<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION

                          Washington, D.C. 20549-1004

                                   FORM 10-Q
                                        
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
 
     For the period ended                           June 30, 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>
                                                  June 30,
                                                    1997      December 31,
                                                 (Unaudited)      1996
--------------------------------------------------------------------------
<S>                                              <C>          <C>
ASSETS
Investment in commercial and residential rental
 properties:
 Land                                            $ 1,234,800  $ 2,237,300
 Buildings and improvements                       11,844,300   21,181,100
--------------------------------------------------------------------------
                                                  13,079,100   23,418,400
Accumulated depreciation and amortization         (3,902,300)  (5,499,400)
--------------------------------------------------------------------------
 Total investment properties, net of accumulated
  depreciation and amortization                    9,176,800   17,919,000
Cash and cash equivalents                          1,149,000    2,178,500
Investments in debt securities                     2,199,200    1,116,400
Rents receivable                                      80,500      139,000
Deferred insurance premium (net of accumulated
 amortization of $1,036,000 and $949,400,
 respectively)                                       620,800      707,400
Other assets                                                        1,100
--------------------------------------------------------------------------
                                                 $13,226,300  $22,061,400
--------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
 Accounts payable and accrued expenses           $   356,600  $   352,700
 Due to Affiliates                                    11,400       23,000
 Security deposits                                    66,000       88,100
 Distributions payable                               344,100      451,100
 Other liabilities                                                 46,400
--------------------------------------------------------------------------
                                                     778,100      961,300
--------------------------------------------------------------------------
Partners' (deficit) capital:
 General Partner                                     (63,000)     (41,800)
 Limited Partners (688,194 Units issued and
  outstanding)                                    12,511,200   21,141,900
--------------------------------------------------------------------------
                                                  12,448,200   21,100,100
--------------------------------------------------------------------------
                                                 $13,226,300  $22,061,400
--------------------------------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the six months ended June 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 six months ended
 June 30, 1997                              47,600      838,900      886,500
Distributions for the six months ended
 June 30, 1997                             (68,800)  (9,469,600)  (9,538,400)
-----------------------------------------------------------------------------
Partners' (deficit) capital,
 June 30, 1997                          $  (63,000) $12,511,200  $12,448,200
-----------------------------------------------------------------------------
</TABLE>
    The accompanying notes are an integral part of the financial statements.
2
<PAGE>
 
STATEMENTS OF INCOME AND EXPENSES
For the quarters ended June 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
 
<TABLE>
<CAPTION>
                                                     1997      1996
----------------------------------------------------------------------
<S>                                                <C>      <C>
Income:
 Rental                                            $628,300 $1,200,800
 Interest                                           128,600     57,300
----------------------------------------------------------------------
                                                    756,900  1,258,100
----------------------------------------------------------------------
Expenses:
 Depreciation and amortization                      193,100    291,200
 Property operating:
  Affiliates                                         56,400     43,200
  Nonaffiliates                                      64,200    120,400
 Real estate taxes                                   51,900     89,900
 Insurance--Affiliate                                 5,600     15,200
 Repairs and maintenance                            100,500    139,300
 General and administrative:
  Affiliates                                         10,000     10,500
  Nonaffiliates                                      57,300     33,500
 Additional expense on sale of property              13,500
----------------------------------------------------------------------
                                                    552,500    743,200
----------------------------------------------------------------------
Net income                                         $204,400 $  514,900
----------------------------------------------------------------------
Net income allocated to General Partner            $  2,100 $    5,200
----------------------------------------------------------------------
Net income allocated to Limited Partners           $202,300 $  509,700
----------------------------------------------------------------------
Net income allocated to Limited Partners per Unit
 (688,194 Units outstanding)                       $   0.29 $     0.74
----------------------------------------------------------------------
</TABLE>
 
STATEMENTS OF INCOME AND EXPENSES
For the six months ended June 30, 1997 and 1996
(Unaudited)
(All dollars rounded to nearest 00s
except per Unit amounts)
 
