<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                     June 30, 1998
                         -------------------------------------------------------
 
                                      OR
 
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
 
     For the transition period from ___________________ to _____________________
 
     Commission File Number                        0-15632
                           -----------------------------------------------------
 
 
               First Capital Institutional Real Estate, Ltd. - 4
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)
 
            Illinois                                             36-3441345
-------------------------------                             --------------------
(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 Partnership's Prospectus dated November 5, 1986,
included in the Partnership's Registration Statement on Form S-11, is
incorporated herein by reference in Part I of this report.
<PAGE>
 
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
 
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD.--4
BALANCE SHEETS
(All dollars rounded to nearest 00s)
 
<TABLE>
<CAPTION>
                                                June 30,
                                                  1998      December 31,
                                               (Unaudited)      1997
------------------------------------------------------------------------
<S>                                            <C>          <C>
ASSETS
Investment in commercial rental property:
 Land                                          $ 2,509,900  $ 2,509,900
 Buildings and improvements                     15,548,600   15,533,600
------------------------------------------------------------------------
                                                18,058,500   18,043,500
Accumulated depreciation and amortization       (3,962,200)  (3,748,600)
------------------------------------------------------------------------
 Total investment property, net of accumulated
  depreciation and amortization                 14,096,300   14,294,900
Cash and cash equivalents                        2,387,600   10,407,900
Investments in debt securities                   2,202,400    2,024,000
Restricted cash                                                  50,000
Rents receivable                                    11,900       95,700
Other assets                                        25,200       42,300
------------------------------------------------------------------------
                                               $18,723,400  $26,914,800
------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
 Loan payable to General Partner               $            $ 1,569,500
 Accounts payable and accrued expenses             402,100      441,800
 Due to Affiliates                                  71,100       73,500
 Distributions payable                             332,500    6,933,200
 Security deposits                                  31,500       35,000
 Other liabilities                                  42,300       53,700
------------------------------------------------------------------------
                                                   879,500    9,106,700
------------------------------------------------------------------------
Partners' capital:
 General Partner                                    40,300       40,300
 Limited Partners (593,025 Units issued and
  outstanding)                                  17,803,600   17,767,800
------------------------------------------------------------------------
                                                17,843,900   17,808,100
------------------------------------------------------------------------
                                               $18,723,400  $26,914,800
------------------------------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the six months ended June 30, 1998 (Unaudited)
and the year ended December 31, 1997
(All dollars rounded to nearest 00s)
 
<TABLE>
<CAPTION>
                                         General      Limited
                                         Partner      Partners       Total
-------------------------------------------------------------------------------
<S>                                     <C>         <C>           <C>
Partners' (deficit) capital,
 January 1, 1997                        $ (270,300) $ 32,215,500  $ 31,945,200
Net income for the year ended December
 31, 1997                                  424,000     1,753,700     2,177,700
Distributions for the year ended
 December 31, 1997                        (113,400)  (16,201,400)  (16,314,800)
-------------------------------------------------------------------------------
Partners' capital, December 31, 1997        40,300    17,767,800    17,808,100
Net income for the six months ended
 June 30, 1998                              36,000       628,800       664,800
Distributions for the six months ended
 June 30, 1998                             (36,000)     (593,000)     (629,000)
-------------------------------------------------------------------------------
Partners' capital, June 30, 1998        $   40,300  $ 17,803,600  $ 17,843,900
-------------------------------------------------------------------------------
</TABLE>
    The accompanying notes are an integral part of the financial statements.
                                                                               2
<PAGE>
 
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD. - 4
 
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended June 30, 1998 and 1997
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
 
