<PAGE>
 
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION

                          Washington, D.C. 20549-1004

                                   FORM 10-Q
 

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934

     For the period ended                     March 31, 1997
                          ------------------------------------------------------
 
                                      OR
 
[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from                        to
                                    ----------------------    ------------------
           
     Commission File Number                           0-15632
                                    --------------------------------------------
 
 
      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>
                                                  March 31,
                                                    1997      December 31,
                                                 (Unaudited)      1996
--------------------------------------------------------------------------
<S>                                              <C>          <C>
ASSETS
Investment in commercial rental properties:
 Land                                            $ 3,312,800  $ 5,050,400
 Buildings and improvements                       27,249,700   38,778,200
--------------------------------------------------------------------------
                                                  30,562,500   43,828,600
Accumulated depreciation and amortization         (7,529,400) (10,382,500)
--------------------------------------------------------------------------
 Total investment properties, net of accumulated
  depreciation and amortization                   23,033,100   33,446,100
Cash and cash equivalents                         11,201,800    2,572,500
Investments in debt securities                     3,980,900    1,717,000
Restricted cash                                       50,000       50,000
Rents receivable                                     242,800      213,000
Other assets                                          50,400        9,700
--------------------------------------------------------------------------
                                                 $38,559,000  $38,008,300
--------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
 Loan payable to General Partner                 $ 4,400,200  $ 4,246,800
 Accounts payable and accrued expenses               565,600      775,600
 Due to Affiliates                                    81,800      119,500
 Distributions payable                             8,807,400      776,100
 Security deposits                                    58,100       94,600
 Other liabilities                                    20,800       50,500
--------------------------------------------------------------------------
                                                  13,933,900    6,063,100
--------------------------------------------------------------------------
Partners' capital:
 General Partner (deficit)                            44,800     (270,300)
 Limited Partners (593,025 Units issued and
  outstanding)                                    24,580,300   32,215,500
--------------------------------------------------------------------------
                                                  24,625,100   31,945,200
--------------------------------------------------------------------------
                                                 $38,559,000  $38,008,300
--------------------------------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the quarter ended March 31, 1997 (Unaudited)
and the year ended December 31, 1996
(All dollars rounded to nearest 00s)
 
<TABLE>
<CAPTION>
                                          General      Limited
                                          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 quarter ended
 March 31, 1997                             333,900    1,153,400    1,487,300
Distributions for the quarter ended
 March 31, 1997                             (18,800)  (8,788,600)  (8,807,400)
------------------------------------------------------------------------------
Partners' capital, March 31, 1997         $  44,800  $24,580,300  $24,625,100
------------------------------------------------------------------------------
</TABLE>
    The accompanying notes are an integral part of the financial statements.
                                                                               2
<PAGE>
 
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended March 31, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
 
<TABLE>
<CAPTION>
                                                      1997       1996
------------------------------------------------------------------------
<S>                                                <C>        <C>
Income:
 Rental                                            $1,082,500 $1,308,300
 Interest                                             160,200     57,700
 Gain on sale of property                           1,128,900
------------------------------------------------------------------------
                                                    2,371,600  1,366,000
------------------------------------------------------------------------
Expenses:
 Interest on loan payable to General Partner           91,400     89,000
 Depreciation and amortization                        232,900    327,000
 Property operating:
  Affiliates                                           32,300     99,100
  Nonaffiliates                                       172,500    158,400
 Real estate taxes                                    146,700    156,100
 Insurance--Affiliate                                  11,700     16,300
 Repairs and maintenance                              147,100    129,000
 General and administrative:
  Affiliates                                            6,700     11,700
  Nonaffiliates                                        43,000     56,100
------------------------------------------------------------------------
                                                      884,300  1,042,700
------------------------------------------------------------------------
Net income                                         $1,487,300 $  323,300
------------------------------------------------------------------------
Net income allocated to General Partner            $  333,900 $   37,500
------------------------------------------------------------------------
Net income allocated to Limited Partners           $1,153,400 $  285,800
------------------------------------------------------------------------
Net income allocated to Limited Partners per Unit
 (593,025 Units outstanding)                       $     1.94 $     0.48
------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
For the quarters ended March 31, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s)
 
