<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION

                          Washington, D.C. 20549-1004

                                   FORM 10-Q
                                        
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
 
    For the period ended                     March 31, 1999
                         -------------------------------------------------------
 
                                      OR
 
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
 
    For the transition period from                       to
                                   ---------------------    --------------------
 
Commission File Number                                 0-14122
                                   ---------------------------------------------
 
               First Capital Institutional Real Estate, Ltd. - 3
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)
 
            Florida                                                36-3330657
-------------------------------                              -------------------
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)
 
Two North Riverside Plaza, Suite 1000, Chicago, Illinois           60606-2607
--------------------------------------------------------     -------------------
        (Address of principal executive offices)                   (Zip Code)
 
                                (312) 207-0020
--------------------------------------------------------------------------------
             (Registrant's telephone number, including area code)
 
                                Not applicable
--------------------------------------------------------------------------------
  (Former name, former address and former fiscal year, if changed since last 
                                    report)
 
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
                                       ----      ----

Documents incorporated by reference:

The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the definitive Prospectus dated January 17, 1985, included
in the Registrant's Registration Statement on Form S-11, is incorporated herein
by reference in Part I of this report.


<PAGE>
 
BALANCE SHEETS
(All dollars rounded to nearest 00s)
 
<TABLE>
<CAPTION>
                            March 31,
                              1999     December 31,
                           (Unaudited)     1998
---------------------------------------------------
<S>                        <C>         <C>
ASSETS
Cash and cash equivalents   4,862,200   18,390,000
Rents receivable                4,300        4,300
Due from Affiliates, net                     1,100
Other assets                   19,000       15,000
---------------------------------------------------
                           $4,885,500  $18,410,400
---------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
 Accounts payable and
  accrued expenses         $   28,100  $    90,700
 State income tax payable                   75,300
 Due to Affiliates, net         1,300
 Distributions payable                  13,528,500
 Other liabilities              3,300        3,300
---------------------------------------------------
                               32,700   13,697,800
---------------------------------------------------
Partners' capital:
 General Partner               15,800       14,400
 Limited Partners (45,737
  Units issued and
  outstanding)              4,837,000    4,698,200
---------------------------------------------------
                            4,852,800    4,712,600
---------------------------------------------------
                           $4,885,500  $18,410,400
---------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the quarter ended March 31, 1999 (Unaudited)
and the year ended December 31, 1998
(All dollars rounded to nearest 00s)
 
<TABLE>
<CAPTION>
                                          General      Limited
                                          Partner     Partners       Total
------------------------------------------------------------------------------
<S>                                      <C>         <C>          <C>
Partners' (deficit) capital, January 1,
 1998                                    $ (136,500) $14,049,900  $13,913,400
Net income for the year ended December
 31, 1998                                   293,200    5,101,700    5,394,900
Distributions for the year ended
 December 31, 1998                         (142,300) (14,453,400) (14,595,700)
------------------------------------------------------------------------------
Partners' capital, December 31, 1998         14,400    4,698,200    4,712,600
Net income for the quarter ended
 March 31, 1999                               1,400      138,800      140,200
------------------------------------------------------------------------------
Partners' capital, March 31, 1999        $   15,800  $ 4,837,000  $ 4,852,800
------------------------------------------------------------------------------
</TABLE>
    The accompanying notes are an integral part of the financial statements
                                                                               2
<PAGE>
 
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended March 31, 1999 and 1998
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
 
<TABLE>
<CAPTION>
                                                             1999      1998
-----------------------------------------------------------------------------
<S>                                                        <C>       <C>
Income:
 Rental                                                    $         $314,200
 Interest                                                   147,800   184,500
-----------------------------------------------------------------------------
                                                            147,800   498,700
-----------------------------------------------------------------------------
Expenses:
 Depreciation and amortization                                         60,000
 Property operating:
  Affiliates                                                    200    16,500
  Nonaffiliates                                               5,800    84,600
 Real estate taxes                                           (1,300)   23,600
 Insurance--Affiliate                                                   3,100
 Repairs and maintenance                                        200    49,400
 General and administrative:
  Affiliates                                                  7,400     5,900
  Nonaffiliates                                              (4,700)   37,700
-----------------------------------------------------------------------------
                                                              7,600   280,800
-----------------------------------------------------------------------------
Net income before income from participation in joint
 venture                                                    140,200   217,900
Income from participation in joint venture                            110,000
-----------------------------------------------------------------------------
Net income                                                 $140,200  $327,900
-----------------------------------------------------------------------------
Net income allocated to General Partner                    $  1,400  $ 35,600
-----------------------------------------------------------------------------
Net income allocated to Limited Partners                   $138,800  $292,300
-----------------------------------------------------------------------------
Net income allocated to Limited Partners per Unit (45,737
 Units outstanding)                                        $   3.03  $   6.39
-----------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
For the quarters ended March 31, 1999 and 1998
(Unaudited)
(All dollars rounded to nearest 00s)
 