<TABLE>
<CAPTION>
                                                     1998      1997
----------------------------------------------------------------------
<S>                                                <C>      <C>
Income:
 Rental                                            $502,800 $  883,000
 Interest                                           137,300    166,100
----------------------------------------------------------------------
                                                    640,100  1,049,100
Expenses:
 Interest on loan payable to General Partner         22,600     73,800
 Depreciation and amortization                      106,500    224,200
 Property operating:
  Affiliates                                          3,200     27,300
  Nonaffiliates                                      63,400    136,000
 Real estate taxes                                   74,700    132,500
 Insurance-- Affiliate                                2,200      8,400
 Repairs and maintenance                             30,500     89,600
 General and administrative:
  Affiliates                                          5,100      3,500
  Nonaffiliates                                       9,500     35,000
Additional expense of sale of property                          26,100
----------------------------------------------------------------------
                                                    317,700    756,400
----------------------------------------------------------------------
Net income                                         $322,400 $  292,700
----------------------------------------------------------------------
Net income allocated to General Partner            $ 18,000 $   14,800
----------------------------------------------------------------------
Net income allocated to Limited Partners           $304,400 $  277,900
----------------------------------------------------------------------
Net income allocated to Limited Partners per Unit
 (593,025 Units outstanding)                       $   0.51 $     0.47
----------------------------------------------------------------------
</TABLE>
 
STATEMENTS OF INCOME AND EXPENSES
For the six months ended June 30, 1998 and 1997
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
 
<TABLE>
<CAPTION>
                                                      1998       1997
------------------------------------------------------------------------
<S>                                                <C>        <C>
Income:
 Rental                                            $1,031,000 $1,965,500
 Interest                                             312,700    326,300
 Gain on sale of property                                      1,102,800
------------------------------------------------------------------------
                                                    1,343,700  3,394,600
------------------------------------------------------------------------
Expenses:
 Interest on loan payable to General Partner           56,000    165,200
 Depreciation and amortization                        213,600    457,100
 Property operating:
  Affiliates                                            5,000     59,600
  Nonaffiliates                                       132,400    308,500
 Real estate taxes                                    148,400    279,200
 Insurance-- Affiliate                                  6,500     20,100
 Repairs and maintenance                               57,300    236,700
 General and administrative:
  Affiliates                                           11,700     10,200
  Nonaffiliates                                        48,000     78,000
------------------------------------------------------------------------
                                                      678,900  1,614,600
------------------------------------------------------------------------
Net income                                         $  664,800 $1,780,000
------------------------------------------------------------------------
Net income allocated to General Partner            $   36,000 $  348,700
------------------------------------------------------------------------
Net income allocated to Limited Partners           $  628,800 $1,431,300
------------------------------------------------------------------------
Net income allocated to Limited Partners per Unit
 (593,025 Units outstanding)                       $     1.06 $     2.41
------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1998 and 1997
(Unaudited)
(All dollars rounded to nearest 00s)
 
<TABLE>
<CAPTION>
                                                            1998        1997
---------------------------------------------------------------------------------
<S>                                                      <C>         <C>
Cash flows from operating activities:
 Net income                                              $  664,800  $ 1,780,000
 Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation and amortization                             213,600      457,100
  (Gain) on sale of property                                          (1,102,800)
  Changes in assets and liabilities:
  Decrease in rents receivable                               83,800       89,900
  Decrease (increase) in other assets                        17,100      (42,000)
  (Decrease) in accounts payable and accrued expenses       (39,700)    (221,300)
  (Decrease) in due to Affiliates                            (2,400)     (69,500)
  (Decrease) in other liabilities                           (11,400)     (26,300)
---------------------------------------------------------------------------------
   Net cash provided by operating activities                925,800      865,100
---------------------------------------------------------------------------------
Cash flows from investing activities:
 (Increase) in investments in debt securities              (178,400)    (463,200)
 Proceeds from sales of property                                      11,307,700
 Payments for capital and tenant improvements               (15,000)     (65,500)
 Decrease in restricted cash                                 50,000
---------------------------------------------------------------------------------
   Net cash (used for) provided by investing activities    (143,400)  10,779,000
---------------------------------------------------------------------------------
Cash flows from financing activities:
 Distributions paid to Partners                          (7,229,700)  (9,564,700)
 Net repayment of loan payable to General Partner        (1,569,500)  (2,677,300)
 (Decrease) in security deposits                             (3,500)     (37,200)
---------------------------------------------------------------------------------
Net cash (used for) financing activities                 (8,802,700) (12,279,200)
---------------------------------------------------------------------------------
   Net (decrease) in cash and cash equivalents           (8,020,300)    (635,100)
Cash and cash equivalents at the beginning of the
 period                                                  10,407,900    2,572,500
---------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period       $2,387,600  $ 1,937,400
---------------------------------------------------------------------------------
Supplemental information:
Interest paid to General Partner                         $   56,000  $   185,200
---------------------------------------------------------------------------------
</TABLE>
    The accompanying notes are an integral part of the financial statements.
3
<PAGE>
 
