<PAGE>


                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION

                          Washington, D.C. 20549-1004

                                   FORM 10-Q
                                        


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
 
     For the period ended                   September 30, 1997
                          ------------------------------------------------------
 
                                      OR
 
[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
 
     For the transition period from                     to
                                    -------------------    ---------------------
 
     Commission File Number                           0-17610
                            ----------------------------------------------------
 

             First Capital Insured Real Estate Limited Partnership
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)
 

           Illinois                                              36-3525946
-------------------------------                              -------------------
(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 Agreement of Limited Partnership filed as Exhibit
A to the definitive Prospectus dated August 1, 1988, included in the
Partnership's Registration Statement on Form S-11, is incorporated herein by
reference in Part I of this report.
<PAGE>
 
BALANCE SHEETS
(All dollars rounded to nearest 00s)
 
<TABLE>
<CAPTION>
                                                 September 30,
                                                     1997      December 31,
                                                  (Unaudited)      1996
---------------------------------------------------------------------------
<S>                                              <C>           <C>
ASSETS
Investment in commercial rental properties:
 Land                                             $ 1,234,800  $ 2,237,300
 Buildings and improvements                        11,798,000   21,181,100
---------------------------------------------------------------------------
                                                   13,032,800   23,418,400
 Accumulated depreciation and amortization         (4,050,000)  (5,499,400)
---------------------------------------------------------------------------
 Total investment properties, net of accumulated
  depreciation and amortization                     8,982,800   17,919,000
Cash and cash equivalents                           2,106,900    2,178,500
Investments in debt securities                      1,354,000    1,116,400
Rents receivable                                        5,500      139,000
Deferred insurance premium (net of accumulated
 amortization of $1,079,400 and $949,400,
 respectively)                                        577,400      707,400
Other assets                                                         1,100
---------------------------------------------------------------------------
                                                  $13,026,600  $22,061,400
---------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
 Accounts payable and accrued expenses            $   376,100  $   352,700
 Due to Affiliates                                     12,900       23,000
 Security deposits                                     66,300       88,100
 Distributions payable                                344,100      451,100
 Other liabilities                                                  46,400
---------------------------------------------------------------------------
                                                      799,400      961,300
---------------------------------------------------------------------------
Partners' capital:
 General Partner (deficit)                            (96,100)     (41,800)
 Limited Partners (688,194 Units issued and
  outstanding)                                     12,323,300   21,141,900
---------------------------------------------------------------------------
                                                   12,227,200   21,100,100
---------------------------------------------------------------------------
                                                  $13,026,600  $22,061,400
---------------------------------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the nine months ended September 30, 1997 (Unaudited)
and the year ended December 31, 1996
(All dollars rounded to nearest 00s)
 
<TABLE>
<CAPTION>
                                          General      Limited
                                          Partner     Partners       Total
------------------------------------------------------------------------------
<S>                                      <C>         <C>          <C>
Partners' (deficit) capital, January 1,
 1996                                    $ (958,400) $27,734,300  $26,775,900
Net income for the year ended December
 31, 1996                                 1,097,100    2,994,100    4,091,200
Distributions for the year ended
 December 31, 1996                         (180,500)  (9,586,500)  (9,767,000)
------------------------------------------------------------------------------
Partners' (deficit) capital, December
 31, 1996                                   (41,800)  21,141,900   21,100,100
Net income for the nine months ended
 September 30, 1997                          48,900      960,700    1,009,600
Distributions for the nine months ended
 September 30, 1997                        (103,200)  (9,779,300)  (9,882,500)
------------------------------------------------------------------------------
Partners' (deficit) capital, September
 30, 1997                                $  (96,100) $12,323,300  $12,227,200
------------------------------------------------------------------------------
</TABLE>
    The accompanying notes are an integral part of the financial statements.
2
<PAGE>
 
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended September 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
 
