<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, 1997
                         -------------------------------------------------------
 
                                      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                    0-12538
                           -----------------------------------------------------
 
               First Capital Institutional Real Estate, Ltd. - 1
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)
 
            Florida                                            59-2197264
-------------------------------                            ---------------------
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                             Identification No.)
 
Two North Riverside Plaza, Suite 1100, 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 October 25, 1982, 
included in the Registrant's Registration Statement on Form S-11
(Registration No.2-79092), is incorporated herein by reference in Part I of 
this report.
<PAGE>
 
BALANCE SHEETS
(All dollars rounded to nearest 00s)
 
<TABLE>
<CAPTION>
                                                  March 31,
                                                     1997      December 31,
                                                 (Unaudited)       1996
----------------------------------------------------------------------------
<S>                                              <C>           <C>
ASSETS
Investment in commercial rental properties:
 Land                                            $  5,501,700  $  5,501,700
 Buildings and
  improvements                                     31,625,800    31,417,700
----------------------------------------------------------------------------
                                                   37,127,500    36,919,400
Accumulated depreciation and amortization         (13,374,100)  (13,081,500)
----------------------------------------------------------------------------
 Total investment properties, net of accumulated
  depreciation and amortization                    23,753,400    23,837,900
Cash and cash equivalents                           2,287,700     3,926,100
Investments in debt securities                      1,975,400       300,000
Rents receivable                                       50,300        60,200
Other assets                                           29,900        13,100
----------------------------------------------------------------------------
                                                 $ 28,096,700  $ 28,137,300
----------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
 Accounts payable and accrued expenses           $    324,100  $    263,000
 Due to Affiliates                                     18,700        20,500
 Real estate commissions due to Managing General
  Partner                                             403,000       403,000
 Distributions payable                                420,000       420,000
 Security deposits                                    150,000       147,200
 Other liabilities                                     65,800       117,300
----------------------------------------------------------------------------
                                                    1,381,600     1,371,000
----------------------------------------------------------------------------
Partners' capital:
 General Partners (deficit)                          (471,100)     (448,400)
 Limited Partners (60,000 Units issued and
  outstanding)                                     27,186,200    27,214,700
----------------------------------------------------------------------------
                                                   26,715,100    26,766,300
----------------------------------------------------------------------------
                                                 $ 28,096,700  $ 28,137,300
----------------------------------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the quarter ended March 31, 1997 (Unaudited)
and the year ended December 31, 1996
(All dollars rounded to nearest 00s)
 
<TABLE>
<CAPTION>
                                            General     Limited
                                           Partners    Partners       Total
-------------------------------------------------------------------------------
<S>                                        <C>        <C>          <C>
Partners' (deficit) capital,
 January 1, 1996                           $(359,300) $27,415,800  $27,056,500
Net (loss) income for the year ended
 December 31, 1996                           (89,100)   1,478,900    1,389,800
Distributions for the year ended December
 31, 1996                                              (1,680,000)  (1,680,000)
-------------------------------------------------------------------------------
Partners' (deficit) capital, December 31,
 1996                                       (448,400)  27,214,700   26,766,300
Net (loss) income for the quarter ended
 March 31, 1997                              (22,700)     391,500      368,800
Distributions for the quarter ended
 March 31, 1997                                          (420,000)    (420,000)
-------------------------------------------------------------------------------
Partners' (deficit) capital, March 31,
 1997                                      $(471,100) $27,186,200  $26,715,100
-------------------------------------------------------------------------------
</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, 1997 AND 1996
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
 
<TABLE>
<CAPTION>
                                                      1997        1996
--------------------------------------------------------------------------
<S>                                                <C>         <C>
Income:
 Rental                                            $1,232,100  $1,217,000
 Interest                                              58,600      51,500
--------------------------------------------------------------------------
                                                    1,290,700   1,268,500
--------------------------------------------------------------------------
Expenses:
 Depreciation and amortization                        292,600     280,400
 Property operating:
  Affiliates                                           56,400      73,300
  Nonaffiliates                                       262,000     249,700
 Real estate taxes                                    105,100      92,500
 Insurance--Affiliate                                  11,100      15,100
 Repairs and maintenance                              145,400     173,200
 General and administrative:
  Affiliates                                            6,100      11,000
  Nonaffiliates                                        43,200      54,400
--------------------------------------------------------------------------
                                                      921,900     949,600
--------------------------------------------------------------------------
Net income                                         $  368,800  $  318,900
--------------------------------------------------------------------------
Net (loss) allocated to General Partners           $  (22,700) $  (22,000)
--------------------------------------------------------------------------
Net income allocated to Limited Partners           $  391,500  $  340,900
--------------------------------------------------------------------------
Net income allocated to Limited Partners per Unit
 (60,000 Units outstanding)                        $     6.53  $     5.68
--------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
(All dollars rounded to nearest 00s)
 