<TABLE>
<CAPTION>
                                                        1999         1998
------------------------------------------------------------------------------
<S>                                                 <C>           <C>
Cash flows from operating activities:
 Net income                                         $    140,200  $   327,900
 Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation and amortization                                        60,000
  (Income) from participation in joint venture                       (110,000)
  Changes in assets and liabilities:
   Decrease in rents receivable                                           400
   (Increase) decrease in other assets                    (4,000)      14,900
   (Decrease) in accounts payable and accrued
    expenses                                             (62,600)     (34,100)
   Increase in due to/from Affiliates                      2,400        2,100
   (Decrease) in state income tax payable                (75,300)
   Increase in other liabilities                                        5,600
------------------------------------------------------------------------------
    Net cash provided by operating activities                700      266,800
------------------------------------------------------------------------------
Cash flows from investing activities:
 Payments for capital and tenant improvements                            (800)
 (Increase) in investments in debt securities                      (9,896,900)
 Decrease in restricted cash                                           50,000
 Distributions received from joint venture                            315,500
------------------------------------------------------------------------------
    Net cash (used for) investing activities                       (9,532,200)
------------------------------------------------------------------------------
Cash flows from financing activities:
 Distributions paid to Partners                      (13,528,500)    (355,700)
 Increase in security deposits                                          2,400
------------------------------------------------------------------------------
    Net cash (used for) financing activities         (13,528,500)    (353,300)
------------------------------------------------------------------------------
Net (decrease) in cash and cash equivalents          (13,527,800)  (9,618,700)
Cash and cash equivalents at the beginning of the
 period                                               18,390,000   13,336,700
------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period  $  4,862,200  $ 3,718,000
------------------------------------------------------------------------------
</TABLE>
    The accompanying notes are an integral part of the financial statements
3
<PAGE>
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
March 31, 1999
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
DEFINITION OF SPECIAL TERMS:
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement filed with the Securities and
Exchange Commission on Form S-11. Definitions of these terms are contained in
Article III of the First Amended and Restated Certificate and Agreement of
Limited Partnership, which is included in the Registration Statement and
incorporated herein by reference.
 
ACCOUNTING POLICIES:
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP"). The Partnership utilizes the accrual
method of accounting. Under this method, revenues are recorded when earned and
expenses are recorded when incurred.
 
Preparation of the Partnership's financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
 
The financial information included in these financial statements is unaudited;
however, in management's opinion, all adjustments (consisting of only normal,
recurring accruals) necessary for a fair presentation of the results of
operations for the periods included have been made. Results of operations for
the three months ended March 31, 1999 are not necessarily indicative of the
operating results for the year ending December 31, 1999.
 
The financial statements include the Partnership's 50% interest in a joint
venture with an Affiliated partnership. This joint venture was formed for the
purpose of acquiring a 100% interest in certain real property and until its
August 1998 sale was operated under the common control of the General Partner.
Accordingly, the Partnership's pro rata share of the ventures' revenues,
expenses, assets, liabilities and Partners' capital is included in the
financial statements.
 
Investment in joint venture includes the recording of the Partnership's
interest, under the equity method of accounting, in a joint venture with an
Affiliated partnership. The joint venture acquired a preferred majority
interest in a limited partnership with the seller of the Lansing, Michigan
property ("Holiday"). Under the equity method of accounting, the Partnership
recorded its initial interest at cost and adjusted its investment account for
its share of Holiday's income or loss and its distributions of cash flow (as
defined by the limited partnership agreement). During 1998, Holiday was sold
and the limited partnership was dissolved.
 
The Partnership has one reportable segment as the Partnership is in the
disposition phase of its life cycle, wherein it is seeking to resolve post-
closing matters relating to properties sold by the Partnership.
 