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD.--4
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
June 30, 1998
 
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 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 quarter and six months ended June 30, 1998 are not necessarily indicative
of the operating results for the year ending December 31, 1998.
 
Commercial rental property is recorded at cost, net of any provisions for value
impairment, and depreciated (exclusive of amounts allocated to land) on the
straight-line method over its estimated useful life. Lease acquisition fees are
recorded at cost and amortized over the life of the lease. Repair and
maintenance costs are expensed as incurred; expenditures for improvements are
capitalized and depreciated over the estimated life of such improvements.
 
The Partnership evaluates its commercial rental property for impairment when
conditions exist which may indicate that it is probable that the sum of
expected future cash flows (undiscounted) is less than its carrying basis. Upon
determination that an impairment has occurred, the carrying basis in the rental
property is reduced to its estimated fair value. Management was not aware of
any indicator that would result in a significant impairment loss during the
periods reported.
 
Property sales are recorded when title transfers and sufficient consideration
has been received by the Partnership. Upon disposition, the related costs and
accumulated depreciation and amortization are removed from the respective
accounts. Gains on sales are recognized in accordance with GAAP.
 
Cash equivalents are considered all highly liquid investments with a 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, which approximated fair
value. All of these securities had maturities of less than one year when
purchased. Certain reclassifications have been made to the previously reported
1997 statements in order to provide comparability with the 1998 statements.
These reclassifications had no effect on net income or Partners' capital.
 
Reference is made to the Partnership's annual report for the year ended
December 31, 1997, 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, as compensation for services
rendered in managing the affairs of the Partnership, the General Partner shall
be entitled to receive subsequent to May 4, 1988, the Termination of the
Offering, a Partnership Management Fee payable annually within 60 days
following the last day of each fiscal year, which shall be an amount equal to
the lesser of (i) 0.5% of the net value of the Partnership's assets as of the
end of such fiscal year reflected on the Certificate of Value furnished to the
Limited Partners, plus, to the extent the Partnership Management Fee paid in
any prior year was less than 0.5% of the net value of the Partnership's assets
in such prior year, the amount of such deficit, or (ii) an amount equal to the
difference between 10% of the Partnership's aggregate Cash Flow (as defined in
the Partnership Agreement) for the period from the Commencement of Operations
to the end of the fiscal year for which such Partnership Management Fee is
payable, and the aggregate amount previously paid to the General Partner as a
Partnership Management Fee. In addition, Sale Proceeds are distributed: first,
75% to all Limited Partners and 25% to the General Partner until the earlier of
(i) receipt by Limited Partners of cumulative distributions of Sale Proceeds in
an amount equal to 100% of their Original Capital Contribution, or (ii) receipt
by the General Partner of cumulative distributions of Sale Proceeds sufficient
to repay all outstanding advances to the Partnership from the General Partner;
thereafter, to the General Partner, until all outstanding advances, if any, to
the Partnership from the General Partner have been repaid; thereafter, to the
Limited Partners, until they have received cumulative distributions of Sale
Proceeds in an amount equal to 100% of their Original Capital Contribution,
plus an amount (including Cash Flow (as defined in the Partnership Agreement))
equal to a cumulative return of 6% per annum simple interest on their Capital
Investment from their investment date in the Partnership; thereafter, 85% to
all Limited Partners; and 15% to the General Partner, provided, however, that
no distribution of the General Partner's 15% share of Sale Proceeds shall be
made until Limited Partners have received the greater of (i) Sale Proceeds plus
Cash Flow (as defined in the Partnership Agreement) previously received in
excess of the Preferred Return equal to 125% of the Limited Partners' Original
Capital Contribution, or (ii) Sale Proceeds plus all Cash Flow (as defined in
the Partnership Agreement) previously received equal to their Original Capital
Contribution plus a 10% per annum simple interest return on their Capital
Investment from the date of investment.
 
