<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                   September 30, 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                           0-15632
                            ----------------------------------------------------
 

               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 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 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>
 
BALANCE SHEETS
(All dollars rounded to nearest 00s)
 
<TABLE>
<CAPTION>
                                                 September 30,
                                                     1997      December 31,
                                                  (Unaudited)      1996
----------------------------------------------------------------------------
<S>                                              <C>           <C>
ASSETS
Investment in commercial rental properties:
 Land                                             $ 3,312,800  $  5,050,400
 Buildings and improvements                        27,357,500    38,778,200
----------------------------------------------------------------------------
                                                   30,670,300    43,828,600
Accumulated depreciation and amortization          (7,978,100)  (10,382,500)
----------------------------------------------------------------------------
 Total investment properties, net of accumulated
  depreciation and amortization                    22,692,200    33,446,100
Cash and cash equivalents                           2,703,500     2,572,500
Investments in debt securities                      1,705,000     1,717,000
Restricted cash                                        50,000        50,000
Rents receivable                                       14,000       213,000
Other assets                                           42,200         9,700
----------------------------------------------------------------------------
                                                  $27,206,900  $ 38,008,300
----------------------------------------------------------------------------
 
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
 Loan payable to General Partner                  $ 1,569,500  $  4,246,800
 Accounts payable and accrued expenses                686,400       775,600
 Due to Affiliates                                     39,700       119,500
 Distributions payable                                352,800       776,100
 Security deposits                                     57,200        94,600
 Other liabilities                                     25,400        50,500
----------------------------------------------------------------------------
                                                    2,731,000     6,063,100
----------------------------------------------------------------------------
Partners' capital:
 General Partner (deficit)                             40,900      (270,300)
 Limited Partners (593,025 Units issued and
  outstanding)                                     24,435,000    32,215,500
----------------------------------------------------------------------------
                                                   24,475,900    31,945,200
----------------------------------------------------------------------------
                                                  $27,206,900  $ 38,008,300
----------------------------------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the nine months ended September 30, 1997 (Unaudited) and the year ended
December 31, 1996
(All dollars rounded to nearest 00s)
 
<TABLE>
<CAPTION>
                                            General     Limited
                                            Partner    Partners       Total
-------------------------------------------------------------------------------
<S>                                        <C>        <C>          <C>
Partners' (deficit) capital, January 1,
 1996                                      $(270,300) $33,604,500  $33,334,200
Net income for the year ended December
 31, 1996                                    153,400    1,101,700    1,255,100
Distributions for the year ended December
 31, 1996                                   (153,400)  (2,490,700)  (2,644,100)
-------------------------------------------------------------------------------
Partners' (deficit) capital, December 31,
 1996                                       (270,300)  32,215,500   31,945,200
Net income for the nine months ended
 September 30, 1997                          367,500    1,601,100    1,968,600
Distributions for the nine months ended
 September 30, 1997                          (56,300)  (9,381,600)  (9,437,900)
-------------------------------------------------------------------------------
Partners' capital, September 30, 1997      $  40,900  $24,435,000  $24,475,900
-------------------------------------------------------------------------------
</TABLE>
    The accompanying notes are an integral part of the financial statements.
2
<PAGE>
 
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended September 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
 
<TABLE>
<CAPTION>
                                                     1997      1996
----------------------------------------------------------------------
<S>                                                <C>      <C>
Income:
 Rental                                            $817,600 $1,300,300
 Interest                                            58,600     63,800
----------------------------------------------------------------------
                                                    876,200  1,364,100
----------------------------------------------------------------------
Expenses:
 Interest on loan payable to General Partner         34,200     92,200
 Depreciation and amortization                      224,900    319,500
 Property operating:
  Affiliates                                         24,800     96,900
  Nonaffiliates                                     140,300    179,100
 Real estate taxes                                  113,400    156,200
 Insurance--Affiliate                                 8,900     16,200
 Repairs and maintenance                            104,900    140,200
 General and administrative:
  Affiliates                                          8,500     10,700
  Nonaffiliates                                      27,700     21,400
----------------------------------------------------------------------
                                                    687,600  1,032,400
----------------------------------------------------------------------
Net income                                         $188,600 $  331,700
----------------------------------------------------------------------
Net income allocated to General Partner            $ 18,800 $   40,300
----------------------------------------------------------------------
Net income allocated to Limited Partners           $169,800 $  291,400
----------------------------------------------------------------------
Net income allocated to Limited Partners per Unit
 (593,025 Units outstanding)                       $   0.29 $     0.49
----------------------------------------------------------------------
</TABLE>
 