<TABLE>
<CAPTION>
                                                             1997         1996
----------------------------------------------------------------------------------
<S>                                                       <C>          <C>
Cash flows from operating activities:
 Net income                                               $ 1,487,300  $  323,300
 Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation and amortization                               232,900     327,000
  Gain on sale of property                                 (1,128,900)
  Changes in assets and liabilities:
   (Increase) decrease in rents receivable                    (29,800)     94,000
   (Increase) decrease in other assets                        (40,700)      6,900
   (Decrease) in accounts payable and accrued expenses       (210,000)   (174,800)
   (Decrease) increase in due to Affiliates                   (37,700)     34,600
   (Decrease) in other liabilities                            (29,700)     (7,500)
----------------------------------------------------------------------------------
    Net cash provided by operating activities                 243,400     603,500
----------------------------------------------------------------------------------
Cash flows from investing activities:
 (Increase) in investments in debt securities, net         (2,263,900)
 Proceeds from sale of property                            11,333,800
 Payments for capital and tenant improvements                 (24,800)    (37,600)
 (Increase) in restricted cash                                            (25,000)
----------------------------------------------------------------------------------
    Net cash provided by (used for) investing activities    9,045,100     (62,600)
----------------------------------------------------------------------------------
Cash flows from financing activities:
 Distributions paid to Partners                              (776,100)   (783,900)
 Proceeds received from loan payable to General Partner       153,400     161,100
 (Decrease) increase in security deposits                     (36,500)        400
----------------------------------------------------------------------------------
    Net cash (used for) financing activities                 (659,200)   (622,400)
----------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents        8,629,300     (81,500)
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        $11,201,800  $4,573,700
----------------------------------------------------------------------------------
Supplemental information:
 Interest paid to General Partner during the period       $    90,300  $   87,800
----------------------------------------------------------------------------------
</TABLE>
    The accompanying notes are an integral part of the financial statements.
3
<PAGE>
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
March 31, 1997
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
DEFINITION OF SPECIAL TERMS:
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement filed with the Securities and
Exchange Commission on Form S-11. Definitions of these terms are contained in
Article III of the First Amended and Restated 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 three months ended March 31, 1997, are not necessarily indicative of the
operating results for the year ending December 31, 1997.
 
The financial statements include the Partnership's 50% interest in 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. One of the 50% and the 75%
joint ventures sold their properties during the quarter ended March 31, 1997.
For further information, see Note 3.
 
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 possible 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. As of March 31, 1997, these
securities had a fair market value of $3,975,900 and unrealized losses of
$(5,000). 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 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
 
                                                                               4
<PAGE>
 
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 three months ended
March 31, 1997, the General Partner was entitled to a Partnership Management
Fee of $18,800 and allocated Net Profits of $333,900, which included a gain
allocation of $315,100 from the sale of Partnership property. For the three
months ended March 31, 1996, the General Partner was entitled to a Partnership
Management Fee, and accordingly, allocated Net Profits, of $37,500.
 
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. As of March
31, 1997, the Partnership has drawn $4,400,200, which represents the total
amount of the General Partner's current commitment.
 
Fees and reimbursements paid and payable/(receivable) by the Partnership
to/(from) Affiliates during the quarter ended March 31, 1997 were as follows:
 
<TABLE>
<CAPTION>
                                                                  Payable
                                                         Paid   (Receivable)
----------------------------------------------------------------------------
<S>                                                    <C>      <C>
Property management and leasing fees (a)               $ 81,300   $(6,100)
Real estate commissions (b)                                None    40,200
Interest expense on loan payable to General Partner      90,300    32,200
Reimbursement of property insurance premiums, at cost      None     9,800
Reimbursement of expenses, at cost:
 -- Accounting                                            3,000     4,500
 -- Investor communication                                  800     1,200
 -- Legal                                                 2,900      None
----------------------------------------------------------------------------
                                                       $178,300   $81,800
----------------------------------------------------------------------------
</TABLE>
(a) Effective on December 31, 1996, the Affiliate providing property management
 and certain leasing services to the Partnership's shopping centers, sold its
 interest in its property management agreements to an unrelated party.
(b) As of March 31, 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 the Partnership's office property 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 Crossroads Shopping Center,
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 $8,859,700, which was net of closing
expenses. The Partnership reported a gain of $385,800 during the three months
ended March 31, 1997 in connection with this sale and intends to distribute all
of the net sales proceeds from this transaction. On May 31, 1997, in accordance
with the Partnership Agreement, 75% of the net proceeds will be 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, a joint venture in which the Partnership owns a 75%
interest, consummated the sale of 3120 Southwest Freeway Office Building,
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 $2,474,200, which was net of closing
expenses. The Partnership reported a gain of $743,100 during the three months
ended March 31, 1997 in connection with this sale and intends to distribute all
of the net proceeds from this transaction. On May 31, 1997, in accordance with
the Partnership Agreement, 75% of the net proceeds will be 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.
 
