<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, 1998
                          -----------------------------------------------------

                                      OR

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

     For the transition period from                     to
                                    -------------------    --------------------

     Commission File Number                           0-15632
                                    -------------------------------------------

               First Capital Institutional Real Estate, Ltd. - 4
-------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)

                         Illinois                               36-3441345
---------------------------------------------------------   -------------------
             (State or other jurisdiction of                 (I.R.S. Employer
              incorporation or organization)                Identification No.)

 Two North Riverside Plaza, Suite 1000, Chicago, Illinois       60606-2607
---------------------------------------------------------   -------------------
         (Address of principal executive offices)               (Zip Code)

                                (312) 207-0020
-------------------------------------------------------------------------------
             (Registrant's telephone number, including area code)

                                Not applicable
-------------------------------------------------------------------------------
             (Former name, former address and former fiscal year,
                         if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.   Yes    X    No
                                          -----     -----

DOCUMENTS INCORPORATED BY REFERENCE:

The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the Partnership's Prospectus dated November 5, 1986,
included in the Partnership's Registration Statement on Form S-11, is
incorporated herein by reference in Part I of this report.
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Reference is made to the Partnership's annual report for the year ended
December 31, 1997 for a discussion of the Partnership's business.
 
Statements contained in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, which are not historical facts, may be
forward looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date hereof.
 
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. The
Partnership, in addition to being in the operation of properties phase, is also
in the disposition phase of its life cycle. During the disposition phase of the
Partnership's life cycle, comparisons of operating results are complicated due
to the timing and effect of property sales. Partnership operations are
generally expected to decline as real property interests are sold since the
Partnership no longer receives income generated from such real property
interests. As of September 30, 1998, the Partnership has sold all of its real
property investments with the exception of Indian Ridge Plaza Shopping Center
("Indian Ridge").
 
OPERATIONS
The table below includes a recap of the Partnership's share of certain
operating results of its properties for the quarters and nine months ended
September 30, 1998 and 1997. The discussion following the table should be read
in conjunction with the financial statements and notes thereto appearing in
this report.
 
<TABLE>
<CAPTION>
                               Comparative Operating Results (a)
                            For the Quarters    For the Nine Months
                                  Ended                Ended
                            9/30/98   9/30/97   9/30/98     9/30/97
---------------------------------------------------------------------
<S>                         <C>       <C>      <C>         <C>
INDIAN RIDGE PLAZA SHOPPING CENTER
Rental revenues             $490,100  $479,200 $1,512,700  $1,481,200
---------------------------------------------------------------------
Property net income         $209,300  $211,300 $  695,700  $  684,600
---------------------------------------------------------------------
Average occupancy                89%       89%        89%         91%
---------------------------------------------------------------------
SOLD PROPERTIES (B)
Rental revenues             $(32,800) $400,900 $  (24,600) $1,301,900
---------------------------------------------------------------------
Property net (loss) income  $(29,800) $ 50,400 $  (47,000) $  117,200
---------------------------------------------------------------------
</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) Sold Properties includes results from Park Plaza Professional Building
    ("Park Plaza"), 3120 Southwest Freeway Office Building ("Southwest
    Freeway") and Carrollton Crossroads Shopping Center ("Carrollton"), all of
    which were sold during 1997.
 
Unless otherwise disclosed, discussions of fluctuations between 1998 and 1997
refer to both the quarters and nine months ended September 30, 1998 and 1997.
 
Net income decreased by $1,088,600 for the nine months ended September 30, 1998
when compared to the nine months ended September 30, 1997. The decrease was
primarily due to the 1997 gains recognized on the sales of Southwest Freeway
and Carrollton. Also contributing to the decrease was the absence of results
from Sold Properties during 1998. The decrease was partially offset by a
decrease in interest on the loan payable to the General Partner due to its
repayment as part of the May 31, 1998 distribution of Park Plaza Sale Proceeds.
 