<TABLE>
<CAPTION>
                                                      1997       1996
------------------------------------------------------------------------
<S>                                                <C>        <C>
Income:
 Rental                                            $1,386,700 $2,429,500
 Interest                                             271,200    105,800
 Gain on sale of property                             303,400
------------------------------------------------------------------------
                                                    1,961,300  2,535,300
------------------------------------------------------------------------
Expenses:
 Depreciation and amortization                        371,800    600,900
 Property operating:
  Affiliates                                           82,300    106,900
  Nonaffiliates                                       193,400    297,300
 Real estate taxes                                    115,100    201,600
 Insurance--Affiliate                                  11,600     26,100
 Repairs and maintenance                              191,800    306,400
 General and administrative:
  Affiliates                                           17,700     23,700
  Nonaffiliates                                        91,100     74,200
------------------------------------------------------------------------
                                                    1,074,800  1,637,100
------------------------------------------------------------------------
Net income                                         $  886,500 $  898,200
------------------------------------------------------------------------
Net income allocated to General Partner            $   47,600 $    9,000
------------------------------------------------------------------------
Net income allocated to Limited Partners           $  838,900 $  889,200
------------------------------------------------------------------------
Net income allocated to Limited Partners per Unit
 (688,194 Units outstanding)                       $     1.22 $     1.29
------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
For the six months ended June 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                                               $  886,500  $  898,200
 Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation and amortization                              371,800     600,900
  Gain on sale of property                                  (303,400)
  Changes in assets and liabilities:
   Decrease in rents receivable                               58,500      33,500
   Decrease in other assets                                    1,100      17,000
   Increase in accounts payable and accrued expenses           3,900      17,000
   (Decrease) increase in due to Affiliates                  (11,600)      4,000
   (Decrease) in other liabilities                           (46,400)    (55,900)
---------------------------------------------------------------------------------
    Net cash provided by operating activities                960,400   1,514,700
---------------------------------------------------------------------------------
Cash flows from investing activities:
 Payments for capital and tenant improvements                (85,800)   (504,500)
 Proceeds from sale of property                            8,846,200
 (Increase) in investments in debt securities             (1,082,800) (2,694,600)
---------------------------------------------------------------------------------
    Net cash provided by (used for) investing activities   7,677,600  (3,199,100)
---------------------------------------------------------------------------------
Cash flows from financing activities:
 Distributions paid to Partners                           (9,645,400)   (902,200)
 (Decrease) increase in security deposits                    (22,100)      8,300
---------------------------------------------------------------------------------
    Net cash (used for) financing activities              (9,667,500)   (893,900)
---------------------------------------------------------------------------------
Net (decrease) in cash and cash equivalents               (1,029,500) (2,578,300)
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        $1,149,000  $1,250,700
---------------------------------------------------------------------------------
</TABLE>
    The accompanying notes are an integral part of the financial statements.
                                                                               3
<PAGE>
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
June 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 six months ended June 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.
 
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 six months ended June 30,
1997, the General Partner was entitled to a Portfolio Management Fee of $34,400
and $68,800, 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 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
 
4
<PAGE>
 
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 six months
ended June 30, 1997, the General Partner was allocated Net Profits of $2,100
and $47,600, respectively. Net income allocated to the General Partner for 1997
included a gain on sale of $41,800.
 
Fees and reimbursements paid and payable by the Partnership to Affiliates
during the quarter and six months ended June 30, 1997 were as follows:
 
<TABLE>
<CAPTION>
                                                        Paid
                                                  ----------------
                                                            Six
                                                  Quarter  Months  Payable
--------------------------------------------------------------------------
<S>                                               <C>     <C>      <C>
Property management and leasing fees              $40,100 $ 79,300 $10,900
Reimbursement of property insurance premiums, at
 cost                                              11,600   11,600    None
Reimbursement of expenses, at cost:
 --Accounting                                       3,900    6,200     300
 --Investor communication                           2,000    2,700     200
 --Legal                                           22,500   23,600    None
--------------------------------------------------------------------------
                                                  $80,100 $123,400 $11,400
--------------------------------------------------------------------------
</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 six months ended June 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 August 4, 1997, the Partnership entered into an agreement to sell Lakeview
Office Park Buildings II & III, located in Indianapolis, Indiana. The Sale
Agreement has established a price of $12,870,000 and the sale is expected to be
completed during the third quarter. Despite the Partnership's receipt of a
nonrefundable deposit of $50,000 from the purchaser, there can be no assurance
that the sale will actually be completed under the terms of the agreement
reached on August 4, 1997.
 