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sale 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 and dispositions. Partnership
operating results are generally expected to decline as real property interests
are sold or disposed of since the Partnership no longer receives income
generated from such real property interests.
 
OPERATIONS
The table below is a recap of the Partnership's share of certain operating
results of each of its properties for the three months ended March 31, 1997 and
1996. The discussion following the table should be read in conjunction with the
financial statements and notes thereto appearing in this report.
 
<TABLE>
<CAPTION>
                                          Comparative
                                     Operating Results (a)
                                    For the Quarters Ended
                                      3/31/97      3/31/96
------------------------------------------------------------
<S>                                 <C>          <C>
INDIAN RIDGE PLAZA SHOPPING CENTER
Rental revenues                     $   489,100  $   426,200
------------------------------------------------------------
Property net income                 $   199,000  $   144,600
------------------------------------------------------------
Average occupancy                           92%          69%
------------------------------------------------------------
PARK PLAZA PROFESSIONAL BUILDING (50%)
Rental revenues                     $   392,900  $   405,800
------------------------------------------------------------
Property net income                 $    47,400  $    90,100
------------------------------------------------------------
Average occupancy                           83%          84%
------------------------------------------------------------
CARROLLTON CROSSROADS SHOPPING CENTER (50%) (B)
Rental revenues                     $   108,000  $   309,600
------------------------------------------------------------
Property net income                 $    78,400  $   174,500
------------------------------------------------------------
Average occupancy                            (b)         98%
------------------------------------------------------------
3120 SOUTHWEST FREEWAY OFFICE BUILDING (75%) (B)
Rental revenues                     $    92,500  $   162,700
------------------------------------------------------------
Property net income                 $     9,300  $    15,700
------------------------------------------------------------
Average occupancy                            (b)         83%
------------------------------------------------------------
</TABLE>
(a) Excludes certain income and expense items which are not directly related to
    individual property operating results such as interest income, interest
    expense and general and administrative expenses.
(b) Property was sold during the quarter ended March 31, 1997. Property net
    income excludes gain on the sale of this property. For further information,
    see Note 3, in Notes to Financial Statements.
 
Net income increased by $1,164,000 for the three months ended March 31, 1997
when compared to the three months ended March 31, 1996. The increase was
primarily the result of the effects of the sales of 3120 Southwest Freeway
Office Building ("Southwest Freeway") and Carrollton Crossroads Shopping Center
("Carrollton"). Exclusive of the operating results and gains on sales of the
two sold properties, net income increased by $137,600 for the periods under
comparison. The increase was primarily the result of an increase in interest
income earned on the Partnership's short-term investments which is the result
of an increase in cash available for investment due to the receipt of Sales
Proceeds. Also contributing to the increase was improved operating results at
Indian Ridge Plaza Shopping Center ("Indian Ridge") and a decrease in general
and administrative expenses incurred by the Partnership which was the result of
a decrease in personnel costs and accounting fees. Partially offsetting the
increase was diminished operating results at Park Plaza Professional Building
("Park Plaza").
 
The following comparative discussion excludes the operations of Southwest
Freeway and Carrollton.
 
Rental revenues increased by $50,000 or 6% for the three months ended March 31,
1997 when compared to the three months ended March 31, 1996. The increase was
primarily the result of an increase in base rental income at Indian Ridge which
was the result of the securing of a new major tenant for the center in October
1996. The increase was partially offset by a decrease in base rental income at
Park Plaza due to a reduction in the rates charged to new and renewing tenants.
 
Property operating expenses decreased by $31,000 for the three months ended
March 31, 1997 when compared to the three months ended March 31, 1996. The
decrease was primarily due to a decrease in professional services at Indian
Ridge which is the result of the expenditures in 1996 to secure the new major
tenant. Partially offsetting the decrease was an increase in management fees at
Indian Ridge due to the increased revenues generated by the property.
 
Real estate tax expense increased by $19,000 for the three-month periods under
comparison. The increase was primarily due to a budgeted increase in real
estate taxes at Park Plaza.
 
Repairs and maintenance expenses increased by $21,200 for the three months
ended March 31, 1997 when compared to the three months ended March 31, 1996.
The increase was primarily due to an increase in repairs to the HVAC system at
Park Plaza together with an increase in snow removal costs at Indian Ridge.
 