<TABLE>
<CAPTION>
                                                          1997         1996
-------------------------------------------------------------------------------
<S>                                                    <C>          <C>
Cash flows from operating activities:
 Net income                                            $   368,800  $  318,900
 Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation and amortization                            292,600     280,400
  Changes in assets and liabilities:
   Decrease (increase) in rents receivable                   9,900      (1,500)
   (Increase) in other assets                              (16,800)     (4,000)
   Increase (decrease) in accounts payable and accrued
    expenses                                                61,100    (132,400)
   (Decrease) increase in due to Affiliates                 (1,800)     35,700
   (Decrease) in other liabilities                         (51,500)    (29,300)
-------------------------------------------------------------------------------
    Net cash provided by operating activities              662,300     467,800
-------------------------------------------------------------------------------
Cash flows from investing activities:
 Payments for capital and tenant improvements             (208,100)    (20,200)
 (Increase) in investments in debt securities           (1,675,400)
-------------------------------------------------------------------------------
    Net cash (used for) investing activities            (1,883,500)    (20,200)
-------------------------------------------------------------------------------
Cash flows from financing activities:
 Distributions paid to Partners                           (420,000)   (385,200)
 Increase in security deposits                               2,800       2,600
-------------------------------------------------------------------------------
    Net cash (used for) financing activities              (417,200)   (382,600)
-------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents    (1,638,400)     65,000
Cash and cash equivalents at the beginning of the
 period                                                  3,926,100   4,254,900
-------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period     $ 2,287,700  $4,319,900
-------------------------------------------------------------------------------
</TABLE>
    The accompanying notes are an integral part of the financial statements.
3
<PAGE>
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
March 31, 1997
 
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 incorporated herein by reference.
 
ACCOUNTING POLICIES:
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP"). Under this method of accounting,
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, 1997 are not necessarily indicative of the
operating results for the year ending December 31, 1997.
 
The financial statements include the Partnership's 50% interest in three joint
ventures with Affiliated partnerships. These joint ventures were formed for the
purpose of each acquiring a 100% interest in certain real properties and are
operated under the common control of the Managing 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.
 
Commercial rental properties are recorded at cost, net of any provisions for
value impairment, and depreciated (exclusive of amounts allocated to land) on
the straight-line method over their estimated useful lives. Lease acquisition
fees are recorded at cost and amortized on the straight-line method over the
life of each respective lease. Maintenance and repair costs are expensed
against operations as incurred; expenditures for improvements are capitalized
to the appropriate property accounts and depreciated on the straight-line
method over the estimated life of such improvements.
 
The Partnership evaluates its rental properties when conditions exist which may
indicate that it is probable that the sum of expected future cash flows
(undiscounted) from a property is less than its carrying basis. Upon
determination that an impairment has occurred, the basis in the rental property
is reduced to estimated fair value. The Managing General Partner was not aware
of any indicator that would result in a significant impairment loss during the
periods reported.
 
Cash equivalents are considered all highly liquid investments with maturity of
three months or less when purchased.
 
Investments in debt securities are comprised of corporate debt securities and
are classified as held-to-maturity. These investments are carried at their
amortized cost basis in the financial statements. As of March 31, 1997, these
securities had a fair market value of $1,970,700 and unrealized (losses) of
$(4,700). Substantially all of these securities had maturities of less than one
year when purchased.
 
Certain reclassifications have been made to the previously reported 1996
statements in order to provide comparability with the 1997 statements. These
reclassifications have no effect on the net income or Partners' (deficit)
capital.
 