<TABLE>
<CAPTION>
                                                     1997      1996
----------------------------------------------------------------------
<S>                                                <C>      <C>
Income:
 Rental                                            $558,700 $1,063,200
 Interest                                            50,600     50,300
----------------------------------------------------------------------
                                                    609,300  1,113,500
----------------------------------------------------------------------
Expenses:
 Depreciation and amortization                      191,100    273,000
 Property operating:
  Affiliates                                         33,200     45,900
  Nonaffiliates                                      87,500    153,000
 Real estate taxes                                   58,800    111,300
 Insurance--Affiliate                                 5,500     13,000
 Repairs and maintenance                             78,900    128,700
 General and administrative:
  Affiliates                                          2,600     12,500
  Nonaffiliates                                      28,600     24,100
----------------------------------------------------------------------
                                                    486,200    761,500
----------------------------------------------------------------------
Net income                                         $123,100 $  352,000
----------------------------------------------------------------------
Net income allocated to General Partner            $  1,300 $    3,500
----------------------------------------------------------------------
Net income allocated to Limited Partners           $121,800 $  348,500
----------------------------------------------------------------------
Net income allocated to Limited Partners per Unit
 (688,194 Units outstanding)                       $   0.18 $     0.51
----------------------------------------------------------------------
</TABLE>
 
STATEMENTS OF INCOME AND EXPENSES
For the nine months ended September 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
 
<TABLE>
<CAPTION>
                                                      1997       1996
------------------------------------------------------------------------
<S>                                                <C>        <C>
Income:
 Rental                                            $1,945,400 $3,492,700
 Interest                                             321,800    156,100
 Gain on sale of property                             303,400
------------------------------------------------------------------------
                                                    2,570,600  3,648,800
------------------------------------------------------------------------
Expenses:
 Depreciation and amortization                        562,900    873,900
 Property operating:
  Affiliates                                          115,500    152,800
  Nonaffiliates                                       280,900    450,300
 Real estate taxes                                    173,900    312,900
 Insurance--Affiliate                                  17,100     39,100
 Repairs and maintenance                              270,700    435,100
 General and administrative:
  Affiliates                                           20,300     36,200
  Nonaffiliates                                       119,700     98,300
------------------------------------------------------------------------
                                                    1,561,000  2,398,600
------------------------------------------------------------------------
Net income                                         $1,009,600 $1,250,200
------------------------------------------------------------------------
Net income allocated to General Partner            $   48,900 $   12,500
------------------------------------------------------------------------
Net income allocated to Limited Partners           $  960,700 $1,237,700
------------------------------------------------------------------------
Net income allocated to Limited Partners per Unit
 (688,194 Units outstanding)                       $     1.40 $     1.80
------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s)
 
<TABLE>
<CAPTION>
                                                            1997         1996
---------------------------------------------------------------------------------
<S>                                                      <C>          <C>
Cash flows from operating activities:
 Net income                                              $ 1,009,600  $1,250,200
 Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation and amortization                              562,900     873,900
  Gain on sale of property                                  (303,400)
  Changes in assets and liabilities:
  Decrease in rents receivable                               133,500      27,500
  Decrease in other assets                                     1,100      17,500
  Increase in accounts payable and accrued expenses           23,400     223,900
  (Decrease) increase in due to Affiliates                   (10,100)        600
  (Decrease) in other liabilities                            (46,400)    (48,400)
---------------------------------------------------------------------------------
   Net cash provided by operating activities               1,370,600   2,345,200
---------------------------------------------------------------------------------
Cash flows from investing activities:
 Payments for capital and tenant improvements                (39,500)   (993,100)
 Proceeds from sale of property                            8,846,200
 (Increase) in investments in debt securities               (237,600) (2,108,800)
---------------------------------------------------------------------------------
   Net cash provided by (used for) investing activities    8,569,100  (3,101,900)
---------------------------------------------------------------------------------
Cash flows from financing activities:
 Distributions paid to Partners                           (9,989,500) (1,353,400)
 (Decrease) increase in security deposits                    (21,800)     10,200
---------------------------------------------------------------------------------
   Net cash (used for) financing activities              (10,011,300) (1,343,200)
---------------------------------------------------------------------------------
Net (decrease) in cash and cash equivalents                  (71,600) (2,099,900)
Cash and cash equivalents at the beginning of the
 period                                                    2,178,500   3,829,000
---------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period       $ 2,106,900  $1,729,100
---------------------------------------------------------------------------------
</TABLE>
    The accompanying notes are an integral part of the financial statements.
                                                                               3
<PAGE>
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 1997
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
DEFINITION OF SPECIAL TERMS:
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement filed with the Securities and
Exchange Commission on Form S-11. Definitions of these terms are contained in
Article III of the First Amended and Restated Agreement of Limited Partnership,
which is included in the Registration Statement and incorporated herein by
reference.
 