Net income increased by $26,600 for the quarter ended September 30, 1998 when
compared to the quarter ended September 30, 1997. The increase was primarily
due to the decrease in interest payable on the loan payable to the General
Partner. The increase was partially offset by the absence of results during
1998 from Park Plaza.
 
Net income, exclusive of Sold Properties, improved by $49,900 and $187,100 for
the quarter and the nine months ended September 30, 1998 when compared to the
quarter and nine months ended September 30, 1997, respectively. The
improvements were primarily due to the decrease in interest expense on the loan
payable to General Partner, as previously discussed. The improvements were also
due to reduced personnel and data processing costs.
 
The following comparative discussion includes only the results of Indian Ridge.
 
Rental revenues increased by $10,900 or 2.3% and $31,500 or 2.1% for the
quarter and nine months ended September 30, 1998 when compared to the quarter
and nine months ended September 30, 1997, respectively. The increases were
primarily due to an increase in base rental income, which was due to an
increase in rates charged to new and renewing tenants partially offset by a
slight decline in average occupancy.
 
Property operating expenses increased by $14,000 for the nine months ended
September 30, 1998 when compared to the nine months ended September 30, 1997.
The increases were primarily due to an increase in utility costs and
professional services.
 
Repair and maintenance expense increased by $16,300 and $10,500 for the quarter
and nine months ended September 30, 1998 when compared to the quarter and nine
months ended September 30, 1997, respectively. The increases were primarily due
to an increase in landscaping costs. The increase for the nine-month periods
under comparison was partially offset by a decrease in snow removal costs.
 
To increase and/or maintain the occupancy level at the Partnership's remaining
property, the General Partner, through its asset and property management
groups, continues to take the following actions: 1) implementation of marketing
programs, including hiring of third-party leasing agents or providing on-site
leasing personnel, advertising, direct mail campaigns and development of
property brochures; 2) early renewal of existing tenants' leases and addressing
any expansion needs these tenants may have; 3) promotion of local broker events
and networking with local brokers; 4) networking with national level retailers;
5) cold-calling other businesses and tenants in the market area; and 6)
providing rental concessions or competitively pricing rental rates depending on
market conditions.
 
LIQUIDITY AND CAPITAL RESOURCES
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
the interim, the Partnership continues to manage and maintain its remaining
property. Notwithstanding the Partnership's intention relative to property
sales, another primary objective of the Partnership is to provide cash
distributions to Partners from Partnership operations. To the extent cumulative
cash distributions exceed net income, such excess distributions will be treated
as a return of capital. Cash Flow (as defined in the Partnership Agreement) is
generally not equal to net income or cash flows as determined by generally
accepted accounting principles ("GAAP"), since certain items are treated
differently under the Partnership Agreement than under GAAP. Management
believes that to facilitate a clear understanding of the Partnership's
operations, an analysis of Cash Flow (as defined in the Partnership Agreement)
should be examined in conjunction with an analysis of net income or cash flows
as determined by GAAP. The following table includes a reconciliation of Cash
Flow (as defined in the Partnership Agreement) to cash flow provided by
operating activities as determined by GAAP. Such amounts are not indicative of
actual distributions to Partners and should not be considered as
 
                                                                               2
<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 Nine Months
                                                              Ended
                                                       9/30/98      9/30/97
-------------------------------------------------------------------------------
<S>                                                  <C>          <C>
Cash Flow (as defined in the Partnership Agreement)  $ 1,147,100  $  1,491,500
Items of reconciliation:
 General Partner's Partnership Management Fee             54,000        56,300
 Decrease in current assets                               87,500       166,100
 Increase (decrease) in current liabilities               32,300      (194,100)
-------------------------------------------------------------------------------
Net cash provided by operating activities            $ 1,320,900  $  1,519,800
-------------------------------------------------------------------------------
Net cash provided by investing activities            $   382,700  $ 11,187,100
-------------------------------------------------------------------------------
Net cash (used for) financing activities             $(9,099,000) $(12,575,900)
-------------------------------------------------------------------------------
</TABLE>
 
The decrease in Cash Flow (as defined in the Partnership Agreement) of $344,400
for the nine months ended September 30, 1998 when compared to nine months ended
September 30, 1997 was primarily due to the absence of Cash Flow (as defined in
the Partnership Agreement) from the Sold Properties. Partially offsetting the
decrease was increased Cash Flow (as defined in the Partnership Agreement)
resulting from a decrease in interest expense.
 
