loans receivable                             57,808       199,486     65,980         38,091       42,038
     Note receivable from affiliate                       147,616            --         --             --           --
     Other investments                                     37,836            --         --             --           --
     Total assets                                         988,776       843,504    612,228        619,443      643,113
     Notes payable                                        298,956       198,702         --             --           --
     Borrowings under line of credit                      150,500       110,000     59,000             --           --
     Other debt                                             8,500         8,500      8,500         10,942       12,540
     Shareholders' equity                                $495,370      $493,817   $514,107       $576,775     $598,264
</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, 1992.
 The per share amounts for the same periods were  computed as if 40.251  million
 shares of FFCA stock were outstanding each year.

 (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 1996
 gain on the  sale of  property,  $7.1  million  relates  to the  securitization
 transaction completed in 1996.

 (d) Income before  extraordinary item excludes debt  extinguishment  charges of
 $2.5 million in 1995.

(e) Funds from operations ("FFO") is defined by the National Association of Real
Estate  Investment  Trusts  ("NAREIT") to mean net income  (loss)  determined in
accordance with generally accepted  accounting  principles,  excluding gains (or
losses) from debt  restructuring  and sales of property,  plus  depreciation and
amortization,  and after  adjustment for  unconsolidated  partnerships and joint
ventures.  Effective  January 1, 1996, NAREIT modified the definition of FFO to,
among other  things,  eliminate  amortization  of deferred  financing  costs and
depreciation  of non-real  estate  assets as items added back to net income when
computing FFO. The modified  definition of FFO became effective as of January 1,
1996, at which time FFCA adopted the modified definition. FFO for years prior to
1996 have been restated to conform with the modified definition.
                                       16
<PAGE>
Item 7.   Management's Discussion and Analysis of
          Results of Operations and Financial Condition.

General

         Franchise    Finance    Corporation   of   America    ("FFCA")   is   a
self-administered  real  estate  investment  trust  ("REIT")  which  exclusively
addresses the financing  needs of the chain  restaurant  industry.  FFCA and its
affiliates  provide a one-stop  finance source to the nation's chain  restaurant
systems   through   various   financial   products,   including   sale-leaseback
transactions,  mortgage  loans,  restaurant  equipment  loans  and  construction
financing.  At  December  31,  1996,  FFCA had  interests  in  1,869  restaurant
properties  through  various   investments.   FFCA's  portfolio  included  1,432
restaurant  properties  represented  by  investments in real estate and mortgage
loans receivable,  243 properties  represented by securitized  mortgage loans in
which FFCA holds a residual interest and 194 properties  represented by mortgage
loans originated and held by FFCA's affiliate, FFCA Mortgage Corporation.  These
restaurants are operated by approximately 400 experienced  restaurant  operators
in over 35 established chains throughout the United States.

Results of Operations

Year ended December 31, 1996
compared to year ended December 31, 1995

         FFCA had net  income  of $68.5  million  ($1.69  per  share) in 1996 as
compared  to  income  of  $53.8  million  before  an  extraordinary  loss on the
retirement of debt and a net income of $51.3 million  ($1.27 per share) in 1995.
Revenues  rose 18% to $121 million in 1996 from $103  million in 1995  primarily
due to the growth in FFCA's portfolio.

         FFCA's  primary  source of  revenues  continues  to be rental  revenues
generated  by its  portfolio  of  restaurant  properties  leased  to  restaurant
operators  on a triple-net  basis.  Over half of the $18.6  million  increase in
total  revenues  between  1995 and 1996  related  to a net  increase  in  rental
revenues.  New investments in property  subject to operating leases totaled $128
million in 1996. Base lease rates on these new investments ranged from 10.25% to
12.2%,  with a weighted average rate of 10.55%.  Since these property  purchases
occurred  throughout  the  year,  their  weighted  average  balance  in  1996 is
equivalent to  approximately  $60 million of investments and the impact of these
investments was an increase in rental revenues  during 1996  approximating  $6.5
million.  (The  annual  impact of these  investments  on revenue is  expected to
approximate  $13.5 million).  The full effect of 1995  investments on revenue in
1996 contributed  approximately $7.5 million to the increase in rental revenues.
Partially  offsetting  these  increases were decreases in revenue related to the
sale of property and the  expiration  of original  equipment  leases in 1996 and
1995.

         Generally,  the leases in FFCA's  portfolio also provide for contingent
rentals  based on a  percentage  of the gross sales of the related  restaurants.
Such contingent  rentals totaled $5 million
<PAGE>
in 1996 as compared to $4 million in 1995. The increase primarily relates to one
lessee,  whose  increased  Jack in the Box  restaurant  sales  resulted  in 1996
percentage  rentals of approximately  $425,000 over 1995 amounts.  The remaining
increase in 1996 relates to lessees whose sales levels have, for the first time,
exceeded  the  threshold  where  contingent  rentals are due and to increases in
individual restaurant-level sales volumes related to lessees who have previously
exceeded  the  percentage  rent  threshold.  FFCA  anticipates  that,  based  on
historical  restaurant  sales growth,  the  contingent  rental  provision of the
leases may  continue  to  provide  increases  in  revenues  in the near  future.
Offsetting  the  increase  in  contingent  rentals  was a decrease  in  revenues
collected from rent guaranty  insurance  which dropped from $3.3 million in 1995
to $1.7 million in 1996 due to expiring rent insurance  policies.  Rent guaranty
insurance policies covering FFCA's properties will continue to expire at various
dates,  with the majority of the policies  expiring in 1998;  therefore,  rental
revenue  from rent  guaranty  insurance  in 1997 is expected to be lower than in
1996.

         Mortgage  interest income increased from $14.1 million in 1995 to $15.7
million in 1996.  The full  effect of  mortgage  loans  originated  during  1995
combined with the effect of mortgage loans originated during 1996 represented an
increase  in income of $11  million;  however,  this was offset by a decrease in
income  of $9.7  million  from  the  sale of  mortgage  loans  in  FFCA's  first
securitization  transaction  in June.  During  1996,  FFCA added $49  million in
mortgage  loans to its  real  estate  investment  portfolio,  consisting  of $29
million in  fixed-rate  loans and $20 million in FFCA's new  variable-rate  loan
product,  introduced in 1996.  These new loans carry a weighted average interest
rate of 10.73% on the fixed-rate loans and 7.63% on the variable-rate loans.

         On June 27, 1996,  certain  mortgage loans that had been  originated by
FFCA and its  predecessors  totaling $178.8 million were securitized and Secured
Franchise Loan Pass-Through Certificates were sold to investors through a trust.
The  servicing  rights  and  Participations  on these  mortgage  loans have been
retained by FFCA. Although FFCA no longer receives mortgage interest income from
the mortgages it sold, it retained certain  interests in approximately  12.5% of
the aggregate  mortgage  loan  principal  balance  through the purchase from the
trust of subordinated  investment securities and the interest-only  certificate.
The  subordinated  investment  securities  are the last of the  securities to be
repaid from the trust, 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 the  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).  The cash flow generated by the subordinated  investment securities
and interest-only  certificate  provided an effective yield of approximately 24%
on FFCA's net investment in 1996. These certificates,  totaling $29.7 million at
December 31, 1996,  generated $2.7 million of revenue in 1996.  Interest  income
from these  certificates  is reflected in  "Investment  Income and Other" in the
accompanying  Consolidated  Statement  of Income for 1996,  and  represents  the
majority of the increase in other investment income over 1995.

         In order to facilitate the loan origination and securitization process,
FFCA formed FFCA Mortgage  Corporation  during 1996.  This taxable  affiliate is
designed  primarily to originate
                                       18
<PAGE>
mortgage loans held for sale. This affiliate originated $163 million in mortgage
loans during 1996; however,  its financial  statements are not consolidated with
FFCA and,  accordingly,  the  mortgage  interest  income  generated by the loans
originated by FFCA Mortgage  Corporation  are not reflected in the  accompanying
financial  statements.  FFCA,  as owner  of all of the  issued  and  outstanding
nonvoting preferred stock of FFCA Mortgage  Corporation,  is entitled to receive
95% of all dividends paid by FFCA Mortgage  Corporation and recorded 95% of FFCA
Mortgage Corporation's net loss for 1996 as "Equity in Net Loss of Affiliate" in
the  accompanying  financial  statements.   FFCA  also  provides  FFCA  Mortgage
Corporation  with a secured  revolving line of credit at the rate of 1.5% and 2%
above  FFCA's  borrowing  rate for amounts  secured by mortgages  and  equipment
notes,  respectively.  At December 31, 1996, amounts outstanding under this line
of credit with FFCA Mortgage  Corporation totaled $148 million.  Interest income
generated  on this line of credit  totaled $2.9 million in 1996 and is reflected
in  revenues  as  "Related  Party  Interest"  in  the   accompanying   financial
statements.  FFCA guarantees FFCA Mortgage  Corporation's  performance under its
hedging  program,  for which FFCA  receives a fee equal to .19% of the  notional
amount of the hedge contracts  outstanding.  At December 31, 1996, FFCA Mortgage
Corporation  had  outstanding  an interest  rate swap  contract  with a notional
amount of  approximately  $65  million.  At December  31,  1996,  FFCA  Mortgage
Corporation  had no  outstanding  liabilities  under this  contract and the fair
market value of the contract was $632,000.

         Expenses increased to $61.1 million in 1996 from $49.8 million in 1995,
due primarily to an increase in interest expense. Interest expense rose by $10.7
million  during 1996 due to the use of borrowings  for  investment in restaurant
properties  during the year.  FFCA's  average debt balance  increased  from $175
million in 1995 to $335 million in 1996.  Although  FFCA's  average debt balance
increased during 1996, its overall cost of capital decreased.  In February 1996,
FFCA broadened its sources of capital by issuing its first unsecured medium-term
notes,  which are six- and  seven-year  obligations,  totaling $60  million.  In
November, FFCA issued an additional $40 million in unsecured notes due 2026, but
callable by the holder in the year 2004. The unsecured  notes issued during 1996
carry a weighted average  interest rate of 6.98%.  Proceeds from these unsecured
notes were used to pay down FFCA's bank line of credit.  In December 1996,  FFCA
amended its bank line of credit with participating banks to, among other things,
decrease  the  interest  rate by .5%.  These  changes in FFCA's debt reduced its
effective borrowing rate from 7.82% during 1995 to 7.15% during 1996.  Effective
December  27, 1996,  FFCA also has the option  under this bank loan  facility to
borrow at rates that are competitively bid among the participating banks.