In accordance with the Partnership Agreement, Net Profits (exclusive of Net
Profits from the sale or disposition of
                                                                               4
<PAGE>
 
Partnership properties) shall be 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 during such year, 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 the General Partner and 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; second, to each Limited Partner in an amount, if any, necessary to
make the positive balance in its Capital Account equal to the Sale Proceeds to
be distributed to such Limited Partner with respect to the sale or disposition
of such property; third, to the General Partner in an amount, if any, necessary
to make the positive balance in its Capital Account equal to the Sale Proceeds
to be distributed to the General Partner with respect to the sale or
disposition of such property; and fourth, the balance, if any, 15% to the
General Partner and 85% 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 the General Partner and Limited 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 quarter and six months ended June 30, 1998, the General
Partner was allocated earnings and accrued a Partnership Management Fee of
$18,000 and $36,000, respectively.
 
In accordance with the Partnership Agreement, the General Partner made advances
to the Partnership in cumulative amounts equal to the Acquisition Fees and the
Partnership Management Fees which were paid to the General Partner or its
Affiliates for distribution to the Limited Partners on a pro rata basis to the
extent that Cash Flow (as defined in the Partnership Agreement) was less than
sufficient to distribute cash in amounts equal to the Limited Partners'
Preferred Return (7.5% per annum noncompounding cumulative return on the
Limited Partners' Capital Investment); provided, however, that the maximum
amount which shall be advanced to the Partnership by the General Partner for
distribution to the Limited Partners shall be the amount of Acquisition Fees
and Partnership Management Fees actually paid to the General Partner or its
Affiliates. Amounts advanced bore interest at the rate of 8.5% per annum simple
interest, payable monthly. Repayment of amounts advanced were made only from
Cash Flow (as defined in the Partnership Agreement) if and to the extent it is
more than sufficient to distribute cash to the Limited Partners in amounts
equal to the Limited Partners' Preferred Return and from Sale Proceeds to the
extent permitted in the Partnership Agreement. During the quarter ended June
30, 1998 the Partnership, in accordance with the Partnership agreement, repaid
the General Partner the remaining outstanding balance on the loan of
$1,569,500, utilizing a portion of the Sale Proceeds from the sale of Park
Plaza Professional Office Building ("Park Plaza").
 
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the quarter and six months ended June 30, 1998 were as follows:
 
<TABLE>
<CAPTION>
                                                         Paid
                                                  Quarter Six Months Payable
----------------------------------------------------------------------------
<S>                                               <C>     <C>        <C>
Asset management fees                             $ 3,500  $ 4,500   $14,400
Real estate commissions (a)                          None     None    40,200
Interest expense on loan payable to General
 Partner                                           22,600   56,000      None
Reimbursement of property insurance premiums, at
 cost                                               2,500    2,500     4,000
Legal                                               2,000   16,200    11,500
Reimbursement of expenses, at cost:
 --Accounting                                       5,700    5,700       700
 --Investor communication                           2,500    2,500       300
----------------------------------------------------------------------------
                                                  $38,800  $87,400   $71,100
----------------------------------------------------------------------------
</TABLE>
 
(a) As of June 30, 1998, the Partnership owed $40,200 to the General Partner
    for real estate commissions earned in connection with the sales of
    Partnership properties. These commissions have been accrued but not paid.
    In accordance with the Partnership Agreement, the Partnership will not pay
    the General Partner or any Affiliates a real estate commission from the
    sale of a Partnership property until Limited Partners have received
    cumulative distributions of Sale or Financing Proceeds equal to 100% of
    their Original Capital Contribution, plus a cumulative return (including
    all Cash Flow (as defined in the Partnership Agreement) which has been
    distributed to the Limited Partners from the initial investment date) of 6%
    simple interest per annum on their Capital Investment.
 