Reference is made to the Partnership's annual report for the year ended
December 31, 1996, for a description of other accounting policies and
additional details of the Partnership's financial condition, results of
operations, changes in Partners' 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 March 31, 1983, the
Termination of the Offering, the General Partners are entitled to 10% of
distributable Cash Flow (as defined in the Partnership Agreement) as their
Subordinated Partnership Management Fee, provided that Limited Partners first
receive specified non-cumulative annual rates of return on their Capital
Investment.
 
In accordance with the Partnership Agreement, Net Profits (exclusive of
depreciation and Net Profits from the sale or disposition of Partnership
properties) are allocated: first, to the General Partners, in an amount equal
to the greater of the General Partners' Subordinated Partnership Management Fee
or 1% of such Net Profits; and second, the balance, if any, to the Limited
Partners. Net Profits from the sale or disposition of a Partnership property
are allocated: first, to the General Partners, in an amount equal to the
aggregate amount of depreciation previously allocated to them; second, to the
General Partners and the Limited 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; third, to the General
Partners, in an amount necessary to make the aggregate amount of their capital
accounts equal to the greater of the Sale Proceeds to be distributed to the
General Partners with respect to the sale or disposition of such property or 1%
of such Net Profits; and fourth, the balance, if any, to the Limited Partners.
Net Losses (exclusive of depreciation and Net Losses from the sale, disposition
or provision for value impairment of Partnership properties) are allocated 1%
to the General Partners and 99% to the Limited Partners. All depreciation is
allocated 10% to the General Partners and 90% to the Limited Partners. Net
Losses from the sale, disposition or provision for value impairment of
Partnership properties are allocated: first, to the extent that the balance in
the General Partners' capital accounts exceeds their Capital Investment or the
balance in the capital accounts of the Limited Partners exceeds the amount of
their Capital Investment (collectively, the "Excess Balances"), to the General
Partners and the Limited Partners pro rata in proportion to such Excess
Balances until such Excess Balances are reduced to zero; second, to the General
Partners and the Limited Partners and among them (in the ratio which their
respective capital account balances bear to the aggregate of all capital
account balances) until the balance in their capital accounts shall be reduced
to zero; third, the balance, if any, 99% to the Limited Partners and
 
                                                                               4
<PAGE>
 
1% to the General Partners. In all events there shall be allocated to the
General Partners not less than 1% of Net Profits and Net Losses from the sale,
disposition or provision for value impairment of a Partnership property. The
General Partners were not entitled to cash distributions for the three months
ended March 31, 1997 and 1996. For the three months ended March 31, 1997 and
1996, the General Partners were allocated Net (Losses) of $(22,700) and
$(22,000), respectively.
 
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the quarter ended March 31, 1997 were as follows:
 
<TABLE>
<CAPTION>
                                                        Paid   Payable
----------------------------------------------------------------------
<S>                                                    <C>     <C>
Property management and leasing fees                   $68,800 $ 1,100
Reimbursement of property insurance premiums, at cost     None  11,100
Reimbursement of expenses, at cost:
 --Accounting                                            2,400   4,000
 --Investor communications                               1,200   1,400
 --Legal                                                17,500   1,100
----------------------------------------------------------------------
                                                       $89,900 $18,700
----------------------------------------------------------------------
</TABLE>
 
As of March 31, 1997, the Partnership owed $403,000 to the Managing General
Partner for real estate commissions earned in connection with the sales of
Partnership properties. These commissions have been accrued but not paid. Under
the terms of the Partnership Agreement, these commissions will not be paid
until the Limited Partners have received cumulative distributions of Sale or
Refinancing Proceeds equal to 100% of their Original Capital Contribution plus
a cumulative return (including all Cash Flow which has been distributed to the
Limited Partners from the initial date of investment) of 6% simple interest per
annum on their Capital Investment.
 
On-site management for the Lakewood Square Shopping Center is provided by an
independent real estate management company for fees calculated as a percentage
of gross rents received from property.
 
Except as disclosed above, an Affiliate of the Managing General Partner
provides property and supervisory management as well as leasing services for
the Partnership's properties for fees ranging from 3% to 6% of gross rents
received from the properties.
 