ACCOUNTING POLICIES:
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP"). Under this method of accounting,
revenues are recorded when earned and expenses are recorded when incurred.
 
Preparation of the Partnership's financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
 
The financial information included in these financial statements is unaudited;
however, in management's opinion, all adjustments (consisting of only normal,
recurring accruals) necessary for a fair presentation of the results of
operations for the periods included have been made. Results of operations for
the quarter and nine months ended September 30, 1997, are not necessarily
indicative of the operating results for the year ending December 31, 1997.
 
The financial statements include the Partnership's 50% interest in a joint
venture with an Affiliated partnership. This joint venture was formed for the
purpose of acquiring a 100% interest in certain real property and is operated
under the common control of the General Partner. Accordingly, the Partnership's
pro rata share of the venture's revenues, expenses, assets, liabilities and
Partners' capital was included in the financial statements.
 
Commercial rental property is recorded at cost, net of any provisions for value
impairment, and depreciated (exclusive of amounts allocated to land) on the
straight-line method over the estimated useful life. Upon classifying a rental
property as held for disposition, no depreciation or amortization is provided
for in the financial statements. Lease acquisition fees are recorded at cost
and amortized using the straight-line method over the life of each respective
lease. Repair and maintenance costs are expensed as incurred; expenditures for
improvements are capitalized and depreciated on the straight-line method over
the estimated life of such improvements.
 
The Partnership evaluates its rental property 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 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 are removed from the respective accounts. Any gain is
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
market value. All of these securities had maturities of less than one year when
purchased.
 
Deferred insurance premiums paid on the Continental Casualty Company (CNA)
insurance policy are amortized on the straight-line method over a ten-year
period ending in the year 2001.
 
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 is
entitled to receive subsequent to July 31, 1990, the Termination of the
Offering, a Portfolio Management Fee, payable quarterly, with respect to such
fiscal quarter. The Portfolio Management Fee is an amount equal to the lesser
of (i) 0.625% of the gross value of the Partnership's assets plus, to the
extent the Portfolio Management Fee paid in any prior quarter was less than
0.625% of the gross value of the Partnership's assets in such prior quarter,
the amount of such deficit, or (ii) an amount equal to the remainder obtained
by subtracting the aggregate amount previously paid to the General Partner as
Portfolio Management Fees during such fiscal quarter, from an amount equal to
10% of the Partnership's aggregate distributable Cash Flow (as defined in the
Partnership Agreement) (computed prior to deduction for Portfolio Management
Fees) for such fiscal quarter. For the quarter and nine months ended September
30, 1997, the General Partner was entitled to a Portfolio Management Fee of
$34,400 and $103,200, respectively.
 
In accordance with the Partnership Agreement, Net Profits and Net Losses
(exclusive of Net Profits and Net Losses from a Major Capital Event) are
allocated 1% to the General Partner and 99% to the Limited Partners as a group.
Net Losses from a Major Capital Event are allocated (prior to giving effect to
any distributions of Sale Proceeds from said Major Capital Event): first, to
the General Partner and Limited Partners with positive balances in their
Capital Accounts, in proportion to and to the extent of such positive balances;
and second, the balance, if any, 1% to the General Partner and 99% to the
Limited Partners as a group. Net Profits from a Major Capital Event are
allocated (prior to giving
 