                                                                               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 table below is a recap of the Partnership's share of certain operating
results of its properties for the quarters and six months ended June 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 Six Months
                           Ended               Ended
                     6/30/97  6/30/96   6/30/97    6/30/96
------------------------------------------------------------
<S>                  <C>      <C>      <C>        <C>
LAKEVIEW OFFICE PARK, BUILDINGS II & III
Rental revenues      $639,400 $559,000 $1,278,200 $1,156,900
------------------------------------------------------------
Property net income  $216,900 $235,800 $  427,500 $  358,800
------------------------------------------------------------
Average occupancy        100%      79%       100%        86%
------------------------------------------------------------
SOLD PROPERTIES
Rental revenues               $641,800            $  678,600
------------------------------------------------------------
Property net income           $312,500            $  624,800
------------------------------------------------------------
</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 six months ended June 30, 1997 and 1996.
 
Net income for the six months ended June 30, 1997 decreased $11,700 when
compared to the six months ended June 30, 1996. A significant factor affecting
net income was the sales of Carrollton Crossroads Shopping Center
("Carrollton") and Telegraph Hill Apartments ("Telegraph") (collectively the
"Sold Properties"). The absence of 1997 operating results from the Sold
Properties was almost entirely offset by the gain recorded on the sale of
Carrollton and an increase in net income at Lakeview Office Park Buildings II &
III ("Lakeview"). Net income, exclusive of the effects of the sold properties,
increased $246,300 for the six months ended June 30, 1997 when compared to the
six months ended June 30, 1996. The increase was 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.
 
Net income for the quarter ended June 30, 1997 decreased $178,900 when compared
to the quarter ended June 30, 1996. Exclusive of the Sold Properties net income
increased $29,400 for the quarters under comparison. The increase was primarily
the result of an increase in income earned on the Partnership's short-term
investments, as previously discussed.
 
The following comparative discussion excludes the Sold Properties.
 
Rental revenues increased $80,400 or 14.4% and $121,300 or 10.5%, respectively,
for the quarter and six months ended June 30, 1997 when compared to the quarter
and six months ended June 30, 1996. The increases were primarily the result of
an increase in base rent at Lakeview which was the result of the increase in
the average occupancy rate. The increases were 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 $46,800 and $52,400, respectively, for
the quarterly and six-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 due to the property management company. Also contributing to the
increase was an increase in utility costs which is attributable to the
increased occupancy at Lakeview.
 
Repairs and maintenance expenses increased $28,500 for the quarter ended June
30, 1997 when compared to the quarter ended June 30, 1996. The increase was
primarily the result of an increase in janitorial services which was also due
to the increase in occupancy at Lakeview. Repairs and maintenance expenses
remained relatively unchanged for the six month periods under comparison.
 
Depreciation and amortization expense increased $16,400 for the quarterly
periods under comparison. The increase was primarily the result of an increase
in tenant improvements and capitalizable lease commission fees related to the
new significant tenant at Lakeview. Depreciation and amortization expense
remained relatively unchanged for the six month periods under comparison.
 
To maintain the occupancy level at the Partnership's property, the General
Partner, through its Affiliated asset and property management group, 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) cold-calling other businesses and tenants in
the market area; and 5) 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 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
 
6
<PAGE>
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
 
facilitate a clear understanding of the Partnership's operations, an analysis
of Cash Flow (as defined in the Partnership Agreement) should be examined in
conjunction with an analysis of net income or cash flows as determined by GAAP.
The following table includes a reconciliation of Cash Flow (as defined in the
Partnership Agreement) to cash flow provided by operating activities as
determined by GAAP. Such amounts are not indicative of actual distributions to
Partners and should not be considered as an alternative to the results
disclosed in the Statements of Income and Expenses and Statements of Cash Flow.
 