The decrease in the Partnership's cash position for the nine months ended
September 30, 1998 resulted primarily from distributions paid to Limited
Partners and the repayment of the loan payable to the General Partner exceeding
the net cash provided by operating activities and the redemption of a portion
of the Partnership's investments in debt securities. Liquid assets (including
cash, cash equivalents and investments in debt securities) of the Partnership
as of September 30, 1998 were comprised of amounts held for working capital
purposes.
 
Net cash provided by operating activities decreased by $198,900 for the nine
months ended September 30, 1998 when compared to the nine months ended
September 30, 1997. The decrease was primarily the result of the absence of
1998 results from the Sold Properties. The decrease was partially offset by the
decrease in interest expense, as previously discussed, and the 1997 liquidation
of the trade payables of the Sold Properties.
 
Net cash provided by investing activities decreased by $10,804,400 for the nine
months ended September 30, 1998 when compared to the nine months ended
September 30, 1997. The decrease was primarily due to the receipt of proceeds
during the nine months ended September 30, 1997 from the sales of Southwest
Freeway and Carrollton.
 
The Partnership maintains working capital reserves to pay for capital
expenditures and spent $15,000 for capital and tenant improvements and leasing
costs during the nine months ended September 30, 1998. Approximately $65,000 is
projected to be spent at Indian Ridge during the remainder of 1998. Actual
amounts expended may vary depending on a number of factors including actual
leasing activity and other market conditions throughout the remainder of the
year. The General Partner believes these improvements and leasing costs are
necessary in order to increase and/or maintain the occupancy level in a very
competitive market, maximize rental rates charged to new and renewing tenants
and prepare the remaining property for eventual disposition.
 
Investments in debt securities are a result of the continued extension of the
maturities of certain of the Partnership's short-term investments in an effort
to maximize the return on these amounts as they are held for working capital
purposes. These investments are of investment grade and mature less than one
year from their date of purchase.
 
The decrease in net cash used for financing activities of $3,476,900 was
primarily due to the 1997 special distributions of Sales Proceeds from
Carrollton and Southwest Freeway exceeding the 1998 special distribution of
Sale Proceeds from Park Plaza. The decrease was also due to a larger principal
repayment of the loan payable to the General Partner in 1997 when compared to
1998.
 
On December 18, 1997, a joint venture in which the Partnership owns a 50%
interest completed the sale of Park Plaza. In connection with this sale, on May
31, 1998 Limited Partners of record as of December 18, 1997 were paid a special
distribution of $6,523,300 or $11.00 per Unit. The remaining Park Plaza Sale
Proceeds were used to fully repay the loan payable of $1,569,500 to the General
Partner.
 
The Year 2000 problem is the result of the inability of existing computer
programs to distinguish between a year beginning with "20" rather than "19".
This is the result of computer programs using two rather than four digits to
define an applicable year. If not corrected, any program having time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a variety of problems including miscalculations,
loss of data and failure of entire systems. Critical areas that could be
affected are accounts receivable and rent collections, accounts payable,
general ledger, cash management, fixed assets, investor services, computer
hardware, telecommunications systems and health, security, fire and life
systems.
 
The Partnership has engaged Affiliated and unaffiliated entities to perform all
of its critical functions that utilize software that may have time-sensitive
applications. All of these providers are providing these services for their own
organizations as well as for other clients. The General Partner, on behalf of
the Partnership, has been in close communications with each of these service
providers regarding steps that are being taken to assure that there will be no
serious interruption of the operations of the Partnership resulting from Year
2000 problems. Based on the results of the queries, as well as a review of the
disclosures by these service providers, the General Partner believes that the
Partnership will be able to continue normal business operations and will incur
no material costs related to Year 2000 issues.
 