         Property  operating  costs and  operating,  general and  administrative
expense saw little  change  between  years,  except for an increase in operating
expenses  primarily related to a $1.4 million provision for loan loss created in
1996.  Depreciation  and  amortization  expense  decreased to $20.7 million from
$21.2  million,  despite  the  investment  in  restaurant  property  during 1996
primarily due to the sale of over $10.5  million in restaurant  equipment at the
expiration of the related lease terms in 1996.
                                       19
<PAGE>
         FFCA recorded net gains of $9.9 million on the sale of property  during
1996 as compared to net gains of $977,000 recorded in 1995.  Approximately  $7.1
million of the total gain in 1996 was generated by the sale of $178.8 million in
mortgages  in the  securitization  transaction  consummated  in  June.  The gain
recognized represents the difference between the carrying amount of the mortgage
loans sold and their  adjusted  sales price.  It also  includes  deferred  gains
recognized  on  certain  of the  mortgages  sold.  The  gain on the  sale of the
mortgage  loans was reduced by  establishing  a reserve for  estimated  probable
losses under the subordination  provisions of the  securitization.  Of the total
net gain of $9.9 million  recognized in 1996,  the $2.8 million  remaining  gain
represents the net effect of gains and losses from other sales of property which
occur primarily  through the lessee's  exercise of purchase  options and through
the disposition of underperforming properties.

         Approximately  three-fourths of FFCA's land and building leases provide
for purchase options and  approximately  one-half of these options are currently
exercisable;  however,  only 15 properties were sold through purchase options in
1996 and only 10 such properties were sold in 1995. Where applicable, the lessee
also has the option to purchase  equipment  at the end of the related  equipment
lease term,  although few of these options remain unexercised as of December 31,
1996. 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,  because past experience has
shown  that  the  increase  in the fair  market  value  of the  properties  will
generally offset any decrease in interest or lease rates the lessee could obtain
upon exercise of the purchase  option,  providing no  measurable  change in cash
flow.

         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
restaurant 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, 1996 and 1995 is net of  approximately
$3.3  million  and $3.4  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.

Year ended December 31, 1995
compared to year ended December 31, 1994

         FFCA reported net income of $51.3 million,  or $1.27 per share, for the
year ended December 31, 1995 as compared to $26 million,  or $.64 per share, for
the year ended December 31, 1994. Income before gain on the sale of property and
special  charges  rose to $53  million in 1995 from $51  million in 1994.  These
results reflect the growth of FFCA's portfolio in 1995.

         Total  revenues rose to $102.6  million for the year ended December 31,
1995  from  $91  million  for  the  year  ended  December  31,  1994.  Portfolio
investments were the primary source of revenue increases, despite the sale of 22
properties during 1995.  Portfolio  investments in 1995, totaling  approximately
$278 million,  are represented by  approximately  $135 million in mortgage
                                       20
<PAGE>
loans and  approximately  $143 million in property subject to operating  leases;
however,  since these investments  occurred  throughout the year, their weighted
average  balance  in  1995  is  equivalent  to  approximately  $120  million  of
investments.   Lease  and  loan  base  rates  on  new  investments  ranged  from
approximately 10% to 11.5%, with a weighted average rate of 10.9%.

         Rental revenues include both rental payments  received from lessees and
rent guaranty  insurance  payments.  Rental  revenues  collected  under the rent
guaranty insurance policies for 1995 decreased to $3.3 million from $6.2 million
in 1994 due to expiring rent insurance policies.

         The  restaurant  leases and loans  generally  provide that lessees make
monthly  payments  equal to the greater of a fixed base rate or a percentage  of
the gross sales of the  restaurants  (percentage  rentals).  Percentage  rentals
approximated  $4 million in 1995 as compared to $3.8  million in 1994. A portion
of the increase  reflected  in 1995 relates to lessees  whose sales levels have,
for the first time,  exceeded the threshold  where  percentage rent is due and a
portion of the  increase  relates to increases  in  individual  restaurant-level
sales volumes  related to lessees who have  previously  exceeded the  percentage
rent threshold.

         The  increase  in  interest  expense  from $2.5  million in 1994 to $15
million in 1995 is due to the use of borrowings  during 1995 for the  investment
in  restaurant  properties.  During 1995,  FFCA  entered  into an interest  rate
agreement to enhance its ability to manage  interest rate  exposures in its debt
portfolio which exist as part of its ongoing business  operations.  The costs of
this hedge were  deferred and are being  amortized to interest  expense over the
term of the associated  debt. FFCA issued $200 million of unsecured senior notes
in November  1995.  The  issuance of these fixed rate notes  allowed FFCA to pay
down its acquisition loan facility while also reducing its cost of borrowing. In
December 1995,  FFCA replaced its original  secured  revolving  credit  facility
scheduled  to expire in July 1996  (originally  bearing  interest  at LIBOR plus
2.25%) with an unsecured  revolving loan facility bearing interest at LIBOR plus
1.50%. As a result of the early  extinguishment of the original revolving credit
facility, FFCA expensed $2.5 million in unamortized loan costs which is reported
as an extraordinary item on the consolidated statement of income.

         Operating,   general   and   administrative   expenses   decreased   by
approximately  $900,000, or 8%, primarily due to a decrease in professional fees
which include legal, accounting, consulting and appraisal services. Depreciation
and  amortization  decreased to $21.2  million from $22.8  million,  despite the
investment in restaurant property during 1995 due to the sale of over $8 million
in  restaurant  equipment at the  expiration of the related lease terms in 1995.
The gain on sale of property reflected on the consolidated  statements of income
for the years ended  December  31,  1995 and 1994  includes  approximately  $3.4
million and $1.6  million,  respectively,  of loss related to vacant  properties
held for sale.

Liquidity and Capital Resources

         Rental and mortgage interest revenue generated by FFCA's investments in
restaurant  properties  has, and will continue to,  comprise the majority of the
                                       21
<PAGE>
cash  generated  from  operations.  Operations  in 1996 provided net cash of $86
million as compared to $79 million in 1995 with the increase  resulting from the
growth of the real estate  portfolio.  Cash generated from  operations  provides
distributions to the shareholders in the form of quarterly dividends.  This cash
may also be used on an interim basis to fund new investments in properties.

         During  1996,  FFCA  invested  $340  million in  restaurant  properties
through the acquisition of property,  the investment in mortgage loans and notes
receivable,  and the investment in its affiliate, FFCA Mortgage Corporation.  At
December 31, 1996, FFCA Mortgage  Corporation had $141 million in mortgage loans
held for  sale  representing  172  restaurant  properties,  and $14  million  in
construction  loans  representing 22 restaurant  properties under  construction.
FFCA Mortgage Corporation  obtained its acquisition  financing through a secured
revolving line of credit with FFCA, bearing interest at a rate 1.5% and 2% above
FFCA's debt rate for  amounts  secured by mortgage  loans and  equipment  notes,
respectively.

         FFCA's investments in restaurant  properties during 1996 were funded by
cash generated from  operations,  proceeds of unsecured  notes issued during the
year ($100  million),  net proceeds from the  securitization  transaction  ($152
million),  net draws on FFCA's  revolving  credit  facility  ($39  million)  and
proceeds from the sale of property.  During 1996,  FFCA sold 79  properties  and
related  equipment  (15 of which were  through  the  lessee's  exercise of their
purchase  options on the  properties) as compared to 22 properties sold in 1995.
There were more property sales in 1996 primarily due to FFCA's  decision to sell
certain  underperforming  properties  where  remarketing  efforts  over the past
several  years  had  failed  to  produce  a  suitable  lessee.  Nine  additional
properties which exercised purchase options were refinanced as mortgages by FFCA
or its  affiliates.  Cash proceeds from these sales,  the collection of mortgage
loan principal payments and the receipt of mortgage loan payoffs,  approximating
$51 million in total, were used to partially fund new restaurant  investments in
1996. Portfolio investments (including investments through FFCA's affiliate FFCA
Mortgage  Corporation)  totaled  $340  million in 1996,  an  increase  from $280
million  in  1995,  reflecting  FFCA's  continued  focus  on the  growth  of its
portfolio through restaurant property investments.  Such investments include the
funding of notes receivable of $17.3 million in 1996 and $1.2 million in 1995.

         Currently, FFCA's primary source of interim funding for new investments
is a $200 million  unsecured  acquisition loan facility.  During 1996, this loan
facility bore interest at either LIBOR plus 1.5% or the bank's base rate,  for a
weighted average interest rate of 7.12% as compared to the prior loan facility's
original rate of LIBOR plus 2.25% during 1995.  This revolving  credit  facility
was amended on December 27, 1996 to further  reduce the interest rate from LIBOR
plus 1.5% to LIBOR plus 1%. The loan facility expires in December 1998, with the
possibility  of  two  annual  extensions.  This  loan  facility  is  used  as  a
warehousing  line until a sufficient  pool of restaurant  properties or loans is
accumulated  to warrant  the  issuance of  additional  debt or the sale of loans
through securitization.

         At  December  31,  1996,  FFCA had cash and cash  equivalents  of $11.4
million and had $49.5 million available on its revolving credit facility. FFCA's
anticipated  investments  (including  investments  through its  affiliate,  FFCA
Mortgage Corporation) include commitments totaling
                                       22
<PAGE>
approximately  $270 million at the end of 1996.  These  commitments were made to
several large  restaurant  operators of Burger King,  Wendy's,  Arby's and other
restaurants  to acquire or finance  (subject  to FFCA's  customary  underwriting
procedures)  approximately  245 restaurant  properties  over the next year. FFCA
anticipates  funding  these  specific  commitments,  and  other  investments  in
restaurant  properties,  through amounts  available through its revolving credit
facility,  issuance of additional  unsecured debt,  issuance of  mortgage-backed
securities through securitization or issuance of additional equity securities of
FFCA.

         In November 1995, FFCA implemented a dividend  reinvestment  plan which
allows  shareholders to acquire additional shares of FFCA stock by automatically
reinvesting the quarterly dividends. As of February 1, 1997, shareholders owning
approximately 7.2% of the outstanding shares of FFCA common stock participate in
the dividend reinvestment plan and dividends reinvested during 1996 totaled $4.9
million as compared to $852,000 in 1995.

         FFCA  declared a fourth  quarter 1996  dividend of $0.45 per share,  or
$1.80  per  share on an  annualized  basis,  payable  on  February  20,  1997 to
shareholders of record on February 10, 1997.  Management  anticipates  that cash
generated from operations will be sufficient to meet operating  requirements and
provide the level of shareholder dividends required to maintain FFCA's status as
a REIT.