Cash equivalents are considered all highly liquid investments with maturities
of three months or less when purchased.
 
Reference is made to the Partnership's Annual Report for the year ended
December 31, 1998 for a description of other accounting policies and additional
details of the Partnership's financial condition, results of operations,
changes in Partners' (deficit) capital and changes in cash balances for
the year then ended. The details provided in the notes thereto have not changed
except as a result of normal transactions in the interim or as otherwise
disclosed herein.
 
2. RELATED PARTY TRANSACTIONS:
 
In accordance with the Partnership Agreement, subsequent to May 16, 1986, the
Termination of the Offering, the General Partner is entitled to 10% of Cash
Flow (as defined in the Partnership Agreement) as a Partnership Management Fee.
Net Profits (exclusive of Net Profits from the sale or disposition of
Partnership properties) are allocated to the General Partner in an amount equal
to the greater of 1% of such Net Profits or the Partnership Management Fee paid
by the Partnership to the General Partner and, the balance, if any, to the
Limited Partners. Net Losses (exclusive of Net Losses from the sale,
disposition or provision for value impairment of Partnership properties) are
allocated 1% to the General Partner and 99% to the Limited Partners. Net
Profits from the sale or disposition of a Partnership property are allocated:
first, prior to giving effect to any distributions of Sale Proceeds from the
transaction, to all Partners with negative balances in their Capital Accounts,
pro rata in proportion to such respective negative balances, to the extent of
the total of such negative balances; second, to the General Partner, in an
amount necessary to make the positive balance in its Capital Account equal to
the amount of Sale Proceeds to be distributed to the General Partner with
respect to the sale or disposition of such property; and third, the balance, if
any, to the Limited Partners. Net Losses from the sale, disposition or
provision for value impairment of Partnership properties are allocated: first,
after giving effect to any distributions of Sale Proceeds from the transaction
to all Partners with positive balances in their Capital Accounts, pro rata in
proportion to such respective positive balances, to the extent of the total
amount of such positive balances; and second, the balance, if any, 1% to the
General Partner and 99% to the Limited Partners. Notwithstanding anything to
the contrary, there shall be allocated to the General Partner not less than 1%
of all items of Partnership income, gain, loss, deduction and credit during the
existence of the Partnership. For the three months ended March 31,1999 the
General Partner was allocated Net Profits of $1,400 and paid no Partnership
Management Fee. For the three months ended March 31, 1998 the General Partner
was paid a Partnership Management Fee and was allocated Net Profits of $35,600.
 
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the three months ended March 31, 1999 were as follows:
 
<TABLE>
<CAPTION>
                                      Paid  Payable
---------------------------------------------------
<S>                                  <C>    <C>
Legal                                $2,500   None
Reimbursement of expenses, at cost:
 --Accounting                         2,900 $  700
 --Investor communications            2,900    600
---------------------------------------------------
                                     $8,300 $1,300
---------------------------------------------------
</TABLE>
 
3. SPECIAL DISTRIBUTIONS:
 
On February 28, 1999, the Partnership distributed Sale Proceeds totaling
$13,172,700 or $288.01 per Unit to Limited Partners of record as of the closing
dates of the sales of Ellis Building and Holiday. For additional information
related to these sales and distributions, see Note 4 of Notes to Financial
Statements in the Partnership's Annual Report for the year ended December 31,
1998.
 
                                                                               4
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Reference is made to the Partnership's Annual Report for the year ended
December 31, 1998 for a discussion of the Partnership's business.
 
Statements contained in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, which are not historical facts, may be
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date hereof.
 
The Partnership has substantially completed the disposition phase of its life
cycle. During 1998, the Partnership sold its remaining property investments and
is working towards resolution of post closing property sale matters.
 
OPERATIONS
The decrease in Partnership net income of $187,700 for the three months ended
March 31, 1999 when compared to the three months ended March 31, 1998 was
primarily the result of the absence of operating results in 1999 from the
properties sold during 1998. Also contributing to the decrease was a decrease
in interest earned on the Partnership's short-term investments, which was due
to a decrease in the average amount of cash available for investment.
 
LIQUIDITY AND CAPITAL RESOURCES
The decrease in the Partnership's cash position of $13,527,800 for the three
months ended March 31, 1999 was primarily the result of the Partnership's
distributions of cash to Partners exceeding net cash provided by operating
activities. Liquid assets (including cash and cash equivalents) of the
Partnership as of March 31, 1999 are comprised of amounts held for the
resolution of post closing sale matters.
 