4
<PAGE>
 
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
September 30, 1997
 
effect to any distribution of Sale Proceeds from said Major Capital Event):
first, Net Profits in the amount of the Minimum Gain attributable to the
property that is the subject of such Major Capital Event are allocated to the
General Partner and Limited Partners with negative balances in their Capital
Accounts, in proportion to and to the extent of such negative balances; second,
to the General Partner and each Limited Partner in proportion to and to the
extent of the amounts, if any, of Sale Proceeds to be distributed to the
General Partner or each such Limited Partner with respect to such Major Capital
Event pursuant to the Partnership Agreement; and third, the balance, if any, 1%
to the General Partner and 99% to the Limited Partners as a group.
Notwithstanding the foregoing, there shall be allocated to the General Partner
not less than 1% of all items of Partnership income, gain, loss, deduction and
credit during the existence of the Partnership. For the quarter and nine months
ended September 30, 1997, the General Partner was allocated Net Profits of
$1,300 and $48,900, respectively. Net income allocated to the General Partner
for the nine months ended September 30, 1997 included a gain on sale of
$41,800.
 
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the quarter and nine months ended September 30, 1997 were as follows:
 
<TABLE>
<CAPTION>
                                                        Paid
                                                  ----------------
                                                            Nine
                                                  Quarter  Months  Payable
--------------------------------------------------------------------------
<S>                                               <C>     <C>      <C>
Property management and leasing fees              $40,800 $120,100 $10,800
Reimbursement of property insurance premiums, at
 cost                                               5,500   17,100    None
Legal                                               2,700   26,300    None
Reimbursement of expenses, at cost:
 --Accounting                                       1,500    7,700   1,300
 --Investor communication                           1,000    3,700     800
--------------------------------------------------------------------------
                                                  $51,500 $174,900 $12,900
--------------------------------------------------------------------------
</TABLE>
 
On-site property management for the Partnership's properties is provided by
Affiliates of the General Partner for fees ranging from 3% to 6% of gross rents
received from the properties.
 
3. PROPERTY SALE:
 
On January 17, 1997, the joint venture in which the Partnership owns a 50%
interest sold Carrollton Crossroads Shopping Center, located in Carrollton,
Georgia for $18,100,000, of which the Partnership's share was $9,050,000. The
Partnership reported a gain of $303,400 for the nine months ended September 30,
1997 from this transaction. On May 31, 1997, the Partnership distributed
$8,850,200 or $12.86 per Unit of the Sales Proceeds to Limited Partners of
record as of January 17, 1997.
 
4. SUBSEQUENT EVENT:
 
On October 1, 1997, the Partnership consummated the sale of its final property,
Lakeview Office Park Buildings II & III, located in Indianapolis, Indiana for a
sale price of $12,870,000. Net proceeds from this transaction approximated
$12,500,000. The Partnership will report a gain of approximately $3,000,000 for
the year ending December 31, 1997 in connection with this sale. In connection
with this sale, the Partnership will expense the unamortized balance of the
Deferred Insurance Premium in the amount of $577,400.
 
After a determination by the General Partner of the amount of reserves
necessary to wrap up the affairs of the Partnership, a distribution of the
remaining previously undistributed Cash Flow (as defined in the Partnership
Agreement) and Lakeview Sale Proceeds will be made.
 
5
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Reference is made to the Partnership's annual report for the year ended
December 31, 1996 for a discussion of the Partnership's business.
 
OPERATIONS
The Partnership is in the disposition phase of its life cycle. During the
disposition phase, comparisons of operating results are complicated due to the
timing and affect of property sales. Partnership operating results are
generally expected to decline as real property interests are sold since the
Partnership no longer receives income generated from such real property
interests. During October 1996 and January 1997, the Partnership sold its
interest in Telegraph Apartments ("Telegraph") and Carrollton Crossroads
Shopping Center ("Carrollton"), respectively. Telegraph and Carrollton
collectively are hereafter referred to as the Sold Properties.
 
The table below is a recap of the Partnership's share of certain operating
results of its properties for the quarters and nine months ended September 30,
1997 and 1996. The discussion following the table should be read in conjunction
with the financial statements and notes thereto appearing in this report.
 