Tenant Concentration

         One restaurant operator,  Foodmaker, Inc. ("Foodmaker"),  accounted for
approximately  10.9% of FFCA's total rental and mortgage loan interest  revenues
in 1996.  Foodmaker  accounted  for 12.5% in 1995 and 14% of FFCA's total rental
and mortgage loan interest  revenues in 1995 and 1994,  respectively.  Foodmaker
operates and franchises Jack in the Box  restaurants.  The relative  decrease in
the percentage of FFCA's revenue from Foodmaker  between 1994 and 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.  This decrease is
expected to continue.  The following table represents selected financial data of
Foodmaker,  Inc.  and  Subsidiaries  as reported by Foodmaker in its 1996 annual
report.
                                       23
<PAGE>
                        Foodmaker, Inc. and Subsidiaries
                             Selected Financial Data
                                 (in Thousands)

<TABLE>
<CAPTION>
      Consolidated Balance Sheet Data:                  September 29, 1996       October 1, 1995
      -------------------------------                   ------------------       ---------------
<S>                                                         <C>                      <C>      
      Current Assets                                        $  96,476               $  97,889
      Noncurrent Assets                                       557,162                 564,785
      Current Liabilities                                     147,063                 132,017
      Noncurrent Liabilities                                  455,191                 499,404
</TABLE>
<TABLE>
<CAPTION>
                                                                    Fifty-Two Weeks Ended
                                                       ---------------------------------------------------------------
      Consolidated Statements of Operations Data:      September 29, 1996       October 1, 1995        October 2, 1994
      -------------------------------------------      ------------------       ---------------        ---------------
<S>                                                          <C>                    <C>                    <C>       
      Gross Revenues                                         $1,062,822             $1,018,716             $1,053,326
      Costs and Expenses (including taxes)                    1,042,771              1,087,674              1,089,594
      Extraordinary Item - loss on early -
        extinguishment of debt, net of taxes                         --                     --                 (3,302)
                                                            -----------            -----------            -----------
      Net earnings (loss)                                    $   20,051             $  (68,958)            $  (39,570)
                                                            ===========            ===========            ===========
      Earnings (loss) per share - primary and
        fully diluted:
        Earnings (loss) before extraordinary item                $  .51                 $(1.77)               $  (.94)
        Extraordinary item                                           --                     --                   (.09)
                                                                -------                -------               --------
      Net earnings (loss) per share                              $  .51                 $(1.77)                $(1.03)
                                                                =======                =======               ========
</TABLE>

     In January 1994,  Foodmaker  contributed its Chi-Chi's  Mexican  restaurant
chain to Family  Restaurants,  Inc.  ("FRI") in exchange for an approximate  39%
equity  interest  in  FRI  and  other  consideration  including  cash  and  debt
assumption.  Therefore,  the consolidated statements of operations for the years
reflected  above  include  Chi-Chi's  results of  operations  for only the first
fiscal  quarter in 1994 and none in 1995 or 1996.  In the first quarter of 1994,
Chi-Chi's  revenues were $123.9 million,  its costs of sales were $32.7 million,
its restaurant operating costs were $80.7 million, and its selling,  general and
administrative expenses were $9.1 million.

     Revenues increased $44.1 million,  or 4.3% to $1,062.8 million in 1996 from
$1,018.7  million  in  1995.  Sales  by  Jack  in  the  Box,  Foodmaker-operated
restaurants  increased $87.9 million,  or 10.9% in 1996 from 1995. This increase
reflects  increases in both per store average sales and in the average number of
restaurants  operated by  Foodmaker.  The average  number of  Foodmaker-operated
restaurants  were 868,  839 and 761 in 1996,  1995 and 1994,  respectively.  Per
store average sales for comparable  restaurants increased  approximately 7.2% in
1996 as compared to 3.5% in 1995, strengthened by marketing strategies including
a new  advertising  campaign and the  introduction  of  aggressive  value-priced
product alternatives.

     Foodmaker  recorded a loss in 1995  relating  to its equity in FRI of $57.2
million,  most of  which  was  the  result  of the  complete  write-down  of its
investment  in FRI due to the write-off by FRI of the goodwill  attributable  to
Chi-Chi's.  During  fiscal year 1996,  Foodmaker  transferred  its entire equity
interest  in FRI to  another  entity  with an  equity  interest  in  FRI.  Since
Foodmaker's  investment in FRI was previously  written off in fiscal 1995,  this
transfer  had no effect on the  consolidated  financial  condition or results of
operations of Foodmaker in fiscal 1996.

     Jack in the Box restaurant  operating  costs  increased  $30.8 million,  or
6.9%,  due  to  increases  in  both  the  average  number  of   Company-operated
restaurants and variable costs  associated  with improved sales volume.  Jack in
the Box selling,  general and administrative expenses decreased $5.9 million, or
7.6%, principally due to decreased advertising and promotions costs as Foodmaker
reduced  its  extra  contributions  to the  marketing  fund and its use of local
promotions.  In 1996 Foodmaker received from suppliers  cooperative  advertising
funds of $4.8  million  which  formerly  had been  contributed  directly  to the
marketing  fund. In 1995 general,  administrative  and other costs include an $8
million  litigation  settlement with stockholders and a $1.9 million gain on the
curtailment of postretirement benefits. Foodmaker incurred an extraordinary loss
of $5.1  million,  less  currently  recognizable  income  tax  benefits  of $1.8
million, on the early  extinguishment of debt in 1994.  Foodmaker indicates that
it expects that  sufficient cash flow will be generated from operations so that,
combined with other financing  alternatives  available to it,  Foodmaker will be
able  to meet  all of its  debt  service  requirements,  as well as its  capital
expenditures and working capital requirements, for the foreseeable future.
                                       24
<PAGE>
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.

                                    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 6, 1997, 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 6, 1997, 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 6, 1997, 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 6, 1997, 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:
                                       25
<PAGE>
         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,  Financial Data Schedule.  Exhibit
                  numbers correspond to the numbers in the Exhibit Table of Item
                  601 of Regulation S-K.

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

3.02                 Amended and Restated Bylaws of the Company  (1)

3.03                 Restated Certificate of Incorporation of the Company  (2)

4.01                 Indenture  dated as of November 21, 1995 relating to the 7%
                     Senior  Notes due 2000 and the 7 7/8% Senior Notes due 2005
                     (3)

4.02                 Specimen of Common Stock Certificate  (1)

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 (1)

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 (1)

10.11                1995 Stock Option and Incentive  Plan of Franchise  Finance
                     Corporation of America (4)

10.12                Revolving Loan Agreement  dated as of September 1, 1996, by
                     and between  Franchise  Finance  Corporation of America and
                     FFCA Mortgage Corporation (5)
                                       26
<PAGE>
10.13                Equipment Revolving Loan Agreement dated as of September 1,
                     1996,  by and  between  Franchise  Finance  Corporation  of
                     America and FFCA Mortgage Corporation (5)

10.14                Guaranty of Franchise Finance Corporation of America,  with
                     exhibits,  dated December 31, 1996 with respect to the ISDA
                     Master  Agreement and Schedule  dated  December 31, 1996 by
                     and between  Franchise  Finance  Corporation of America and
                     FFCA Mortgage Corporation*

21.01                Subsidiaries of the Registrant*

23.01                Consent of Arthur Andersen LLP*

99.01                Credit  Agreement  dated  as of  December  27,  1995  among
                     Franchise Finance  Corporation of America,  Certain Lenders
                     and NationsBank of Texas, N.A., providing a credit facility
                     in  the  principal  amount  of  $200,000,000  (the  "Credit
                     Agreement") (6)

99.02                Guaranty  Agreement  dated as of December  27, 1995 made by
                     FFCA   Acquisition   Corporation  and  FFCA   Institutional
                     Advisors,  Inc.,  guaranteeing the obligations of Franchise
                     Finance Corporation  of America  under the Credit Agreement
                     (6)
     
99.03                Promissory  Note dated as of December 27, 1995  executed by
                     Franchise  Finance  Corporation  of  America  in  favor  of
                     NationsBank of Texas,  N.A., in connection  with the Credit
                     Agreement (6)
     
99.04                Subordination Agreement dated as of December 27, 1995, made
                     by  FFCA  Acquisition  Corporation  and  Franchise  Finance
                     Corporation  of America for the benefit of Certain  Lenders
                     and  NationsBank  of Texas,  N.A., in  connection  with the
                     Credit Agreement (6)
     
99.05                Subordination Agreement dated as of December 27, 1995, made
                     by FFCA Institutional  Advisors, Inc. and Franchise Finance
                     Corporation  of America for the benefit of Certain  Lenders
                     and  NationsBank  of Texas,  N.A., in  connection  with the
                     Credit Agreement (6)

99.06                Purchase agreement dated June 27, 1996 between FFCA Secured
                     Assets  Corporation,  and Merrill Lynch,  Pierce,  Fenner &
                     Smith   Incorporated,   as   the   initial   purchaser   of
                     $156,490,000   aggregate   principal   amount  of   Secured
                     Franchise
                                       27
<PAGE>
                     Loan Pass-Through  Certificates,  Class A, Class B, Class C
                     and Class D (7)

99.07                First Amendment to Credit Agreement dated February 23, 1996
                     among  Franchise  Finance  Corporation of America,  Certain
                     Lenders and  NationsBank of Texas,  N.A. as  Administrative
                     Lender (8)

99.08                Second  Amendment to Credit  Agreement  dated June 24, 1996
                     among  Franchise  Finance  Corporation of America,  Certain
                     Lenders and  NationsBank of Texas,  N.A. as  Administrative
                     Lender (7)

99.09                Third Amendment to Credit Agreement dated December 27, 1996
                     among  Franchise  Finance  Corporation of America,  Certain
                     Lenders and  NationsBank of Texas,  N.A. as  Administrative
                     Lender*

-------------
*Filed herewith.
(1) Incorporated by reference to the Registrant's Registration Statement on Form
S-4 and amendments  thereto,  registration  number  33-65302,  as filed with the
Securities and Exchange Commission.
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the fiscal  year ended  December  31,  1994,  as filed with the  Securities  and
Exchange Commission.
(3)  Incorporated by reference to 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 to 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.
(5)  Incorporated by reference to the  Registrant's  Current Report on Form 8-K,
dated September 1, 1996, as filed with the Securities and Exchange Commission.
(6)  Incorporated by reference to the  Registrant's  Current Report on Form 8-K,
dated January 25, 1996, as filed with the Securities and Exchange Commission.
(7) Incorporated by reference to the Registrant's  Quarterly Report on Form 10-Q
for the fiscal  quarter  ended June 30, 1996, as filed with the  Securities  and
Exchange Commission.
(8) Incorporated by reference to the Registrant's  Quarterly Report on Form 10-Q
for the fiscal  quarter ended March 31, 1996, as filed with the  Securities  and
Exchange Commission.