STATEMENTS OF INCOME AND EXPENSES
For the nine months ended September 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
 
<TABLE>
<CAPTION>
                                                      1997       1996
------------------------------------------------------------------------
<S>                                                <C>        <C>
Income:
 Rental                                            $2,783,100 $3,838,400
 Interest                                             384,900    182,200
 Gain on sale of property                           1,102,800
------------------------------------------------------------------------
                                                    4,270,800  4,020,600
------------------------------------------------------------------------
Expenses:
 Interest on loan payable to General Partner          199,400    272,500
 Depreciation and amortization                        682,000    971,300
 Property operating:
  Affiliates                                           84,400    276,400
  Nonaffiliates                                       448,800    540,100
 Real estate taxes                                    392,600    515,800
 Insurance--Affiliate                                  29,000     48,700
 Repairs and maintenance                              341,600    418,600
 General and administrative:
  Affiliates                                           18,700     32,000
  Nonaffiliates                                       105,700    115,200
------------------------------------------------------------------------
                                                    2,302,200  3,190,600
------------------------------------------------------------------------
Net income                                         $1,968,600 $  830,000
------------------------------------------------------------------------
Net income allocated to General Partner            $  367,500 $  120,900
------------------------------------------------------------------------
Net income allocated to Limited Partners           $1,601,100 $  709,100
------------------------------------------------------------------------
Net income allocated to Limited Partners per Unit
 (593,025 Units outstanding)                       $     2.70 $     1.20
------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s)
 
<TABLE>
<CAPTION>
                                                            1997         1996
---------------------------------------------------------------------------------
<S>                                                      <C>          <C>
Cash flows from operating activities:
 Net income                                              $ 1,968,600  $  830,000
 Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation and amortization                              682,000     971,300
  (Gain) on sale of property                              (1,102,800)
  Changes in assets and liabilities:
  Decrease in rents receivable                               199,000     121,400
  (Increase) decrease in other assets                        (32,900)     23,300
  (Decrease) increase in accounts payable and accrued
   expenses                                                  (89,200)     19,800
  (Decrease) in due to Affiliates                            (79,800)    (17,900)
  (Decrease) in other liabilities                            (25,100)    (12,100)
---------------------------------------------------------------------------------
   Net cash provided by operating activities               1,519,800   1,935,800
---------------------------------------------------------------------------------
Cash flows from investing activities:
 Net decrease (increase) in investments in debt
  securities                                                  12,000  (3,364,100)
 Proceeds from sale of property                           11,307,700
 Payments for capital and tenant improvements               (132,600)   (231,300)
 (Increase) in restricted cash                                           (37,500)
---------------------------------------------------------------------------------
   Net cash provided by (used for) investing activities   11,187,100  (3,632,900)
---------------------------------------------------------------------------------
Cash flows from financing activities:
 Distributions paid to Partners                           (9,861,200) (2,029,300)
 (Net repayment of) proceeds received from loan payable
  to General Partner                                      (2,677,300)    161,100
 (Decrease) in security deposits                             (37,400)       (100)
---------------------------------------------------------------------------------
   Net cash (used for) financing activities              (12,575,900) (1,868,300)
---------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents         131,000  (3,565,400)
Cash and cash equivalents at the beginning of the
 period                                                    2,572,500   4,655,200
---------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period       $ 2,703,500  $1,089,800
---------------------------------------------------------------------------------
Supplemental information:
Interest paid to General Partner during the period       $   230,500  $  272,300
---------------------------------------------------------------------------------
</TABLE>
    The accompanying notes are an integral part of the financial statements.
                                                                               3
<PAGE>
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 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 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"). 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 quarter and nine months ended September 30, 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 two joint
ventures and a 75% interest in another joint venture with Affiliated
partnerships. Each of these ventures were formed for the purpose of each
acquiring a 100% interest in certain real property and are 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 was 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 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 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 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 1996
statements in order to provide comparability with the 1997 statements. These
reclassifications had no effect on 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, 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 Partnership properties) shall be
allocated to the General Partner in an amount equal to the greater of 1% of
such Net Profits or
4
<PAGE>
 
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 nine months ended September 30, 1997, the
General Partner was entitled to a Partnership Management Fee of $18,800 and
$56,300, respectively, and allocated Net Profits of $18,800 and $367,500,
respectively. The Net Profits for the nine months ended September 30, 1997
included a gain allocation from property sales of $311,200.
 