<TABLE>
<CAPTION>
                        Comparative Operating Results (a)
                     For the Quarters   For the Nine Months
                           Ended               Ended
                     9/30/97  9/30/96   9/30/97    9/30/96
------------------------------------------------------------
<S>                  <C>      <C>      <C>        <C>
LAKEVIEW OFFICE PARK, BUILDINGS II & III
Rental revenues      $621,200 $458,200 $1,899,400 $1,615,100
------------------------------------------------------------
Property net income  $205,300 $ 87,600 $  632,800 $  446,400
------------------------------------------------------------
Average occupancy        100%      83%       100%        85%
------------------------------------------------------------
SOLD PROPERTIES
Rental revenues               $605,100            $1,877,700
------------------------------------------------------------
Property net income           $299,700            $  924,500
------------------------------------------------------------
</TABLE>
(a) Excludes certain income and expense items which are not directly related to
    individual property operating results such as Partnership interest income,
    general and administrative expenses and amortization of the deferred
    insurance premium on the CNA policy.
 
Unless otherwise disclosed, discussions of fluctuations between 1997 and 1996
refer to both the quarters and nine months ended September 30, 1997 and 1996.
 
Net income for the quarter and nine months ended September 30, 1997 decreased
by $228,900 and $240,600 when compared to the quarter and nine months ended
September 30, 1996, respectively. A significant factor affecting net income was
the sales of the Sold Properties. Net income, exclusive of the effects of the
Sold Properties, increased by $128,000 and $364,700 for the quarter and nine
months ended September 30, 1997 when compared to the quarter and nine months
ended September 30, 1996, respectively. The increases were primarily due to an
increase in income earned on the Partnership's short-term investments due to an
increase in funds available for investment together with the improved operating
results at Lakeview Office Park Buildings II & III ("Lakeview").
 
The following comparative discussion excludes the Sold Properties.
 
Rental revenues increased by $163,000 or 35.6% and $284,300 or 17.6%,
respectively, for the quarter and nine months ended September 30, 1997 when
compared to the quarter and nine months ended September 30, 1996. The increases
were primarily attributable to an increase in base rent at Lakeview resulting
from an increase in the average occupancy rate which was due to the securing of
a new significant tenant in September 1996. The increase for the nine months
periods under comparison was partially offset by a decrease in tenant expense
reimbursements which was due to the fact that estimated 1995 credits for
overpayments due to tenants that were to be paid to tenants in 1996 were
actually back-billings to tenants.
 
Property operating expenses increased by $17,000 and $69,400, respectively, for
the quarterly and nine-month periods under comparison. The increases were
primarily the result of increased property management fees at Lakeview
resulting from an increase in rental revenues and the absence in 1997 of
leasing commissions paid to outside brokers which are capitalized and reduce
the amount of property management charges. Also contributing to the increase
was an increase in utility costs which is attributable to the increased
occupancy at Lakeview.
 
Depreciation and amortization expense increased by $33,400 and $32,700 for the
quarter and nine months ended September 30, 1997 when compared to the quarter
and nine months ended September 30, 1996, respectively. The increases were
primarily the result of an increase in tenant improvements and capitalizable
lease commission fees related to the new major tenant at Lakeview.
 
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 in a fiscal year, such excess
distributions will be treated as a return of capital. Cash Flow (as defined in
the Partnership Agreement) is generally not equal to net income or cash flows
as determined by generally accepted accounting principles ("GAAP"), since
certain items are treated differently under the Partnership Agreement than
under GAAP. Management believes that to facilitate a clear understanding of the
Partnership's operations, an analysis of Cash Flow (as defined in the
Partnership Agreement) should be examined in conjunction with an analysis of
net income or cash flows as determined by GAAP. The following table includes a
reconciliation of Cash Flow (as defined in the Partnership Agreement) to cash
flow provided by operating activities as determined by GAAP. Such amounts are
not indicative of actual distributions to Partners and should not be considered
as an alternative to
 
                                                                               6
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 
the results disclosed in the Statements of Income and Expenses and Statements
of Cash Flow.
 