         (b)      Reports on Form 8-K filed in the fourth quarter of 1996:

                  Form 8-K dated November 7, 1996

                           Item 5.   Other  Events--Agreement  to  lend  to FFCA
                                       Mortgage  Corporation  the maximum amount
                                       of $225 million
                                       28
<PAGE>
                                       under a revolving  loan  agreement and to
                                       lend the  maximum  amount of $25  million
                                       under   an   equipment   revolving   loan
                                       agreement

                           Item 7.   Financial Statements and Exhibits-Revolving
                                       Loan  Agreement and  Equipment  Revolving
                                       Loan Agreement
                                       29
<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:  February 20, 1997                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:  February 20, 1997                By /s/ M. H. Fleischer
                                           -------------------------------------
                                             M. H. Fleischer, Chairman of the
                                             Board, President, and Chief 
                                             Executive Officer


Date:  February 20, 1997                By /s/ John R. Barravecchia
                                           -------------------------------------
                                             John R. Barravecchia, Executive
                                             Vice President, Chief Financial
                                             Officer and Treasurer


Date:  February 20, 1997                By /s/ Catherine F. Long
                                           -------------------------------------
                                             Catherine F. Long, Senior Vice
                                             President-Finance and Principal
                                             Accounting Officer


Date:  February 20, 1997                By /s/ Willie R. Barnes
                                           -------------------------------------
                                             Willie R. Barnes, Director


Date:  February 20, 1997                By /s/ William C. Foxley
                                           -------------------------------------
                                             William C. Foxley, Director
<PAGE>
Date:  February 20, 1997                By /s/ Robert W. Halliday
                                           -------------------------------------
                                             Robert W. Halliday, Director


Date:  February 20, 1997                By /s/ Donald C. Hannah
                                           -------------------------------------
                                             Donald C. Hannah, Director


Date:  February 20, 1997                By /s/ Dennis E. Mitchem
                                           -------------------------------------
                                             Dennis E. Mitchem, Director


Date:  February 20, 1997                By /s/ Louis P. Neeb
                                           -------------------------------------
                                             Louis P. Neeb, Director


Date:  February 20, 1997                By /s/ Kenneth B. Roath
                                           -------------------------------------
                                             Kenneth B. Roath, Director


Date:  February 20, 1997                By /s/ Wendell J. Smith
                                           -------------------------------------
                                             Wendell J. Smith, Director


Date:  February 20, 1997                By /s/ Casey J. Sylla
                                           -------------------------------------
                                             Casey J. Sylla, Director
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES


Report of Independent Public Accountants                                    F-2

Consolidated Balance Sheets - December 31, 1996 and 1995                    F-3

Consolidated Statements of Income For The Years Ended
         December 31, 1996, 1995 and 1994                                   F-4

Consolidated Statements of Changes in Shareholders' Equity
         For The Years Ended December 31, 1996, 1995 and 1994               F-5

Consolidated Statements of Cash Flows For The Years Ended
         December 31, 1996, 1995 and 1994                                   F-6

Notes to Consolidated Financial Statements                                  F-7

Schedule III - Schedule of Real Estate and Accumulated
         Depreciation as of December 31, 1996                               F-16

Schedule IV - Schedule of Mortgage Loans on Real Estate
         as of December 31, 1996                                            F-18
                                       F-1
<PAGE>
                    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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results of
their  operations and their cash flows for each of the three years in the period
ended  December 31, 1996,  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
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 the audits of the basic  financial  statements  and, in our  opinion,
fairly state in all  material  respects the  financial  data  required to be set
forth therein in relation to the basic financial statements taken as a whole.


                                        ARTHUR ANDERSEN LLP




Phoenix, Arizona,
     January 23, 1997.
                                      F-2
<PAGE>
                    FRANCHISE FINANCE CORPORATION OF AMERICA
                    ----------------------------------------

            CONSOLIDATED BALANCE SHEETS  -  DECEMBER 31, 1996 AND 1995
            ---------------------------     --------------------------
                    (Amounts in thousands except share data)
<TABLE>
<CAPTION>
                                                                        1996         1995
                                                                     ---------    ---------
                                     ASSETS
                                     ------
<S>                                                                  <C>          <C>      
Investments:
    Investments in Real Estate, at cost (Note 3):
       Land                                                          $ 346,626    $ 304,641
       Buildings and Improvements                                      490,506      448,427
       Equipment                                                        31,083       41,512
                                                                     ---------    ---------
                                                                       868,215      794,580
       Less-Accumulated Depreciation                                   172,941      176,232
                                                                     ---------    ---------
           Net Real Estate Investments                                 695,274      618,348

    Mortgage Loans Receivable (Note 4)                                  57,808      199,486
    Related Party Notes Receivable (Note 6)                            147,616         --
    Other Investments (Note 5)                                          37,836         --
                                                                     ---------    ---------
           Total Investments                                           938,534      817,834

Cash and Cash Equivalents                                               11,350        2,067
Notes and Accounts Receivable, net of allowances
    of $1,700 in 1996 and $2,000 in 1995 (Note 4)                       22,020        6,820
Other Assets (Notes 2 and 11)                                           16,872       16,783
                                                                     ---------    ---------

           Total Assets                                              $ 988,776    $ 843,504
                                                                     =========    =========

                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ------------------------------------
Liabilities:
    Accounts Payable and Accrued Expenses                            $   6,827    $   5,608
    Dividends Payable                                                   18,254       18,133
    Notes Payable (Note 7)                                             298,956      198,702
    Borrowings Under Line of Credit (Note 8)                           150,500      110,000
    Mortgage Payable to Affiliate (Note 11)                              8,500        8,500
    Rent Deposits and Other                                             10,369        8,744
                                                                     ---------    ---------

           Total Liabilities                                           493,406      349,687
                                                                     ---------    ---------
Commitments and Contingencies (Note 14)

Shareholders' Equity (Notes 9 and 10):
    Common Stock, par value $.01 per share, authorized 200 million
       shares, issued and outstanding 40,564,076 shares in 1996
       and 40,294,822 shares in 1995                                       406          403
    Capital in Excess of Par Value                                     553,335      547,478
    Cumulative Net Income                                              129,209       60,670
    Cumulative Dividends                                              (187,580)    (114,734)
                                                                     ---------    ---------

           Total Shareholders' Equity                                  495,370      493,817
                                                                     ---------    ---------

           Total Liabilities and Shareholders' Equity                $ 988,776    $ 843,504
                                                                     =========    =========
</TABLE>
              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, 1996, 1995 AND 1994
              ----------------------------------------------------
                  (Amounts in thousands except per share data)
<TABLE>
<CAPTION>

                                                    1996         1995         1994
                                                 ---------    ---------    ---------
<S>                                              <C>          <C>          <C>      
Revenues:
      Rental                                     $  95,612    $  86,182    $  81,760
      Mortgage Loan Interest                        15,738       14,118        5,596
      Investment Income and Other                    6,955        2,283        3,706
      Interest (Related Party) (Note 6)              2,861         --           --
                                                 ---------    ---------    ---------

                                                   121,166      102,583       91,062
                                                 ---------    ---------    ---------

Expenses:
      Depreciation and Amortization                 20,654       21,201       22,810
      Operating, General and Administrative         11,488       10,283       11,195
      Property Costs                                 2,041        2,046        2,310
      Interest                                      25,974       15,276        2,477
      Interest (Related Party) (Note 11)               973          961          951
                                                 ---------    ---------    ---------

                                                    61,130       49,767       39,743
                                                 ---------    ---------    ---------

Income Before Gain on Sale of Property
      and Other Costs                               60,036       52,816       51,319

      Gain on Sale of Property (Note 2)              9,899          977        2,784
      Equity in Net Loss of Affiliate (Note 5)      (1,396)        --           --
      REIT Transaction Related Costs (Note 17)        --           --        (28,198)
                                                 ---------    ---------    ---------

Income Before Extraordinary Item                    68,539       53,793       25,905

      Extraordinary Item - Loss on Early
         Extinguishment of Debt (Note 8)              --         (2,464)        --
                                                 ---------    ---------    ---------

Net Income                                       $  68,539    $  51,329    $  25,905
                                                 =========    =========    =========


Net Income Per Share (Note 2):
      Income Before Extraordinary Item           $    1.69    $    1.33    $     .64
      Extraordinary Item                              --           (.06)        --
                                                 ---------    ---------    ---------

      Net Income Per Share                       $    1.69    $    1.27    $     .64
                                                 =========    =========    =========
</TABLE>
              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, 1996, 1995 AND 1994
              ----------------------------------------------------
                  (amounts in thousands except per share data)
<TABLE>
<CAPTION>

                                                               Capital
                                                  Common    in Excess of  Cumulative Cumulative
                                                   Stock      Par Value   Net Income  Dividends       Total
                                                 ---------   ---------    ----------  ---------    ----------

<S>                                              <C>         <C>          <C>         <C>          <C>      
BALANCE, December 31, 1993                       $      10   $ 576,765    $    --     $    --      $ 576,775
    Shareholders' contribution                        --         3,189         --          --          3,189
    Distributions                                     --       (33,650)        --          --        (33,650)
    Net income                                        --        16,564         --          --         16,564
                                                 ---------   ---------    ----------  ---------    ---------

BALANCE, June 1, 1994 (date of Consolidation)           10     562,868         --          --        562,878
    Shares issued in exchange for FFCA I
       stock and limited partnership interests         393        (393)        --          --           --
    Payment of Variable Rate Notes and
       fractional shares (Note 17)                    --       (11,745)        --          --        (11,745)
    Net distribution upon consolidation
        (Note 17)                                     --        (4,104)        --          --         (4,104)
    Net income                                        --          --          9,341        --          9,341
    Dividends declared - $1.05 per share              --          --           --       (42,263)     (42,263)
                                                 ---------   ---------    ---------   ---------    ---------

BALANCE, December 31, 1994                             403     546,626        9,341     (42,263)     514,107
    Capital contributions - dividend
       reinvestment plan                              --           852         --          --            852
    Net income -                                      --          --         51,329        --         51,329
    Dividends declared - $1.80 per share              --          --           --       (72,471)     (72,471)
                                                 ---------   ---------    ---------   ---------    ---------

BALANCE, December 31, 1995                             403     547,478       60,670    (114,734)     493,817
    Capital contributions - dividend
       reinvestment plan                                 2       4,897         --          --          4,899
    Exercise of stock options                            1         960         --          --            961
    Net income                                        --          --         68,539         --        68,539
    Dividends declared - $1.80 per share              --          --           --       (72,846)     (72,846)
                                                 ---------   ---------    ---------   ---------    ---------

BALANCE, December 31, 1996                       $     406   $ 553,335    $ 129,209   $(187,580)   $ 495,370
                                                 =========   =========    =========   =========    =========
</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, 1996, 1995 AND 1994
              ----------------------------------------------------
                             (Amounts in thousands)
<TABLE>
<CAPTION>
                                                                 1996         1995         1994
                                                              ---------    ---------    ---------
<S>                                                           <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                 $  68,539    $  51,329    $  25,905
   Adjustments to net income:
      Depreciation and amortization                              20,654       21,201       22,810
      Equity in net loss of affiliate                             1,396         --           --
      Provision for uncollectible mortgages                       1,400         --           --
      Gain on sale of property                                   (9,899)        (977)      (2,784)
      REIT transaction related costs                               --           --         28,198
      Loss on early extinguishment of debt                         --          2,464         --
      Other                                                       4,189        4,604        1,854
                                                              ---------    ---------    ---------