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 shall bear interest at the rate of 8.5% per annum
simple interest, payable monthly. Repayment of amounts advanced shall be 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
March 31, 1997, the General Partner advanced its Partnership Management Fee for
the year ended December 31, 1996 of $153,400 to the Partnership. During the
quarter ended June 30, 1997 the Partnership, in accordance with the Partnership
agreement, repaid the General Partner $2,830,700, which represented 25% of the
Sales Proceeds from the sales of Carrollton Crossroads Shopping Center
("Carrollton") and 3120 Southwest Freeway Office Building ("Southwest
Freeway"). As of September 30, 1997, the Partnership has drawn $1,569,500 (net
of repayments), which represents the total amount of the General Partner's
current commitment.
 
Fees and reimbursements paid and (receivable) payable by the Partnership
(from)/to Affiliates during the quarter and nine months ended September 30,
1997 were as follows:
 
<TABLE>
<CAPTION>
                                                     Paid
                                             -------------------- (Receivable)
                                             Quarter  Nine Months   Payable
------------------------------------------------------------------------------
<S>                                          <C>      <C>         <C>
Property management and leasing fees         $ 22,100  $127,700     $(6,500)
Real estate commissions (a)                      None      None      40,200
Interest expense on loan payable to General
 Partner                                       45,300   230,500        None
Reimbursement of property insurance
 premiums, at cost                             12,900    29,000        None
Legal                                           2,100    32,900        None
Reimbursement of expenses, at cost:
 -- Accounting                                  2,200    10,500       3,800
 -- Investor communication                      1,400     4,800       2,200
------------------------------------------------------------------------------
                                             $ 86,000  $435,400     $39,700
------------------------------------------------------------------------------
</TABLE>
(a) As of September 30, 1997, 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.
 
On-site property management for Park Plaza Professional Office Building is
provided by an Affiliate of the General Partner for fees ranging from 3% to 6%
of gross rents received from the property.
 
3. PROPERTY SALES:
 
On January 17, 1997, a joint venture in which the Partnership owns a 50%
interest, consummated the sale of Carrollton, located in Carrollton, Georgia,
for a sale price of $18,100,000, of which the Partnership's share was
$9,050,000. The Partnership's share of net proceeds from this transaction
approximated $8,847,000, which was net of closing expenses. The Partnership
reported a gain of $373,100 during the nine months ended September 30, 1997 in
connection with this sale. On May 31, 1997, in accordance with the Partnership
Agreement, 75% of the net proceeds were distributed to Limited Partners of
record as of January 17, 1997, with the remaining 25% remitted to the General
Partner to repay a portion of the loan payable to the General Partner.
 
On February 18, 1997, the joint venture in which the Partnership owns a 75%
interest, consummated the sale of Southwest Freeway, located in Houston, Texas,
for a sale price of $3,425,000, of which the Partnership's share was
$2,568,800. The Partnership's share of net proceeds from this transaction
approximated $2,460,700, which was net of closing expenses. The Partnership
reported a gain of $729,700 during the nine months ended September 30, 1997 in
connection with this sale. On May 31, 1997, in accordance with the Partnership
Agreement, 75% of the net proceeds were distributed to Limited Partners of
record as of February 18, 1997, with the remaining 25% remitted to the General
Partner to repay a portion of the loan payable to the General Partner.
 
                                                                               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 Partnership is in the disposition phase of its life cycle. During the
disposition phase, comparisons of operating results are complicated due to the
timing and affect of property sales. Partnership operating results 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 first quarter of 1997, the Partnership sold its interests
in Carrollton Crossroads Shopping Center ("Carrollton") and 3120 Southwest
Freeway Office Building ("Southwest Freeway"). Carrollton and Southwest Freeway
are hereafter referred to as the Sold Properties. For further information, see
Note 3 in Notes to Financial Statements.
 
The table below is a recap of the Partnership's share of certain operating
results of each of its properties for the quarters and nine months ended
September 30, 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   For the Nine Months
                           Ended               Ended
                     9/30/97  9/30/96   9/30/97    9/30/96
------------------------------------------------------------
<S>                  <C>      <C>      <C>        <C>
INDIAN RIDGE PLAZA SHOPPING CENTER
Rental revenues      $479,200 $441,500 $1,481,200 $1,199,500
------------------------------------------------------------
Property net income  $211,300 $146,300 $  684,600 $  319,600
------------------------------------------------------------
Average occupancy         89%      91%        91%        79%
------------------------------------------------------------
PARK PLAZA PROFESSIONAL BUILDING
 (50%)
Rental revenues      $400,900 $403,500 $1,175,000 $1,253,200
------------------------------------------------------------
Property net income  $ 50,400 $ 86,000 $  116,600 $  254,100
------------------------------------------------------------
Average occupancy         86%      83%        85%        84%
------------------------------------------------------------
SOLD PROPERTIES
Rental revenues               $455,300 $  126,900 $1,379,700
------------------------------------------------------------
Property net income           $164,700 $      600 $  504,300
------------------------------------------------------------
</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.
 