The Partnership has not formulated a contingency plan. However, the General
Partner believes that based on the size of the Partnership's portfolio and its
limited number of transactions, aside from catastrophic failure of banks,
governmental agencies, etc., it could carry out substantially all of its
critical operations on a manual basis or easily convert to systems that are
Year 2000 compliant.
 
The General Partner continues to take a conservative approach to projections of
future rental income in its determination of adequate levels of cash reserves
due to the anticipated capital and tenant improvements and leasing costs
necessary to be made at Indian Ridge during the coming years. For the nine
months ended September 30, 1998, Cash Flow (as defined in the Partnership
Agreement) retained to supplement working capital reserves amounted to
$257,600.
 
Distributions to Limited Partners for the quarter ended September 30, 1998 were
declared in the amount of $296,500, or $.50 per Unit. Cash distributions are
made 60 days after the last day of each fiscal quarter. The amount of future
distributions to Partners will ultimately be dependent upon the performance of
Indian Ridge as well as the General Partner's determination of the amount of
cash necessary to supplement working capital reserves to meet future liquidity
requirements of the Partnership. Accordingly, there can be no assurance as to
the amounts of cash for future distributions to Partners.
 
Based upon the current 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.
 
3
<PAGE>
 
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENT
 
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD.--4
BALANCE SHEETS
(All dollars rounded to nearest 00s)
 
<TABLE>
<CAPTION>
                                               September 30,
                                                   1998      December 31,
                                                (Unaudited)      1997
-------------------------------------------------------------------------
<S>                                            <C>           <C>
ASSETS
Investment in commercial rental property:
 Land                                           $ 2,509,900  $ 2,509,900
 Buildings and improvements                      15,548,600   15,533,600
-------------------------------------------------------------------------
                                                 18,058,500   18,043,500
Accumulated depreciation and amortization        (4,069,700)  (3,748,600)
-------------------------------------------------------------------------
 Total investment property, net of accumulated
  depreciation and amortization                  13,988,800   14,294,900
Cash and cash equivalents                         3,012,500   10,407,900
Investments in debt securities                    1,676,300    2,024,000
Restricted cash                                                   50,000
Rents receivable                                     25,300       95,700
Other assets                                         25,200       42,300
-------------------------------------------------------------------------
                                                $18,728,100  $26,914,800
-------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
 Loan payable to General Partner                $            $ 1,569,500
 Accounts payable and accrued expenses              486,700      441,800
 Due to Affiliates                                   68,400       73,500
 Distributions payable                              350,500    6,933,200
 Security deposits                                   31,700       35,000
 Other liabilities                                   46,200       53,700
-------------------------------------------------------------------------
                                                    983,500    9,106,700
-------------------------------------------------------------------------
Partners' capital:
 General Partner                                     40,300       40,300
 Limited Partners (593,025 Units issued and
  outstanding)                                   17,704,300   17,767,800
-------------------------------------------------------------------------
                                                 17,744,600   17,808,100
-------------------------------------------------------------------------
                                                $18,728,100  $26,914,800
-------------------------------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the nine months ended September 30, 1998 (Unaudited)
and the year ended December 31, 1997
(All dollars rounded to nearest 00s)
 