        Net cash provided by operating activities                86,279       78,621       75,983
                                                              ---------    ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisition of property                                     (128,713)    (143,262)     (48,233)
   Investment in mortgage loans                                 (49,102)    (133,289)     (33,868)
   Investment in notes receivable                               (17,280)      (1,200)        --
   Proceeds from securitization transaction                     151,720         --           --
   Collection of investment security principal                      715         --           --
   Investment in related party notes receivable                (147,616)        --           --
   Investment in affiliate                                       (9,500)        --           --
   Proceeds from sale of property                                34,015       12,210       18,628
   Receipt of mortgage loan payoffs                              11,935          489        5,345
   Collection of mortgage loan principal                          4,867        5,337        2,445
                                                              ---------    ---------    ---------

        Net cash used in investing activities                  (148,959)    (259,715)     (55,683)
                                                              ---------    ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Dividends paid                                               (72,725)     (72,471)     (76,420)
   Capital contributions                                          5,860          852         --
   Proceeds from bank borrowings                                254,000      361,412       64,475
   Proceeds from issuance of notes                              100,000      198,678         --
   Payment of bank borrowings and loan fees                    (215,172)    (317,405)     (12,190)
   Payment of variable rate notes and fractional shares            --           --        (11,745)
   Payment of REIT transaction related costs                       --           --        (24,173)
                                                              ---------    ---------    ---------

        Net cash provided by (used in) financing activities      71,963      171,066      (60,053)
                                                              ---------    ---------    ---------

NET INCREASE (DECREASE) IN CASH AND CASH
   EQUIVALENTS                                                    9,283      (10,028)     (39,753)

CASH AND CASH EQUIVALENTS, beginning of year                      2,067       12,095       51,848
                                                              ---------    ---------    ---------

CASH AND CASH EQUIVALENTS, end of year                        $  11,350    $   2,067    $  12,095
                                                              =========    =========    =========
</TABLE>
              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, 1996 AND 1995
                           --------------------------

(1)      ORGANIZATION AND OPERATION:
         ---------------------------

         Franchise Finance Corporation of America ("FFCA") is a fully integrated
and  self-administered  real estate  investment  trust ("REIT") which invests in
chain  restaurant  real  estate  throughout  the United  States.  FFCA  provides
financing  to  chain  restaurant   operators  with  experienced   management  in
established  restaurant chains principally through  sale/leaseback  transactions
and mortgage loans. FFCA and its predecessor  companies,  identified in Note 17,
have provided  financing to the chain  restaurant  industry  since 1981.  FFCA's
portfolio  of  properties  is  diversified  by tenant,  restaurant  concept  and
geographic  location.  At  December  31,  1996,  FFCA  had  interests  in  1,869
restaurant  properties  through various  investments.  FFCA's portfolio included
1,432  restaurant  properties  represented  by  investments  in real  estate and
mortgage loans receivable,  243 properties  represented by securitized  mortgage
loans in which FFCA holds a residual interest and 194 properties  represented by
mortgage  loans  originated  and  held  by  FFCA's   affiliate,   FFCA  Mortgage
Corporation (see Note 5). These  restaurants are operated by  approximately  400
restaurant operators in over 35 chains in 46 states.

(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, FFCA Residual Interest
Corporation,  FFCA Secured Assets Corporation and FFCA  Institutional  Advisors,
Inc.  All  intercompany  transactions  have  been  eliminated.   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.

         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 (see Note 17) and,  accordingly,  the tax basis of the
net assets exceeds the book basis by approximately  $228 million at December 31,
1996.  Prior to June 1, 1994, the majority of FFCA's  operations  were conducted
through public real estate limited partnerships.  In accordance with partnership
taxation,  each of the partners is responsible for reporting his or her share of
taxable  income.  Accordingly,  no  income  tax  provision  has been made in the
accompanying consolidated financial statements.

         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 the  restaurant  buildings  and  improvements  and 7 to 8 years for
restaurant  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 restaurant 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, 1996, 1995 and 1994 is
                                      F-7
<PAGE>
net of approximately $3.3 million, $3.4 million and $1.6 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, 1996.

         Lease and Loan Origination  Fees and Costs - FFCA generally  receives a
fee related to  activities  performed  to process a  borrower'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 lease or loan.

         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.

         Prepaid Rent  Insurance - Other Assets  include  prepaid rent insurance
which is amortized over a period of 118 months using the  straight-line  method.
The policy  guarantees  80% of rental  payments  for land and note  payments  on
buildings (but not  equipment)  for a period of 10 years.  At December 31, 1996,
14% of the  total  cost of FFCA's  real  estate is  covered  by rent  insurance.
Included  in  rental  revenue  for  1996,  1995 and 1994 is  approximately  $1.7
million, $3.3 million and $6.2 million, respectively, of rent insurance revenue.
Rent insurance  coverage on FFCA properties  expires at various dates,  with the
majority of the policies expiring by 1998.

         Debt Financing Costs - Included in Other Assets are costs totaling $5.3
million in 1996 and 1995 (net of  accumulated  amortization  of $1.1  million in
1996 and $90,000 in 1995)  associated with the issuance in 1995 of FFCA's Senior
Notes and the  issuance  in 1996 of various  unsecured  notes,  which  costs are
amortized over the terms of the notes on a straight-line basis.  Amortization of
these  debt  issuance  costs  for the years  ended  December  31,  1996 and 1995
amounted to $994,000  and $90,000,  respectively,  which is included in interest
expense in the accompanying financial statements.

         Derivative Financial Instruments - FFCA may periodically use derivative
financial  instruments to enhance its ability to manage  interest rate exposures
in its debt portfolio  which exist as part of its ongoing  business  operations.
FFCA does not hold or issue  derivative  financial  instruments  for speculative
trading purposes.  The derivative  instruments used are interest rate agreements
which are  non-leveraged and involve little  complexity.  Gains and losses under
such  agreements  designated  as hedges are deferred  and  amortized to interest
expense over the term of the associated debt. FFCA had no derivative instruments
outstanding during 1996.

         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.

         Investment  Property Sales - FFCA records certain sales of property and
equipment  under  the  installment  or  cost  recovery  method.  Gains  totaling
approximately  $664,000  in 1996,  $3 million in 1995 and  $600,000 in 1994 were
deferred on such sales.  For financial  reporting  purposes,  deferred  gains on
property sales reduced the related mortgage loan receivable balances and totaled
$1.5 million and $6.6 million at December 31, 1996 and 1995, respectively.

         Net  Income  Per  Share - Net  income  per  share is  calculated  using
40,603,307 and 40,294,427  weighted average common and common  equivalent shares
outstanding during 1996 and 1995, respectively.  In 1994 net income per share is
calculated  using   40,250,719   shares  of  FFCA's  common  stock  issued  upon
consummation  of the  Consolidation  (see  Note  17)  as if  these  shares  were
outstanding the entire year.

         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
                                      F-8
<PAGE>
and expenses  during the  reporting  period.  Although  management  believes its
estimates are reasonable, actual results could differ from those estimates.

(3)      INVESTMENTS IN REAL ESTATE:
         ---------------------------

         FFCA's real estate  portfolio is leased to tenants under  long-term net
operating  leases.  The lease agreements  generally  provide for monthly rentals
equal to the greater of a percentage of the  property's  cost or a percentage of
its  gross  sales.  The term of the  leases is  generally  20 years for land and
buildings and seven or eight years for equipment (if any).  The initial terms of
FFCA's leases extend through 2017 with a weighted average remaining term of 11.5
years as of December 31, 1996.  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 in most cases).  Leases entered into after 1994 generally  provide
for 90-day option windows at various dates during the lease term.  Approximately
three-fourths  of FFCA's land and building leases provide for purchase  options,
one-half  of which are  currently  exercisable.  One lessee  (Foodmaker,  Inc.),
operating  170  Jack  In The  Box  restaurants  in the  western  United  States,
accounted for  approximately  10.9% of FFCA's revenues received from investments
in chain restaurant real estate in 1996, 12.5% in 1995 and 14% in 1994.

         Minimum  future  rentals under  noncancellable  operating  leases as of
December 31, 1996, are as follows (amounts in thousands):

         Year ending December 31,
         ------------------------
                  1997                                        $   91,459
                  1998                                            91,261
                  1999                                            90,561
                  2000                                            88,606
                  2001                                            87,019
                  Thereafter                                     622,260
                                                              ----------

                  Total minimum future rentals                $1,071,166
                                                              ==========

         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
which may be received  under the leases based upon a percentage  of the lessee's
gross  sales   ("percentage   rentals").   These   percentage   rentals  totaled
approximately $5 million in 1996, $4 million in 1995 and $3.8 million in 1994.

(4)      MORTGAGE LOANS RECEIVABLE:
         --------------------------

         At December 31, 1996, FFCA held first mortgage loans on the land and/or
buildings and/or equipment of approximately 236 restaurants represented by $37.8
million in  participating  fixed-rate  loans (net of reserve of $1.4  million in
1996) and $20 million in variable-rate  loans.  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. 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 7.625% at December 31, 1996. Principal and interest payments on
the  mortgage  loans  are  due  in  level  amounts  with  payments   aggregating
approximately  $9 million per year to maturity.  These mortgage loans receivable
are held for long-term investment.

         In  addition  to  the  base  interest,  the  mortgage  loan  agreements
generally provide for additional  interest payments based on a percentage of the
mortgagor's gross restaurant sales  ("participations").  Participating  mortgage
loans  originated  after 1994 generally  provide for no prepayment for the first
ten  years  of the  loan or  provide  for  prepayment  penalties.  Participating
mortgage loans  originated  prior to 1994 were on properties
                                      F-9
<PAGE>
for which  FFCA  held  title to the land  only and made  mortgage  loans for the
related  restaurant  buildings  and are  generally are not subject to prepayment
without the lessee exercising the related land lease purchase option.

         FFCA also held various  notes  totaling  $18.8  million at December 31,
1996 and $3 million at December 31, 1995 (net of  allowances of $875,000 in 1996
and $850,000 in 1995).  Generally,  the notes carry  interest rates ranging from
10% to 12% per annum and mature 5 to 10 years from the date of origination.