3. SPECIAL DISTRIBUTION:
 
On May 31, 1998, the Partnership distributed a portion of the Park Plaza Sale
Proceeds totaling $6,523,300 or $11.00 per Unit to Limited Partners of record
as of December 18, 1997. For additional information related to the sale of Park
Plaza, see Note 6 of Notes to Financial Statements in the Partnership's Annual
Report for the year ended December 31, 1997.
 
5
<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, 1997 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.
 
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. The
Partnership, in addition to being in the operation of properties phase, is also
in the disposition phase of its life cycle. During the disposition phase of the
Partnership's life cycle, comparisons of operating results are complicated due
to the timing and effect of property sales. Partnership operations are
generally expected to decline as real property interests are sold since the
Partnership no longer receives income generated from such real property
interests. During the year ended December 31, 1997, the Partnership sold its
interest in three of its remaining four properties.
 
OPERATIONS
The table below is a recap of the Partnership's share of certain operating
results of each of its properties for the quarters and six months ended June
30, 1998 and 1997. 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             For the
                             Quarters Ended     Six Months Ended
                            6/30/98  6/30/97   6/30/98     6/30/97
--------------------------------------------------------------------
<S>                         <C>      <C>      <C>         <C>
INDIAN RIDGE PLAZA SHOPPING CENTER
Rental revenues             $492,800 $512,900 $1,022,600  $1,002,000
--------------------------------------------------------------------
Property net income         $209,200 $274,300 $  486,400  $  473,300
--------------------------------------------------------------------
Average occupancy                89%      91%        89%         92%
--------------------------------------------------------------------
SOLD PROPERTIES (B)
Rental revenues             $ 10,000 $381,200 $    8,200  $  963,400
--------------------------------------------------------------------
Property net income (loss)  $  8,700 $ 18,800 $  (17,200) $  127,000
--------------------------------------------------------------------
</TABLE>
(a) Excludes certain income and expense items which are either not directly
    related to individual property operating results such as interest income,
    interest expense and general and administrative expenses.
(b) Sold Properties includes results from Park Plaza Professional Office
    Building ("Park Plaza"), 3120 Southwest Freeway Office Building and
    Carrollton Crossroads Shopping Center, all of which were sold during 1997.
 
Unless otherwise disclosed, discussions of fluctuations between 1998 and 1997
refer to both the quarters and six months ended June 30, 1998 and 1997.
 
Net income decreased by $1,115,200 for the six months ended June 30, 1998 when
compared to the six months ended June 30, 1997. The decrease was primarily due
to the 1997 gains recorded on the sales of two Partnership properties. The
absence in 1998 of results from the Sold Properties was almost entirely offset
by a decrease in interest paid on the loan payable to the General Partner (see
discussion below), improved operating results at Indian Ridge Shopping Center
("Indian Ridge") and a decrease in state and federal taxes paid on behalf of
the Limited Partners.
 
Net income increased by $29,700 for the quarter ended June 30, 1998 when
compared to the quarter ended June 30, 1997. The increase was primarily due to
the decrease in interest paid on the loan payable to the General Partner, which
was due to the 1998 repayment of the outstanding balance and additional expense
related to the sales of two Partnership properties, which were recognized
during the quarter ended June 30, 1997. The increase was partially offset by
diminished operating results at Indian Ridge and the absence of 1998 results
from Sold Properties.
 
Net income exclusive of Sold Properties increased by $135,100 for the six
months ended June 30, 1998 when compared to the six months ended June 30, 1997.
The increase was primarily due to the decrease in interest expense on the loan
payable to the General Partner and improved operating results at Indian Ridge.
Net income exclusive of Sold Properties decreased by $10,000 for the quarter
ended June 30, 1998 when compared to the quarter ended June 30, 1997. The
decrease was primarily due to the diminished operating results at Indian Ridge.
The decrease was partially offset by the decrease in interest expense on the
loan payable to the General Partner.
 
The following comparative discussion excludes the results of the Sold
Properties.
 