Unless otherwise disclosed, discussions of fluctuations between 1997 and 1996
refer to both the quarters and nine months ended September 30, 1997 and 1996.
 
Net income increased by $1,138,600 for the nine months ended September 30, 1997
when compared to the nine months ended September 30, 1996. The increase was
primarily due to the gains recognized on the sales of the Sold Properties. Also
contributing to the increase was improved operating results at Indian Ridge
Plaza Shopping Center ("Indian Ridge") and an increase in interest earned on
the Partnership's short-term investments due to an increase in cash available
for investment. Partially offsetting the increase was the absence of results in
1997 due to the two property sales in the first two months of the year together
with diminished operating results at Park Plaza Professional Building ("Park
Plaza"). Net income, exclusive of Sold Properties, increased by $539,600 for
the nine-month periods under comparison.
 
Net income decreased by $143,100 for the quarter ended September 30, 1997 when
compared to the quarter ended
September 30, 1996. The decrease was primarily due to the diminished operating
results at Park Plaza and the absence of results from the Sold Properties. The
decrease was partially offset by improved operating results at Indian Ridge and
a decrease in interest expense on the loan payable to the General Partner. Net
income, exclusive of sold properties, increased by $81,900 for the quarterly
periods under comparison.
 
The following comparative discussion excludes the results of the Sold
Properties.
 
Rental revenues increased by $35,100 or 4.2% and $203,500 or $8.3% for the
quarter and nine months ended September 30, 1997 when compared to the quarter
and nine months ended September 30, 1996, respectively. The increases were
primarily due to an increase in base rental income at Indian Ridge due to the
addition of a new major tenant to the property in October 1996. Partially
offsetting the increases were decreases in base rental income at Park Plaza due
to a decline in the rates charged to new and renewing tenants. Also offsetting
the increase, for the nine-month periods under comparison, was a decrease in
tenant expense reimbursements at Park Plaza resulting from an estimated billing
to tenants to reconcile 1996, which was payable in 1997 being less than
estimated.
 
Interest expense decreased by $58,000 and $73,100 for the periods under
comparison, respectively. The decreases were primarily due to the effects of
the $2,830,700 paydown on May 31, 1997 of the Partnership's loan payable to 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
partially repay the loan payable to the General Partner.
 
Property operating expenses decreased by $17,700 and $55,100 for the quarter
and nine months ended September 30, 1997 when compared to the quarter and nine
months ended September 30, 1996, respectively. The decreases were primarily due
to a decrease in professional services at Indian Ridge which was due to the
significant 1996 expenditures related to securing the new major tenant.
 
Real estate tax expense decreased by $14,100 for the nine months ended
September 30, 1997 when compared to the nine months ended September 30, 1996.
The decrease was primarily due to an increase in 1996 in Indian Ridge's
estimated taxes. Real estate tax expense remained relatively unchanged for the
quarterly periods under comparison.
 
Repair and maintenance expense increased by $15,000 and $27,400 for the quarter
and nine months ended September 30, 1997 when compared to the quarter and nine
months ended September 30, 1996, respectively. The increases were primarily due
to increases in repairs made to the HVAC system and in cleaning costs at Park
Plaza.
 
To increase and/or maintain occupancy levels at the Partnership's properties,
the 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 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.
 
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 Partners from Partnership operations. To the extent cumulative
cash
 
6
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 
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 Nine Months
                                                              Ended
                                                       9/30/97       9/30/96
-------------------------------------------------------------------------------
<S>                                                  <C>           <C>
Cash Flow (as defined in the Partnership Agreement)  $  1,491,500  $ 1,680,400
Items of reconciliation:
 General Partner's Partnership Management Fee              56,300      120,900
 Decrease in current assets                               166,100      144,700
 (Decrease) in current liabilities                       (194,100)     (10,200)
-------------------------------------------------------------------------------
Net cash provided by operating activities            $  1,519,800  $ 1,935,800
-------------------------------------------------------------------------------
Net cash provided by (used for) investing
 activities                                          $ 11,187,100  $(3,632,900)
-------------------------------------------------------------------------------
Net cash (used for) financing activities             $(12,575,900) $(1,863,300)
-------------------------------------------------------------------------------
</TABLE>
 
The decrease in Cash Flow (as defined in the Partnership Agreement) of $188,900
for the nine months ended September 30, 1997 when compared to nine months ended
September 30, 1996 was primarily due to the effects of the Sold Properties and
the diminished operating results at Park Plaza. Partially offsetting the
decrease was the increase in operating results of Indian Ridge and in interest
income earned on the Partnership's short-term investments, as previously
discussed.
 