<TABLE>
<CAPTION>
                                         General      Limited
                                         Partner      Partners       Total
-------------------------------------------------------------------------------
<S>                                     <C>         <C>           <C>
Partners' (deficit) capital,
 January 1, 1997                        $ (270,300) $ 32,215,500  $ 31,945,200
Net income for the year ended December
 31, 1997                                  424,000     1,753,700     2,177,700
Distributions for the year ended
 December 31, 1997                        (113,400)  (16,201,400)  (16,314,800)
-------------------------------------------------------------------------------
Partners' capital, December 31, 1997        40,300    17,767,800    17,808,100
Net income for the nine months ended
 September 30, 1998                         54,000       826,000       880,000
Distributions for the nine months
 ended September 30, 1998                  (54,000)     (889,500)     (943,500)
-------------------------------------------------------------------------------
Partners' capital, September 30, 1998   $   40,300  $ 17,704,300  $ 17,744,600
-------------------------------------------------------------------------------
</TABLE>
    The accompanying notes are an integral part of the financial statements.
                                                                               4
<PAGE>
 
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD.-4
 
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended September 30, 1998 and 1997
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
 
<TABLE>
<CAPTION>
                                                              1998     1997
-----------------------------------------------------------------------------
<S>                                                         <C>      <C>
Income:
 Rental                                                     $457,200 $817,600
 Interest                                                     63,500   58,600
-----------------------------------------------------------------------------
                                                             520,700  876,200
-----------------------------------------------------------------------------
Expenses:
 Interest on loan payable to General Partner                           34,200
 Depreciation and amortization                               107,500  224,900
 Property operating:
  Affiliates                                                   4,500   24,800
  Nonaffiliates                                               46,000  140,300
 Real estate taxes                                            73,900  113,400
 Insurance--Affiliate                                          7,000    8,900
 Repairs and maintenance                                      43,200  104,900
 General and administrative:
  Affiliates                                                   4,600    8,500
  Nonaffiliates                                               18,800   27,700
-----------------------------------------------------------------------------
                                                             305,500  687,600
-----------------------------------------------------------------------------
Net income                                                  $215,200 $188,600
-----------------------------------------------------------------------------
Net income allocated to General Partner                     $ 18,000 $ 18,800
-----------------------------------------------------------------------------
Net income allocated to Limited Partners                    $197,200 $169,800
-----------------------------------------------------------------------------
Net income allocated to Limited Partners per Unit (593,025
 Units outstanding)                                         $   0.33 $   0.29
-----------------------------------------------------------------------------
</TABLE>
 
STATEMENTS OF INCOME AND EXPENSES
For the nine months ended September 30, 1998 and 1997
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
 
<TABLE>
<CAPTION>
                                                      1998       1997
------------------------------------------------------------------------
<S>                                                <C>        <C>
Income:
 Rental                                            $1,488,200 $2,783,100
 Interest                                             376,200    384,900
 Gain on sales of property                                     1,102,800
------------------------------------------------------------------------
                                                    1,864,400  4,270,800
------------------------------------------------------------------------
Expenses:
 Interest on loan payable to General Partner           56,000    199,400
 Depreciation and amortization                        321,100    682,000
 Property operating:
  Affiliates                                            9,500     84,400
  Nonaffiliates                                       178,400    448,800
 Real estate taxes                                    222,300    392,600
 Insurance--Affiliate                                  13,500     29,000
 Repairs and maintenance                              100,500    341,600
 General and administrative:
  Affiliates                                           16,300     18,700
  Nonaffiliates                                        66,800    105,700
------------------------------------------------------------------------
                                                      984,400  2,302,200
------------------------------------------------------------------------
Net income                                         $  880,000 $1,968,600
------------------------------------------------------------------------
Net income allocated to General Partner            $   54,000 $  367,500
------------------------------------------------------------------------
Net income allocated to Limited Partners           $  826,000 $1,601,100
------------------------------------------------------------------------
Net income allocated to Limited Partners per Unit
 (593,025 Units outstanding)                       $     1.39 $     2.70
------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1998 and 1997
(Unaudited)
(All dollars rounded to nearest 00s)
 