Rental revenues increased by $20,600 or 2.1% for the six months ended June 30,
1998 when compared to the six months ended June 30, 1997. The increase was
primarily the result of an increase in base rental income, which was due to an
increase in rates charged to new and renewing tenants partially offset by a
decline in average occupancy.
 
Rental revenues decreased by $20,100 or 3.9% for the quarter ended June 30,
1998 when compared to the quarter ended June 30, 1997. The decrease was
primarily due to a decrease in tenant expense reimbursements. The decrease was
due to actual settlement billings to tenants for 1997 payable in 1998 being
less than estimated. The decrease was partially offset by an increase in base
rental income.
 
Interest expense decreased by $51,200 and $109,200 for the quarter and six-
month periods under comparison, respectively. The decreases were due to the
effects of the May 31, 1997 and May 31, 1998 paydowns of the Partnership's loan
from the General Partner. In accordance with the Partnership Agreement, 25% of
the Sales Proceeds from Carrollton and Southwest Freeway were used on May 31,
1997 to reduce the loan payable to the General Partner. On May 31, 1998 the
loan payable to the General Partner was paid off with a portion of the Sale
Proceeds from Park Plaza.
 
Property operating expenses increased by $23,400 and $18,500 for the quarter
and six months ended June 30, 1998 when compared to the quarter and six months
ended June 30, 1997, respectively. The increases were primarily due to an
increase in management fees, which resulted from the increase in rental
revenues. The increase was partially offset by a decrease in salary expense.
 
Repairs and maintenance expense increased by $23,400 for the quarter ended June
30, 1998 when compared to the quarter ended June 30, 1997. The increase was
primarily due to an increase in landscaping and snow removal costs.
 
Repair and maintenance expense decreased by $5,800 for the six months ended
June 30, 1998 when compared to the six months ended June 30, 1997. The decrease
was primarily due to a decrease in snow removal costs. The decrease was
partially offset by an increase in landscaping costs.
 
To increase and/or maintain occupancy at Indian Ridge, the General Partner,
through its 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 property brochures; 2) early renewal
of existing tenants' leases 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.
 
                                                                               6
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 
 
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
property. Notwithstanding the Partnership's intention relative to property
sales, another primary objective of the Partnership is to provide cash
distributions to Partners from Partnership operations. To the extent cumulative
cash distributions exceed net income, such excess distributions will be 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 flow provided by
operating activities as determined by GAAP. Such amounts are not indicative of
actual distributions to Partners and should not be considered as an alternative
to the results disclosed in the Statements of Income and Expenses and
Statements of Cash Flow.
 
<TABLE>
<CAPTION>
                                                           Comparative
                                                        Cash Flow Results
                                                     For the Six Months Ended
                                                       6/30/98      6/30/97
-------------------------------------------------------------------------------
<S>                                                  <C>          <C>
Cash Flow (as defined in the Partnership Agreement)  $   842,400  $  1,096,800
Items of reconciliation:
 General Partner's Partnership Management Fee             36,000        37,500
 Decrease in current assets                              100,900        47,900
 (Decrease) in current liabilities                       (53,500)     (317,100)
-------------------------------------------------------------------------------
Net cash provided by operating activities            $   925,800  $    865,100
-------------------------------------------------------------------------------
Net cash (used for) provided by investing
 activities                                          $  (143,400) $ 10,779,000
-------------------------------------------------------------------------------
Net cash (used for) financing activities             $(8,802,700) $(12,279,200)
-------------------------------------------------------------------------------
</TABLE>
 
The decrease in Cash Flow (as defined in the Partnership Agreement) of $254,400
for the six months ended June 30, 1998 when compared to six months ended June
30, 1997 was primarily due to the absence of Cash Flow (as defined in the
Partnership Agreement) from Sold Properties. Partially offsetting the decrease
was the increase in Partnership Cash Flow (as defined in the Partnership
Agreement) from Indian Ridge together with reduced interest expense.
 