The decrease in net cash provided by operating activities of $266,100 for the
three months ended March 31, 1999 when compared to the three months ended March
31, 1998 was primarily due to the absence of results in 1999 from the
properties sold in 1998, exclusive of depreciation and amortization, as
previously discussed.
 
Net cash used for investing activities decreased by $9,532,200 for the three
months ended March 31, 1999 when compared to the three months ended March 31,
1998. The decrease was due to an absence of investing activities for the three
months ended March 1999.
 
The Partnership has no financial instruments for which there is material market
risk.
 
Net cash used for financing activities increased by $13,175,200 for the three
months ended March 31, 1999 when compared to the three months ended March 31,
1998. The increase was due to the special distributions of Sale Proceeds as
further discussed below.
 
On August 21, 1998, a joint venture in which the Partnership owned a 50%
interest completed the sale of Ellis. The Partnership distributed net sales
proceeds of $6,673,000 or $145.90 per Unit on February 28, 1999 to Limited
Partners of record as of August 21, 1998.
 
On September 22, 1998, the Partnership's investment in joint venture completed
the sale of Holiday. The Partnership distributed net sales proceeds of
$6,499,700 or $142.11 per Unit on February 28, 1999 to Limited Partners of
record as of September 22, 1998.
 
The Year 2000 problem is the result of the inability of existing computer
programs to distinguish between a year beginning with "20" rather than "19".
This is the result of computer programs using two rather than four digits to
define an applicable year. If not corrected, any program having time-sensitive
software may recognize a date using "00" as the year 1900 rather than year
2000. This could result in a variety of problems including miscalculations,
loss of data and failure of entire systems. Critical areas that could be
affected are accounts receivable, accounts payable, general ledger, cash
management, investor services, computer hardware and telecommunications
systems.
 
The Partnership has engaged Affiliated and unaffiliated entities to perform all
of its critical functions that utilize software that may have time-sensitive
applications. All of these service providers are providing these services for
their own organizations as well as for their clients. The General Partner, on
behalf of the Partnership, has been in close communication with each of these
service providers regarding steps that they are taking to assure that there
will be no serious interruption of the operations of the Partnership resulting
from Year 2000 problems. Based on the results of these inquiries as well as a
review of the disclosures by these service providers, the General Partner
believes that the Partnership will be able to continue normal business
operations and will incur no material costs related to Year 2000 issues.
 
The Partnership has not formulated a contingency plan. However, the General
Partner believes that based on the status of the Partnership's real estate
portfolio and its limited number of transactions, aside from catastrophic
failures of banks, governmental agencies, etc., it could carry out
substantially all of its critical operations on a manual basis or easily
convert to systems that are Year 2000 compliant.
 
With the sale of the Partnership's remaining properties, the General Partner is
in the process of wrapping up the affairs of the Partnership. This process
includes the resolution of all post closing property sale matters as well as an
analysis of all Partnership wrap-up matters. At the conclusion of this process,
the Partnership will establish a reserve to meet estimated wrap-up expenses as
well as actual and contingent liabilities of the Partnership and make a
liquidating distribution to its Partners. In line with reduced cash flow,
following the sale of its remaining properties, distributions to Partners have
been suspended until such time as final liquidating distributions are made.
 
                                                                               3
<PAGE>
 
                          PART II. OTHER INFORMATION
<TABLE> 
<CAPTION> 
 
Item 6.       Exhibits and Reports on Form 8-K
-------       --------------------------------
<S>           <C>               
              (a)  Exhibits:  None
 
              (b)  Reports on Form 8-K:
 
                   There were no reports filed on Form 8-K during the quarter
                   ended March 31, 1999.
</TABLE>


<PAGE>
 
                                  SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                              FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 3

                              By: FIRST CAPITAL FINANCIAL CORPORATION
                                  GENERAL PARTNER

Date: May 13, 1999            By: /s/  DOUGLAS CROCKER II
      ------------                -------------------------------------
                                       DOUGLAS CROCKER II
                                  President and Chief Executive Officer

Date: May 13, 1999            By: /s/  NORMAN M. FIELD
      ------------                -------------------------------------
                                       NORMAN M. FIELD
                                  Vice President - Finance and Treasurer