<TABLE>
<CAPTION>
                                                          1998        1997
-------------------------------------------------------------------------------
<S>                                                    <C>         <C>
Cash flows from operating activities:
 Net income                                            $  880,000  $ 1,968,600
 Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation and amortization                           321,100      682,000
  (Gain) on sale of property                                        (1,102,800)
  Changes in assets and liabilities:
  Decrease in rents receivable                             70,400      199,000
  Decrease (increase) in other assets                      17,100      (32,900)
  Increase (decrease) in accounts payable and accrued
   expenses                                                44,900      (89,200)
  (Decrease) in due to Affiliates                          (5,100)     (79,800)
  (Decrease) in other liabilities                          (7,500)     (25,100)
-------------------------------------------------------------------------------
   Net cash provided by operating activities            1,320,900    1,519,800
-------------------------------------------------------------------------------
Cash flows from investing activities:
 Net decrease in investments in debt securities           347,700       12,000
 Proceeds from sale of property                                     11,307,700
 Payments for capital and tenant improvements             (15,000)    (132,600)
 Decrease in restricted cash                               50,000
-------------------------------------------------------------------------------
   Net cash provided by investing activities              382,700   11,187,100
-------------------------------------------------------------------------------
Cash flows from financing activities:
 Distributions paid to Partners                        (7,526,200)  (9,861,200)
 (Net repayment of) loan payable to General Partner    (1,569,500)  (2,677,300)
 (Decrease) in security deposits                           (3,300)     (37,400)
-------------------------------------------------------------------------------
   Net cash (used for) financing activities            (9,099,000) (12,575,900)
-------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents   (7,395,400)     131,000
Cash and cash equivalents at the beginning of the
 period                                                10,407,900    2,572,500
-------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period     $3,012,500  $ 2,703,500
-------------------------------------------------------------------------------
Supplemental information:
 Interest paid to General Partner during the period    $   56,000  $   230,500
-------------------------------------------------------------------------------
</TABLE>
    The accompanying notes are an integral part of the financial statements.
5
<PAGE>
 
FIRST CAPITAL INSTITUTIONAL REAL ESTATE, LTD.-4
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 1998
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
DEFINITION OF SPECIAL TERMS:
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement filed with the Securities and
Exchange Commission on Form S-11. Definitions of these terms are contained in
Article III of the First Amended and Restated Agreement of Limited Partnership,
which is included in the Registration Statement and incorporated herein by
reference.
 
ACCOUNTING POLICIES:
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP"). The Partnership utilizes the accrual
method of accounting. Under this method, revenues are recorded when earned and
expenses are recorded when incurred. The Partnership recognizes rental income
that is contingent upon tenants' achieving specified targets only to the extent
that such targets are attained.
 
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, 1998 are not necessarily
indicative of the operating results for the year ending December 31, 1998.
 
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 for impairment 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 1997
statements in order to provide comparability with the 1998 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, 1997, for a description of other accounting policies and
additional details of the Partnership's financial condition, results of
operations, changes in Partners' capital and changes in cash balances for the
year then ended. The details provided in the notes thereto have not changed
except as a result of normal transactions in the interim or as otherwise
disclosed herein.
 
2. RELATED PARTY TRANSACTIONS:
 
In accordance with the Partnership Agreement, as compensation for services
rendered in managing the affairs of the Partnership, the General Partner shall
be entitled to receive subsequent to May 4, 1988, the Termination of the
Offering, a Partnership Management Fee payable annually within 60 days
following the last day of each fiscal year, which shall be an amount equal to
the lesser of (i) 0.5% of the net value of the Partnership's assets as of the
end of such fiscal year reflected on the Certificate of Value furnished to the
Limited Partners, plus, to the extent the Partnership Management Fee paid in
any prior year was less than 0.5% of the net value of the Partnership's assets
in such prior year, the amount of such deficit, or (ii) an amount equal to the
difference between 10% of the Partnership's aggregate Cash Flow (as defined in
the Partnership Agreement) for the period from the Commencement of Operations
to the end of the fiscal year for which such Partnership Management Fee is
payable, and the aggregate amount previously paid to the General Partner as a
Partnership Management Fee. 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)
 
                                                                               6
<PAGE>
 
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 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, 1998, the General Partner was allocated earnings and
accrued a Partnership Management Fee of $18,000 and $54,000, respectively.
 