The decrease in the Partnership's cash position for the six months ended June
30, 1998 resulted primarily from the investments in debt securities,
distributions paid to Limited Partners and repayment of the loan payable to the
General Partner exceeding the net cash provided by operating activities. Liquid
assets (including cash, cash equivalents and investments in debt securities) of
the Partnership as of June 30, 1998 were comprised of amounts held for working
capital purposes.
 
Net cash provided by operating activities increased by $60,700 for the six
months ended June 30, 1998 when compared to the six months ended June 30, 1997.
The increase was primarily the result of the timing of the payment of expenses
in 1997 at Park Plaza together with the increase in net income, exclusive of
properties sold during 1997 and depreciation and amortization, as previously
discussed.
 
Net cash provided by (used for) investing activities changed from $10,779,000
for the six months ended June 30, 1997 to $(143,400) for the six months ended
June 30, 1998. The change was primarily due to the receipt of proceeds in 1997
from the sales of Southwest Freeway and Carrollton. The change was partially
offset by a decrease in amounts invested in debt securities during the
comparable six-month periods. The 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 as 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 and spent $15,000 for capital and tenant improvements and leasing
costs during the six months ended June 30, 1998. Approximately $45,000 is
projected to be spent at Indian Ridge during the remainder of 1998. Actual
amounts expended may vary depending on a number of factors including actual
leasing activity and other market conditions throughout the remainder of the
year. The General Partner believes these improvements and leasing costs are
necessary in order to increase and/or maintain the occupancy level in very
competitive markets, maximize rental rates charged to new and renewing tenants
and prepare the remaining property for eventual disposition.
 
The decrease in net cash used for financing activities of $3,476,500 was
primarily due to the 1997 special distributions of Sales Proceeds exceeding the
1998 special distribution of Sale Proceeds. The decrease was also due to a
larger principal repayment of the loan payable to the General Partner in 1997
when compared to 1998.
 
On December 18, 1997, a joint venture in which the Partnership owns a 50%
interest completed the sale of Park Plaza. In connection with this sale, on May
31, 1998 Limited Partners of record as of December 18, 1997 received a special
distribution of $6,523,300 or $11.00 per Unit. The remaining Park Plaza Sale
Proceeds were used to completely repay the loan payable of $1,569,500 to the
General Partner.
 
The General Partner, on behalf of the Partnership, has contracted for
substantially all of its business activities with certain principal entities
for which computer programs are utilized. Each of these companies is
financially responsible and have represented to management of the General
Partner that they are taking appropriate steps for modifications needed to
their respective systems to accommodate processing data by Year 2000.
Accordingly, the Partnership anticipates incurring no material Year 2000 costs
and is currently not aware of any material contingencies related to this
matter.
 
The General Partner continues to take a conservative approach to projections of
future rental income in its determination of adequate levels of cash reserves
due to the anticipated capital and tenant improvements and leasing costs
necessary to be made at Indian Ridge during the coming years. For the six
months ended June 30, 1998, Cash Flow (as defined in the Partnership Agreement)
retained to supplement working capital reserves amounted to $249,400.
 
Distributions to Limited Partners for the quarter ended June 30, 1998 were
declared in the amount of $296,500, or $.50 per Unit. Cash distributions are
made 60 days after the last day of each fiscal quarter. The amount of future
distributions to Partners will ultimately be dependent upon the performance of
Indian Ridge as well as the 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 Partners.
 
Based upon the current estimated value of its assets, net of its outstanding
liabilities, together with its expected results and capital expenditure
requirements, the General Partner believes that the Partnership's cumulative
distributions to its Limited Partners from inception through the termination of
the Partnership may be less than such Limited Partners' original Capital
Contributions.
 
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 during the quarter ended June
         30, 1998.
<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. - 4

                         By: FIRST CAPITAL FINANCIAL CORPORATION
                             GENERAL PARTNER

Date:  August 14, 1998   By:  /s/    DOUGLAS CROCKER II
       ---------------       --------------------------------------
                                     DOUGLAS CROCKER II
                             President and Chief Executive Officer

Date:  August 14, 1998   By: /s/     NORMAN M. FIELD
       ---------------       --------------------------------------
                                     NORMAN M. FIELD
                             Vice President - Finance and Treasurer