(5)        OTHER INVESTMENTS:
           ------------------

         Investment  Securities - Certain  mortgage loans originated by FFCA and
its  predecessors  totaling $178.8 million were securitized on June 27, 1996 and
Secured Franchise Loan Pass-Through  Certificates (the "Certificates") were sold
to investors.  The servicing  rights and any  participations  on these  mortgage
loans have been retained by FFCA. 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.  FFCA  retained  certain  interests in  approximately  12.5% of the
aggregate  mortgage loan principal  balance through the purchase of subordinated
investment securities of the securitization  trust, and, in addition,  purchased
the  interest-only  certificate.  These  investment  securities,  totaling $29.7
million at December 31, 1996, 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.  The gain on the sale of the mortgage loans
was reduced by establishing a reserve  approximating  $4.5 million for estimated
probable losses under the subordination provisions of the securitization.
These securities are classified as available for sale.

         Investment in Affiliate - At December 31, 1996, FFCA held an investment
in FFCA Mortgage Corporation (Mortgage Corp.), which FFCA accounts for under the
equity method. Originally,  Mortgage Corp. was a wholly-owned subsidiary of FFCA
formed in 1996 to originate mortgage loans to be held for future  securitization
transactions.  Mortgage Corp. was  substantially  inactive until  September 1996
when FFCA  exchanged  all of the voting common stock of Mortgage  Corp.  for 100
shares of newly-issued,  non-voting  preferred stock. The preferred stock, which
represents all of the issued and outstanding stock of such class,  entitles FFCA
to 95% of any dividends  declared by Mortgage Corp. and 95% of Mortgage  Corp.'s
profits  and  losses.  The  Chief  Executive  Officer  of FFCA  owns  all of the
outstanding (voting) common stock of Mortgage Corp.

         A summary of  selected  financial  information  as reported by Mortgage
Corp.  as of, and for the year  ended  December  31,  1996,  is set forth  below
(amounts in thousands):

         Revenues                                   $    2,336
         Interest expense                                2,861
         Net loss                                   $   (1,470)

         Mortgage loans held for sale               $  140,967
         Total Assets                                  156,928
         Notes payable to FFCA (see Note 6)            147,616
         Total Liabilities                             148,398
         Total Shareholders' Equity                 $    8,530

(6)         RELATED PARTY NOTES RECEIVABLE:
            -------------------------------

                   FFCA provides  funding to its affiliate,  Mortgage Corp., for
the origination of mortgage loans. Under revolving loan agreements with Mortgage
Corp., FFCA is 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. The margin
for  advances  secured by real  property  is 2.5% and the  margin  for  advances
secured by equipment  is 3.0%.  FFCA also  provides  temporary  working  capital
advances  to Mortgage  Corp.  bearing an  interest  rate of LIBOR plus 3.0%.
                                      F-10
<PAGE>
At December 31, 1996, FFCA had notes receivable from Mortgage Corp.  outstanding
under these  agreements  totaling $147.6 million.  The notes are due in December
1998.


(7)       NOTES PAYABLE:
          -------------

FFCA's notes payable consist of the following:
                                                            1996         1995
                                                          --------     --------
                                                          (amounts in thousands)
 7% Senior Notes due 2000, net of unamortized discount
   of $952 in 1996 and $1,196 in 1995                     $149,048     $148,804
 7.875% Senior Notes due 2005, net of unamortized
   discount of $92 in 1996 and $102 in 1995                 49,908       49,898
 6.78% Notes due 2002                                       30,000            -
 7.02% Notes due 2003                                       30,000            -
 7.1% Notes due 2026, callable by holder in 2004            40,000            -
                                                          --------     --------
                                                          $298,956     $198,702
                                                          ========     ========

         In October  1995,  FFCA  registered  with the  Securities  and Exchange
Commission  up to $500 million of debt and equity  securities  to be issued from
time to time in the  future.  In  November  1995,  FFCA  issued  unsecured  debt
consisting of $150 million of Senior Notes due November 30, 2000 and $50 million
of Senior Notes due November 30, 2005.  The effective  rates on the Senior Notes
approximate 7.2% and 7.9%, respectively. During 1996, FFCA issued unsecured debt
consisting of $100 million of notes due at various dates from 2002 through 2026,
with a weighted average interest rate of 6.98%.

         Interest on this unsecured debt is payable  semi-annually in arrears on
each May 30 and November 30 with  principal due at maturity.  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  (40%,  if  secured  debt) as  defined in the note
agreements,  or if FFCA's  debt  service  coverage  is less than 1.5 to 1. As of
December 31, 1996, FFCA was in compliance with its note covenants.

         Subsequent   to  December  31,   1996,   FFCA  issued  $50  million  in
variable-rate  unsecured notes due 1998 bearing  interest at a weighted  average
rate of 3-month LIBOR plus .33%. Interest on these notes is payable quarterly in
arrears  commencing  April 14, 1997,  with quarterly  interest reset dates.  The
notes are  subject to  optional  redemption  by FFCA on a  quarterly  basis at a
redemption price of 100% of the principal amount of the notes.

(8)      BORROWINGS UNDER LINE OF CREDIT:
         --------------------------------

Borrowings under FFCA's line of credit consist of the following:

                                                               1996       1995
                                                            ---------   --------
                                                          (amounts in thousands)
 Borrowings  at  30-day  LIBOR  plus 1%  (ranging  from
   6.6875%  to 6.75%) at December 31, 1996 and
   LIBOR plus 1.5% (7.35%) at December 31, 1995              $ 85,500   $102,500
 Borrowings at Base rate (8.25% and 8.50% at December 31,
   1996 and 1995, respectively), subsequently converted
   to LIBOR loans                                              65,000      7,500
                                                             --------   --------
                                                             $150,500   $110,000
                                                             ========   ========

         At December 31, 1996,  FFCA had  outstanding  $150.5  million on a $200
million acquisition loan facility with participating banks used to provide funds
for the acquisition or financing of chain restaurant properties.  This unsecured
revolving  credit  facility is due in  periodic  installments  of interest  only
(weighted
                                      F-11
<PAGE>
average of 7.03% in 1996 and 7.79% in 1995).  Effective  December 27, 1996, FFCA
also 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  acquisition  loan  facility  expires in December  1998,  with the
possibility of two annual extensions.

         In 1995,  FFCA initiated an early  termination  of its credit  facility
which enabled it to reduce its cost of borrowings while also removing the bank's
security  interest  in  the  stock  of  FFCA's  wholly-owned  subsidiary,   FFCA
Acquisition  Corporation.  As a result of the early extinguishment of this debt,
FFCA expensed approximately $2.5 million in unamortized loan costs in 1995 which
is reported as an extraordinary item on the consolidated statement of income.

         Amortization  of loan fees  related to these  facilities  for the years
ended  December  31, 1996 and 1995  amounted to $1.4  million and $2.1  million,
respectively,  which  is  included  in  interest  expense  in  the  accompanying
consolidated  financial  statements.  The credit  agreement  contains  covenants
which,  among  other  restrictions,  require  FFCA to  maintain  a fixed  charge
coverage ratio of 2 to 1 and a minimum net worth of $425 million, as defined. As
of December 31, 1996, FFCA was in compliance with its debt covenants.

(9)      DIVIDENDS:
         ----------

         FFCA declared a fourth quarter 1996 dividend of $.45 per share, payable
on February 20, 1997, to  shareholders  of record on February 10, 1997.  For tax
reporting  purposes,  this  dividend is not included in the  shareholders'  1996
taxable income.  The dividend payments made by FFCA to its shareholders for 1996
are characterized as ordinary income of $1.58 per share and capital gain of $.22
per  share.  Dividend  payments  made by FFCA to its  shareholders  for 1995 are
characterized  as ordinary income of $1.35 per share.  FFCA's dividend  payments
for the period  from June 1, 1994 to December  31,  1994,  including  the fourth
quarter 1994 dividend,  were characterized as ordinary income of $0.87 per share
and return of capital of $0.18 per share.

(10)     STOCK OPTIONS:
         --------------

         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. The 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.  Under the terms of the plan,
options granted may be either  non-qualified  or incentive stock options and the
exercise  price,  determined  by the  committee,  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  generally  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 and incentive
plan 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 its stock option and incentive 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):

                                                  1996              1995
                                             --------------    ---------------
         Net income as reported                 $68,539            $51,329
         Net income pro forma                   $67,605            $48,812

         Earnings per share as reported          $1.69              $1.27
         Earnings per share pro forma            $1.67              $1.21
                                      F-12
<PAGE>
         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 1996 and 1995,  respectively:  dividend yield of
8.2% and 8%;  expected  stock price  volatility of 20.13% and 21.36%;  risk-free
interest rates of 5.59% and 6.52%; 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,  1996 and 1995,  and  changes  during  the years  then  ended,  is
presented below:
<TABLE>
<CAPTION>
                                                        1996                                1995
                                              ------------------------------      ------------------------------
                                                               Weighted Avg.                       Weighted Avg.
                                               Shares         Exercise Price        Shares        Exercise Price
                                              ---------       --------------      ----------      --------------
<S>                                           <C>                  <C>             <C>                <C>   
Outstanding, beginning of year                1,227,989            $19.50                  -               -
Granted                                         526,091            $21.87          1,227,989          $19.50
Exercised                                        48,899            $19.63                  -               -
Outstanding, end of year                      1,705,181            $20.23          1,227,989          $19.50

Options exercisable, end of year                400,181            $19.64             20,489          $19.75
Weighted average fair value of
   each option granted during year                $2.05                                $1.78
</TABLE>

As of December 31, 1996, options  outstanding under the plan had exercise prices
ranging  from  $19.50 to $21.88  with a weighted  average  price of $20.23,  and
expiration  dates  ranging  from May 10,  2005 to May 13,  2006 with a  weighted
average remaining term of 8.6 years.

(11)     RELATED PARTY TRANSACTIONS:
         ---------------------------

         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 term of the mortgage  loan on the FFCA Premises is ten years and
provides for payments of interest  only, at the rate of 10% per year,  until May
2000,  at  which  time  the  entire  principal  amount  must  be  repaid  to the
partnership.  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.  FFCA is accruing this  additional  interest over
the term of the loan  based  on an  estimated  payment  of $1.1  million.  Under
certain  circumstances,  FFCA may be  required  to  prepay  the  loan;  however,
management does not believe that such  circumstances  are probable.  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 $9 million in
1996 and 1995 (net of accumulated  depreciation of $2.6 million in 1996 and $2.4
million in 1995) and is included in Other Assets in the  accompanying  financial
statements.

         FFCA  provides  certain  accounting,   computer,   investor  and  other
administrative  services  to its  affiliates  under a  service  agreement  which
provides  for a monthly  fee based  upon the  amount  of  services  used by each
affiliate. Fees for such services aggregated approximately $1.6 million in 1996,
$760,000 in 1995 and $599,000 in 1994.