<TABLE>
<CAPTION>
                                                  Comparative
                                               Cash Flow Results
                                              For the Nine Months
                                                     Ended
                                              9/30/97       9/30/96
----------------------------------------------------------------------
<S>                                         <C>           <C>
Cash Flow (as defined in the Partnership
 Agreement)                                 $  1,165,900  $ 1,988,800
Items of Reconciliation:
 Portfolio Management Fee                        103,200      135,300
 Decrease in current assets                      134,600       45,000
 (Decrease) increase in current liabilities      (33,100)     176,100
----------------------------------------------------------------------
Net cash provided by operating activities   $  1,370,600  $ 2,345,200
----------------------------------------------------------------------
Net cash provided by (used for) investing
 activities                                 $  8,569,100  $(3,101,900)
----------------------------------------------------------------------
Net cash (used for) financing activities    $(10,011,300) $(1,343,200)
----------------------------------------------------------------------
</TABLE>
 
Cash Flow (as defined in the Partnership Agreement) decreased by $822,900 for
the nine months ended September 30, 1997 when compared to the nine months ended
September 30, 1996. The decrease was primarily due to the absence of operating
results from the Partnership's Sold Properties, partially offset by improved
operating results at Lakeview, exclusive of depreciation and amortization, and
the increase in interest earned on the Partnership's short-term investments.
 
The decrease in the Partnership's cash position for the nine months ended
September 30, 1997 was primarily the result of investments in debt securities
and distributions paid to Partners exceeding net cash provided by operating
activities and the proceeds from the sale of Carrollton. Liquid assets
(including cash, cash equivalents and investments in debt securities) as of
September 30, 1997 were comprised of amounts held for working capital purposes.
 
Net cash provided by operating activities decreased by $974,600 for the nine
months ended September 30, 1997 when compared to the nine months ended
September 30, 1996. The decrease was primarily due to the absence of operating
results from Carrollton and Telegraph. Partially offsetting the decrease was an
increase in interest income together with the timing of the payments of certain
expenses at Lakeview.
 
Net cash (used for) provided by investing activities changed from $(3,101,900)
for the nine months ended September 30, 1996 to $8,569,100 for the nine months
ended September 30, 1997. The change was primarily the result of the receipt of
proceeds from the January 1997 sale of Carrollton, partially offset by a lower
amount of investments in debt securities and a decrease in expenditures made
for capital, tenant improvements and leasing costs. The increase in the
investment in debt securities is the 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 generally mature less
than one year from their date of purchase.
 
Net cash used for financing activities increased by $8,668,100 for the nine
months ended September 30, 1997 when compared to the nine months ended
September 30, 1996. The increase was primarily due to the distribution of
Carrollton's Sale Proceeds.
 
On January 17, 1997, the joint venture in which the Partnership has a 50%
interest completed the sale of Carrollton. The Partnership's share of net
proceeds generated from this sale amounted to $8,846,200. In connection with
this sale, the Partnership declared a special distribution in the amount of
$8,850,200 or $12.86 per Unit. This special distribution was paid on May 31,
1997 to Limited Partners of record as of January 17, 1997.
 
On October 1, 1997, the Partnership completed the sale of Lakeview. Net
proceeds generated from this sale amounted to approximately $12,500,000.
Substantially all of the Sale Proceeds from this transaction will be
distributed to Limited Partners of record as of October 1, 1997.
 
With the sale of the Partnership's remaining property, Lakeview, the General
Partner is currently in the process of commencing the liquidation of the
Partnership. Limited Partners will receive a quarterly cash flow distribution
in the amount of $309,700 or $0.45 per Unit on November 30, 1997. Following a
determination of adequate reserves necessary to wrap up the affairs of the
Partnership, the Partnership intends to make a final liquidating distribution
during 1998.
 
7
<PAGE>
 

                         PART II.  OTHER INFORMATION 


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

     (a)  Exhibits: None

     (b)  Reports on Form 8-K:

          There were no reports filed on Form 8-K during the quarter ended
          September 30, 1997.
<PAGE>


                                  SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                           FIRST CAPITAL INSURED REAL ESTATE LIMITED PARTNERSHIP

                           By: FIRST CAPITAL FINANCIAL CORPORATION
                               GENERAL PARTNER
                           
Date: November 14, 1997    By: /s/  DOUGLAS CROCKER II
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                                    DOUGLAS CROCKER II
                               President and Chief Executive Officer
                           
                           
Date: November 14, 1997    By: /s/  NORMAN M. FIELD
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                                    NORMAN M. FIELD
                               Vice President - Finance and Treasurer