 
<TABLE>
<CAPTION>
                                                           Comparative
                                                        Cash Flow Results
                                                       For the Six Months
                                                              Ended
                                                       6/30/97      6/30/96
------------------------------------------------------------------------------
<S>                                                  <C>          <C>
Cash Flow (as defined in the Partnership Agreement)  $   886,100  $ 1,408,900
Items of reconciliation:
 Portfolio Management Fee                                 68,800       90,200
 Decrease in current assets                               59,600       50,500
 (Decrease) in current liabilities                       (54,100)     (34,900)
------------------------------------------------------------------------------
Net cash provided by operating activities            $   960,400  $ 1,514,700
------------------------------------------------------------------------------
Net cash provided by (used for) investing
 activities                                          $ 7,677,600  $(3,199,100)
------------------------------------------------------------------------------
Net cash (used for) financing activities             $(9,667,500) $  (893,900)
------------------------------------------------------------------------------
</TABLE>
 
Cash Flow (as defined in the Partnership Agreement) decreased $522,800 for the
six months ended June 30, 1997 when compared to the six months ended June 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.
 
The decrease in the Partnership's cash position for the six months ended June
30, 1997 was primarily the result of investments in debt securities,
distributions paid to Partners and expenditures for capital, tenant improvement
and leasing costs exceeding net cash provided by operating activities and the
sale of Carrollton. Liquid assets (including cash, cash equivalents and
investments in debt securities) as of June 30, 1997 were comprised of amounts
held for working capital purposes.
 
Net cash provided by operating activities decreased $554,300 for the six months
ended June 30, 1997 when compared to the six months ended June 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 payment of certain expenses at Lakeview.
 
Net cash (used for) provided by investing activities changed from $(3,199,100)
for the six months ended June 30, 1996 to $7,677,600 for the six months ended
June 30, 1997. The change was primarily the result of the receipt of proceeds
from the 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 continued investment in debt securities is
a result of the extension of the maturities of certain of the Partnership's
short-term investments in an effort to maximize the return on these amounts as
they are held for working capital purposes. These investments are of
investment-grade and generally mature less than one year from their date of
purchase.
 
The Partnership maintains working capital reserves to pay for capital
expenditures, such as capital, tenant improvement and leasing costs.. The
Partnership spent $85,800 at Lakeview during the six months ended June 30, 1997
and has projected to spend approximately $50,000 at Lakeview during the
remainder of 1997. Actual amounts expended in 1997 may vary depending on a
number of factors including actual leasing activity, other market conditions
throughout the year as well as the sale of the property. The General Partner
believes these improvements and leasing costs are necessary in order to
maintain Lakeview's occupancy in a competitive market.
 
Net cash used for financing activities increased $8,773,600 for the six months
ended June 30, 1997 when compared to the six months ended June 30, 1996. The
increase was primarily due to the special 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 August 4, 1997, the Partnership entered in to an agreement to sell Lakeview.
The Sale Agreement has established a sale price of $12,870,000 and a closing in
the third quarter. Despite the Partnership's receipt of a $50,000 nonrefundable
deposit from the purchaser there can be no assurance that the sale will
completed under the terms of the agreement.
 
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 capital and tenant improvements and leasing costs that may be
necessary to be made at the Partnership's remaining property until it is sold.
As a result of this, cash continues to be retained to supplement working
capital reserves. For the six months ended June 30, 1997, Cash Flow (as defined
in the Partnership Agreement) retained to supplement working capital reserves
was $266,700.
 
Distributions to Limited Partners for the quarter ended June 30, 1997 were
declared in the amount of $309,700 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 Limited Partners will ultimately be dependent upon the
performance of the Partnership's investments 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.
 
                                                                               7
<PAGE>
 

                          PART II. OTHER INFORMATION


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

        (a) Exhibits: None

        (b) Reports on Form 8-K:

            There were no reports filed on Form 8-K during the quarter ended
            June 30, 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: August 14, 1997    By: /s/ DOUGLAS CROCKER II
      ---------------        --------------------------------------
                                 DOUGLAS CROCKER II
                             President and Chief Executive Officer

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