(12)     FINANCIAL INSTRUMENTS:
         ----------------------

         The carrying value of FFCA's financial  instruments  approximates  fair
value,  except for  differences  with  respect  to  mortgage  loans  receivable,
investment securities and long-term,  fixed-rate debt (Notes Payable, Borrowings
Under Line of Credit 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 quoted market price
of a financial instrument with similar characteristics.

         The fair value of FFCA's  mortgage  loans  receivable  is  estimated by
discounting  the future cash flows using the current  interest rates for similar
loans with similar  maturities  at December 31, 1996,  and exceeded its carrying
amount by $2.8 million. The fair value of FFCA's long-term investment securities
is based on
                                      F-13
<PAGE>
quoted  market  prices of similar  investments  and,  as of December  31,  1996,
exceeded the  carrying  amount by $8.8  million.  Based on the level of interest
rates prevailing at December 31, 1996, the fair value of FFCA's long-term, fixed
rate debt  exceeded  its  carrying  amount by $5.5  million.  Combined,  this is
equivalent  to an  unrealized  gain of $6.1  million;  however,  changes  in the
unrealized  gains  or  losses  on  mortgage  loans  receivable,   the  long-term
investment  securities and fixed-rate  debt do not result in the  realization or
expenditure  of cash unless the  investments  are  actually  sold or the debt is
retired.

(13)     EMPLOYEE SAVINGS PLAN:
         ----------------------

         The FFCA 401K Plan (the  Plan) was  established  as a savings  plan for
FFCA's  employees  who have been  employed  by FFCA (or its  predecessor)  for a
minimum of six months. The 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 by the Plan on the open
market,  and are  subject to  years-of-service  vesting  requirements.  Employer
contributions totaled $213,000 in 1996, $169,000 in 1995 and $70,000 in 1994.

(14)     COMMITMENTS AND CONTINGENCIES:
         ------------------------------

         In the  normal  course  of  business,  FFCA  and  its  affiliates  make
commitments  to extend credit to meet the financing  needs of its clients in the
chain  restaurant  industry.  FFCA evaluates each client's  credit and, based on
management's  evaluation  of  the  client  and  the  proposed  restaurant  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,  1996,  FFCA's
outstanding   commitments  to  extend  credit  and  to  fund  Mortgage   Corp.'s
commitments to extend credit aggregated approximately $270 million.

         FFCA guarantees  Mortgage Corp.'s  performance under a hedging program,
for which FFCA  receives a guaranty fee equal to .19% of the notional  amount of
the hedge  contracts  outstanding.  In 1996,  Mortgage Corp. had  outstanding an
interest rate swap contract with a notional amount of approximately $65 million.
The  counterparty  to this  contract  requires  FFCA (as  guarantor  of Mortgage
Corp.'s performance) to meet certain covenants which correspond to the covenants
provided  for under  FFCA's line of credit (see Note 8). At December  31,  1996,
FFCA was in compliance with these  covenants.  Mortgage Corp. had no outstanding
liabilities  under this contract during 1996 and would have received $632,000 if
it had terminated this swap contract at December 31, 1996.

(15)     ADDITIONAL FINANCIAL INFORMATION:
         ---------------------------------

         Additional  information  with respect to cash flows follows (amounts in
thousands):
<TABLE>
<CAPTION>
                                                                            1996             1995                1994
                                                                        ----------        ----------          -------
<S>                                                                       <C>               <C>                 <C>   
   Mortgage loans obtained as part of property sale proceeds,
      net of deferred gain                                                   $825            $5,542             $2,356
   Acquisition of property and equipment through foreclosure               $1,245                 -               $120
   Shares issued in exchange for limited partnership interests                  -                 -               $393
   Distribution of FFCA I assets to shareholders                                -                 -             $4,104
   Investment in securities                                               $30,763                 -                  -
   Interest paid                                                          $23,692           $12,802             $3,030
    Taxes paid/(refunds received)                                             $27             $(816)              $231
</TABLE>
                                      F-14
<PAGE>
(16)     QUARTERLY FINANCIAL INFORMATION (Unaudited):
         --------------------------------------------
<TABLE>
<CAPTION>
                                                                       Quarter Ended
                                            March 31,          June 30,        September 30,     December 31,
                                            ---------          --------        -------------     ------------
                                                        (amounts in thousands, except per share data)
<S>                                           <C>               <C>              <C>               <C>    
1996
----
Revenues                                      $29,667           $31,208          $29,061           $31,230
Net income                                     13,777            21,894           15,831            17,037
Net income per share                             0.34              0.54             0.39              0.42
Dividends per share                           $  0.45           $  0.45          $  0.45           $  0.45
Weighted average shares                        40,425            40,486           40,683            40,865


1995
----
Revenues                                      $23,231           $24,854          $26,524           $27,974
Income before extraordinary item               13,707            12,887           13,695            13,504
Net income                                     13,707            12,887           13,695            11,040
Income before extraordinary item per share       0.34              0.32             0.34              0.33
Net income per share                             0.34              0.32             0.34              0.27
Dividends per share                           $  0.45           $  0.45          $  0.45           $  0.45
Weighted average shares                        40,251            40,251           40,251            40,394
</TABLE>

(17)     REIT FORMATION:
         ---------------

         FFCA was organized as a Delaware corporation in June 1993 to facilitate
the consolidation by merger (the Consolidation) of Franchise Finance Corporation
of America I (FFCA I) and eleven public real estate  limited  partnerships  (the
Partnerships) with and into FFCA. The Consolidation was effected 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. Certain costs incurred to
effect the Consolidation and integrate the continuing operations of the separate
companies  were  expensed in 1994 and are included in REIT  Transaction  Related
Costs in the accompanying  consolidated  statements of income. The Consolidation
did not require any material  adjustments to conform the accounting  policies of
the predecessor  companies to that of FFCA; however,  certain  reclassifications
have been made to prior years' financial statements to conform with current year
presentation.

         FFCA I and investors in the  Partnerships who elected to invest in FFCA
received shares of common stock of FFCA totaling  40,250,719 shares  (fractional
shares  totaling  $918,820  were paid in cash).  Certain  investors  elected  to
receive   variable  rate  senior  notes  (the  Variable  Rate  Notes)   totaling
$10,825,911.  Rather than  issuing the Variable  Rate Notes,  FFCA paid to those
investors  an amount  equal to the  Variable  Rate  Notes  plus  interest  at an
annualized  rate of 5.0625% for the period June 1, 1994  through  June 30, 1994.
Certain  non-real  estate assets and  liabilities of FFCA I were not included in
the Consolidation and, accordingly,  were not transferred to FFCA. These amounts
are  treated  as a net  distribution  upon  Consolidation  in  the  accompanying
financial statements.

         The  consolidated  statement of income for the year ended  December 31,
1994 includes the  operations  of the  Predecessor  Companies  combined from the
beginning  of the year  through May 31, 1994 and those of FFCA from June 1, 1994
to December 31, 1994.  For the period  January 1, 1994 through May 31, 1994, the
Partnerships recorded revenues of $37 million and net income of $22 million, and
FFCA I  recorded  revenues  of $5.3  million  and a net  loss  of $4.8  million.
Intercompany  eliminations  totaled $4 million and  $180,000 in revenues and net
income, respectively. The results of operations of FFCA I for the period January
1, 1994  through  May 31,  1994  include  expenses  approximating  $6 million in
connection  with the  payoff of  deferred  compensation  arrangements  and stock
compensation  paid prior to, and in  connection  with,  the  Consolidation.  The
Partnerships  involved in the  Consolidation  are Hardee's  Lease Partners 1980,
Insured Income Properties 1981,  Insured Income Properties 1982,  Insured Income
Properties 1983, Insured Income Properties 1984, Insured Income Properties 1985,
Insured Income Properties 1986,  Insured Income Properties 1988, Insured Pension
Investors  1983,  Insured Pension  Investors 1984 and Insured Pension  Investors
1985.
                                      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, 1996
                             -----------------------
<TABLE>
<CAPTION>
                                         Initial Cost to Company and
                                      Gross Amount at December 31, 1996                        Accumulated Depreciation
                            --------------------------------------------------------  ------------------------------------------

                 No. of
U.S. Region     Properties       Land        Buildings       Equipment   Total          Buildings       Equipment    Total
-----------     ----------  -------------  -------------  ------------  ------------  -------------  ------------  -------------
<S>               <C>       <C>            <C>            <C>           <C>           <C>            <C>           <C>          
Mideast           153       $  43,882,530  $  60,873,051  $  1,315,153  $106,070,734  $  13,224,901  $  1,267,623  $  14,492,524
Northeast          83          22,824,405     34,489,767     1,084,507    58,398,679      6,207,576     1,070,937      7,278,513
E.N. Central      182          36,259,877     74,953,212     6,552,107   117,765,196     25,410,377     6,289,979     31,700,356
W.N. Central      125          24,458,495     45,690,513     3,761,446    73,910,454     15,469,004     3,633,742     19,102,746
Southeast         381          92,079,509    133,796,454     8,254,388   234,130,351     40,480,022     8,208,086     48,688,108
Southwest         203          57,081,173     74,257,333     6,696,205   138,034,711     21,159,148     6,614,547     27,773,695
Mountain           96          28,629,979     37,304,547     2,726,400    68,660,926      9,992,603     2,671,572     12,664,175
Pacific           128          41,410,124     29,141,246       693,051    71,244,421     10,548,094       693,080     11,241,174
                -----        ------------  -------------  ------------  ------------  -------------  ------------  -------------

TOTAL           1,351        $346,626,092   $490,506,123  $ 31,083,257  $868,215,472  $ 142,491,725  $ 30,449,566  $ 172,941,291
                =====        ============  =============  ============  ============  =============  ============  =============
</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, 1996
                             -----------------------

NOTES:
      (1) All property is restaurant property.
      (2) There are no encumbrances on properties.
      (3) The aggregate  cost for Federal  income tax purposes is  approximately
          $902 million.
      (4) Depreciation  is computed over the  estimated  useful life of 24 to 30
          years for the restaurant  buildings and  improvements and 7 to 8 years
          for the restaurant equipment.
      (5) Transactions in real estate and equipment and accumulated depreciation
          during 1996, 1995, and 1994 are summarized as follows:

                                                                   Accumulated
                                             Cost                  Depreciation
                                             ----                  ------------

Balance, December 31, 1993               $661,576,553              $159,353,879

      Acquisitions                         48,233,127                      -
      Repossessed equipment                   119,681                      -
      Cost of real estate sold            (19,907,230)               (4,098,224)
      Cost of equipment sold               (7,296,677)               (6,472,931)
      Impairment loss                      (1,600,000)                     -
      Depreciation expense                       -                   20,786,738
                                         ------------            --------------

Balance, December 31, 1994                681,125,454               169,569,462

      Acquisitions                        143,261,856                      -
      Cost of real estate sold            (17,992,264)               (4,952,633)
      Cost of equipment sold               (8,399,941)               (7,850,715)
      Impairment loss                      (3,415,000)                     -
      Depreciation expense                       -                   19,466,354
                                         ------------            --------------