Jacor Communications, Inc. ("Jacor"), a radio broadcasting company, which is
approximately 43% owned by Zell Chilmark Fund LP, an Affiliate of the Managing
General Partner, is obligated to the Partnership under a lease for office space
at Peachtree Palisades East Office Building. For the three months ended March
31, 1997, Jacor paid approximately $49,600 in total rents. The per square foot
rent paid by Jacor is comparable to that paid by other tenants at this
property.
 
3. SUBSEQUENT EVENTS:
 
On May 5, 1997 the Partnership consummated the sale of Peachtree Palisades East
Office Building, located in Atlanta, Georgia, for a sale price of $7,749,200.
Net proceeds from this transaction approximated $7,450,000, which was net of
closing expenses. The Partnership will report a net gain of approximately
$1,000,000 during 1997 in connection with this sale and intends to distribute
all of the net proceeds from this transaction on August 31, 1997 to Limited
Partners of record as of May 5, 1997.
 
During 1997, the joint venture that owns Lakewood, of which the Partnership
owns a 50% interest, entered into an agreement to sell the property. Terms of
this agreement provide for a selling price of $17,750,000, of which the
Partnerships share is $8,875,000 and a one year indemnification related to all
matters associated with the environmental matter referred to in Note 4.
 
4. ENVIRONMENTAL MATTER:
 
In December 1996, the Managing General Partner became aware of the existence of
hazardous substances in the ground under Lakewood. The source of the hazardous
substances is believed to emanate from one or more of the tenants operating a
dry cleaning business at Lakewood. The Partnership and its Affiliated partner
in the joint venture which owns Lakewood are currently utilizing consultants to
evaluate the matter and propose courses of action. The effects on the
Partnership cannot be determined at this time, as the costs associated with
this matter are not yet known. The financial statements do not include any
adjustments that might result from this matter.
 
5
<PAGE>
 
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, 1996 for a discussion of the Partnership's business.
 
OPERATIONS
The table below is a recap of certain operating results of each of the
Partnership's properties for the three months ended March 31, 1997 and 1996.
The discussion following the table should be read in conjunction with the
financial statements and notes thereto appearing in this report.
 
<TABLE>
<CAPTION>
                                 Comparative
                              Operating Results
                                     (a)
                              For the Quarters
                                    Ended
                              3/31/97    3/31/96
--------------------------------------------------
<S>                          <C>         <C>
FOXHALL SQUARE BUILDING (50%)
Rental revenues              $  421,100  $413,900
--------------------------------------------------
Property net income          $  124,500  $144,800
--------------------------------------------------
Average occupancy                   90%       84%
--------------------------------------------------
PEACHTREE PALISADES OFFICE BUILDING
Rental revenues              $  444,300  $349,200
--------------------------------------------------
Property net income (loss)   $   81,800  $(14,300)
--------------------------------------------------
Average occupancy                   96%       90%
--------------------------------------------------
LAKEWOOD SQUARE SHOPPING CENTER (50%)
Rental revenues              $  366,600  $326,600
--------------------------------------------------
Property net income          $  198,200  $154,000
--------------------------------------------------
Average occupancy                   95%       96%
--------------------------------------------------
12621 FEATHERWOOD BUILDING (50%)
Rental revenues                      (b) $127,300
--------------------------------------------------
Property net (loss) income   $  (45,000) $ 48,700
--------------------------------------------------
Average occupancy                    (b)     100%
--------------------------------------------------
</TABLE>
(a) The above table excludes certain income and expense items which are not
    directly related to individual property operating results such as interest
    income on short-term investments and general and administrative expenses.
(b) Property has been vacant since December 14, 1996.
 
Net income increased by $49,900 for the three months ended March 31, 1997 when
compared to the three months ended March 31, 1996. The increase in net income
was primarily due to improved operating results at Peachtree Palisades East
Office Building ("Peachtree") and Lakewood Square Shopping Center ("Lakewood")
as well as decreased general and administrative expenses due to reduced
personnel costs and accounting fees. Partially offsetting the increase in net
income was diminished operating results at 12621 Featherwood Building
("Featherwood") and Foxhall Square Building ("Foxhall").
 