In accordance with the Partnership Agreement, the General Partner made advances
to the Partnership in cumulative amounts equal to the Acquisition Fees and the
Partnership Management Fees which were paid to the General Partner or its
Affiliates for distribution to the Limited Partners on a pro rata basis to the
extent that Cash Flow (as defined in the Partnership Agreement) was less than
sufficient to distribute cash in amounts equal to the Limited Partners'
Preferred Return (7.5% per annum noncompounding cumulative return on the
Limited Partners' Capital Investment); provided, however, that the maximum
amount which shall be advanced to the Partnership by the General Partner for
distribution to the Limited Partners shall be the amount of Acquisition Fees
and Partnership Management Fees actually paid to the General Partner or its
Affiliates. Amounts advanced bore interest at the rate of 8.5% per annum simple
interest, payable monthly. Repayment of amounts advanced were made only from
Cash Flow (as defined in the Partnership Agreement) if and to the extent it is
more than sufficient to distribute cash to the Limited Partners in amounts
equal to the Limited Partners' Preferred Return and from Sale Proceeds to the
extent permitted in the Partnership Agreement. During the nine months ended
September 30, 1998, the Partnership, in accordance with the Partnership
Agreement, repaid the General Partner the remaining outstanding balance on the
loan of $1,569,500, utilizing a portion of the Sale Proceeds from the sale of
Park Plaza Professional Building ("Park Plaza").
 
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the quarter and nine months ended September 30, 1998 were as follows:
 
<TABLE>
<CAPTION>
                                                           Paid
                                                               Nine
                                                     Quarter  Months  Payable
-----------------------------------------------------------------------------
<S>                                                  <C>     <C>      <C>
Asset and property management fees                   $ 1,000 $  5,500 $14,400
Real estate commissions (a)                             None     None  40,200
Interest expense on loan payable to General Partner     None   56,000    None
Reimbursement of property insurance premiums, at
 cost                                                 11,000   13,500    None
Legal                                                  3,800   20,000  11,500
Reimbursement of expenses, at cost:
 --Accounting                                          1,200    6,900   1,500
 --Investor communication                              2,000    4,500     800
-----------------------------------------------------------------------------
                                                     $19,000 $106,400 $68,400
-----------------------------------------------------------------------------
</TABLE>
 
(a) As of September 30, 1998, the Partnership owed $40,200 to the General
    Partner for real estate commissions earned in connection with the sales of
    Partnership properties. These commissions have been accrued but not paid.
    In accordance with the Partnership Agreement, the Partnership will not pay
    the General Partner or any Affiliates a real estate commission from the
    sale of a Partnership property until Limited Partners have received
    cumulative distributions of Sale or Financing Proceeds equal to 100% of
    their Original Capital Contribution, plus a cumulative return (including
    all Cash Flow (as defined in the Partnership Agreement) which has been
    distributed to the Limited Partners from the initial investment date) of 6%
    simple interest per annum on their Capital Investment.
 
3. SPECIAL DISTRIBUTION:
 
On May 31, 1998, the Partnership distributed a portion of the Park Plaza Sale
Proceeds totaling $6,523,300 or $11.00 per Unit to Limited Partners of record
as of December 18, 1997. For additional information related to the sale of Park
Plaza, see Note 6 of Notes to Financial Statements in the Partnership's Annual
Report for the year ended December 31, 1997.
 
7
<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 13, 1998      By:  /s/  DOUGLAS CROCKER II
       -----------------           -------------------------
                                        DOUGLAS CROCKER II
                                   President and Chief Executive Officer

Date:  November 13, 1998      By:  /s/  NORMAN M. FIELD
       -----------------           -------------------------
                                        NORMAN M. FIELD
                                   Vice President - Finance and Treasurer


<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, 1998.