Balance, December 31, 1995                794,580,105               176,232,468

      Acquisitions                        128,713,459                      -
      Cost of real estate sold            (42,447,500)              (12,705,404)
      Cost of equipment sold              (10,590,592)              (10,121,887)
      Foreclosed property                   1,245,000                      -
      Impairment loss                      (3,285,000)                     -
      Depreciation expense                       -                   19,536,114
                                         ------------            --------------

Balance, December 31, 1996               $868,215,472              $172,941,291
                                         ============              ============
                                      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, 1996
                             -----------------------
<TABLE>
                                        No. of          Face Amount   Carrying Amount      Interest            Maturity Date
U.S. Region  Original Loan Amount  Financed Properties  of Mortgages   of Mortgages       Rate Range               Range
-----------  --------------------  -------------------  ------------   ------------       ----------    -------------------------
<S>          <C>                            <C>         <C>            <C>               <C>                <C> 
Southeast         under $500,000            41          $  5,967,464   $  4,131,576      10.5% - 13.5%      Jul. 1999 - Aug. 2016
             $501,000-$1,000,000             2             1,291,234        858,062      10.0% - 10.5%      Jan. 2000 - Sep. 2014
                                                        ------------   ------------
                                                           7,258,698      4,989,638
                                                        ------------   ------------

Mideast           under $500,000             6             1,181,980        944,518      11.0% - 12.5%      Nov. 1997 - Mar. 2003
             $501,000-$1,000,000             1               750,000        405,546              10.5%                  Jan. 2006
                 over $1,000,000             1             1,290,500        649,074              10.0%                  Oct. 1999
                                                        ------------   ------------
                                                           3,222,480      1,999,138
                                                        ------------   ------------

Northeast         under $500,000            25             4,391,769      3,850,342     11.25% - 11.5%      Apr. 2003 - Nov. 2003
                 over $1,000,000             3             4,126,175      2,565,257              11.5%      Sep. 2015 - Nov. 2015
                                                        ------------   ------------
                                                           8,517,944      6,415,599
                                                        ------------   ------------

E.N. Central      under $500,000            26             1,398,468      1,001,020      11.0% - 12.5%      Nov. 1997 - Oct. 2002
             $501,000-$1,000,000            11             7,752,120      7,088,756      11.0% - 15.0%       Oct. 1999 - May 2015
                 over $1,000,000             1             1,600,000      1,534,380              10.5%                  Sep. 2015
                                                        ------------   ------------
                                                          10,750,588      9,624,156
                                                        ------------   ------------

W.N. Central      under $500,000            17             1,523,008      1,235,416     10.0% - 11.25%      Oct. 1996 - Oct. 2002
             $501,000-$1,000,000             8             5,382,821      4,286,422      10.5% - 13.5%      Jan. 2002 - Oct. 2005
                                                        ------------   ------------
                                                           6,905,829      5,521,838
                                                        ------------   ------------

Southwest           $20,000,000*            60            20,000,000     20,000,000              7.63%                  Jan. 1998
                  under $500,000            19             3,993,418      3,508,370      10.5% - 12.5%      Nov. 1997 - Jun. 2016
                                                        ------------   ------------
                                                          23,993,418     23,508,370
                                                        ------------   ------------

Mountain          under $500,000             9             2,924,234      2,488,717    10.25% - 11.29%      June 1996 - Apr. 2003
             $501,000-$1,000,000             4             2,484,337      1,805,885     10.75% - 14.5%      Mar. 2001 - Nov. 2005
                                                        ------------   ------------
                                                           5,408,571      4,294,602
                                                        ------------   ------------

Pacific      $501,000-$1,000,000             1               548,672        532,533              11.5%                  Oct. 2002
                 over $1,000,000             1             1,200,000        921,900              10.6%                  Jun. 2008
                                                        ------------   ------------
                                                           1,748,672      1,454,433
                                                        ------------   ------------

                          TOTAL                          $67,806,200    $57,807,774
                                                        ============   ============
</TABLE>
*Variable Rate Mortgage Loan
                                      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, 1996
                             -----------------------

NOTES:
      (1) Generally,  loans are first mortgages for restaurant  land,  buildings
          and/or equipment.
      (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
          $61 million.
      (6) Transactions  in mortgage  loans on real estate during 1996,  1995 and
          1994 are summarized as follows:

Balance, December 31, 1993                                        $  38,091,398
      Additions during period:
          New mortgage loans                                         36,641,734
          Deferred gain, net of gain recognized                        (513,306)
          Unamortized loan fees, net of amortization                   (261,321)
      Deductions during period:
          Collections of principal                                   (2,149,648)
          Mortgage loan payoffs                                      (5,709,042)
          Foreclosures                                                 (119,681)
                                                                 --------------

Balance, December 31, 1994                                           65,980,134
      Additions during period:
          New mortgage loans                                        141,788,744
          Deferred gain, net of gain recognized                      (2,714,965)
          Unamortized loan fees, net of amortization                 (1,228,717)
      Deductions during period:
          Collections of principal                                   (3,381,980)
          Mortgage loan payoffs                                        (956,538)
                                                                 --------------

Balance, December 31, 1995                                          199,486,678
      Additions during period:
          New mortgage loans                                         50,592,083
          Recognition of deferred gain, net of additional
                 deferred gains in 1996                               5,145,117
          Net loan fees recognized                                    1,490,038
      Deductions during period:
          Collections of principal                                   (4,867,192)
          Mortgage loan payoffs                                    (190,769,351)
          Reserve for mortgage loan losses                           (1,400,000)
          Foreclosures                                               (1,869,599)
                                                                  -------------

Balance, December 31, 1996                                          $57,807,774
                                                                  =============
                                      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, Financial
Data Schedule. Exhibit numbers correspond to the numbers in the Exhibit Table of
Item 601 of Regulation S-K.

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

3.02                   Amended and Restated Bylaws of the Company  (1)

3.03                   Restated Certificate of Incorporation of the Company  (2)

4.01                   Indenture  dated as of November 21, 1995  relating to the
                       7% Senior  Notes due 2000 and the 7 7/8% Senior Notes due
                       2005 (3)

4.02                   Specimen of Common Stock Certificate  (1)

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 (1)

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 (1)

10.11                  1995 Stock Option and Incentive Plan of Franchise Finance
                       Corporation of America (4)

10.12                  Revolving Loan  Agreement  dated as of September 1, 1996,
                       by and between Franchise  Finance  Corporation of America
                       and FFCA Mortgage Corporation (5)

10.13                  Equipment  Revolving Loan Agreement dated as of September
                       1, 1996, by and between Franchise Finance  Corporation of
                       America and FFCA Mortgage Corporation (5)

10.14                  Guaranty of  Franchise  Finance  Corporation  of America,
                       with  exhibits,  dated  December 31, 1996 with respect to
                       the ISDA Master Agreement and Schedule dated December 31,
<PAGE>
                       1996 by and  between  Franchise  Finance  Corporation  of
                       America and FFCA Mortgage Corporation*

21.01                  Subsidiaries of the Registrant*

23.01                  Consent of Arthur Andersen LLP*

99.01                  Credit  Agreement  dated as of  December  27,  1995 among
                       Franchise Finance Corporation of America, Certain Lenders
                       and  NationsBank  of  Texas,  N.A.,  providing  a  credit
                       facility in the  principal  amount of  $200,000,000  (the
                       "Credit Agreement") (6)

99.02                  Guaranty  Agreement dated as of December 27, 1995 made by
                       FFCA  Acquisition   Corporation  and  FFCA  Institutional
                       Advisors, Inc., guaranteeing the obligations of Franchise
                       Finance   Corporation   of  America   under   the  Credit
                       Agreement (6)

99.03                  Promissory Note dated as of December 27, 1995 executed by
                       Franchise  Finance  Corporation  of  America  in favor of
                       NationsBank of Texas, N.A., in connection with the Credit
                       Agreement (6)

99.04                  Subordination  Agreement  dated as of December  27, 1995,
                       made  by  FFCA  Acquisition   Corporation  and  Franchise
                       Finance Corporation of America for the benefit of Certain
                       Lenders and  NationsBank  of Texas,  N.A.,  in connection
                       with the Credit Agreement (6)

99.05                  Subordination  Agreement dated as of  December  27, 1995,
                       made by FFCA Institutional  Advisors,  Inc. and Franchise
                       Finance Corporation of America for the benefit of Certain
                       Lenders and  NationsBank  of Texas,  N.A.,  in connection
                       with the Credit Agreement (6)

99.06                  Purchase  agreement  dated  June 27,  1996  between  FFCA
                       Secured Assets  Corporation,  and Merrill Lynch,  Pierce,
                       Fenner & Smith Incorporated,  as the initial purchaser of
                       $156,490,000   aggregate   principal  amount  of  Secured
                       Franchise Loan Pass-Through Certificates,  Class A, Class
                       B, Class C and Class D (7)

99.07                  First  Amendment to Credit  Agreement  dated February 23,
                       1996 among  Franchise  Finance  Corporation  of  America,
                       Certain  Lenders  and  NationsBank  of  Texas,   N.A.  as
                       Administrative Lender (8)
<PAGE>
99.08                  Second  Amendment to Credit Agreement dated June 24, 1996
                       among Franchise Finance  Corporation of America,  Certain
                       Lenders and NationsBank of Texas,  N.A. as Administrative
                       Lender (7)

99.09                  Third  Amendment to Credit  Agreement  dated December 27,
                       1996 among  Franchise  Finance  Corporation  of  America,
                       Certain  Lenders  and  NationsBank  of  Texas,   N.A.  as
                       Administrative Lender*

--------------
*Filed herewith.
(1) Incorporated by reference to the Registrant's Registration Statement on Form
S-4 and amendments  thereto,  registration  number  33-65302,  as filed with the
Securities and Exchange Commission.
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the fiscal  year ended  December  31,  1994,  as filed with the  Securities  and
Exchange Commission.
(3)  Incorporated by reference to 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 to 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.
(5)  Incorporated by reference to the  Registrant's  Current Report on Form 8-K,
dated September 1, 1996, as filed with the Securities and Exchange Commission.
(6)  Incorporated by reference to the  Registrant's  Current Report on Form 8-K,
dated January 25, 1996, as filed with the Securities and Exchange Commission.
(7) Incorporated by reference to the Registrant's  Quarterly Report on Form 10-Q
for the fiscal  quarter  ended June 30, 1996, as filed with the  Securities  and
Exchange Commission.
(8) Incorporated by reference to the Registrant's  Quarterly Report on Form 10-Q
for the fiscal  quarter ended March 31, 1996, as filed with the  Securities  and
Exchange Commission.