Featherwood, due to the sole tenant vacating the property in December 1996,
currently generates no rental revenues for the Partnership. The Managing
General Partner is attempting to keep expenses at the property to a minimum
until such time as the property is retenanted or sold. The Partnership's share
of operating expenses, exclusive of depreciation for the three months ended
March 31, 1997 amounted to $34,000. Net income for the Partnership exclusive of
Featherwood increased by $143,600 for the periods under comparison. For the
purposes of the following discussion, the operating results of Featherwood have
been excluded in order to provide a comparison of the operating results of the
occupied properties.
 
Rental revenues increased by $142,300 or 13.1% for the three months ended March
31, 1997 when compared to the three months ended March 31, 1996. The increase
was primarily due the increases in base rents at Peachtree and Foxhall which
were the result of the increases in the average occupancy rates. Also
contributing to the increase was an increase in the base rental rate charged to
new and renewing tenants at Lakewood.
 
Repairs and maintenance expenses decreased by $16,500 for the three months
ended March 31, 1997 when compared to the three months ended March 31, 1996.
The decrease was primarily due to a decrease in architectural services at
Lakewood along with a decrease in HVAC costs at Peachtree. Partially offsetting
the decrease was an increase in repairs to the electrical and fire protection
systems at Foxhall.
 
Property operating expenses increased by $22,700 for the three months ended
March 31, 1997 when compared to the three months ended March 31, 1996. The
increase was primarily the result of an increase in utility costs at Peachtree
together with an increase in professional fees at Lakewood which was related to
the examination of the extent of the environmental damage at this property.
 
To increase and/or maintain occupancy levels at the Partnership's properties,
the Managing General Partner, through its Affiliated and unaffiliated asset and
property management groups, continues to take the following actions: 1)
implementation of marketing programs, including hiring of third-party leasing
agents or providing on-site leasing personnel, advertising, direct mail
campaigns and development of building brochures; 2) early renewal of existing
tenants and addressing any expansion needs these tenants may have; 3) promotion
of local broker events and networking with local brokers; 4) networking with
national level retailers; 5) cold-calling other businesses and tenants in the
market area; and 6) providing rental concessions or competitively pricing
rental rates depending on market conditions.
 
LIQUIDITY AND CAPITAL RESOURCES
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
the interim, the Partnership continues to manage and maintain its remaining
properties. Notwithstanding the Partnership's intention relative to property
sales, another primary objective of the Partnership is to provide cash
distributions to Limited Partners from Partnership operations. To the extent
cumulative cash distributions exceed net income, such excess distributions are
treated as a return of capital. Cash Flow (as defined in the Partnership
Agreement) is generally not equal to net income or cash flows as determined by
generally accepted accounting principles ("GAAP"), since certain items are
treated differently under the Partnership Agreement than under GAAP. Management
believes that to facilitate a clear understanding of the Partnership's
operations, an analysis of Cash Flow (as defined in the Partnership Agreement)
should be examined in conjunction with an analysis of net income or cash flows
as determined by GAAP. The following table includes a reconciliation of Cash
Flow (as defined in the Partnership Agreement) to cash
                                                                               6
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 
flow provided by operating activities as determined by GAAP. Such amounts are
not indicative of actual distributions to Partners and should not necessarily
be considered as an alternative to the results disclosed in the Statements of
Income and Expenses and Statements of Cash Flows.
 
<TABLE>
<CAPTION>
                                                          Comparative
                                                       Cash Flow Results
                                                       For the Quarters
                                                             Ended
                                                       3/31/97     3/31/96
----------------------------------------------------------------------------
<S>                                                  <C>          <C>
Cash Flow (as defined in the Partnership Agreement)  $   661,400  $ 599,300
Items of reconciliation:
 (Increase) in current assets                             (6,900)    (5,500)
 Increase (decrease) in current liabilities                7,800   (126,000)
----------------------------------------------------------------------------
Net cash provided by operating activities            $   662,300  $ 467,800
----------------------------------------------------------------------------
Net cash (used for) investing activities             $(1,883,500) $ (20,200)
----------------------------------------------------------------------------
Net cash (used for) financing activities             $  (417,200) $(382,600)
----------------------------------------------------------------------------
</TABLE>
 
The increase in Cash Flow (as defined in the Partnership Agreement) of $62,100
for the three months ended March 31, 1997 when compared to three months ended
March 31, 1996 was primarily due to improved operating results, exclusive of
depreciation and amortization, at Peachtree and Lakewood as well as decreased
general and administrative expenses.
 