The increase in the Partnership's cash position for the nine months ended
September 30, 1997 resulted primarily from the net cash provided by operating
activities exceeding distributions (excluding distributions of Sales Proceeds)
paid to Limited Partners and
expenditures for capital and tenant improvements and leasing costs. Liquid
assets (including cash, cash equivalents and investments in debt securities) of
the Partnership as of September 30, 1997 were comprised of amounts held for
working capital purposes.
 
Net cash provided by operating activities decreased by $416,000 for the nine
months ended September 30, 1997 when compared to the nine months ended
September 30, 1996. The decrease was
primarily the result of the absence of operations at Carrollton and Southwest
Freeway due to their sales during the first quarter of 1997. Partially
offsetting the decrease was the increase in net income, exclusive of
depreciation and amortization, as previously discussed, and the timing of the
payment of certain expenses at Park Plaza.
 
Net cash (used for) provided by investing activities changed from $(3,632,900)
for the nine months ended September 30, 1996 to $11,187,100 for the nine months
ended September 30, 1997. The change was primarily due to the receipt of
proceeds in 1997 from the sales of Southwest Freeway and Carrollton.
 
The Partnership maintains working capital reserves to pay for capital
expenditures and spent $132,600 for capital and tenant improvements and leasing
costs during the nine months ended September 30, 1997. Approximately $50,000 is
projected to be spent during the remainder of 1997. This projected amount
relates
to anticipated capital and tenant improvements and leasing costs of
approximately $25,000 at Park Plaza and $25,000 at Indian Ridge. 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 levels in very competitive
markets, maximize rental rates charged to new and renewing tenants and prepare
the remaining properties for eventual disposition.
 
The increase in net cash used for financing activities of $10,712,600 was due
to the Partnership's utilization of Sales Proceeds from the Sold Properties to
make a May 31, 1997 special distribution to Limited Partners and repay a
portion of the loan payable to the General Partner.
 
On January 17, 1997, Carrollton Crossroads Associates, a joint venture in which
the Partnership owns a 50% interest, completed the sale of Carrollton. The
Partnership's share of the net proceeds from this sale amounted to
approximately $8,847,000. On May 31, 1997, in accordance with the Partnership
Agreement, 75% of the net proceeds were distributed to Limited Partners of
record as of January 17, 1997, with the remaining 25% remitted to the General
Partner to repay a portion of the loan payable to the General Partner. For
further information, see Note 3 in Notes to the Financial Statements.
 
On February 18, 1997, the joint venture in which the Partnership owns a 75%
interest completed the sale of Southwest Freeway. The Partnership's share of
the net proceeds from this sale amounted to $2,460,700. On May 31, 1997, in
accordance with the Partnership Agreement, 75% of the net proceeds were
distributed to Limited Partners of record as of February 18, 1997, with the
remaining 25% remitted to the General Partner to repay a portion of the loan
payable to the General Partner. For further information, see Note 3 in Notes to
the Financial Statements.
 
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 the Partnership's properties during the next several
years. For the nine months ended September 30, 1997, Cash Flow (as defined in
the
Partnership Agreement) retained to supplement working capital reserves amounted
to $602,000.
 
Distributions to Limited Partners for the quarter ended September 30, 1997 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
the Partnership's properties 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 estimate fair value of its assets, net of its
outstanding liabilities, together with its expected operating 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
          September 30, 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. - 4

                               By: FIRST CAPITAL FINANCIAL CORPORATION
                                   GENERAL PARTNER

Date: November 14, 1997        By: /s/  DOUGLAS CROCKER II
      -----------------            --------------------------------------
                                        DOUGLAS CROCKER II
                                   President and Chief Executive Officer


Date: November 14, 1997        By: /s/  NORMAN M. FIELD
      -----------------            --------------------------------------
                                        NORMAN M. FIELD
                                   Vice President - Finance and Treasurer