To increase and/or maintain occupancy levels at the Partnership's properties,
the General Partner, through its Affiliated and nonaffiliated 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 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
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
 
                                                                               6
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 
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 Quarters
                                                             Ended
                                                       3/31/97     3/31/96
----------------------------------------------------------------------------
<S>                                                   <C>         <C>
Cash Flow (as defined in the Partnership Agreement)   $  572,500  $ 612,800
Items of reconciliation:
 General Partnership Management Fee                       18,800     37,500
 (Increase) decrease in current assets                   (70,500)   100,900
 (Decrease) in current liabilities                      (277,400)  (147,700)
----------------------------------------------------------------------------
Net cash provided by operating activities             $  243,400  $ 603,500
----------------------------------------------------------------------------
Net cash provided by (used for) investing activities  $9,045,100  $ (62,600)
----------------------------------------------------------------------------
Net cash (used for) financing activities              $ (659,200) $(622,400)
----------------------------------------------------------------------------
</TABLE>
 
The decrease in Cash Flow (as defined in the Partnership Agreement) of $40,300
for the three months ended March 31, 1997 when compared to three months ended
March 31, 1996 was primarily due to the partial absence of 1997 Cash Flow (as
defined in the Partnership Agreement) from Carrollton and Southwest Freeway due
to their sale. Partially offsetting the decrease was the increase in
Partnership net income, exclusive of sold properties and depreciation and
amortization, as previously discussed.
 
The increase in the Partnership's cash position of $8,629,300 for the three
months ended March 31, 1997 resulted primarily from the receipt of $11,333,800
of sales proceeds from the Partnership's two property sales. Exclusive of these
Sales Proceeds, investments in debt securities, distributions paid to Limited
Partners and expenditures for capital and tenant improvements and leasing costs
exceeded net cash provided by operating activities by approximately $2,226,100.
Liquid assets (including cash, cash equivalents and investments in debt
securities) of the Partnership as of March 31, 1997 were comprised of amounts
held for working capital purposes, as well as the Sale Proceeds to be
distributed on May 31, 1997.
 
Net cash provided by operating activities continues to be a primary source of
funds to the Partnership. Net cash provided by operating activities decreased
by $360,100 for the three months ended March 31, 1997 when compared to the
three months ended March 31, 1996. The decrease was primarily the result of the
absence of cash provided by operations at Carrollton and Southwest Freeway due
to their sales in 1997. Partially offsetting the decrease was the increase in
net income, exclusive of depreciation and amortization, as previously
discussed, along with the timing of the payment of certain expenses at Park
Plaza.
 
Net cash (used for) provided by investing activities changed from $(62,600) for
the three months ended March 31, 1996 to $9,045,100 for the three months ended
March 31, 1997. The increase was due to the receipt of proceeds in 1997 from
the sale of Southwest Freeway and Carrollton. The change was partially offset
by an increase in investments in debt securities. The increase in investments
in debt securities is a result of the extension of the maturities of certain of
the Partnership's short-term investments in an effort to maximize the return on
these amounts as they are held for working capital purposes or for
distributions to Partners. 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 $24,800 for capital, tenant improvement and leasing
costs during the three months ended March 31, 1997. Approximately $185,000 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 $100,000 and $85,000 at Park Plaza and Indian Ridge,
respectively. 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 $36,800 was primarily
due to a decrease in security deposits which were credited to the purchasers of
Carrollton and Southwest Freeway.
 
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 $8,859,700. On May 31, 1997, in accordance with the Partnership
Agreement, 75% of the net proceeds will be 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 approximately $2,474,200. On May
31, 1997, in accordance with the Partnership Agreement, 75% of the net proceeds
will be 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 potential capital and tenant improvements and leasing costs to be
made at the Partnership's two remaining properties during the next several
years. For the three months ended March 31, 1997, Cash Flow (as defined in the
Partnership Agreement) retained to supplement working capital reserves amounted
to $276,000.
 
Distributions to Limited Partners for the three months ended March 31, 1997
were declared in the amount of $296,500, or $0.45 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,
exclusive of the distribution of Southwest Freeway's and Carrollton's Sales
Proceeds on May 31, 1997, 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
requirement, 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:

        A Report on Form 8-K was filed on February 3, 1997, reporting the sale
        of Carrollton Crossroads Shopping Center, located in Carrollton,
        Georgia.
<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: May 15, 1997             By: /s/ DOUGLAS CROCKER II
      ------------                 --------------------------------------
                                       DOUGLAS CROCKER II
                                   President and Chief Executive Officer

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