The decrease in the Partnership's cash position of $1,638,400 during the three
months ended March 31, 1997 was primarily the result of investments in debt
securities, payments made for capital and tenant improvements and leasing costs
and distributions paid to Partners exceeding net cash provided by operating
activities. Liquid assets, including cash, cash equivalents and investments in
debt securities, as of March 31, 1997 were comprised of amounts held for
working capital purposes.
 
Net cash provided by operating activities continues to be the Partnership's
primary source of funds. Net cash provided by operating activities increased by
$194,500 for the three months ended March 31, 1997 when compared to the three
months ended March 31, 1996. The increase was primarily the result of the
improvement in operating results, as previously discussed, along with the
timing of the payment of certain expenses at Foxhall.
 
The increase in net cash used for investing activities of $1,863,300 for the
three months ended March 31, 1997 when compared to the three months ended March
31, 1996 was primarily due to the increases in investments in debt securities
and in expenditures for capital and tenant improvements and leasing costs. The
increase in investments in debt securities is a result of the extension of the
maturities of certain of the Partnership's short-term investments in an effort
to maximize the return on these amounts while they are held for working capital
purposes. These investments are of investment-grade and generally mature less
than one year from their date of purchase. The Partnership maintains working
capital reserves to pay for capital expenditures. During the three months ended
March 31, 1997, the Partnership spent $208,100 for capital and tenant
improvements and leasing costs. The amount of capital expenditures to be made
during the remainder of 1997 is to a large degree contingent on the progress
made with respect to marketing the remaining Partnership properties for sale.
 
On December 14, 1996, the sole tenant occupying Featherwood vacated the
premises upon the expiration of their lease. The Managing General Partner is
currently marketing the property for sale, however, if a satisfactory sale
cannot be completed, the Managing General Partner will attempt to retenant the
building. The retenanting of the building is projected to cost the Partnership
as much as $600,000 if the building is converted from single tenant to multi-
tenant use.
 
The increase in net cash used for financing activities of $34,600 for the three
months ended March 31, 1997 when compared to the three months ended March 31,
1996 was due to an increase in distributions paid to Limited Partners.
 
In December 1996, the Managing General Partner became aware of the existence of
hazardous substances in the ground under Lakewood. The source of the hazardous
substances is believed to emanate from one or more of the tenants operating a
dry cleaning business at Lakewood. The Partnership is currently attempting to
sell the property. If a sale of Lakewood is consummated, the Partnership may
have no continuing obligations related to this matter. If no sale is
consummated, the Partnership will review its course of action. The effects on
the Partnership cannot be determined at this time.
 
The Managing General Partner continues to take a conservative approach to
projections of future rental income in its determination of adequate levels of
cash reserves. As a result of this, cash continues to be retained to supplement
working capital reserves. For the three months ended March 31, 1997, Cash Flow
(as defined in the Partnership Agreement) retained to supplement working
capital reserves amounted to $241,400.
 
Distributions to Limited Partners for the quarter ended March 31, 1997 were
declared in the amount of $420,000, or $7.00 per Unit. Cash distributions are
made 60 days after the last day of each fiscal quarter. The amount of future
distributions to Limited Partners will ultimately be dependent upon the
performance of the Partnership's investments as well as the Managing General
Partner's determination of the amount of cash necessary to supplement working
capital reserves to meet future liquidity requirements of the Partnership.
Accordingly, there can be no assurance as to the amounts of cash for future
distributions to Limited Partners.
 
7
<PAGE>
 

                          Part II. OTHER INFORMATION


Item 6. Exhibits and Reports on Form 8-K
------- --------------------------------

        (a) Exhibits: None

        (b) Reports on Form 8-K:

            There were no reports filed on Form 8-K for the three months ended
            March 31, 1997.
<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. - 1 


                         By: FIRST CAPITAL FINANCIAL CORPORATION
                             MANAGING GENERAL PARTNER

Date:  May 15, 1997      By: /s/ DOUGLAS CROCKER II
       ------------          -----------------------
                                 DOUGLAS CROCKER II
                             President and Chief Executive Officer

Date:  May 15, 1997      By: /s/ NORMAN M. FIELD
       ------------          -----------------------
                                 NORMAN M. FIELD
                             Vice President - Finance and Treasurer